RULE 62

January 14, 2009

SANPIRO FINANCE CORPORATION, petitioner, vs. IAC

Before us is a petition for review on certiorari seeking to set aside the decision and the of respondent IAC “Laguna Transportation Co., Inc., Lauro Lopez de Leon vs. The Honorable Rafael T. Mendoza, Judge of the Regional Trial Court of Metro Manila, National Capital Judicial Region, Makati, Branch CXXXV; Maximo C. Contreras and Alejandro J. Bernardo, Ex-Oficio Sheriff and Deputy Sheriff, respectively; Sanpiro Finance Corporation and Delta Motor Corp.”

FACTS

From March to September, 1980, Laguna Transportation Co. Inc. (hereinafter referred to as Laguna Trans) and Lauro Lopez de Leon (hereinafter referred to as de Leon), private respondents herein, purchased from Delta Motor Corp. (Delta) 5 units of M.A.N. diesel buses covered with the usual promissory notes and deeds of chattel mortgage.

On February 27, 1981, Delta executed a Deed of Assignment

Private respondents Laguna Trans and de Leon again purchased from Delta eight units of M.A.N. diesel buses covered with the usual promissory notes and deeds of chattel mortgage.

Delta executed a Deed of Assignment in favor of petitioner Sanpiro in the amount of P26,075,246.60

Delta executed another Deed of Assignment in favor of petitioner Sanpiro in the amount of P2,661,056.38 and the whereas clauses of the deed read exactly as those immediately quoted above except only as to the amount involved.

PNB sent another similarly worded letter to respondent Laguna Trans except that it was mentioned in the opening paragraph that Laguna Trans’ outstanding accounts payable to Delta stood at P3,880,237.25 as of February 29, 1984 (p. 308, Rollo).

petitioner filed a complaint for replevin with damages

On January 16, 1985, the Court of Appeals promulgated a decision (Annex C, pp. 85-101, Rollo), per Justice Nestor B. Alampay (who later served with distinction in this Court), with the concurrence of Justice Carolina C. Griño-Aquino (now a distinguished Member of this Court) and Justice Nathanael P. de Pano, Jr., the dispositive portion of which reads as follows:

Thereafter, petitioner filed an amended motion for reconsideration which was, however, denied in a resolution dated September 17, 1985 (Annex D, pp. 103-106, Rollo).

Hence, the present petition which poses the pivotal issue of whether the pendency of the Laguna case, Civil Case No. 2146, is a ground for the dismissal of Civil Case No. 8636 of the Makati RTC.

The requisites for lis pendens are: (1) identity of parties, or at least such as representing the same interests in both actions; (2) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and (3) identity in both cases is such that the judgment that may be rendered in the pending case would, regardless of which party is successful, amount to res judicata in the other.

We find no difficulty in concluding that there is identity of parties between Civil Case No. B-2146 (Laguna) and in Civil Case No. 8636 ( Makati ). In the Laguna case, the plaintiffs are private respondents Laguna Trans and de Leon and one Mauro Vera Cruz and the defendants are petitioner Sanpiro, Delta, and PNB. In the Makati case, the plaintiff is petitioner Sanpiro and the defendants are private respondents Laguna Trans, de Leon, Delta, Francisco A. Magante, and John Does. In both cases, therefore, petitioner Sanpiro, private respondents Laguna Trans and de Leon, and Delta are parties, with the addition of PNB, Mauro Vera Cruz, and Francisco Magante. However, the addition or elimination of parties do not alter the situation (Del Rosario, et al. vs. Jacinto, et al., 122 Phil. 421 [1965]).

Is there identity of rights asserted and reliefs prayed for in said cases?

Too, the identity in both cases is such that any judgment that may be rendered in the Laguna case would amount to res judicata in the Makati case. In the event that in the Laguna case, the judgment is that the assignment to PNB should prevail over the assignment to petitioner of the same obligations of respondent Laguna Trans, such judgment would be binding on the Makati case and would amount to res judicata of the rights and obligations of the parties therein; petitioner’s cause of action in the Makati case against Delta and private respondents would be devoid of any basis.

We find, therefore, that the Makati court acted with precipitate haste, imprudence, and lack of judicial caution, amounting to grave abuse of discretion, in ordering the seizure of the diesel buses of private respondents, fully cognizant as the presiding judge was of the pendency of Civil Case No. 2146. In this regard we quote with approval the following observations of respondent court:

As Sanpiro can make no claim that it is the owner of the vehicles in question, then until the question is resolved as to which of the assignments made by Delta Motor Corporation, that in favor of PNB or that in favor of Sanpiro Finance Corporation, should prevail, it cannot be rightly considered by the respondent Judge of the Regional Trial Court of Makati, which is but another court of equal standing as the Regional Trial Court of Laguna that had earlier taken cognizance and assumed jurisdiction over the same matter and controversy, that private respondent herein, Sanpiro Finance Corporation, has already established a clear right to possession as could entitle it to affect seizure of the vehicles in question. Much less has the Regional Trial Court of Makati any legal justification to dispose and decree the sale of said vehicle even before the replevin suit has proceeded to actual trial and allow retention by Sanpiro of the passenger buses of petitioner.

The fallacy of and imprudence of the action taken by the respondent Judge of the Regional Trial Court is instantly obvious. It is plain and evident that there is an equal possibility, nay even a stronger probability, that the earlier assignment made by the Delta Motors Corporation of its credit to PNB, dated February 27, 1981 may prevail over an assignment of the same credit made three years later by Delta Motors to Sanpiro Finance Corporation pursuant to two deeds of assignment, dated January 6, 1984, (Complaint in Replevin Case No. 8636, Par. 46; Rollo, 94). To instantly favor and bestow absolute recognition to private respondent[s] Sanpiro’s alleged right of possession over the vehicles or passenger buses of the petitioner even if and after attention of respondent Judge of the Regional Trial Court of Makati had been drawn to the interpleader case filed ahead and pending, is in our view, to say the very least, a manifest gross abuse of discretion and a glaring disregard of comity and respect that respondent Judge has the duty to accord to another co-equal court. (pp. 94-95, Rollo.)

the petition is hereby DENIED

AMADO J. LANSANG, petitioner, vs. COURT OF APPEALS, GENERAL ASSEMBLY OF THE BLIND, INC., and JOSE IGLESIAS, respondents.

Before us is a petition to review the decision of the CA which set aside the ruling of the Regional Trial Court, Manila, Branch 8, in Civil Case No. 88-43887, and ordered petitioner Amado J. Lansang to pay private respondent Jose Iglesias P50,000.00 in moral damages, P10,000.00 in exemplary damages and P5,000.00 in attorney’s fees.

private respondents were allegedly awarded a “verbal contract of lease” in 1970 by the National Parks Development Committee (NPDC), a government initiated civic body engaged in the development of national parks, including Rizal Park ,[1][1] but actually administered by high profile civic leaders and journalists. Whoever in NPDC gave such “verbal” accommodation to private respondents was unclear, for indeed no document or instrument appears on record to show the grantor of the verbal license to private respondents to occupy a portion of the government park dedicated to the national hero’s memory.

With the change of government after the EDSA Revolution, the new Chairman of the NPDC, herein petitioner, sought to clean up Rizal Park . In a written notice dated February 23, 1988 and received by private respondents on February 29, 1988, petitioner terminated the so-called verbal agreement with GABI and demanded that the latter vacate the premises and the kiosks it ran privately within the public park.[2][3] In another notice dated March 5, 1988, respondents were given until March 8, 1988 to vacate.[3][4]

On the day of the supposed eviction, GABI filed an action for damages and injunction in the Regional Trial Court against petitioner, Villanueva, and “all persons acting on their behalf”.[4][5] The trial court issued a temporary restraining order on the same day.[5][6]

The TRO expired on March 28, 1988. The following day, GABI was finally evicted by NPDC.

GABI’s action for damages and injunction was subsequently dismissed by the RTC, ruling that the complaint was actually directed against the State which could not be sued without its consent. Moreover, the trial court ruled that GABI could not claim damages under the alleged oral lease agreement since GABI was a mere accommodation concessionaire. As such, it could only recover damages upon proof of the profits it could realize from the concession. The trial court noted that no such proof was presented.

On appeal, the Court of Appeals reversed the decision of the trial court.

The Court of Appeals ruled that the mere allegation that a government official is being sued in his official capacity is not enough to protect such official from liability for acts done without or in excess of his authority.[6][7] Granting that petitioner had the authority to evict GABI from Rizal Park, “the abusive and capricious manner in which that authority was exercised amounted to a legal wrong for which he must now be held liable for damages”[7][8] according to the Court of Appeals.

The Court of Appeals found petitioner liable for damages under Articles 19, 21, and 24 of the Civil Code.[8][12]

Hence, this petition, in which petitioner raises the following issues:

I. WHETHER OR NOT RESPONDENT COURT ERRED IN NOT HOLDING THAT PRIVATE RESPONDENTS’ COMPLAINT AGAINST PETITIONER, AS CHAIRMAN OF NPDC, AND HIS CO-DEFENDANTS IN CIVIL CASE NO. 88-43887, IS IN EFFECT A SUIT AGAINST THE STATE WHICH CANNOT BE SUED WITHOUT ITS CONSENT.

II. WHETHER OR NOT RESPONDENT COURT ERRED IN NOT HOLDING THAT PETITIONER’S ACT OF TERMINATING RESPONDENT GABI’S CONCESSION IS VALID AND DONE IN THE LAWFUL PERFORMANCE OF OFFICIAL DUTY.[9][13]

The doctrine of state immunity from suit applies to complaints filed against public officials for acts done in the performance of their duties. The rule is that the suit must be regarded as one against the state where satisfaction of the judgment against the public official concerned will require the state itself to perform a positive act, such as appropriation of the amount necessary to pay the damages awarded to the plaintiff.[10][16]

The rule does not apply where the public official is charged in his official capacity for acts that are unlawful and injurious to the rights of others.[11][17] Public officials are not exempt, in their personal capacity, from liability arising from acts committed in bad faith.[12][18]

Neither does it apply where the public official is clearly being sued not in his official capacity but in his personal capacity, although the acts complained of may have been committed while he occupied a public position.

We are convinced that petitioner is being sued not in his capacity as NPDC chairman but in his personal capacity. The complaint filed by private respondents in the RTC merely identified petitioner as chairman of the NPDC, but did not categorically state that he is being sued in that capacity.[13][19] Also, it is evident from paragraph 4 of said complaint that petitioner was sued allegedly for having personal motives in ordering the ejectment of GABI from Rizal Park .

We find, however, no evidence of such abuse of authority on record. As earlier stated, Rizal Park is beyond the commerce of man and, thus, could not be the subject of a lease contract. Admittedly, there was no written contract. That private respondents were allowed to occupy office and kiosk spaces in the park was only a matter of accommodation by the previous administrator. This being so, also admittedly, petitioner may validly discontinue the accommodation extended to private respondents, who may be ejected from the park when necessary. Private respondents cannot and does not claim a vested right to continue to occupy Rizal Park .

The Court of Appeals awarded private respondent Iglesias moral and exemplary damages and attorney’s fees. However, we find no evidence on record to support Iglesias’ claim that he suffered moral injury as a result of GABI’s ejectment from Rizal Park . Absent any satisfactory proof upon which the Court may base the amount of damages suffered, the award of moral damages cannot be sustained.[

Neither can we sustain the award of exemplary damages, which may only be awarded in addition to moral, temperate, liquidated, or compensatory damages.[15][23] We also disallow the award for attorney’s fees, which can only be recovered per stipulation of the parties, which is absent in this case. There is no showing that any of the exceptions justifying the award of attorney’s fees absent a stipulation is present in this case.[

the instant petition is GRANTED.

NATIONAL POWER CORPORATION, petitioner,
vs.
Vera

Petitioner, National Power Corporation (NPC), seeks to annul the order of respondent judge dated June 8, 1988 issuing a writ of preliminary injunction which enjoined NPC from further undertaking stevedoring and arrastre services in its pier located at the Batangas Coal-Fired Thermal Power Plant at Calaca, Batangas and directing it either to enter into a contract for stevedoring and arrastre services or to conduct a public bidding therefor. Private respondent was also allowed to continue stevedoring and arrastre services at the pier.

The instant petition arose from a complaint for prohibition and mandamus with damages filed by private respondent against NPC and Philippine Ports Authority (PPA), wherein private respondent alleged that NPC had acted in bad faith and with grave abuse of discretion in not renewing its Contract for Stevedoring Services for Coal-Handling Operations at NPC's plant, and in taking over its stevedoring services.

Soon after the filing of private respondent's complaint, respondent judge issued a restraining order against NPC enjoining the latter from undertaking stevedoring services at its pier. Consequently, NPC filed an "Urgent Motion" to dissolve the restraining order, asserting, inter alia: (1) that by virtue of Presidential Decree No. 1818, respondent judge had no jurisdiction to issue the order; and (2) that private respondent, whose contract with NPC had expired prior to the commencement of the suit, failed to establish a cause of action for a writ of preliminary injunction.

Respondent judge issued the assailed Order denying NPC's motion and issuing a writ of preliminary injunction, after finding that NPC was not empowered by its Charter, Republic Act No. 6395, as amended, to engage in stevedoring and arrastre services. Hence, the instant petition.

After a careful study of the various allegations and issues raised in the pleadings, the Court finds merit in the petition. Indeed, the assailed Order suffers from infirmities which must be rectified by the grant of a writ of certiorari in favor of the petitioner.

A. Firstly, respondent judge acted without jurisdiction when he issued the writ of preliminary injunction against NPC.

Presidential Decree No. 1818 explicitly provides:

SECTION 1. No court in the Philippines shall have jurisdiction to issue any restraining order, preliminary injunction, or preliminary mandatory injunction in any case, dispute, or controversy involving an infrastructure project, or a mining, fishery, forest or other natural resource development project of the government, or any public utility operated by the government, including among others public utilities for the transport of the goods or commodities, stevedoring and arrastre contracts, to prohibit any person or persons, entity or government official from proceeding with, or continuing the execution or implementation of any such project, or the operation of such public utility, or pursuing any lawful activity necessary for such execution, implementation or operation.

Undeniably, NPC is a public utility, created under special legislation engaged in the generation and distribution of electric power and energy. It, therefore, enjoys the protective mantle of the above decree.

Moreover, respondent judge's finding that NPC is not empowered by its Charter to undertake stevedoring services in its pier is erroneous.

In determining whether or not an NPC act falls within the purview of the above provision, the Court must decide whether or not a logical and necessary relation exists between the act questioned and the corporate purpose expressed in the NPC charter. For if that act is one which is lawful in itself and not otherwise prohibited, and is done for the purpose of serving corporate ends, and reasonably contributes to the promotion of those ends in a substantial and not in a remote and fanciful sense, it may be fairly considered within the corporation's charter powers [Montelibano v. Bacolod-Murcia Milling Co., Inc., G.R. No. L-15092, May 18, 1962, 5 SCRA 36.]

This Court is, guided by jurisprudence in the application of the above standard. In the 1963 case of Republic of the Philippines v. Acoje Mining Company, Inc. [G.R. No. L-18062, February 28, 1963, 7 SCRA 3611 the Court affirmed the rule that a corporation is not restricted to the exercise of powers expressly conferred upon it by its charter, but has the power to do what is reasonably necessary or proper to promote the interest or welfare of the corporation. Thus, the Court, finding that a "post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality" [Id., at P. 365], held that respondent mining corporation was empowered to operate and maintain postal facilities servicing its employees and their families at its mining camp in Sta. Cruz, Zambales despite absence of a provision in the company’s charter authorizing the former to do so.

In the instant case, it is an undisputed fact that the pier located at Calaca, Batangas, which is owned by NPC, receives the various shipments of coal which is used exclusively to fuel the Batangas Coal-Fired Thermal Power Plant of the NPC for the generation of electric power. The stevedoring services which involve the unloading of the coal shipments into the NPC pier for its eventual conveyance to the power plant are incidental and indispensable to the operation of the plant The Court holds that NPC is empowered under its Charter to undertake such services, it being reasonably necessary to the operation and maintenance of the power plant.

In the instant case, it is an undisputed fact that private respondent’s contract for stevedoring services with NPC bad already expired. Admittedly, there is no existing contractual relationship between the parties. Moreover, private respondent’s PPA permit for cargo handling services; at the NPC Calaca pier had expired as well. On the other hand, NPC, which was under no legal obligation to renew the contract for stevedoring services with private respondent, was granted authority by the PPA to provide cargo handling services in its pier. Consequently, there was no right of private respondent that needed to be protected or preserved by a writ of preliminary injunction.

Furthermore, respondent judge’s directive ordering NPC to enter into a contract for stevedoring and arrastre services or to conduct a public bidding therefor amounted to a writ of mandamus. But it is a settled rule that mandamus will lie only to compel the performance of a ministerial duty; it does not lie to require anyone to fulfill contractual obligations or compel a course of conduct, nor to control or review the exercise of discretion Sy Ha v. Galang, G.R. No. L-18513, April 27, 1963, 7 SCRA 797; Aprueba, et al. v. Ganzon, G.R. No. L-20867, September 3, 1966, 18 SCRA 8; Avenue Arrastre & Stevedoring Corporation v. Commissioner of Customs, et al., G.R. No. L-44674, February 28, 1983, 120 SCRA 878; Tangonan v. Pano, G.R. No. L-45157, June 27, 1985, 137 SCRA 245.] As far back as 1910, in the case of Tabigue v. Duvall [16 Phil. 324], the Court laid the fundamental principle governing the issuance of a writ of mandamus that the duties to be enforced thereby must be such as are clearly and peremptorily enjoined by law or by reason of official station.

Whether NPC will enter into a contract for stevedoring and arrastre services to handle its coal shipments to its pier, or undertake the services itself, is entirely and exclusively within its corporate discretion. It does not involve a duty the performance of which is enjoined by law. Thus, the courts cannot direct the NPC in the exercise of this prerogative.

in view of the foregoing, the Court having considered the Petition, private respondents Comment, and the Reply thereto, Resolved to GRANT the petition. The respondent Judge’s Order dated June 8, 1988 is SET ASIDE and the temporary restraining order issued by the Court on June 15, 1988 is made PERMANENT.

CASIANO A. ANGCHANGCO, JR., petitioner, vs. OMBUDSMAN,

Before us is a petition for mandamus seeking to: a) compel the Ombudsman to dismiss Ombudsman Cases No. MIN-3-90-0671, MIN-90-0132, MIN-90-0133, MIN-90-0138, MIN-90-0188, MIN-90-0189, MIN-90-0190, MIN-90-0191, and MIN-90-0192; and b) direct the Ombudsman to issue a clearance in favor of petitioner Casiano A. Angchangco.

The facts are as follows:

Prior to his retirement, petitioner served as a deputy sheriff and later as Sheriff IV in the Regional Trial Court of Agusan del Norte and Butuan City .

On August 24, 1989, the Department of Labor and Employment (Region X) rendered a decision ordering the Nasipit Integrated Arrastre and Stevedoring Services Inc. (NIASSI) to pay its workers the sum of P1,281,065.505. The decision having attained finality, a writ of execution was issued directing the Provincial Sheriff of Agusan del Norte or his deputies to satisfy the same. Petitioner, as the assigned sheriff and pursuant to the writ of execution issued, caused the satisfaction of the decision by garnishing NIASSI’s daily collections from its various clients.

In an attempt to enjoin the further enforcement of the writ of execution, Atty. Tranquilino O. Calo, Jr., President of NIASSI, filed a complaint for prohibition and damages against petitioner. The regional trial court initially issued a temporary restraining order but later dismissed the case for lack of jurisdiction.

In addition to the civil case, Atty. Calo likewise filed before the Office of the Ombudsman a complaint against petitioner for graft, estafa/malversation and misconduct relative to the enforcement of the writ of execution. Acting on the complaint, the Ombudsman, in a Memorandum dated July 31, 1992, recommended its dismissal for lack of merit.

Meanwhile, from June 25 to 28, 1990, several workers of NIASSI filed letters-complaints with the Office of the Ombudsman-Mindanao alleging, among others things, that petitioner illegally deducted an amount equivalent to 25% from their differential pay. The Office of the Ombudsman-Mindanao endorsed to the Court the administrative aspect of the complaints which was docketed hereat as A.M. No. 93-10-385-OMB. The Court in an En Banc Resolution dated November 25, 1993 dismissed the case for lack of interest on the part of complainants to pursue their case.

Although the administrative aspect of the complaints had already been dismissed, the criminal complaints remained pending and unresolved, prompting petitioner to file several omnibus motions for early resolution.

When petitioner retired in September 1994, the criminal complaints still remained unresolved, as a consequence of which petitioner’s request for clearance in order that he may qualify to receive his retirement benefits was denied.

With the criminal complaints remaining unresolved for more than 6 years, petitioner filed a motion to dismiss, invoking Tatad vs. Sandiganbayan (G.R. No. 72335-39, March 21, 1988). Sad to say, even this motion to dismiss, however, has not been acted upon. Hence, the instant petition.

Acting on the petition, the Court issued a resolution dated December 20, 1995 requiring respondents to comment thereon. In compliance therewith, the Office of the Solicitor General filed a Manifestation and Motion (in lieu of Comment), which is its way of saying it agreed with the views of petitioner. On July 22, 1996, we issued another resolution requiring the Ombudsman to file his own comment on the petition if he so desires, otherwise, the petition will be deemed submitted for resolution without such comment. After several extensions, respondent Ombudsman, through the Office of the Special Prosecutor, filed a comment dated October 7, 1996.

The Court finds the present petition to be impressed with merit.

Mandamus is a writ commanding a tribunal, corporation, board, or person to do the act required to be done when it or he unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right or office to which such other is entitled, there being no other plain, speedy, and adequate remedy in the ordinary course of law (Section 3 of Rule 65 of the Rules of Court).

After a careful review of the facts and circumstances of the present case, the Court finds the inordinate delay of more than six years by the Ombudsman in resolving the criminal complaints against petitioner to be violative of his constitutionally guaranteed right to due process and to a speedy disposition of the cases against him, thus warranting the dismissal of said criminal cases pursuant to the pronouncement of the Court in Tatad vs. Sandiganbayan (159 SCRA 70 [1988]), wherein the Court, speaking through Justice Yap, said:

We find the long delay in the termination of the preliminary investigation by the Tanodbayan in the instant case to be violative of the constitutional right of the accused to due process. Substantial adherence to the requirements of the law governing the conduct of preliminary investigation, including substantial compliance with the time limitation prescribed by the law for the resolution of the case by the prosecutor, is part of the procedural due process constitutionally guaranteed by the fundamental law. Not only under the broad umbrella of the due process clause, but under the constitutional guarantee of “speedy disposition” of cases as embodied in Section 16 of the Bill of Right (both in the 1973 and the 1987 Constitutions), the inordinate delay is violative of the petitioner’s constitutional rights. A delay of close to three (3) years can not be deemed reasonable or justifiable in the light of the circumstance obtaining in the case at bar. We are not impressed by the attempt of the Sandiganbayan to sanitize the long delay by indulging in the speculative assumption that “the delay may be due to a painstaking and grueling scrutiny by the Tanodbayan as to whether the evidence presented during the preliminary investigation merited prosecution of a former high-ranking government official.” In the first place, such a statement suggests a double standard of treatment, which must be emphatically rejected. Secondly, three out of the five charges against the petitioner were for his alleged failure to file his sworn statement of assets and liabilities required by Republic Act No. 3019, which certainly did not involve complicated legal and factual issues necessitating such “painstaking and grueling scrutiny” as would justify a delay of almost three years in terminating the preliminary investigation. The other two charges relating to alleged bribery and alleged giving of unwarranted benefits to a relative, while presenting more substantial legal and factual issues, certainly do not warrant or justify the period of three years, which it took the Tanodbayan to resolve the case.

It has been suggested that the long delay in terminating the preliminary investigation should not be deemed fatal, for even the complete absence of a preliminary investigation does not warrant dismissal of the information. True — but the absence of a preliminary investigation can not be corrected, for until now, man has not yet invented a device for setting back time.

Verily, the Office of the Ombudsman in the instant case has failed to discharge its duty mandated by the Constitution “to promptly act on complaints filed in any form or manner against public officials and employees of the government, or any subdivision, agency or instrumentality thereof.”

Mandamus is employed to compel the performance, when refused, of a ministerial duty, this being its chief use and not a discretionary duty. It is nonetheless likewise available to compel action, when refused, in matters involving judgment and discretion, but not to direct the exercise of judgment or discretion in a particular way or the retraction or reversal of an action already taken in the exercise of either (Rules of Court in the Philippines , Volume III by Martin, 4th Edition, page 233).

It is correct, as averred in the comment that in the performance of an official duty or act involving discretion, the corresponding official can only be directed by mandamus to act, but not to act one way or the other. However, this rule admits of exceptions such as in cases where there is gross abuse of discretion, manifest injustice, or palpable excess of authority (Kant Kwong vs. PCGG, 156 SCRA 222, 232 [1987]).

Here, the Office of the Ombudsman, due to its failure to resolve the criminal charges against petitioner for more than six years, has transgressed on the constitutional right of petitioner to due process and to a speedy disposition of the cases against him, as well as the Ombudsman’s own constitutional duty to act promptly on complaints filed before it. For all these past 6 years, petitioner has remained under a cloud, and since his retirement in September 1994, he has been deprived of the fruits of his retirement after serving the government for over 42 years all because of the inaction of respondent Ombudsman. If we wait any longer, it may be too late for petitioner to receive his retirement benefits, not to speak of clearing his name. This is a case of plain injustice which calls for the issuance of the writ prayed for.

WHEREFORE, the Court RESOLVED to give DUE COURSE to the petition and to GRANT the same. Ombudsman Cases No. MIN-3-90-0671, MIN-90-0132, MIN-90-0133, MIN-90-0138, MIN-90-0188, MIN-90-0189, MIN-90-0190, MIN-90-0191, and MIN-90-0192 are ordered DISMISSED. The Office of the Ombudsman is further directed to issue the corresponding clearance in favor of petitioner.

SO ORDERED

——————————————————————————–

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-59791 February 13, 1992

MANILA ELECTRIC COMPANY, petitioner,
vs.
THE HONORABLE GREGORIO G. PINEDA, Presiding Judge, Court of First Instance of Rizal, Branch XXI, Pasig, Metro Manila, TEOFILO ARAYON, SR., GIL DE GUZMAN, LUCITO SANTIAGO and TERESA BAUTISTA, respondents.

This is a petition for review on certiorari on pure question of law seeking the nullification of the orders issued by the respondent Judge Gregorio G. Pineda, in his capacity as the presiding Judge of the Court of First Instance (now Regional Trial Court) of Rizal, Branch 21, Pasig, Metro Manila in Civil Case No. 20269, entitled “Manila Electric Company v. Teofilo Arayon, et al.” The aforesaid orders are as follows: (1) the order dated December 4, 1981 granting the motion for payment of private respondents; (2) the order dated December 21, 1981 granting the private respondents’ omnibus motion; and (3) the order dated February 9, 1982 adjudging in favor of private respondents the fair market value of their property at forty pesos (P40.00) per square meter for a total of P369,720.00 and denying the motions for contempt for being moot and academic and the motion for reconsideration of the orders dated December 4, 1981 and December 21, 1981 for lack of merit.

The antecedent facts giving rise to the controversy at bar are as follows:

Petitioner Manila Electric Company (MERALCO) is a domestic corporation duly organized and existing under the laws of Philippines . Respondent Honorable Judge Gregorio G. Pineda is impleaded in his official capacity as the presiding judge of the Court of First Instance (now Regional Trial Court) of Rizal, Branch XXI, Pasig , Metro Manila. While private respondents Teofilo Arayon, Sr., Gil de Guzman, Lucito Santiago and Teresa Bautista are owners in fee simple of the expropriated property situated at Malaya , Pililla, Rizal.

On October 29, 1974, a complaint for eminent domain was filed by petitioner MERALCO against forty-two (42) defendants with the Court of First Instance (now Regional Trial Court) of Rizal, Branch XXII, Pasig , Metro Manila.

The complaint alleges that for the purpose of constructing a 230 KV Transmission line from Barrio Malaya to Tower No. 220 at Pililla, Rizal, petitioner needs portions of the land of the private respondents consisting of an aggregate area of 237,321 square meters. Despite petitioner’s offers to pay compensation and attempts to negotiate with the respondents’, the parties failed to reach an agreement.

Private respondents question in their motion to dismiss dated December 27, 1974 the petitioner’s legal existence and the area sought to be expropriated as too excessive.

On January 7, 1975, respondents Gil de Guzman and Teresa Bautista filed a motion for contempt of court alleging, among other things that petitioner’s corporate existence had expired in 1969 and therefore it no longer exists under Philippine Laws.

But despite the opposition of the private respondents, the court issued an Order dated January 13, 1975 authorizing the petitioner to take or enter upon the possession of the property sought to be expropriated.

On July 13, 1976, private respondents filed a motion for withdrawal of deposit claiming that they are entitled to be paid at forty pesos (P40.00) per square meter or an approximate sum of P272,000.00 and prayed that they be allowed to withdraw the sum of P71,771.50 from petitioner’s deposit-account with the Philippine National Bank, Pasig Branch. However, respondents motion was denied in an order dated September 3, 1976.

In the intervening period, Branch XXII became vacant when the presiding Judge Nelly Valdellon-Solis retired, so respondent Judge Pineda acted on the motions filed with Branch XXII.

Pursuant to a government policy, the petitioners on October 30, 1979 sold to the National Power Corporation (Napocor) the power plants and transmission lines, including the transmission lines traversing private respondents’ property.

On February 11, 1980, respondent court issued an Order appointing the members of the Board of Commissioners to make an appraisal of the properties.

On June 5, 1980, petitioner filed a motion to dismiss the complaint on the ground that it has lost all its interests over the transmission lines and properties under expropriation because of their sale to the Napocor. In view of this motion, the work of the Commissioners was suspended.

On June 9, 1981, private respondents filed another motion for payment. But despite the opposition of the petitioner, the respondent court issued the first of the questioned Orders dated December 4, 1981 granting the motion for payment of private respondents, to wit:

On December 15, 1981, private respondents filed an Omnibus Motion praying that they be allowed to withdraw an additional sum of P90,125.50 from petitioner’s deposit-account with the Philippine National Bank.

By order dated December 21, 1981, the respondent court granted the Omnibus Motion

In response to private respondents’ motion for payment dated January 8, 1982, petitioner filed an opposition alleging that private respondents are not entitled to payment of just compensation at this stage of the proceeding because there is still no appraisal and valuation of the property.

On February 9, 1982 the respondent court denied the petitioner’s motion for reconsideration and motion for contempt.

Furthermore, the respondent court stressed in said order that “at this stage, the Court starts to appoint commissioners to determine just compensation or dispenses with them and adopts the testimony of a credible real estate broker, or the judge himself would exercise his right to formulate an opinion of his own as to the value of the land in question. Nevertheless, if he formulates such an opinion, he must base it upon competent evidence.”

ISSUE

whether or not the respondent court can dispense with the assistance of a Board of Commissioners in an expropriation proceeding and determine for itself the just compensation.

On March 26, 1982, petitioner filed a petition for preliminary injunction with this Court seeking to enjoin respondent judge and all persons acting under him from enforcing the Order dated March 22, 1982.

This Court issued a temporary restraining order addressed to respondent judge. A motion to lift the restraining order was filed by the respondents. Despite a series of oppositions and motions to lift the said order, this Court reiterated its stand and noted that the restraining order is still effective.

There are two (2) stages in every action of expropriation. The first is concerned with the determination of the authority of the plaintiff to exercise the power of eminent domain and the propriety of its exercise in the context of the facts involved in the suit. It ends with an order, if not of dismissal of the action, “of condemnation declaring that the plaintiff has a lawful right to take the property sought to be condemned, for the public use or purpose described in the complaint, upon the payment of just compensation to be determined as of the date of the filing of the complaint”. An order of dismissal, if this be ordained, would be a final one, of course, since it finally disposes of the action and leaves nothing more to be done by the Court on the merits. So, too, would an order of condemnation be a final one, for thereafter, as the Rules expressly state, in the proceedings before the Trial Court, “no objection to the exercise of the right of condemnation (or the propriety thereof) shall be filed or heard.”

The second phase of the eminent domain action is concerned with the determination by the Court of “the just compensation for the property sought to be taken.” This is done by the Court with the assistance of not more than three (3) commissioners. The order fixing the just compensation on the basis of the evidence before, and findings of, the commissioners would be final, too. It would finally dispose of the second stage of the suit, and leave nothing more to be done by the Court regarding the issue. Obviously, one or another of the parties may believe the order to be erroneous in its appreciation of the evidence or findings of fact or otherwise. Obviously, too, such a dissatisfied party may seek reversal of the order by taking an appeal therefrom.

Petitioner has not been given the opportunity to rebut any evidence that would have been presented by private respondents. In an expropriation case such as this one where the principal issue is the determination of just compensation, a trial before the Commissioners is indispensable to allow the parties to present evidence on the issue of just compensation. Contrary to the submission of private respondents, the appointment of at least three (3) competent persons as commissioners to ascertain just compensation for the property sought to be taken is a mandatory requirement in expropriation cases. While it is true that the findings of commissioners may be disregarded and the court may substitute its own estimate of the value, the latter may only do so for valid reasons, i.e., where the Commissioners have applied illegal principles to the evidence submitted to them or where they have disregarded a clear preponderance of evidence, or where the amount allowed is either grossly inadequate or excessive (Manila Railroad Company v. Velasquez, 32 Phil. 286). Thus, trial with the aid of the commissioners is a substantial right that may not be done away with capriciously or for no reason at all. Moreover, in such instances, where the report of the commissioners may be disregarded, the trial court may make its own estimate of value from competent evidence that may be gathered from the record. The aforesaid joint venture agreement relied upon by the respondent judge, in the absence of any other proof of valuation of said properties, is incompetent to determine just compensation.

Prior to the determination of just compensation, the property owners may rightfully demand to withdraw from the deposit made by the condemnor in eminent domain proceedings. Upon an award of a smaller amount by the court, the property owners are subject to a judgment for the excess or upon the award of a larger sum, they are entitled to a judgment for the amount awarded by the court. Thus, when the respondent court granted in the Orders dated December 4, 1981 and December 21, 1981 the motions of private respondents for withdrawal of certain sums from the deposit of petitioner, without prejudice to the just compensation that may be proved in the final adjudication of the case, it committed no error.

Records, specifically Meralco’s deed of sale dated October 30, 1979, in favor of Napocor show that the latter agreed to purchase the parcels of land already acquired by Meralco, the rights, interests and easements over those parcels of land which are the subject of the expropriation proceedings under Civil Case No. 20269, (Court of First Instance of Rizal, Branch XXII), as well as those parcels of land occupied by Meralco by virtue of grant of easements of right-of-way (see Rollo, pp. 341-342). Thus, Meralco had already ceded and in fact lost all its rights and interests over the aforesaid parcels of land in favor of Napocor. In addition, the same contract reveals that the Napocor was previously advised and actually has knowledge of the pending litigation and proceedings against Meralco (see Rollo, pp. 342-343). Hence, We find the contention of the petitioner tenable. It is therefore proper for the lower court to either implead the Napocor in substitution of the petitioner or at the very least implead the former as party plaintiff.

All premises considered, this Court is convinced that the respondent judge’s act of determining and ordering the payment of just compensation without the assistance of a Board of Commissioners is a flagrant violation of petitioner’s constitutional right to due process and is a gross violation of the mandated rule established by the Revised Rules of Court.

the petition is GRANTED

RULE 62

January 14, 2009

SANPIRO FINANCE CORPORATION, petitioner, vs. IAC

Before us is a petition for review on certiorari seeking to set aside the decision and the of respondent IAC “Laguna Transportation Co., Inc., Lauro Lopez de Leon vs. The Honorable Rafael T. Mendoza, Judge of the Regional Trial Court of Metro Manila, National Capital Judicial Region, Makati, Branch CXXXV; Maximo C. Contreras and Alejandro J. Bernardo, Ex-Oficio Sheriff and Deputy Sheriff, respectively; Sanpiro Finance Corporation and Delta Motor Corp.”

FACTS

From March to September, 1980, Laguna Transportation Co. Inc. (hereinafter referred to as Laguna Trans) and Lauro Lopez de Leon (hereinafter referred to as de Leon), private respondents herein, purchased from Delta Motor Corp. (Delta) 5 units of M.A.N. diesel buses covered with the usual promissory notes and deeds of chattel mortgage.

On February 27, 1981, Delta executed a Deed of Assignment

Private respondents Laguna Trans and de Leon again purchased from Delta eight units of M.A.N. diesel buses covered with the usual promissory notes and deeds of chattel mortgage.

Delta executed a Deed of Assignment in favor of petitioner Sanpiro in the amount of P26,075,246.60

Delta executed another Deed of Assignment in favor of petitioner Sanpiro in the amount of P2,661,056.38 and the whereas clauses of the deed read exactly as those immediately quoted above except only as to the amount involved.

PNB sent another similarly worded letter to respondent Laguna Trans except that it was mentioned in the opening paragraph that Laguna Trans’ outstanding accounts payable to Delta stood at P3,880,237.25 as of February 29, 1984 (p. 308, Rollo).

petitioner filed a complaint for replevin with damages

On January 16, 1985, the Court of Appeals promulgated a decision (Annex C, pp. 85-101, Rollo), per Justice Nestor B. Alampay (who later served with distinction in this Court), with the concurrence of Justice Carolina C. Griño-Aquino (now a distinguished Member of this Court) and Justice Nathanael P. de Pano, Jr., the dispositive portion of which reads as follows:

Thereafter, petitioner filed an amended motion for reconsideration which was, however, denied in a resolution dated September 17, 1985 (Annex D, pp. 103-106, Rollo).

Hence, the present petition which poses the pivotal issue of whether the pendency of the Laguna case, Civil Case No. 2146, is a ground for the dismissal of Civil Case No. 8636 of the Makati RTC.

The requisites for lis pendens are: (1) identity of parties, or at least such as representing the same interests in both actions; (2) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and (3) identity in both cases is such that the judgment that may be rendered in the pending case would, regardless of which party is successful, amount to res judicata in the other.

We find no difficulty in concluding that there is identity of parties between Civil Case No. B-2146 (Laguna) and in Civil Case No. 8636 ( Makati ). In the Laguna case, the plaintiffs are private respondents Laguna Trans and de Leon and one Mauro Vera Cruz and the defendants are petitioner Sanpiro, Delta, and PNB. In the Makati case, the plaintiff is petitioner Sanpiro and the defendants are private respondents Laguna Trans, de Leon, Delta, Francisco A. Magante, and John Does. In both cases, therefore, petitioner Sanpiro, private respondents Laguna Trans and de Leon, and Delta are parties, with the addition of PNB, Mauro Vera Cruz, and Francisco Magante. However, the addition or elimination of parties do not alter the situation (Del Rosario, et al. vs. Jacinto, et al., 122 Phil. 421 [1965]).

Is there identity of rights asserted and reliefs prayed for in said cases?

Too, the identity in both cases is such that any judgment that may be rendered in the Laguna case would amount to res judicata in the Makati case. In the event that in the Laguna case, the judgment is that the assignment to PNB should prevail over the assignment to petitioner of the same obligations of respondent Laguna Trans, such judgment would be binding on the Makati case and would amount to res judicata of the rights and obligations of the parties therein; petitioner’s cause of action in the Makati case against Delta and private respondents would be devoid of any basis.

We find, therefore, that the Makati court acted with precipitate haste, imprudence, and lack of judicial caution, amounting to grave abuse of discretion, in ordering the seizure of the diesel buses of private respondents, fully cognizant as the presiding judge was of the pendency of Civil Case No. 2146. In this regard we quote with approval the following observations of respondent court:

As Sanpiro can make no claim that it is the owner of the vehicles in question, then until the question is resolved as to which of the assignments made by Delta Motor Corporation, that in favor of PNB or that in favor of Sanpiro Finance Corporation, should prevail, it cannot be rightly considered by the respondent Judge of the Regional Trial Court of Makati, which is but another court of equal standing as the Regional Trial Court of Laguna that had earlier taken cognizance and assumed jurisdiction over the same matter and controversy, that private respondent herein, Sanpiro Finance Corporation, has already established a clear right to possession as could entitle it to affect seizure of the vehicles in question. Much less has the Regional Trial Court of Makati any legal justification to dispose and decree the sale of said vehicle even before the replevin suit has proceeded to actual trial and allow retention by Sanpiro of the passenger buses of petitioner.

The fallacy of and imprudence of the action taken by the respondent Judge of the Regional Trial Court is instantly obvious. It is plain and evident that there is an equal possibility, nay even a stronger probability, that the earlier assignment made by the Delta Motors Corporation of its credit to PNB, dated February 27, 1981 may prevail over an assignment of the same credit made three years later by Delta Motors to Sanpiro Finance Corporation pursuant to two deeds of assignment, dated January 6, 1984, (Complaint in Replevin Case No. 8636, Par. 46; Rollo, 94). To instantly favor and bestow absolute recognition to private respondent[s] Sanpiro’s alleged right of possession over the vehicles or passenger buses of the petitioner even if and after attention of respondent Judge of the Regional Trial Court of Makati had been drawn to the interpleader case filed ahead and pending, is in our view, to say the very least, a manifest gross abuse of discretion and a glaring disregard of comity and respect that respondent Judge has the duty to accord to another co-equal court. (pp. 94-95, Rollo.)

the petition is hereby DENIED

AMADO J. LANSANG, petitioner, vs. COURT OF APPEALS, GENERAL ASSEMBLY OF THE BLIND, INC., and JOSE IGLESIAS, respondents.

Before us is a petition to review the decision of the CA which set aside the ruling of the Regional Trial Court, Manila, Branch 8, in Civil Case No. 88-43887, and ordered petitioner Amado J. Lansang to pay private respondent Jose Iglesias P50,000.00 in moral damages, P10,000.00 in exemplary damages and P5,000.00 in attorney’s fees.

private respondents were allegedly awarded a “verbal contract of lease” in 1970 by the National Parks Development Committee (NPDC), a government initiated civic body engaged in the development of national parks, including Rizal Park ,[1][1] but actually administered by high profile civic leaders and journalists. Whoever in NPDC gave such “verbal” accommodation to private respondents was unclear, for indeed no document or instrument appears on record to show the grantor of the verbal license to private respondents to occupy a portion of the government park dedicated to the national hero’s memory.

With the change of government after the EDSA Revolution, the new Chairman of the NPDC, herein petitioner, sought to clean up Rizal Park . In a written notice dated February 23, 1988 and received by private respondents on February 29, 1988, petitioner terminated the so-called verbal agreement with GABI and demanded that the latter vacate the premises and the kiosks it ran privately within the public park.[2][3] In another notice dated March 5, 1988, respondents were given until March 8, 1988 to vacate.[3][4]

On the day of the supposed eviction, GABI filed an action for damages and injunction in the Regional Trial Court against petitioner, Villanueva, and “all persons acting on their behalf”.[4][5] The trial court issued a temporary restraining order on the same day.[5][6]

The TRO expired on March 28, 1988. The following day, GABI was finally evicted by NPDC.

GABI’s action for damages and injunction was subsequently dismissed by the RTC, ruling that the complaint was actually directed against the State which could not be sued without its consent. Moreover, the trial court ruled that GABI could not claim damages under the alleged oral lease agreement since GABI was a mere accommodation concessionaire. As such, it could only recover damages upon proof of the profits it could realize from the concession. The trial court noted that no such proof was presented.

On appeal, the Court of Appeals reversed the decision of the trial court.

The Court of Appeals ruled that the mere allegation that a government official is being sued in his official capacity is not enough to protect such official from liability for acts done without or in excess of his authority.[6][7] Granting that petitioner had the authority to evict GABI from Rizal Park, “the abusive and capricious manner in which that authority was exercised amounted to a legal wrong for which he must now be held liable for damages”[7][8] according to the Court of Appeals.

The Court of Appeals found petitioner liable for damages under Articles 19, 21, and 24 of the Civil Code.[8][12]

Hence, this petition, in which petitioner raises the following issues:

I. WHETHER OR NOT RESPONDENT COURT ERRED IN NOT HOLDING THAT PRIVATE RESPONDENTS’ COMPLAINT AGAINST PETITIONER, AS CHAIRMAN OF NPDC, AND HIS CO-DEFENDANTS IN CIVIL CASE NO. 88-43887, IS IN EFFECT A SUIT AGAINST THE STATE WHICH CANNOT BE SUED WITHOUT ITS CONSENT.

II. WHETHER OR NOT RESPONDENT COURT ERRED IN NOT HOLDING THAT PETITIONER’S ACT OF TERMINATING RESPONDENT GABI’S CONCESSION IS VALID AND DONE IN THE LAWFUL PERFORMANCE OF OFFICIAL DUTY.[9][13]

The doctrine of state immunity from suit applies to complaints filed against public officials for acts done in the performance of their duties. The rule is that the suit must be regarded as one against the state where satisfaction of the judgment against the public official concerned will require the state itself to perform a positive act, such as appropriation of the amount necessary to pay the damages awarded to the plaintiff.[10][16]

The rule does not apply where the public official is charged in his official capacity for acts that are unlawful and injurious to the rights of others.[11][17] Public officials are not exempt, in their personal capacity, from liability arising from acts committed in bad faith.[12][18]

Neither does it apply where the public official is clearly being sued not in his official capacity but in his personal capacity, although the acts complained of may have been committed while he occupied a public position.

We are convinced that petitioner is being sued not in his capacity as NPDC chairman but in his personal capacity. The complaint filed by private respondents in the RTC merely identified petitioner as chairman of the NPDC, but did not categorically state that he is being sued in that capacity.[13][19] Also, it is evident from paragraph 4 of said complaint that petitioner was sued allegedly for having personal motives in ordering the ejectment of GABI from Rizal Park .

We find, however, no evidence of such abuse of authority on record. As earlier stated, Rizal Park is beyond the commerce of man and, thus, could not be the subject of a lease contract. Admittedly, there was no written contract. That private respondents were allowed to occupy office and kiosk spaces in the park was only a matter of accommodation by the previous administrator. This being so, also admittedly, petitioner may validly discontinue the accommodation extended to private respondents, who may be ejected from the park when necessary. Private respondents cannot and does not claim a vested right to continue to occupy Rizal Park .

The Court of Appeals awarded private respondent Iglesias moral and exemplary damages and attorney’s fees. However, we find no evidence on record to support Iglesias’ claim that he suffered moral injury as a result of GABI’s ejectment from Rizal Park . Absent any satisfactory proof upon which the Court may base the amount of damages suffered, the award of moral damages cannot be sustained.[

Neither can we sustain the award of exemplary damages, which may only be awarded in addition to moral, temperate, liquidated, or compensatory damages.[15][23] We also disallow the award for attorney’s fees, which can only be recovered per stipulation of the parties, which is absent in this case. There is no showing that any of the exceptions justifying the award of attorney’s fees absent a stipulation is present in this case.[

the instant petition is GRANTED.

NATIONAL POWER CORPORATION, petitioner,
vs.
Vera

Petitioner, National Power Corporation (NPC), seeks to annul the order of respondent judge dated June 8, 1988 issuing a writ of preliminary injunction which enjoined NPC from further undertaking stevedoring and arrastre services in its pier located at the Batangas Coal-Fired Thermal Power Plant at Calaca, Batangas and directing it either to enter into a contract for stevedoring and arrastre services or to conduct a public bidding therefor. Private respondent was also allowed to continue stevedoring and arrastre services at the pier.

The instant petition arose from a complaint for prohibition and mandamus with damages filed by private respondent against NPC and Philippine Ports Authority (PPA), wherein private respondent alleged that NPC had acted in bad faith and with grave abuse of discretion in not renewing its Contract for Stevedoring Services for Coal-Handling Operations at NPC's plant, and in taking over its stevedoring services.

Soon after the filing of private respondent's complaint, respondent judge issued a restraining order against NPC enjoining the latter from undertaking stevedoring services at its pier. Consequently, NPC filed an "Urgent Motion" to dissolve the restraining order, asserting, inter alia: (1) that by virtue of Presidential Decree No. 1818, respondent judge had no jurisdiction to issue the order; and (2) that private respondent, whose contract with NPC had expired prior to the commencement of the suit, failed to establish a cause of action for a writ of preliminary injunction.

Respondent judge issued the assailed Order denying NPC's motion and issuing a writ of preliminary injunction, after finding that NPC was not empowered by its Charter, Republic Act No. 6395, as amended, to engage in stevedoring and arrastre services. Hence, the instant petition.

After a careful study of the various allegations and issues raised in the pleadings, the Court finds merit in the petition. Indeed, the assailed Order suffers from infirmities which must be rectified by the grant of a writ of certiorari in favor of the petitioner.

A. Firstly, respondent judge acted without jurisdiction when he issued the writ of preliminary injunction against NPC.

Presidential Decree No. 1818 explicitly provides:

SECTION 1. No court in the Philippines shall have jurisdiction to issue any restraining order, preliminary injunction, or preliminary mandatory injunction in any case, dispute, or controversy involving an infrastructure project, or a mining, fishery, forest or other natural resource development project of the government, or any public utility operated by the government, including among others public utilities for the transport of the goods or commodities, stevedoring and arrastre contracts, to prohibit any person or persons, entity or government official from proceeding with, or continuing the execution or implementation of any such project, or the operation of such public utility, or pursuing any lawful activity necessary for such execution, implementation or operation.

Undeniably, NPC is a public utility, created under special legislation engaged in the generation and distribution of electric power and energy. It, therefore, enjoys the protective mantle of the above decree.

Moreover, respondent judge's finding that NPC is not empowered by its Charter to undertake stevedoring services in its pier is erroneous.

In determining whether or not an NPC act falls within the purview of the above provision, the Court must decide whether or not a logical and necessary relation exists between the act questioned and the corporate purpose expressed in the NPC charter. For if that act is one which is lawful in itself and not otherwise prohibited, and is done for the purpose of serving corporate ends, and reasonably contributes to the promotion of those ends in a substantial and not in a remote and fanciful sense, it may be fairly considered within the corporation's charter powers [Montelibano v. Bacolod-Murcia Milling Co., Inc., G.R. No. L-15092, May 18, 1962, 5 SCRA 36.]

This Court is, guided by jurisprudence in the application of the above standard. In the 1963 case of Republic of the Philippines v. Acoje Mining Company, Inc. [G.R. No. L-18062, February 28, 1963, 7 SCRA 3611 the Court affirmed the rule that a corporation is not restricted to the exercise of powers expressly conferred upon it by its charter, but has the power to do what is reasonably necessary or proper to promote the interest or welfare of the corporation. Thus, the Court, finding that a "post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality" [Id., at P. 365], held that respondent mining corporation was empowered to operate and maintain postal facilities servicing its employees and their families at its mining camp in Sta. Cruz, Zambales despite absence of a provision in the company’s charter authorizing the former to do so.

In the instant case, it is an undisputed fact that the pier located at Calaca, Batangas, which is owned by NPC, receives the various shipments of coal which is used exclusively to fuel the Batangas Coal-Fired Thermal Power Plant of the NPC for the generation of electric power. The stevedoring services which involve the unloading of the coal shipments into the NPC pier for its eventual conveyance to the power plant are incidental and indispensable to the operation of the plant The Court holds that NPC is empowered under its Charter to undertake such services, it being reasonably necessary to the operation and maintenance of the power plant.

In the instant case, it is an undisputed fact that private respondent’s contract for stevedoring services with NPC bad already expired. Admittedly, there is no existing contractual relationship between the parties. Moreover, private respondent’s PPA permit for cargo handling services; at the NPC Calaca pier had expired as well. On the other hand, NPC, which was under no legal obligation to renew the contract for stevedoring services with private respondent, was granted authority by the PPA to provide cargo handling services in its pier. Consequently, there was no right of private respondent that needed to be protected or preserved by a writ of preliminary injunction.

Furthermore, respondent judge’s directive ordering NPC to enter into a contract for stevedoring and arrastre services or to conduct a public bidding therefor amounted to a writ of mandamus. But it is a settled rule that mandamus will lie only to compel the performance of a ministerial duty; it does not lie to require anyone to fulfill contractual obligations or compel a course of conduct, nor to control or review the exercise of discretion Sy Ha v. Galang, G.R. No. L-18513, April 27, 1963, 7 SCRA 797; Aprueba, et al. v. Ganzon, G.R. No. L-20867, September 3, 1966, 18 SCRA 8; Avenue Arrastre & Stevedoring Corporation v. Commissioner of Customs, et al., G.R. No. L-44674, February 28, 1983, 120 SCRA 878; Tangonan v. Pano, G.R. No. L-45157, June 27, 1985, 137 SCRA 245.] As far back as 1910, in the case of Tabigue v. Duvall [16 Phil. 324], the Court laid the fundamental principle governing the issuance of a writ of mandamus that the duties to be enforced thereby must be such as are clearly and peremptorily enjoined by law or by reason of official station.

Whether NPC will enter into a contract for stevedoring and arrastre services to handle its coal shipments to its pier, or undertake the services itself, is entirely and exclusively within its corporate discretion. It does not involve a duty the performance of which is enjoined by law. Thus, the courts cannot direct the NPC in the exercise of this prerogative.

in view of the foregoing, the Court having considered the Petition, private respondents Comment, and the Reply thereto, Resolved to GRANT the petition. The respondent Judge’s Order dated June 8, 1988 is SET ASIDE and the temporary restraining order issued by the Court on June 15, 1988 is made PERMANENT.

CASIANO A. ANGCHANGCO, JR., petitioner, vs. OMBUDSMAN,

Before us is a petition for mandamus seeking to: a) compel the Ombudsman to dismiss Ombudsman Cases No. MIN-3-90-0671, MIN-90-0132, MIN-90-0133, MIN-90-0138, MIN-90-0188, MIN-90-0189, MIN-90-0190, MIN-90-0191, and MIN-90-0192; and b) direct the Ombudsman to issue a clearance in favor of petitioner Casiano A. Angchangco.

The facts are as follows:

Prior to his retirement, petitioner served as a deputy sheriff and later as Sheriff IV in the Regional Trial Court of Agusan del Norte and Butuan City .

On August 24, 1989, the Department of Labor and Employment (Region X) rendered a decision ordering the Nasipit Integrated Arrastre and Stevedoring Services Inc. (NIASSI) to pay its workers the sum of P1,281,065.505. The decision having attained finality, a writ of execution was issued directing the Provincial Sheriff of Agusan del Norte or his deputies to satisfy the same. Petitioner, as the assigned sheriff and pursuant to the writ of execution issued, caused the satisfaction of the decision by garnishing NIASSI’s daily collections from its various clients.

In an attempt to enjoin the further enforcement of the writ of execution, Atty. Tranquilino O. Calo, Jr., President of NIASSI, filed a complaint for prohibition and damages against petitioner. The regional trial court initially issued a temporary restraining order but later dismissed the case for lack of jurisdiction.

In addition to the civil case, Atty. Calo likewise filed before the Office of the Ombudsman a complaint against petitioner for graft, estafa/malversation and misconduct relative to the enforcement of the writ of execution. Acting on the complaint, the Ombudsman, in a Memorandum dated July 31, 1992, recommended its dismissal for lack of merit.

Meanwhile, from June 25 to 28, 1990, several workers of NIASSI filed letters-complaints with the Office of the Ombudsman-Mindanao alleging, among others things, that petitioner illegally deducted an amount equivalent to 25% from their differential pay. The Office of the Ombudsman-Mindanao endorsed to the Court the administrative aspect of the complaints which was docketed hereat as A.M. No. 93-10-385-OMB. The Court in an En Banc Resolution dated November 25, 1993 dismissed the case for lack of interest on the part of complainants to pursue their case.

Although the administrative aspect of the complaints had already been dismissed, the criminal complaints remained pending and unresolved, prompting petitioner to file several omnibus motions for early resolution.

When petitioner retired in September 1994, the criminal complaints still remained unresolved, as a consequence of which petitioner’s request for clearance in order that he may qualify to receive his retirement benefits was denied.

With the criminal complaints remaining unresolved for more than 6 years, petitioner filed a motion to dismiss, invoking Tatad vs. Sandiganbayan (G.R. No. 72335-39, March 21, 1988). Sad to say, even this motion to dismiss, however, has not been acted upon. Hence, the instant petition.

Acting on the petition, the Court issued a resolution dated December 20, 1995 requiring respondents to comment thereon. In compliance therewith, the Office of the Solicitor General filed a Manifestation and Motion (in lieu of Comment), which is its way of saying it agreed with the views of petitioner. On July 22, 1996, we issued another resolution requiring the Ombudsman to file his own comment on the petition if he so desires, otherwise, the petition will be deemed submitted for resolution without such comment. After several extensions, respondent Ombudsman, through the Office of the Special Prosecutor, filed a comment dated October 7, 1996.

The Court finds the present petition to be impressed with merit.

Mandamus is a writ commanding a tribunal, corporation, board, or person to do the act required to be done when it or he unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right or office to which such other is entitled, there being no other plain, speedy, and adequate remedy in the ordinary course of law (Section 3 of Rule 65 of the Rules of Court).

After a careful review of the facts and circumstances of the present case, the Court finds the inordinate delay of more than six years by the Ombudsman in resolving the criminal complaints against petitioner to be violative of his constitutionally guaranteed right to due process and to a speedy disposition of the cases against him, thus warranting the dismissal of said criminal cases pursuant to the pronouncement of the Court in Tatad vs. Sandiganbayan (159 SCRA 70 [1988]), wherein the Court, speaking through Justice Yap, said:

We find the long delay in the termination of the preliminary investigation by the Tanodbayan in the instant case to be violative of the constitutional right of the accused to due process. Substantial adherence to the requirements of the law governing the conduct of preliminary investigation, including substantial compliance with the time limitation prescribed by the law for the resolution of the case by the prosecutor, is part of the procedural due process constitutionally guaranteed by the fundamental law. Not only under the broad umbrella of the due process clause, but under the constitutional guarantee of “speedy disposition” of cases as embodied in Section 16 of the Bill of Right (both in the 1973 and the 1987 Constitutions), the inordinate delay is violative of the petitioner’s constitutional rights. A delay of close to three (3) years can not be deemed reasonable or justifiable in the light of the circumstance obtaining in the case at bar. We are not impressed by the attempt of the Sandiganbayan to sanitize the long delay by indulging in the speculative assumption that “the delay may be due to a painstaking and grueling scrutiny by the Tanodbayan as to whether the evidence presented during the preliminary investigation merited prosecution of a former high-ranking government official.” In the first place, such a statement suggests a double standard of treatment, which must be emphatically rejected. Secondly, three out of the five charges against the petitioner were for his alleged failure to file his sworn statement of assets and liabilities required by Republic Act No. 3019, which certainly did not involve complicated legal and factual issues necessitating such “painstaking and grueling scrutiny” as would justify a delay of almost three years in terminating the preliminary investigation. The other two charges relating to alleged bribery and alleged giving of unwarranted benefits to a relative, while presenting more substantial legal and factual issues, certainly do not warrant or justify the period of three years, which it took the Tanodbayan to resolve the case.

It has been suggested that the long delay in terminating the preliminary investigation should not be deemed fatal, for even the complete absence of a preliminary investigation does not warrant dismissal of the information. True — but the absence of a preliminary investigation can not be corrected, for until now, man has not yet invented a device for setting back time.

Verily, the Office of the Ombudsman in the instant case has failed to discharge its duty mandated by the Constitution “to promptly act on complaints filed in any form or manner against public officials and employees of the government, or any subdivision, agency or instrumentality thereof.”

Mandamus is employed to compel the performance, when refused, of a ministerial duty, this being its chief use and not a discretionary duty. It is nonetheless likewise available to compel action, when refused, in matters involving judgment and discretion, but not to direct the exercise of judgment or discretion in a particular way or the retraction or reversal of an action already taken in the exercise of either (Rules of Court in the Philippines , Volume III by Martin, 4th Edition, page 233).

It is correct, as averred in the comment that in the performance of an official duty or act involving discretion, the corresponding official can only be directed by mandamus to act, but not to act one way or the other. However, this rule admits of exceptions such as in cases where there is gross abuse of discretion, manifest injustice, or palpable excess of authority (Kant Kwong vs. PCGG, 156 SCRA 222, 232 [1987]).

Here, the Office of the Ombudsman, due to its failure to resolve the criminal charges against petitioner for more than six years, has transgressed on the constitutional right of petitioner to due process and to a speedy disposition of the cases against him, as well as the Ombudsman’s own constitutional duty to act promptly on complaints filed before it. For all these past 6 years, petitioner has remained under a cloud, and since his retirement in September 1994, he has been deprived of the fruits of his retirement after serving the government for over 42 years all because of the inaction of respondent Ombudsman. If we wait any longer, it may be too late for petitioner to receive his retirement benefits, not to speak of clearing his name. This is a case of plain injustice which calls for the issuance of the writ prayed for.

WHEREFORE, the Court RESOLVED to give DUE COURSE to the petition and to GRANT the same. Ombudsman Cases No. MIN-3-90-0671, MIN-90-0132, MIN-90-0133, MIN-90-0138, MIN-90-0188, MIN-90-0189, MIN-90-0190, MIN-90-0191, and MIN-90-0192 are ordered DISMISSED. The Office of the Ombudsman is further directed to issue the corresponding clearance in favor of petitioner.

SO ORDERED

——————————————————————————–

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-59791 February 13, 1992

MANILA ELECTRIC COMPANY, petitioner,
vs.
THE HONORABLE GREGORIO G. PINEDA, Presiding Judge, Court of First Instance of Rizal, Branch XXI, Pasig, Metro Manila, TEOFILO ARAYON, SR., GIL DE GUZMAN, LUCITO SANTIAGO and TERESA BAUTISTA, respondents.

This is a petition for review on certiorari on pure question of law seeking the nullification of the orders issued by the respondent Judge Gregorio G. Pineda, in his capacity as the presiding Judge of the Court of First Instance (now Regional Trial Court) of Rizal, Branch 21, Pasig, Metro Manila in Civil Case No. 20269, entitled “Manila Electric Company v. Teofilo Arayon, et al.” The aforesaid orders are as follows: (1) the order dated December 4, 1981 granting the motion for payment of private respondents; (2) the order dated December 21, 1981 granting the private respondents’ omnibus motion; and (3) the order dated February 9, 1982 adjudging in favor of private respondents the fair market value of their property at forty pesos (P40.00) per square meter for a total of P369,720.00 and denying the motions for contempt for being moot and academic and the motion for reconsideration of the orders dated December 4, 1981 and December 21, 1981 for lack of merit.

The antecedent facts giving rise to the controversy at bar are as follows:

Petitioner Manila Electric Company (MERALCO) is a domestic corporation duly organized and existing under the laws of Philippines . Respondent Honorable Judge Gregorio G. Pineda is impleaded in his official capacity as the presiding judge of the Court of First Instance (now Regional Trial Court) of Rizal, Branch XXI, Pasig , Metro Manila. While private respondents Teofilo Arayon, Sr., Gil de Guzman, Lucito Santiago and Teresa Bautista are owners in fee simple of the expropriated property situated at Malaya , Pililla, Rizal.

On October 29, 1974, a complaint for eminent domain was filed by petitioner MERALCO against forty-two (42) defendants with the Court of First Instance (now Regional Trial Court) of Rizal, Branch XXII, Pasig , Metro Manila.

The complaint alleges that for the purpose of constructing a 230 KV Transmission line from Barrio Malaya to Tower No. 220 at Pililla, Rizal, petitioner needs portions of the land of the private respondents consisting of an aggregate area of 237,321 square meters. Despite petitioner’s offers to pay compensation and attempts to negotiate with the respondents’, the parties failed to reach an agreement.

Private respondents question in their motion to dismiss dated December 27, 1974 the petitioner’s legal existence and the area sought to be expropriated as too excessive.

On January 7, 1975, respondents Gil de Guzman and Teresa Bautista filed a motion for contempt of court alleging, among other things that petitioner’s corporate existence had expired in 1969 and therefore it no longer exists under Philippine Laws.

But despite the opposition of the private respondents, the court issued an Order dated January 13, 1975 authorizing the petitioner to take or enter upon the possession of the property sought to be expropriated.

On July 13, 1976, private respondents filed a motion for withdrawal of deposit claiming that they are entitled to be paid at forty pesos (P40.00) per square meter or an approximate sum of P272,000.00 and prayed that they be allowed to withdraw the sum of P71,771.50 from petitioner’s deposit-account with the Philippine National Bank, Pasig Branch. However, respondents motion was denied in an order dated September 3, 1976.

In the intervening period, Branch XXII became vacant when the presiding Judge Nelly Valdellon-Solis retired, so respondent Judge Pineda acted on the motions filed with Branch XXII.

Pursuant to a government policy, the petitioners on October 30, 1979 sold to the National Power Corporation (Napocor) the power plants and transmission lines, including the transmission lines traversing private respondents’ property.

On February 11, 1980, respondent court issued an Order appointing the members of the Board of Commissioners to make an appraisal of the properties.

On June 5, 1980, petitioner filed a motion to dismiss the complaint on the ground that it has lost all its interests over the transmission lines and properties under expropriation because of their sale to the Napocor. In view of this motion, the work of the Commissioners was suspended.

On June 9, 1981, private respondents filed another motion for payment. But despite the opposition of the petitioner, the respondent court issued the first of the questioned Orders dated December 4, 1981 granting the motion for payment of private respondents, to wit:

On December 15, 1981, private respondents filed an Omnibus Motion praying that they be allowed to withdraw an additional sum of P90,125.50 from petitioner’s deposit-account with the Philippine National Bank.

By order dated December 21, 1981, the respondent court granted the Omnibus Motion

In response to private respondents’ motion for payment dated January 8, 1982, petitioner filed an opposition alleging that private respondents are not entitled to payment of just compensation at this stage of the proceeding because there is still no appraisal and valuation of the property.

On February 9, 1982 the respondent court denied the petitioner’s motion for reconsideration and motion for contempt.

Furthermore, the respondent court stressed in said order that “at this stage, the Court starts to appoint commissioners to determine just compensation or dispenses with them and adopts the testimony of a credible real estate broker, or the judge himself would exercise his right to formulate an opinion of his own as to the value of the land in question. Nevertheless, if he formulates such an opinion, he must base it upon competent evidence.”

ISSUE

whether or not the respondent court can dispense with the assistance of a Board of Commissioners in an expropriation proceeding and determine for itself the just compensation.

On March 26, 1982, petitioner filed a petition for preliminary injunction with this Court seeking to enjoin respondent judge and all persons acting under him from enforcing the Order dated March 22, 1982.

This Court issued a temporary restraining order addressed to respondent judge. A motion to lift the restraining order was filed by the respondents. Despite a series of oppositions and motions to lift the said order, this Court reiterated its stand and noted that the restraining order is still effective.

There are two (2) stages in every action of expropriation. The first is concerned with the determination of the authority of the plaintiff to exercise the power of eminent domain and the propriety of its exercise in the context of the facts involved in the suit. It ends with an order, if not of dismissal of the action, “of condemnation declaring that the plaintiff has a lawful right to take the property sought to be condemned, for the public use or purpose described in the complaint, upon the payment of just compensation to be determined as of the date of the filing of the complaint”. An order of dismissal, if this be ordained, would be a final one, of course, since it finally disposes of the action and leaves nothing more to be done by the Court on the merits. So, too, would an order of condemnation be a final one, for thereafter, as the Rules expressly state, in the proceedings before the Trial Court, “no objection to the exercise of the right of condemnation (or the propriety thereof) shall be filed or heard.”

The second phase of the eminent domain action is concerned with the determination by the Court of “the just compensation for the property sought to be taken.” This is done by the Court with the assistance of not more than three (3) commissioners. The order fixing the just compensation on the basis of the evidence before, and findings of, the commissioners would be final, too. It would finally dispose of the second stage of the suit, and leave nothing more to be done by the Court regarding the issue. Obviously, one or another of the parties may believe the order to be erroneous in its appreciation of the evidence or findings of fact or otherwise. Obviously, too, such a dissatisfied party may seek reversal of the order by taking an appeal therefrom.

Petitioner has not been given the opportunity to rebut any evidence that would have been presented by private respondents. In an expropriation case such as this one where the principal issue is the determination of just compensation, a trial before the Commissioners is indispensable to allow the parties to present evidence on the issue of just compensation. Contrary to the submission of private respondents, the appointment of at least three (3) competent persons as commissioners to ascertain just compensation for the property sought to be taken is a mandatory requirement in expropriation cases. While it is true that the findings of commissioners may be disregarded and the court may substitute its own estimate of the value, the latter may only do so for valid reasons, i.e., where the Commissioners have applied illegal principles to the evidence submitted to them or where they have disregarded a clear preponderance of evidence, or where the amount allowed is either grossly inadequate or excessive (Manila Railroad Company v. Velasquez, 32 Phil. 286). Thus, trial with the aid of the commissioners is a substantial right that may not be done away with capriciously or for no reason at all. Moreover, in such instances, where the report of the commissioners may be disregarded, the trial court may make its own estimate of value from competent evidence that may be gathered from the record. The aforesaid joint venture agreement relied upon by the respondent judge, in the absence of any other proof of valuation of said properties, is incompetent to determine just compensation.

Prior to the determination of just compensation, the property owners may rightfully demand to withdraw from the deposit made by the condemnor in eminent domain proceedings. Upon an award of a smaller amount by the court, the property owners are subject to a judgment for the excess or upon the award of a larger sum, they are entitled to a judgment for the amount awarded by the court. Thus, when the respondent court granted in the Orders dated December 4, 1981 and December 21, 1981 the motions of private respondents for withdrawal of certain sums from the deposit of petitioner, without prejudice to the just compensation that may be proved in the final adjudication of the case, it committed no error.

Records, specifically Meralco’s deed of sale dated October 30, 1979, in favor of Napocor show that the latter agreed to purchase the parcels of land already acquired by Meralco, the rights, interests and easements over those parcels of land which are the subject of the expropriation proceedings under Civil Case No. 20269, (Court of First Instance of Rizal, Branch XXII), as well as those parcels of land occupied by Meralco by virtue of grant of easements of right-of-way (see Rollo, pp. 341-342). Thus, Meralco had already ceded and in fact lost all its rights and interests over the aforesaid parcels of land in favor of Napocor. In addition, the same contract reveals that the Napocor was previously advised and actually has knowledge of the pending litigation and proceedings against Meralco (see Rollo, pp. 342-343). Hence, We find the contention of the petitioner tenable. It is therefore proper for the lower court to either implead the Napocor in substitution of the petitioner or at the very least implead the former as party plaintiff.

All premises considered, this Court is convinced that the respondent judge’s act of determining and ordering the payment of just compensation without the assistance of a Board of Commissioners is a flagrant violation of petitioner’s constitutional right to due process and is a gross violation of the mandated rule established by the Revised Rules of Court.

the petition is GRANTED

RULE 60

January 14, 2009

ROMEO S. CHUA, petitioner,
vs.
THE HON. COURT OF APPEALS, DENNIS CANOY AND ALEX DE LEON, respondents.

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing the decision of the Court of Appeals dated May 7, 1987 which nullified the orders dated April 18, 1986 and May 19, 1986 of the Regional Trial Court of Cebu City Branch VIII.

FACTS

Judge Lauro V. Francisco of the Regional Trial Court of Cebu City Branch XIII, after examining 2Lt. Dennis P. Canoy and two (2) other witnesses, issued a search warrant directing the immediate search of the premises of R.R. Construction located at M.J. Cuenco Avenue, Cebu City, and the seizure of an Isuzu dump truck with plate number GAP-175. At twelve noon of the same date, respondent Canoy seized the aforesaid vehicle and took custody thereof.

a civil action for Replevin/Sum of Money for the recovery of possession of the same Isuzu dump truck was filed by petitioner against respondent Canoy and one “John Doe” in the Regional Trial Court of Cebu City Branch VIII, presided by Judge Leonardo B. Cañares and docketed thereat as Civil Case No. CEB 4384 alleging among other things, petitioner’s lawful ownership and possession of the subject vehicle; that he has not sold the subject vehicle to anyone; that he has not stolen nor carnapped it, and that he has never been charged of the crime of carnapping or any other crime for that matter. Further, petitioner questioned the validity of the search warrant and the subsequent seizure of the subject vehicle on the strength of the aforesaid search warrant.

Meanwhile, a case for Carnapping docketed as I.S. No. 86-185, entitled “Alex De Leon, Complainant, vs. Romeo Chua, Respondent” pending preliminary investigation before the Office of the City Fiscal of Cebu City was provisionally dismissed upon motion of Romeo Chua with the following reservation: “without prejudice to its reopening once the issue of ownership is resolved”, (Rollo, p. 62).

In a decision dated May 17, 1987, the Court of Appeals reversed the Regional Trial Court of Cebu City Branch VIII, and nullified the questioned orders. The appellate court ordered the dismissal of the Replevin action, and directed that possession of the subject vehicle be restored to Canoy.

Petitioner moved for a reconsideration of the decision, but the respondent court denied the same. Thus, petitioner filed this appeal by certiorari. The parties submitted their respective memoranda, and thereafter the case was deemed submitted for decision.

I

SSUE

The issue presented before the Court is whether or not the validity of a seizure made pursuant to a search warrant issued by a court can be questioned in another branch of the same court, where the criminal action filed in connection with which the search warrant was issued, had been dismissed provisionally.

RULING

the petition is denied.

At the outset, it must be pointed out that the ruling made by the Office of the City Fiscal in the complaint for carnapping was erroneous. It held: “. . . the preliminary investigation of that case is premature until such time that the issue of ownership will be resolved by the Court of Appeals, so that the instant case is hereby dismissed provisionally without prejudice to its reopening once the issue of ownership is resolved in favor of complainant.” (emphasis supplied).

A criminal prosecution for carnapping need not establish the fact that complainant therein is the absolute owner of the motor vehicle. What is material is the existence of evidence which would show that respondent took the motor vehicle belonging to another. The Anti-Carnapping Law or Republic Act No. 6539 punishes as carnapping the taking with intent to gain, of a motor vehicle belonging to another person, without the latter’s consent or by means of violence or intimidation of person or by using force upon things.

It is a basic tenet of civil procedure that replevin will not lie for property in custodia legis. A thing is in custodia legis when it is shown that it has been and is subjected to the official custody of a judicial executive officer in pursuance of his execution of a legal writ (Bagalihog vs. Fernandez, 198 SCRA 614 [1991]). The reason posited for this principle is that if it was otherwise, there would be interference with the possession before the function of the law had been performed as to the process under which the property was taken. Thus, a defendant in an execution or attachment cannot replevy goods in the possession of an officer under a valid process, although after the levy is discharged, an action to recover possession will lie (Francisco, Revised Rules of Court in the Philippines: Provisional Remedies, p. 402 [1985]).

The Court had occasion to rule on this issue in the case of Vlasons Enterprises Corporation vs. Court of Appeals (155 SCRA 186 [1987]). In the aforementioned case, two (2) propeller pieces were seized on the strength of a search warrant issued by the Court of First Instance of Manila Branch XVIII. After the seizure, criminal complaints were filed against the alleged thieves. However, the complaints were later on dismissed. Five (5) months later, a civil action for the recovery of the possession of the propellers were filed in the Court of First Instance of Manila Branch XXIX. The latter court granted the motion for repossession of the propellers

In the Vlasons case, the Court differentiated the case brought before it therein, from the Pagkalinawan case. It stated that in the Pagkalinawan case, there was a conflict in jurisdiction. On the other hand, in the Vlasons case, it was certain that no criminal case would ensue subsequent to or in connection with the search warrant, hence no conflict in jurisdiction or in the ultimate disposition of the property could arise. Thus, where personal property is seized under a search warrant and it appears that the seizure will not be followed by the filing of any criminal action, but there are conflicting claims asserted over the seized property, the appropriate remedy is the institution of an ordinary civil action by any interested party, or of an interpleader action by the Government itself, in the proper competent court to which the seizing court shall transfer custody of the articles. Another branch of the same court, in an action to recover said property and during the pendency thereof, cannot order the delivery of said personal property to therein plaintiff pendente lite.

Construing the Pagkalinawan case together with the Vlasons case, we rule that where personal property is seized under a search warrant and there is reason to believe that the seizure will not anymore be followed by the filing of a criminal and there are conflicting claims over the seized property, the proper remedy is the filing of an action for replevin, or an interpleader filed by the Government in the proper court, not necessarily the same one which issued the search warrant; however, where there is still a probability that the seizure will be followed by the filing of a criminal action, as in the case at bar where the case for carnapping was “dismissed provisionally, without prejudice to its reopening once the issue of ownership is resolved in favor of complainant” (emphasis supplied), or the criminal information has actually been commenced, or filed, and actually prosecuted, and there are conflicting claims over the property seized, the proper remedy is to question the validity of the search warrant in the same court which issued it and not in any other branch of the said court.

Thus, the Regional Trial Court of Cebu Branch VIII erred when it ordered the transfer of possession of the property seized to petitioner when the latter filed the action for replevin. It should have dismissed the case since by virtue of the “provisional dismissal”, of the carnapping case there is still a probability that a criminal case would be filed, hence a conflict in jurisdiction could still arise. The basic principle that a judge who presides in one court cannot annul or modify the orders issued by another branch of the same court because they are co-equal and independent bodies acting coordinately, must always be
adhered to.

CHIAO LIONG TAN, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON MANUEL T. MURO, Presiding Judge, RTC of Manila, Branch 54 and TAN BAN YONG, respondents.

Petitioner seeks in this petition the reversal of the Court of Appeals’ decision dated May 15, 1992 in CA-G.R. CV No. 29982 affirming the unfavorable decision of the trial court 1 in his suit for replevin and damages.

Petitioner Chiao Liong Tan claims to be the owner of a motor vehicle. As owner thereof, petitioner says he has been in possession, enjoyment and utilization of the said motor vehicle until it was taken from him by his older brother, Tan Ban Yong, the private respondent herein.

Petitioner relies principally on the fact that the Isuzu Elf van is registered in his name

On the other hand, private respondent testified that CLT Industries is a family business that was placed in petitioner’s name because at that time he was then leaving for the United States and petitioner is the remaining Filipino in the family residing in the Philippines.

Tan Pit Sin who had known private respondent since 1968, not only because they were classmates but also because of their business dealings with each other, confirmed that private respondent borrowed from him P140,000.00 in March, 1987 to buy an Isuzu Elf van. In fact, he had borrowed said vehicle for a few times.

Gina Lu, an employee of the Balintawak Isuzu Motors, testified that private respondent paid the balance of the purchase price of the Isuzu Elf van

Finding no merit in the appeal, the respondent Court of Appeals affirmed the decision of the trial court.

Since the Court of Appeals merely affirmed the trial court’s assessment of the credibility of the witnesses that testified before it, petitioner is in effect questioning the factual findings of said court and its appraisal of their testimony which this Court cannot review, its jurisdiction being limited to questions of law. The considerable weight given to the findings of the trial court is not without any reason. It had the opportunity to observe the demeanor of witnesses which is usually not reflected in the transcript of records.

In concluding that the testimonies of Tan Ban Yong, Tan Pit Sin and Gina Lu cast doubt on the petitioner’s ownership of the motor vehicle in question, both the trial court and the Court of Appeals attached significance to their respective interlocking accounts on how the motor vehicle was acquired, complete with the financing source and mode of repayment.

In contrast to the clear and categorical averments of private respondent and the witnesses in this case negating petitioner’s ownership of the motor vehicle in question, petitioner’s averments before the trial court and this Court are not only disparate but conflicting. In his testimony below, petitioner averred that he used his own money to purchase the motor vehicle by paying the sum of P100,000.00, 5 which testimony is negated by his admission on page 5 of his petition 6 before this Court that private respondent borrowed money from Tan Pit Sin with which to purchase the subject motor vehicle

A certificate of registration of a motor vehicle in one’s name indeed creates a strong presumption of ownership. For all practical purposes, the person in whose favor it has been issued is virtually the owner thereof unless proved otherwise. In other words, such presumption is rebuttable by competent proof.

The New Civil Code recognizes cases of implied trust other than those enumerated therein. 9 Thus, although no specific provision could be cited to apply to the parties herein, it is undeniable that an implied trust was created when the certificate of registration of the motor vehicle was placed in the name of the petitioner although the price thereof was not paid by him but by private respondent. The principle that a trustee who puts a certificate of registration in his name cannot repudiate the trust by relying on the registration is one of the well-known limitations upon a title. A trust, which derives its strength from the confidence one reposes on another especially between brothers, does not lose that character simply because of what appears in a legal document.

It is true that the judgment 11 in a replevin suit must only resolve in whom is the right of possession. Primarily, the action of replevin is possessory in character and determined nothing more than the right of possession. However, when the title to the property is distinctly put in issue by the defendant’s plea and by reason of the policy to settle in one action all the conflicting claims of the parties to the possession of the property in controversy, the question of ownership may be resolved in the same proceeding.

Procedure-wise, the Court observes that the action by petitioner as plaintiff in the trial court was only one for Replevin and Damages. Since replevin is only a provisional remedy where the replevin plaintiff claims immediate delivery of personal property pending the judgment of the trial court in a principal case, 12 the petitioner should have filed in the trial court as a main case an action to recover possession of the Isuzu Elf van which was in the possession of the private respondent

If that had been the case in this jurisdiction, then the trial judge would have discovered right away at the preliminary hearing that private respondent should have immediately staked his claim of ownership and that would have created serious doubts about petitioner’s claim of ownership. Most likely, the writ would not have been issued and the complaint would have been dismissed motu proprio by the trial court upon the discovery that the petitioner did not have a principal case therein. As it is, the complaint proceeded its course to the detriment of private respondent.

Finally, although a “replevin” action is primarily one for the possession of personality, yet it is sufficiently flexible to authorize a settlement of all equities between the parties, arising from or growing out of the main controversy. 17 Thus, in an action for replevin where the defendant is adjudged entitled to possession, he need not go to another forum to procure relief for the return of the replevied property or secure a judgment for the value of the property in case the adjudged return thereof could not be had. Appropriately, the trial court rendered an alternative judgment.

PETITION DISMISSED.

RULE 57

January 14, 2009

DAVAO LIGHT & POWER CO., INC vs CA

Before us is a petition for review on certiorari assailing the Decision dated August 31, 1993 rendered by the Sixteenth Division[of the Court of

WHEREFORE, the petition for review filed by Davao Light & Power Co., Inc. is hereby DENIED DUE COURSE and the same is DISMISSED.

FACTS

On April 10, 1992, petitioner Davao Light & Power Co., Inc. filed a complaint for damages against private respondent Francisco Tesorero efore the Regional Trial Court of Cebu City , Branch 11. , the complaint prayed for damages in the amount of P11,000,000.00.

In lieu of an answer, private respondent filed a motion to dismiss

On August 3, 1992, the trial court issued a Resolution dismissing petitioner’s complaint on the ground of improper venue. The trial court stated that:

The plaintiff being a private corporation undoubtedly Banilad, Cebu City is the plaintiff’s principal place of business as alleged in the complaint and which for purposes of venue is considered as its residence. xxx.

However, in defendant’s motion to dismiss, it is alleged and submitted that the principal office of plaintiff is at “ 163 - 165 P. Reyes Street , Davao City as borne out by the Contract of Lease (Annex 2 of the motion) and another Contract of Lease of Generating Equipment (Annex 3 of the motion) executed by the plaintiff with the NAPOCOR.

The representation made by the plaintiff in the 2 aforementioned Lease Contracts stating that its principal office is at “ 163 - 165 P. Reyes Street , Davao City ” bars the plaintiff from denying the same.

Another factor considered by the Courts in deciding controversies regarding venue are considerations of judicial economy and administration, as well as the convenience of the parties for which the rules of procedure and venue were formulated

, the Court is of the opinion that the principal office of plaintiff is at Davao City which for purposes of venue is the residence of plaintiff.

Petitioner’s motion for reconsideration[ was denied

From the aforesaid resolution and order, petitioner originally filed before this Court on November 20, 1992 a petition for review on certiorari docketed as G.R. No. 107381 We declined to take immediate cognizance of the case, and in a Resolution dated January 11, 1993,[referred the same to the Court of Appeals for resolution

On August 31, 1993, the Court of Appeals rendered the assailed judgment[denying due course and dismissing the petition

ISSUE

The principal issue in the case at bar involves a question of venue

RULING

The instant petition is hereby GRANTED.

There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver in their complaint that they are residents of Cebu City

. It cannot be disputed that petitioner’s principal office is in Cebu City , per its amended articles of incorporation[viii][15] and by-laws.[ix][16] An action for damages being a personal action,[x][17] venue is determined pursuant to Rule 4, section 2 of the Rules of Court, to wit:

Private respondent is not a party to any of the contracts presented before us. He is a complete stranger to the covenants executed between petitioner and NAPOCOR, despite his protestations that he is privy thereto, on the rather flimsy ground that he is a member of the public for whose benefit the electric generating equipment subject of the contracts were leased or acquired. We are likewise not persuaded by his argument that the allegation or representation made by petitioner in either the complaints or answers it filed in several civil cases that its residence is in Davao City should estop it from filing the damage suit before the Cebu courts. Besides there is no showing that private respondent is a party in those civil cases or that he relied on such representation by petitioner.

Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent or waiver upon a court which otherwise would have no jurisdiction over the subject-matter of an action; but the venue of an action as fixed by statute may be changed by the consent of the parties and an objection that the plaintiff brought his suit in the wrong county may be waived by the failure of the defendant to make a timely objection. In either case, the court may render a valid judgment. Rules as to jurisdiction can never be left to the consent or agreement of the parties, whether or not a prohibition exists against their alteration.

It is private respondent’s contention that the proper venue is Davao City , and not Cebu City where petitioner filed Civil Case No. CEB-11578. Private respondent argues that petitioner is estopped from claiming that its residence is in Cebu City , in view of contradictory statements made by petitioner prior to the filing of the action for damages. First, private respondent adverts to several contracts[xii][12] entered into by petitioner with the National Power Corporation (NAPOCOR) where in the description of personal circumstances, the former states that its principal office is at “163-165 P. Reyes St., Davao City.” According to private respondent the petitioner’s address in Davao City , as given in the contracts, is an admission which should bind petitioner.

EMMANUEL C. OÑATE vs Abrogar

These are separate petitions for certiorari with a prayer for temporary restraining order filed by Emmanuel C. Oñate and Econ Holdings Corporation (in G.R. No. 107303), and Brunner Development Corporation (in G.R. No. 107491), both of which assail several orders issued by respondent Judge Zues C. Abrogar in Civil Case No. 91-3506.

FACTS

On December 23, 1991, respondent Sun Life Assurance Company of Canada (Sun Life, for brevity) filed a complaint for a sum of money with a prayer for the immediate issuance of a writ of attachment against petitioners, and Noel L. Diño, .The following day, December 24, 1991, respondent Judge issued an order granting the issuance of a writ of attachment.

On January 3, 1992, upon Sun Life’s ex-parte motion, the trial court amended the writ of attachment to reflect the alleged amount of the indebtedness.

Summons was eventually served upon petitioners on January 9, 1992, while defendant Diño was served with summons on January 16, 1992.

On February 6, 1992, respondent Judge issued an order (1) denying petitioners’ and the co-defendants’ motion to discharge the amended writ of attachment, (2) approving Sun Life’s additional attachment, (3) granting Sun Life’s motion to examine the BPI account, and (4) denying petitioners’ motion to nullify the proceedings of January 23, 1992.

On March 12, 1992, petitioners filed a motion for reconsideration of the February 6, 1992 order. On September 6, 1992, respondent Judge denied the motion for reconsideration.

ISSUE

Hence, the instant petitions. Petitioners’ basic argument is that respondent Judge had acted with grave abuse of discretion amounting to lack or in excess of jurisdiction in (1) issuing ex parte the original and amended writs of preliminary attachment and the corresponding notices of garnishment and levy on attachment since the trial court had not yet acquired jurisdiction over them; and (2) allowing the examination of the bank records though no notice was given to them.

RULING

the instant petitions are hereby DISMISSED.

The plaintiffs therein did not even attempt to cause service of summons upon the defendants, right up to the time the cases went up to this Court. This is not true in the case at bar. The records reveal that Sheriff Flores and Sun Life did attempt a contemporaneous service of both summons and the writ of attachment on January 3, 1992, but we stymied by the absence of a responsible officer in petitioners’ offices. Note is taken of the fact that petitioners Oñate and Econ Holdings admitted in their answer 9 that the offices of both Brunner Development Corporation and Econ Holdings were located at the same address and that petitioner Oñate is the President of Econ Holdings while petitioner Diño is the President of Brunner Development Corporation as well as a stockholder and director of Econ Holdings.

Thus, an exception to the established rule on the enforcement of the writ of attachment can be made where a previous attempt to serve the summons and the writ of attachment failed due to factors beyond the control of either the plaintiff or the process server, provided that such service is effected within a reasonable period thereafter.

Several reasons can be given for the exception. First, there is a possibility that a defendant, having been alerted of plaintiffs action by the attempted service of summons and the writ of attachment, would put his properties beyond the reach of the plaintiff while the latter is trying to serve the summons and the writ anew. By the time the plaintiff may have caused the service of summons and the writ, there might not be any property of the defendant left to attach.

Second, the court eventually acquired jurisdiction over the petitioners six days later. To nullify the notices of garnishment issued prior thereto would again open the possibility that petitioners would transfer the garnished monies while Sun Life applied for new notices of garnishment.

Third, the ease by which a writ of attachment can be obtained is counter-balanced by the ease by which the same can be discharged: the defendant can either make a cash deposit or post a counter-bond equivalent to the value of the property attached. 10 The petitioners herein tried to have the writ of attachment discharged by posting a counter-bond, the same was denied by respondent Judge on the ground that the amount of the counter-bond was less than that of Sun Life’s bond..

Finally, petitioners argue that the enforcement of the writ was invalid since it undisputedly preceded the actual service of summons by six days at most. Petitioners cite the decisions in Sievert vs. Court of Appeals, et al. 6 and BAC Manufacturing and Sales Corp. vs. Court of Appeals, et al., 7 wherein this Court held that enforcement of the writ of attachment can not bind the defendant in view of the failure of the trial court to acquire jurisdiction over the defendant through either summons or his voluntary appearance.

Thiis Court had held in a recent decision that the enforcement of writ of attachment may not validly be effected until and unless proceeded or contemporaneously accompanied by service of summons.

A preliminary attachment may be defined, paraphrasing the Rules of Court, as the provisional remedy in virtue of which a plaintiff or other proper party may, at the commencement of the action or any time thereafter, have the property of the adverse party taken into the custody of the court as security for the satisfaction of any judgment that may be recovered. It is a remedy which is purely statutory in respect of which the law requires a strict construction of the provisions granting it. Withal no principle, statutory or jurisprudential, prohibits its issuance by any court before acquisition of jurisdiction over the person of the defendant.

LORETO D. DE LA VICTORIA

vs.
HON. JOSE P. BURGOS

RAUL H. SESBREÑO filed a complaint for damages against Assistant City Fiscals Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr., before the Regional Trial Court of Cebu City . After trial judgment was rendered ordering the defendants to pay P11,000.00 to the plaintiff, private respondent herein. The decision having become final and executory, on motion of the latter, the trial court ordered its execution. This order was questioned by the defendants before the Court of Appeals. However, on 15 January 1992 a writ of execution was issued.

A notice of garnishment was served on petitioner Loreto D. de la Victoria as City Fiscal of Mandaue City where defendant Mabanto, Jr., was then detailed.

On 25 May 1992 the petition pending before the Court of Appeals was dismissed.

On 24 November 1992 private respondent filed a motion to require petitioner to explain why he should not be cited in contempt of court for failing to comply with the order of 4 November 1992.

Petitioner moved to quash the notice of garnishment claiming that he was not in possession of any money, funds, credit, property or anything of value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public funds which could not be subject to garnishment.

On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply with its order of 4 November 1992

On 20 April 1993 the motion for reconsideration was denied.

Petitioner raises the following relevant issues:

(1) whether a check still in the hands of the maker or its duly authorized representative is owned by the payee before physical delivery to the latter: and,

(2) whether the salary check of a government official or employee funded with public funds can be subject to garnishment.

Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because they were not yet delivered to him, and that petitioner as garnishee has no legal obligation to hold and deliver them to the trial court to be applied to Mabanto, Jr.’s judgment debt. The thesis of petitioner is that the salary checks still formed part of public funds and therefore beyond the reach of garnishment proceedings.

Garnishment is considered as a species of attachment for reaching credits belonging to the judgment debtor owing to him from a stranger to the litigation. 6 Emphasis is laid on the phrase “belonging to the judgment debtor” since it is the focal point in resolving the issues raised.

As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds

According to the trial court, the checks of Mabanto, Jr., were already released by the Department of Justice duly signed by the officer concerned through petitioner and upon service of the writ of garnishment by the sheriff petitioner was under obligation to hold them for the judgment creditor. It recognized the role of petitioner as custodian of the checks. At the same time however it considered the checks as no longer government funds and presumed delivered to the payee based on the last sentence of Sec. 16 of the Negotiable Instruments Law which states: “And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed.” Yet, the presumption is not conclusive because the last portion of the provision says “until the contrary is proved.” However this phrase was deleted by the trial court for no apparent reason. Proof to the contrary is its own finding that the checks were in the custody of petitioner. Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had the character of public funds.

In denying petitioner’s motion for reconsideration, the trial court expressed the additional ratiocination that it was not the duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution, the writ of execution, and the notice of garnishment was justified, citing our ruling in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our precise ruling in that case was that “[I]t is not incumbent upon the garnishee to inquire or to judge for itself whether or not the order for the advance execution of a judgment is valid.” But that is invoking only the general rule. We have also established therein the compelling reasons, as exceptions thereto, which were not taken into account by the trial court, e.g., a defect on the face of the writ or actual knowledge by the garnishee of lack of entitlement on the part of the garnisher. It is worth to note that the ruling referred to the validity of advance execution of judgments, but a careful scrutiny of that case and similar cases reveals that it was applicable to a notice of garnishment as well. In the case at bench, it was incumbent upon petitioner to inquire into the validity of the notice of garnishment as he had actual knowledge of the non-entitlement of private respondent to the checks in question. Consequently, we find no difficulty concluding that the trial court exceeded its jurisdiction in issuing the notice of garnishment concerning the salary checks of Mabanto, Jr., in the possession of petitioner.

RULE 58

January 14, 2009

EXPORT PROCESSING ZONE AUTHORITY, petitioner,
vs.
THE COMMISSION ON HUMAN RIGHTS, TERESITA VALLES, LORETO ALEDIA and PEDRO ORDONEZ, respondents.

On May 30, 1980, P.D. 1980 was issued reserving and designating certain parcels of land in Rosario and General Trias, Cavite , as the “Cavite Export Processing Zone” (CEPZ). For purposes of development, the area was divided into Phases I to IV. A parcel of Phase IV was bought by Filoil Refinery Corporation, formerly Filoil Industrial Estate, Inc. The same parcel was later sold by Filoil to the Export Processing Zone Authority (EPZA).

Before EPZA could take possession of the area, several individuals had entered the premises and planted agricultural products therein without permission from EPZA or its predecessor, Filoil. To convince the intruders to depart peacefully, EPZA, in 1981, paid a P10,000-financial-assistance to those who accepted the same and signed quitclaims. Among them were Teresita Valles and Alfredo Aledia, father of respondent Loreto Aledia.

Ten years later, on May 10, 1991, respondent Teresita Valles, Loreto Aledia and Pedro Ordoñez filed in the respondent Commission on Human Rights (CHR) a joint complaint (Pinagsamahang Salaysay) praying for “justice and other reliefs and remedies” (“Katarungan at iba pang tulong”). The CHR conducted an investigation of the complaint.

According to the CHR, the private respondents, who are farmers, filed in the Commission on May 10, 1991 a verified complaint for violation of their human rights. They alleged that on March 20, 1991, at 10:00 o’clock in the morning. Engineer Neron Damondamon, EPZA Project Engineer, accompanied by his subordinates and members of the 215th PNP Company, brought a bulldozer and a crane to level the area occupied by the private respondents who tried to stop them by showing a copy of a letter from the Office of the President of the Philippines ordering postponement of the bulldozing. However, the letter was crumpled and thrown to the ground by a member of Damondamon’s group who proclaimed that: “The President in Cavite is Governor Remulla!”

On May 17, 1991, the CHR issued an Order of injunction commanding EPZA, the 125th PNP Company and Governor Remulla and their subordinates to desist from committing further acts of demolition, terrorism, and harassment until further orders from the Commission and to appeal before the Commission on May 27, 1991 at 9:00 a.m. for a dialogue (Annex A).

CHR Chairman Mary Concepcion Bautista issued another injunction Order reiterating her order of May 17, 1991 and expanded it to include the Secretary of Public Works and Highways, the contractors, and their subordinates. The order reads as follows:

On July 1, 1991, EPZA filed in the CHR a motion to lift the Order of Injunction for lack of authority to issue injunctive writs and temporary restraining orders.

On August 16, 1991, the Commission denied the motion.

On September 11, 1991, the petitioner, through the Government Corporate Counsel, filed in this Court a special civil action of certiorari and prohibition with a prayer for the issuance of a restraining order and/or preliminary injunction, alleging that the CHR acted in excess of its jurisdiction and with grave abuse of discretion in issuing the restraining order and injunctive writ; that the private respondents have no clear, positive right to be protected by an injunction; that the CHR abused its discretion in entertaining the private respondent’s complaint because the issue raised therein had been decided by this Court, hence, it is barred by prior judgment.

On September 19, 1991, this Court issued a temporary restraining order, ordering the CHR to cease and desist from enforcing and/or implementing the questioned injunction orders.

On November 14, 1991, the Solicitor General filed a Manifestation and Motion praying that he be excused from filing a Comment for the CHR on the ground that the Comment filed by the latter “fully traversed and squarely met all the issues raised and discussed in the main Petition for Certiorari and Prohibition” (p. 83, Rollo).

ISSUE

Does the CHR have jurisdiction to issue a writ of injunction or restraining order against supposed violators of human rights, to compel them to cease and desist from continuing the acts complained of?

RULING

The petition for certiorari and prohibition is GRANTED. The orders of injunction dated May 17 and 28, 1991 issued by the respondent Commission on Human Right are here by ANNULLED and SET ASIDE and the temporary restraining order which this Court issued on September 19, 1991, is hereby made PERMANENT.

The constitutional provision directing the CHR to “provide for preventive measures and legal aid services to the underprivileged whose human rights have been violated or need protection” may not be construed to confer jurisdiction on the Commission to issue a restraining order or writ of injunction for, if that were the intention, the Constitution would have expressly said so. “Jurisdiction is conferred only by the Constitution or by law” (Oroso, Jr. vs. Court of Appeals, G.R. Nos. 76828-32, 28 January 1991; Bacalso vs. Ramolete, G.R. No. L-22488, 26 October 1967, 21 SCRA 519). It is never derived by implication (Garcia, et al. vs. De Jesus, et al., G.R. No. 88158; Tobon Uy vs. Commission on Election, et al.. G.R. Nos. 97108-09, March 4, 1992).

Evidently, the “preventive measures and legal aid services” mentioned in the Constitution refer to extrajudicial and judicial remedies (including a preliminary writ of injunction) which the CHR may seek from the proper courts on behalf of the victims of human rights violations. Not being a court of justice, the CHR itself has no jurisdiction to issue the writ, for a writ of preliminary injunction may only be issued “by the judge of any court in which the action is pending [within his district], or by a Justice of the Court of Appeals, or of the Supreme Court. It may also be granted by the judge of a Court of First Instance [now Regional Trial Court] in any action pending in an inferior court within his district.” (Sec. 2, Rule 58, Rules of Court). A writ of preliminary injunction is an ancillary remedy. It is available only in a pending principal action, for the preservation or protection of the rights and interest of a party thereto, and for no other purpose

BRIGIDA NAVARRO, petitioner,
vs.
COURT OF APPEALS, BIBIANO M. VIÑA and ENRIQUETA VESAGAS, respondents.

This is a petition under Rule 45 of the Rule of Court for the review of the decision of the Court of Appeals in C.A.-G.R. No. 03551 annulling and setting aside the order of RTC

FACTS

1. On August 14, 1972, private respondent Brigida filed a complaint (Annex A), docketed as Civil Case No. T-511, against the petitioners 1 and others for the annulment of the final judgment rendered by the same court in Civil Case No. T-329 entitled “Bibiano M. Viña vs. Pastor Bravo.” On February 10, 1973, herein petitioners filed a motion to dismiss (Annex B), which was denied. However, five months, later, on October 19, 1973, respondent judge issued an order (Annex E) the dispositive portion of which reads:

2. Six months thereafter, a Motion for was filed with the trial court

3. Without proof of service, the respondent Judge heard ex parte the motion for reconsideration, granted the same in his order of May 11, 1974 (Annex I), thereby reinstating the case.

4. The telegram sent by the court was received by petitioners on May 14, the very day of the rescheduled hearing. So petitioners immediately sent a reply telegram requesting for the resetting of the hearing.

5. On May 14, 1974, without proof of service, notwithstanding the inability of petitioners’ counsel to be present due to the above circumstances, the respondent judge (a) issued an order

6. an omnibus motion was filed by petitioners upon receipt of the respondent

ISSUE

Whether or not there is reversible error committed by the respondent Court in annulling and setting aside the questioned orders.

RULING

Petition dismissed

We immediately note that the matter of service of summons was not raised before the respondent Court. Besides, the challenged decision explicitly states that the registered letters addressed to respondents containing the summons were duly delivered to the addressees on 29 March 1976. 12

Petitioner admits that the motion to reconsider the Order of 19 October 1973 which dismissed the case on grounds alleged in the motion to dismiss and for failure to prosecute on the part of the plaintiff was filed six (6) months later. Nothing on record indicates the date petitioner received a copy of the Order; hence, it is to be presumed that the motion for reconsideration was seasonably filed. Nevertheless, the judge gravely abused his discretion when he issued on 11 May 1974 the first questioned order despite the fact that he had set the hearing for the supplement to said motion and the companion motion for issuance of a writ of preliminary injunction on 14 May 1974 to enable the adverse parties to interpose objections. Notice of the hearing on 14 May 1974 was ordered to “be sent immediately to counsels for defendants by registered mail special delivery complemented by telegraphic notice.” The telegram was received by private respondents through counsel only on 14 May 1974, the date of the hearing. They immediately sent to the court a telegram requesting for a resetting of the hearing. It is quite obvious that when the judge called the case for hearing on 14 May 1974, there was no proof of service of the order for such hearing on private respondents. The judge then gravely abused his discretion when he insisted on hearing the pending incident and thereafter granted ex-parte the motion for the issuance of a writ of preliminary injunction placing the property in dispute in the possession of the petitioner and depriving the private respondents of their possession thereof which they had previously obtained by reason of the final judgment in Civil Case No. T-329. Under Section 5, Rule 58 of the Rules of Court, no preliminary injunction shall be granted without notice to the defendant. Moreover, it is a settled rule in this jurisdiction that a writ of injunction is not proper where its purpose is to take property out of the possession or control of one person and place the same in the hands of another where title has not been clearly established by law. 13

HON. ARIEL C. SANTOS, as Labor Arbiter of the National Capital Region, petitioner,
vs.
HON. WILLLAM BAYHON,

In this petition for certiorari with preliminary injunction/temporary restraining order, Labor Arbiter Ariel C. Santos (herein petitioner) questions the jurisdiction of the Regional Trial Court to issue a writ of preliminary junction to prevent the enforcement of the writ of execution in a labor case, and said Judge’s order dated May 31, 1989 citing him (petitioner) for indirect contempt and ordering his arrest for disobeying the injunction.

FACTS

On November 6, 1985, a decision was rendered by Labor Arbiter Ceferina Diosana in NLRC-NCR Case No. 1-313-85 entitled, “Kamapi vs. Poly-Plastic Products and/or Anthony Ching,” in favor of Kamapi. The decision was affirmed in toto by the National Labor Relations Commission (NLRC) on August 18, 1987. After the decision had become final and executory, Kamapi obtained a writ of execution against the properties, consisting of machineries and equipment, of Poly-Plastic Products or Anthony Ching. However, respondent Priscilla Carrera filed a third party claim alleging that Anthony Ching had sold the machinery and pieces of equipment to her. Nevertheless, the public auction sale proceeded on March 29, 1988

On April 4, 1988, Carrera filed in the Regional Trial Court of Manila (Civil Case No. 88-44154) her claim to the levied properties and obtained a temporary restraining order enjoining Labor Arbiter Diosana and NLRC Deputy Sheriff Pambuan from issuing a certificate of sale over the levied properties.

Santos and Pambuan filed a motion to dismiss the civil case on the ground that the RTC did not have jurisdiction over the labor case, for exclusive jurisdiction is vested in the NLRC (Art. 255, Labor Code) and no injunction or restraining order may be issued by any court or entity in a labor dispute.

Judge William Bayhon of RTC, Manila, issued an order enjoining Labor Arbiter Ceferina Diosana and sheriff Jaime Pambuan from enforcing the writ of execution against the properties claimed by Camera pending the determination of the validity of the sale made in her favor by the judgment debtor Poly-Plastic Products and Anthony Ching.

Judge William Bayhon issued an order declaring Santos guilty beyond reasonable doubt of indirect contempt, ordering his immediate arrest, sentencing him to seven (7) days in jail, and to pay a fine of P1,000 with subsidiary imprisonment in case of insolvency. He further ordered the return of the machineries and equipment of Priscilla Camera. Santos forthwith elevated the matter to this Court for review on the ground that Judge Bayhon’s arrest order dated May 31, 1989 is a nullity because Art. 254 of the Labor Code prohibits the issuance of an injunction or restraining order ‘in any case involving or growing out of labor disputes . . . except as otherwise provided in Articles 218 and 264 of this Code.”

Petitioner alleges further that Judge Bayhon has no jurisdiction to cite petitioner for contempt, for the case grew out of a labor dispute.

Respondents, on the other hand, claim that Judge Bayhon has jurisdiction over the third party claim for respondent Carrera was never a party in the labor dispute between Anthony Ching (judgment debtor) and the members of the Kamapi (judgment creditors), and she had no employer-employee relationship with any of them.

RULING

the petition is dismissed for lack of merit..

The petition has no merit, for the power of the NLRC to execute its judgments extends only to properties unquestionably belonging to the judgment

The general rule that no court has the power to interfere by injunction with the judgments or decrees of another court with concurrent or coordinate jurisdiction possessing equal power to grant injunctive relief, applies only when no third-party claimant is involved (Traders Royal Bank vs. Intermediate Appellate Court, 133 SCRA 142). When a third-party, or a stranger to the action, asserts a claim over the property levied upon, the claimant may vindicate his claim by an independent action in the proper civil court which may stop the execution of the judgment on property not belonging to the judgment debtor. The following rulings of this Court are apropos:

When the sheriff, acting beyond the bounds of his authority, seizes a stranger’s property, the writ of injunction, which is issued to stop the auction sale of that property, is not an interference with the writ oil execution issued by another court because the writ of execution was improperly implemented by the sheriff. Under that writ, he could attach the property of the judgment debtor. He is not authorized to levy upon the property of the third claimant.

There is no question that the writ of execution was issued against the judgment debtors (the Former Owner) in Civil Case No. Q-29325, Court of First Instance (now Regional Trial Court) Branch IV of Quezon City . However, what was levied upon by the Sheriff are the properties allegedly owned by the New Owners of the TML Garments, Inc. This fact of ownership was claimed by the New Owners or petitioners herein in their Motion to Intervene before the trial court. Petitioners contend that they were not the original parties impleaded as co-defendants in Civil Case No. Q-29325; that they were not summoned to appear before the court; that they did not participate in any manner in the proceedings before the court and that the decision of the court a quo did not include them as judgment debtors who should pay the judgment debt, and therefore to compel them to pay the obligation incurred by the former owner of TML Garments, Inc., without due process of law will amount to a deprivation of their property, Wellsettled is the rule that a writ of execution can only be issued against one who is a party to the action and not against one who, not being a party in the case, has not yet had his day in court.

If the disputed property did not belong to the judgment debtor in NLRC Case No. 7-2577-84, it could not be validly levied upon by the sheriff for the satisfaction of the judgment therein.

Consequently, the Regional Trial Court of Manila had jurisdiction to stop by injunction the National Labor Relations Commission’s sheriff from proceeding with the auction sale of the property claimed by the private respondent, to satisfy the claims of the labor union against the Poly-Plastic Products.

RULE 40 and 43

January 14, 2009

BORROMEO vs CA

What constitutes “forum-shopping” under the Interim Rules of Court? This is the question presented in this petition for review on certiorari of the Decision[i][1] in AC-G.R. SP No. 03409 of the then Intermediate Appellate Court[ii][2] dismissing petitioners’ appeal from an order of the then Court of First Instance of Cebu regarding an incident in Special Proceedings No. 916-R for the settlement of the estate of the deceased Vito Borromeo.

By resolution dated November 13, 1995, the First Division of this Court transferred this case, along with several others, to the Third. After due deliberation and consultation on the petition and other submissions of the parties, the Court assigned the writing of this Decision to the undersigned ponente.

The Facts

On August 15, 1969, the Court of First Instance of Cebu , then presided by Judge Alfredo G. Laya, issued an order approving the project of partition and the distribution of the estate of Vito Borromeo to his heirs.

While Judge Alfredo G. Laya was implementing the order of August 15, 1969, herein private respondent Numeriano G. Estenzo, in his capacity as counsel for the oppositors, filed before this Court a petition (L-32876) praying, among other things, that the probate court be restrained from implementing the order of August 15, 1969 and from distributing the estate among the heirs.

On January 12, 1979, the probate court, then presided by respondent Judge Francisco P. Burgos, issued two orders: (1) evaluating the estate at P15,000,000.00 and segregating 40% thereof or P6,000,000.00 for the payment of the claims for attorney’s fees; and (2) directing the Register of Deeds to annotate the claims for attorney’s fees in an amount corresponding to 40% of the market value of the estate.

Atty. Domingo L. Antigua filed a motion praying for the surrender of the certificates of title in the names of the heirs or distributees in order that prospective buyers of the whole estate could inspect them. The probate court, through Judge Burgos, granted the motion. One of the administrators of the estate, Ricardo V. Reyes, filed a motion for the reconsideration of said order, claiming that he could not surrender the titles without the consent of the heirs in whose names the titles sought to be surrendered had been issued by the Register of Deeds of the City and Province of Cebu .

However, four years later or on August 31, 1982, Reyes made a turnaround and himself filed a motion for the surrender of the certificates of title involved in the proceedings for the reversion back to the estate of the distributed lands. This motion was followed by another one jointly filed by Reyes, Atty. Antigua (as counsel for the heirs of Fortunato Borromeo) and Atty. Estenzo as lawyer-claimant and counsel for one of the administrators.

On February 23, 1984, Judge Burgos issued an order cancelling the certificates of title involved and reverting the parcels of land to the estate.

Petitioner’s sought the reconsideration of this order to no avail. Hence, they filed a petition before the Intermediate Appellate Court

On September 23, 1985, the appellate court dismissed the petition on the ground that its filing violated Section 17 of the Interim Rules of Court which prescribes forum-shopping.

The Issue

It should be noted that there were three (3) cases which the respondent Court considered in declaring the petitioners guilty of forum-shopping, viz.:

1) G.R. No. 63818 – where the petitioners asked the Supreme Court to affirm the IAC’s decision disqualifying respondent Judge from taking cognizance of the probate proceedings (916-R);

2) G.R. No. 65995 – where petitioners sought to restrain and to invalidate all acts of respondent Judge after he was disqualified by the IAC;

3) AC-G.R. SP No. 03409 – the origin of the instant petition in this Court, in which petitioners prayed that the respondent Court enjoin respondent Judge from further taking cognizance of the probate proceedings (916-R).

The issue therefore may be re-stated thus: By their filing of the third case, did petitioners engage in forum-shopping as defined by Section 17 of the Interim Rules?

The Court’s Ruling

the instant petition for review on certiorari is DENIED and the questioned decision of the Intermediate Appellate Court is AFFIRMED. Counsel for petitioners, Basilio E. Duaban of Jose S. Amadora and Associates, is ADMONISHED and WARNED that similar acts of forum shopping shall be dealt with more severely.

SC concurred with the respondent Court’s affirmative ruling on said question, which is quoted verbatim, as follows:

“Since G.R. No. L-65995 (Petra Borromeo, et al. vs. Hon. Francisco P. Burgos, etc., et al.), seeks to invalidate any and all proceedings and acts taken by the respondent Court subsequent to March 1, 1983, it clearly covers and includes the surrender to, and the cancellation by, the respondent Court, of the above enumerated certificates of title, which is an act by the respondent judge subsequent to March 1, 1983. The order (was) issued February 23, 1984.

“Should the Supreme Court act affirmatively on G.R. No. L-65995, its judgment would nullify the respondent Judge’s order of February 23, 1984 precisely because it is covered by the aforesaid petition in G.R. No. L-65995. Incidentally, when this petition was filed, the petitioners (that, included the present petitioner, Jose Cuenco Borromeo) asked the Court to issue a restraining order, which the Supreme Court however, did not grant. This enabled the respondent judge to act on the pending motion to require the surrender and the cancellation of the subject certificates of title (which were allegedly illegally transferred in the names of the heirs, at the instance of Jose Cuenco Borromeo, Petra Borromeo and Vitaliana Borromeo). The order of February 23, 1984 thus granted the motion for surrender and cancellation of titles pending when the petition in G.R. No. L-65995 was filed.

“The conclusion is, therefore, inevitable, that this petition is not only similar to, but is truly, and actually covered by the petition in G.R. No. L-65995.’

“Since this petition is not only similar to, but clearly an integral part of the pending petition in G.R. No. L-65995, Section 17 of the Interim Rules of Court has been violated.

“The penalty for violating the said Section 17 of the said Interim Rules, is ‘summary dismissal.’ It violates the rule against multiplicity of suits. The petitioners should have waited the termination of his petition in G.R. No. L-65995 by the Supreme Court; or, he could have submitted a supplemental pleading therein alleging the matters in the instant petition.”[iii][3]

The appellate court also noted that the issues raised by petitioners are clearly premature for if the disqualification of Judge Burgos be affirmed in G.R. No. 63818, then it would certainly follow that all the acts taken by the said judge shall be invalidated for lack of legal authority.

Consequently, petitioners’ goal of invalidating the probate court’s order of February 23, 1984 had been attained, since necessarily, all acts of the probate court subsequent to March 1, 1983 (the date when the then Intermediate Appellate Court disqualified Judge Burgos from taking cognizance of the case), have been rendered null and void by such disqualification. Thus, by filing a petition before the appellate court even after they had filed G.R. No. 65995, petitioners engaged in forum-shopping as they deliberately split appeals, “in the hope that even as one case in which a particular remedy is sought is dismissed, another case (offering a similar remedy) would still be open” thereby needlessly clogging the already heavily burdened dockets of the courts. In this regard, the Court unequivocally said in a similar case[

ST. MARTIN FUNERAL HOME, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and BIENVENIDO ARICAYOS, respondents.

The present petition for certiorari stemmed from a complaint for illegal dismissal filed by herein private respondent before the National Labor Relations Commission (NLRC), Regional Arbitration Branch No. III, in San Fernando , Pampanga. Private respondent alleges that he started working as Operations Manager of petitioner St. Martin Funeral Home on February 6, 1995. However, there was no contract of employment executed between him and petitioner nor was his name included in the semi-monthly payroll. On January 22, 1996, he was dismissed from his employment for allegedly misappropriating P38,000.00 which was intended for payment by petitioner of its value added tax (VAT) to BIR

Petitioner on the other hand claims that private respondent was not its employee but only the uncle of Amelita Malabed, the owner of petitioner St. Martin ‘s Funeral Home

In January 1996, the mother of Amelita passed away, so the latter then took over the management of the business. She then discovered that there were arrears in the payment of taxes and other government fees, although the records purported to show that the same were already paid. Amelita then made some changes in the business operation and private respondent and his wife were no longer allowed to participate in the management thereof. As a consequence, the latter filed a complaint charging that petitioner had illegally terminated his employment. 2

Based on the position papers of the parties, the labor arbiter rendered a decision in favor of petitioner on October 25, 1996 declaring that no employer-employee relationship existed between the parties and, therefore, his office had no jurisdiction over the case. 3

Not satisfied with the said decision, private respondent appealed to the NLRC contending that the labor arbiter erred

NLRC rendered a resolution setting aside the questioned decision and remanding the case to the labor arbiter for immediate appropriate proceedings. 5 Petitioner then filed a motion for reconsideration which was denied by the NLRC in its resolution dated August 18, 1997 for lack of merit, 6 hence the present petition alleging that the NLRC committed grave abuse of discretion. 7

P.D. No. 442 enacted the Labor Code of the Philippines , the same to take effect six months after its promulgation. 8 Created and regulated therein is the present NLRC which was attached to the Department of Labor and Employment for program and policy coordination only. 9 Initially, Article 302 (now, Article 223) thereof also granted an aggrieved party the remedy of appeal from the decision of the NLRC to the Secretary of Labor, but P.D. No. 1391 subsequently amended said provision and abolished such appeals. No appellate review has since then been provided for.

Thus, to repeat, under the present state of the law, there is no provision for appeals from the decision of the NLRC. 10 The present Section 223, as last amended by

Section 12 of R.A. No. 6715, instead merely provides that the Commission shall decide all cases within twenty days from receipt of the answer of the appellee, and that such decision shall be final and executory after ten calendar days from receipt thereof by the parties.

When the issue was raised in an early case on the argument that this Court has no jurisdiction to review the decisions of the NLRC, and formerly of the Secretary of Labor, since there is no legal provision for appellate review thereof, the Court nevertheless rejected that thesis. It held that there is an underlying power of the courts to scrutinize the acts of such agencies on questions of law and jurisdiction even though no right of review is given by statute; that the purpose of judicial review is to keep the administrative agency within its jurisdiction and protect the substantial rights of the parties; and that it is that part of the checks and balances which restricts the separation of powers and forestalls arbitrary and unjust adjudications. 11

Pursuant to such ruling, and as sanctioned by subsequent decisions of this Court, the remedy of the aggrieved party is to timely file a motion for reconsideration as a precondition for any further or subsequent remedy, 12 and then seasonably avail of the special civil action of certiorari under Rule 65, 13 for which said Rule has now fixed the reglementary period of sixty days from notice of the decision. Curiously, although the 10-day period for finality of the decision of the NLRC may already have lapsed as contemplated in Section 223 of the Labor Code, it has been held that this Court may still take cognizance of the petition for certiorari on jurisdictional and due process considerations if filed within the reglementary period under Rule 65. 14

Turning now to the matter of judicial review of NLRC decisions, B.P. No. 129 originally provided as follows:

These provisions shall not apply to decisions and interlocutory orders issued under the Labor Code of the Philippines and by the Central Board of Assessment Appeals. 15

Subsequently, and as it presently reads, this provision was amended by R.A. No. 7902 effective March 18, 1995, to wit:

.

It will readily be observed that, aside from the change in the name of the lower appellate court, 16 the following amendments of the original provisions of Section 9 of B.P. No. 129 were effected by R.A. No. 7902, viz.:

1. The last paragraph which excluded its application to the Labor Code of the Philippines and the Central Board of Assessment Appeals was deleted and replaced by a new paragraph granting the Court of Appeals limited powers to conduct trials and hearings in cases within its jurisdiction.

2. The reference to the Labor Code in that last paragraph was transposed to paragraph (3) of the section, such that the original exclusionary clause therein now provides “except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.” (Emphasis supplied).

3. Contrarily, however, specifically added to and included among the quasi-judicial agencies over which the Court of Appeals shall have exclusive appellate jurisdiction are the Securities and Exchange Commission, the Social Security Commission, the Employees Compensation Commission and the Civil Service Commission.

This, then, brings us to a somewhat perplexing impassè, both in point of purpose and terminology. As earlier explained, our mode of judicial review over decisions of the NLRC has for some time now been understood to be by a petition for certiorari under Rule 65 of the Rules of Court. This is, of course, a special original action limited to the resolution of jurisdictional issues, that is, lack or excess of jurisdiction and, in almost all cases that have been brought to us, grave abuse of discretion amounting to lack of jurisdiction.

It will, however, be noted that paragraph (3), Section 9 of B.P. No. 129 now grants exclusive appellate jurisdiction to the Court of Appeals over all final adjudications of the Regional Trial Courts and the quasi-judicial agencies generally or specifically referred to therein except, among others, “those falling within the appellate jurisdiction of the Supreme Court in accordance with . . . the Labor Code of the Philippines under Presidential Decree No. 442, as amended, . . . .” This would necessarily contradict what has been ruled and said all along that appeal does not lie from decisions of the NLRC. 17 Yet, under such excepting clause literally construed, the appeal from the NLRC cannot be brought to the Court of Appeals, but to this Court by necessary implication.

The same exceptive clause further confuses the situation by declaring that the Court of Appeals has no appellate jurisdiction over decisions falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the provisions of B.P. No. 129, and those specified cases in Section 17 of the Judiciary Act of 1948.

These cases can, of course, be properly excluded from the exclusive appellate jurisdiction of the Court of Appeals. However, because of the aforementioned amendment by transposition, also supposedly excluded are cases falling within the appellate jurisdiction of the Supreme Court in accordance with the Labor Code. This is illogical and impracticable, and Congress could not have intended that procedural gaffe, since there are no cases in the Labor Code the decisions, resolutions, orders or awards wherein are within the appellate jurisdiction of the Supreme Court or of any other court for that matter.

A review of the legislative records on the antecedents of R.A. No. 7902 persuades us that there may have been an oversight in the course of the deliberations on the said Act or an imprecision in the terminology used therein. In fine, Congress did intend to provide for judicial review of the adjudications of the NLRC in labor cases by the Supreme Court, but there was an inaccuracy in the term used for the intended mode of review. This conclusion which we have reluctantly but prudently arrived at has been drawn from the considerations extant in the records of Congress, more particularly on Senate Bill No. 1495 and the Reference Committee Report on S. No. 1495/H. No. 10452. 18

Therefore, all references in the amended Section 9 of B.P. No. 129 to supposed appeals from the NLRC to the Supreme Court are interpreted and hereby declared to mean and refer to petitions for certiorari under Rule 65. Consequently, all such petitions should hence forth be initially filed in the Court of Appeals in strict observance of the doctrine on the hierarchy of courts as the appropriate forum for the relief desired.

Apropos to this directive that resort to the higher courts should be made in accordance with their hierarchical order

under the foregoing premises, the instant petition for certiorari is hereby REMANDED, and all pertinent

RULE 39 – Civ Pro

January 14, 2009

PNB MADECOR, petitioner,
vs.
GERARDO C. UY, respondent.

This is a petition for review on certiorari filed by petitioner PNB Management and Development Corporation (PNB MADECOR) seeking to annul the decision of the Court of Appeals, affirming the order of the Regional Trial Court of Manila.In said order, the RTC directed the garnishment of the credits and receivables of Philippine National Express, Inc., in the possession of PNB MADECOR, and if these were insufficient to cover the debt of PNB MADECOR to PNEI, to levy upon the assets of PNB MADECOR.

FACTS

Guillermo Uy, doing business under the name G.U. Enterprises, assigned to respondent Gerardo Uy his receivables due from Pantranco North Express Inc. (PNEI) amounting to P4,660,558.00.

Gerardo Uy filed with the RTC a collection suit with an application for the issuance of a writ of preliminary attachment against PNEI. He sought to collect from PNEI an. He alleged that PNEI was guilty of fraud in contracting the obligation sued upon, hence his prayer for a writ of preliminary attachment.

A writ of preliminary attachment was issued on January 26, 1995, commanding the sheriff “to attach the properties of the defendant, real or personal, and/or (of) any person representing the defendant”2 in such amount as to cover Gerardo Uy’s demand.

Also in his omnibus motion, he prayed for an order directing that levy be made upon all goods, credits, deposits, and other personal properties of PNEI under the control of PNB MADECOR, to the extent of his demand.

PNB MADECOR opposed his omnibus motion .

Meanwhile, in the main case, the RTC rendered judgment against PNEI

Petitioner appealed said order to the CA which, however, affirmed the RTC in a decision dated February 19, 1997. Petitioner’s motion for reconsideration was denied in a resolution dated June 19, 1997.

According to the CA, there could not be any compensation between PNEI’s receivables from PNB MADECOR and the latter’s obligation to the former because PNB MADECOR’s supposed debt to PNEI is the subject of attachment proceedings initiated by a third party, herein respondent Gerardo Uy. This is a controversy that would prevent legal compensation from taking place, per the requirements set forth in Article 1279 of the Civil Code. Moreover, the CA stressed that it was not clear whether, at the time compensation was supposed to have taken place, the rentals being claimed by petitioner were indeed still unpaid. The CA pointed out that petitioner did not present evidence in this regard, apart from a statement of account.

The CA rejected petitioner’s contention that Rule 39, Section 43 of the Revised Rules of Court applies to the present case. Said rule sets forth the procedure to follow when a person alleged to have property or to be indebted to a judgment obligor claims an interest in the property or denies the debt. In such a situation, under said Rule the judgment obligee is required to institute a separate action against such person. The CA held that there was no need for a separate action here since petitioner had already become a forced intervenor in the case by virtue of the notice of garnishment served upon it.

ISSUE

Whether or not Rule 39, Section 43 of the Revised Rules of Court applies to the present case.

RULING

the petition is DENIED. The assailed decision and resolution of the Court of Appeals are AFFIRMED.

Compensation is a mode of extinguishing to the concurrent amount the obligations of persons who in their own right and as principals arereciprocally debtors and creditors of each other.10 Legal compensation takes place by operation of law when all the requisites are present,11 as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites.12

Legal compensation requires the concurrence of the following conditions:

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

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

(3) that the two debts be due;

(4) that they be liquidated and demandable;

(5) that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.13

Petitioner insists that legal compensation had taken place such that no amount of money belonging to PNEI remains in its hands, and, consequently, there is nothing that could be garnished by respondent.

SC finds that legal compensation could not have occurred because of the absence of one requisite in this case: that both debts must be due and demandable.

Petitioner’s obligation to PNEI appears to be payable on demand, following the above observation made by the CA and the assertion made by petitioner. Petitioner is obligated to pay the amount stated in the promissory note upon receipt of a notice to pay from PNEI. If petitioner fails to pay after such notice, the obligation will earn an interest of 18 percent per annum.

We agree with petitioner that this letter was not one demanding payment, but one that merely informed petitioner of (1) the conveyance of a certain portion of its obligation to PNEI per adacion en pago arrangement between PNEI and PNB, and (2) the unpaid balance of its obligation after deducting the amount conveyed to PNB. The import of this letter is not that PNEI was demanding payment, but that PNEI was advising petitioner to settle the matter of implementing the earlier arrangement with PNB.

Apart from the aforecited letter, no other demand letter appears on record, nor has any of the parties adverted to another demand letter.

Since petitioner’s obligation to PNEI is payable on demand, and there being no demand made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject to compensation for lack of a requisite under the law. Without compensation having taken place, petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation may undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment debt.18

As to respondent’s claim that legal compensation could not have taken place due to the existence of a controversy involving one of the mutual obligations, we find this matter no longer controlling. Said controversy was not seasonably communicated to petitioner as required under Article 1279 of the Civil Code.

The controversy,i.e., the action instituted by respondent against PNEI, must have been communicated to PNB MADECOR in due time to prevent compensation from taking place. By “in due time” should be meant the period before legal compensation was supposed to take place, considering that legal compensation operates so long as the requisites concur, even without any conscious intent on the part of the parties.19 A controversy that is communicated to the parties after that time may no longer undo the compensation that had taken place by force of law, lest the law concerning legal compensation be for naught.

SPOUSES EMILIO ABINUJAR and MILAGROS M. LANA, petitioners,
vs.
THE COURT OF APPEALS and SPOUSES SANTIAGO RAMIRO and FLORENTINA RAMIRO, respondents.

This is a petition for review on ceitiorari under of the Decision dated December 27, 1991 and the Resolution dated February 11, 1992 of the Court of Appeals in CA-G.R. SP No. 24683.

FACTS

On October 10, 1987, petitioners executed a Deed of Sale with Right to Repurchase in favor of private respondents, involving a residential house located at No. 346 Algeciras St. , Sampaloc, Manila . Due to serious financial and business reverses, petitioners were not able to redeem the property within four months as agreed upon.

On October 24, 1989, private respondents filed a complaint for ejectment in the Metropolitan Trial Court of the City of Manila , docketed as Civil Case No. 130352-CV against petitioners.

On December 27, 1989, the parties, assisted by their counsels, executed a compromise agreement. In an order dated March 15, 1990, the Metropolitan Trial Court approved the compromise agreement.

On April 15, 1990, private respondents filed a motion for execution on the ground that petitioners failed to pay the first three installments stipulated in the compromise agreement, to wit: P50,000.00 on January 31, 1990; P10,000.00 on February 28, 1990; and P10,000.00 on March 31, 1990.

On August 23, 1990, respondents opposed petitioners’ ex-parte motion and stated that they would not renew the compromise agreement with petitioners.

The Metropolitan Trial Court denied private respondents’ motion for execution dated April 15, 1990 and another similar motion dated June 26, 1990.

In compliance with the said resolution, the Metropolitan Trial Court issued an order dated March 27, 1991 directing the issuance of a writ of execution to enforce the compromise agreement entered into by the parties.

On April 11, 1991, a “Sheriffs’ Notice to Voluntarily Vacate the Premises” was served on petitioner.

Petitioners then filed a petition for certiorari with a prayer for the issuance of a temporary restraining order and a writ of injunction with the Court of Appeals (CA-G.R. SP No. 24683).

On December 27, 1991, the Court of Appeals dismissed the petition. Likewise, the said court denied the motion for reconsideration filed by petitioner.

ISSUES

Whether or not the issuance by the Deputy Sheriff of the notice to voluntarily vacate the premises by way of enforcing the decision approving the compromise agreement is valid . Petitioners maintain that their obligation is monetary in nature and the applicable rule should have been Section 15, Rule 39 and not Section 13, Rule 39 of the Revised Rules of Court.

RULING

The decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the Sheriff is directed to enforce the execution only of the money judgment in accordance with Section 15, Rule 39 of the Revised Rules of Court.

A perusal of the compromise agreement signed by the parties and approved by the inferior court merely provided that in case the defendants (petitioners herein) failed to pay three monthly installments, the plaintiffs (private respondents herein) would be entitled to a writ of execution, without specifying what the subject of execution would be. Said agreement did not state that petitioners would be evicted from the premises subject of the suit in case of any default in complying with their obligation thereunder. This was the result of the careless drafting thereof for which only private respondents were to be blamed.

A judgment is the foundation of a writ of execution which draws its vitality therefrom (Monaghon v. Monaghon, 25 Ohio St. 325). An officer issuing a writ of execution is required to look to the judgment for his immediate authority (Sydnor v. Roberts, 12 Tex. 598).

An execution must conform to and be warranted by the judgment on which it was issued (Francisco, The Revised Rules of Court 641 [1966]; Kramer v. Montgomery, 206 Okla.190, 242 p. 2d 414 [1952]). There should not be a substantial variance between the judgment and the writ of execution (Avery v. Lewis, 10 Vt. 332). Thus, an execution is fatally defective if the judgment was for a sum of money and the writ of execution was for the sale of mortgaged property (Bank of Philippine Islands v. Green, 48 Phil. 284 [1925]).

As petitioners’ obligation under the compromise agreement as approved by the court was monetary in nature, private respondents can avail only of the writ of execution provided in Section 15, Rule 39 of the Revised Rules of Court, and not that provided in Section 13.

Section 15, Rule 39 provides:

Execution of money judgments. ? The officer must enforce an execution of a money judgment by levying on all the property, real and personal of every name and nature whatsoever, and which may be disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient amount of such property, if there be sufficient, and selling the same, and paying to the judgment creditor, or his attorney, so much of the proceeds as will satisfy the judgment. Any excess in the proceeds over the judgment and accruing costs must be delivered to the judgment debtor, unless otherwise directed by the judgment or order of the court. When there is more property of the judgment debtor than is sufficient to satisfy the judgment and accruing costs, within the view of the officer, he must levy only on such part of the property as is amply sufficient to satisfy the judgment and costs.

Real property, stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied on in like manner and with like effect as under a writ of attachment.

On the other hand, Section 13, Rule 39 provides:

How execution for the delivery or restitution of property enforced. ? The officer must enforce an execution for the delivery or restitution of property by ousting therefrom the person against whom the judgment is rendered and placing the judgment creditor in possession of such property, and by levying as hereinafter provided upon so much of the property of the judgment debtor as will satisfy the amount of the judgment and costs included in the writ of execution.

NOVERNIA P. NAGUIT, petitioner,
vs.
THE COURT OF APPEALS, OSLER U. PADUA and NORBERTO B. MAGSAJO, respondents.

FACTS

In a decision rendered on 15 October 1991, the Regional Trial Court (RTC) of Makati, Branch 133, found Rolando Naguit liable for violation of Batas Pambansa Blg. 22, and ordered him to indemnify private respondent Osler U. Padua in the amount of P260,000.00 and to pay the costs of the action (Criminal Case No. 90-2645). A writ of execution was issued by said court on 23 June 1992 and pursuant thereto, respondent Sheriff Norberto B. Magsajo levied upon a condominium unit covered by Condominium Certificate of Title No. 7362 of the Registry of Deeds for the City of Makati , which notice of levy was annotated at the back of the title. Consequently, the property was sold at a public auction for P318,050.00 in favor of private respondent, as the highest bidder. The certificate of sale was issued in the name of private respondent and registered with the Registry of Deeds on 25 August 1994.

On 8 August 1995, petitioner filed a complaint with the RTC of Makati against private respondent Padua and respondent Sheriff Magsajo for the annulment of sale and for damages, with a prayer for the issuance of a writ of preliminary injunction in order to enjoin the final conveyance of title over the condominium unit to private respondent (Civil Case No. 95-1182). Petitioner claimed that the debt contracted by her husband did not redound to the benefit of the family, nor was it made with her consent, and therefore, should not be charged to the conjugal partnership of gains or to her exclusive property; that the condominium unit levied upon and sold to private respondent is her exclusive property, not the judgment obligor’s; and that consequently, the levy and sale of the condominium unit are void.1

On 20 September 1995, Branch 136 of the RTC of Makati denied petitioner’s prayer for the issuance of preliminary injunction

On 5 July 1996, the trial court issued an order denying petitioner’s motion for reconsideration and dismissing the case on the ground of lack of jurisdiction.3 The Court of Appeals upheld the trial court’s decision to dismiss the case.

ISSUES

wherein petitioner asks that the 18 November 1998 Decision and 9 February 1999 Resolution of the Court of Appeals be set aside and that the action for annulment of sale be tried on the merits.5

The petition is imbued with merit. A third-party claimant’s right to bring an independent action to assert his claim of ownership over the properties seized is sanctioned by Section 17 of Rule 39 of the old Rules of Civil Procedure

RULING

The petition is GRANTED.

petitioner filed an independent action for the annulment of the certificate of sale issued in favor of private respondent, contending that the property levied upon and sold to private respondent by virtue of the writ of execution issued in Criminal Case No. 90-2645 was her exclusive property, not that of the judgment obligor. Pursuant to our ruling in Sy v. Discaya,9 petitioner is deemed a stranger to the action wherein the writ of execution was issued and is therefore justified in bringing an independent action to vindicate her right of ownership over the subject property.

Contrary to the stand taken by the trial court, the filing of such an independent action cannot be considered an encroachment upon the jurisdiction of a co-equal and coordinate court. The court issuing the writ of execution may enforce its authority only over properties of the judgment debtor; thus, the sheriff acts properly only when he subjects to execution property undeniably belonging to the judgment debtor. If the sheriff levies upon the assets of a third person in which the judgment debtor has no interest, then he is acting beyond the limits of his authority and is amenable to control and correction by a court of competent jurisdiction in a separate and independent action.10 This is in consonance with the well-established principle that no man shall be affected by any proceeding to which he is a stranger. Execution of a judgment can only be issued against a party to the action, and not against one who has not yet had his day in court.11

The “proper action” mentioned in Section 17 would have for its object the recovery of ownership or possession of the property seized by the sheriff, as well as damages resulting from the allegedly wrongful seizure and detention thereof despite the third party claim and it may be brought against the sheriff and such other parties as may be alleged to have colluded with him in the supposedly wrongful execution proceedings, such as the judgment creditor himself. If instituted by a stranger to the suit in which execution has issued, such “proper action” should be a totally separate and distinct action from the former suit.7

In addition to the filing of a “proper action,” the third-party claimant may also avail of the remedy known as “terceria,” by executing an affidavit of his title or right of possession over the property seized and serving the same upon the officer making the levy and the judgment creditor. Thereafter, the officer shall not be bound to keep the property, unless the judgment creditor or his agent indemnifies the officer against such claim by a bond in a sum not greater than the value of the property levied on. An action for damages may be brought against the officer within one hundred twenty (120) days from the date of the filing of the bond.

Rogelio Ramiscal vs CA

Bella Catalan filed a complaint against Rogelio Mariscal before the RTC of Iloilo for the annulment of their marriage on the ground that the same is void ab initio for having been solemnized without a valid marriage license and for being bigamous. Two days later, Mariscal filed his own complaint against Catalan before the RTC of Digos, Davao del Sur seeking likewise the annulment of the same marriage on the ground that he was forced to marry her at gunpoint and that they had no valid license. In view of the case earlier instituted, Catalan moved for the dismissal of the later case invoking litis pendencia as both cases involved the same parties and the same cause of action. The motion was denied by the RTC of Digos, but the same was reversed on appeal by the Court of Appeals. Hence, this appeal by Mariscal.

The petition was devoid of merit. The parties involved in the first case are the very same protagonists in the second case. The actions in both fora were based on the same set of facts that gave rise to the uniformity of the principal reliefs sought, more particularly, the ultimate dissolution of their marriage. In litis pendencia, what is essential is the identity and similarity of the issues under consideration. The issue besetting the two actions is simply the nullification of a marriage contracted by the parties. The issues and arguments raised before the two trial courts are identical. Any decision or ruling promulgated in one case will necessarily constitute res judicata in the other case. Further, the Iloilo court had already rendered a decision nullifying the marriage of the parties on the ground that the same was bigamous. Hence, any subsequent decision by the Digos court which deviated from the ruling of the earlier case could only lead to absurd if not chaotic consequences.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; MOTION TO DISMISS; GROUNDS; LITIS PENDENCIA; REQUISITES- Litis pendencia is a ground for the dismissal of an action which has become unnecessary and vexatious. In Victronics Computers, Inc. v. RTC-Br. 63, Makati, we said – It is a rule that for litis pendencia to be invoked as ground for the abatement or dismissal of an action, the concurrence of the following requisites is necessary: (a) identity of parties, or at least such as representing the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and, (c) the identity in the two (2) cases should be such that the judgment that may be rendered in the pending case would, regardless of which party is successful, amount to res judicata in the other.

2. ID.; ID.; PLEADINGS; COUNTERCLAIM; NATURE. – A counterclaim partakes of the nature of a complaint and/or a cause of action against the plaintiff in a case. To interpose a cause of action in a counterclaim and again invoke it in a complaint against the same person or party would be splitting a cause of action not sanctioned by the Rules. Indeed the Court is puzzled no end why Mariscal literally shied away from the RTC of Iloilo where he could have just as well ventilated his affirmative and special defenses and litigated his compulsory counterclaim in that court and thus avoided this duplicity of suits which is the matrix upon which litis pendencia is laid.

JOSE V. DELA RAMA, petitioner, vs. HON. FRANCISCO G. MENDIOLA, Judge, RTC Pasay City, THE COURT OF APPEALS and TITAN CONSTRUCTION CORP., respondents.

This is a petition for certiorari under Rule 65 of the Revised Rules of Court assailing the orders of RTC which denied petitioner’s Motion to Dismiss and Motion For Direct Contempt based on Forum Shopping, as well as his Motion for Reconsideration.

Petitioner sold to the government on expropriation a parcel of land consisting of 1,225 square meters, which was part of Lot 831-A, covered by Transfer Certificate of Title No. 22066, for use in the construction of the EDSA Extension Project. The sale was subject to the reconveyance to petitioner of any unused portion of the property after the project is completed

Petitioner entered into a “Contract to Sell”, whereby he undertook to sell to respondent Titan Construction Corporation a parcel of land adjacent to the one expropriated.[2][3] Subsequently, petitioner failed to comply with his obligations under the “Contract to Sell”; thus respondent filed a complaint for rescission/annulment of contract with the Regional Trial Court of Pasay City , Branch 116, which was docketed as Civil Case No. 6020. The parties entered into a compromise agreement and, on May 19, 1989, the trial court rendered judgment approving the parties’ compromise agreement

After the execution of the Agreement to Sell and Buy, respondent paid petitioner the amount of P200,000.00, for which the latter issued a receipt which contained the inscription: “amount is not refundable & not deductible from the agreed price.”

Meanwhile, petitioner sought the reconveyance of the unused portion of the property from the government. On December 4, 1996, the Office of the President executed the corresponding Deed of Reconveyance in favor of petitioner over 303 square meters of unused land.[4][7]

On January 3, 1997, respondent filed with the Regional Trial Court of Pasay City , Branch 110, a Petition for Declaratory Relief, Prohibition, Mandamus and Preliminary Injunction with Prayer for Restraining Order

Respondent filed an action for specific performance based on the compromise judgment with the Regional Trial Court of Pasay City , which was docketed as Civil Case No. 97-0734.[5][11] Petitioner thus filed with the Court of Appeals, in CA-G.R. SP No. 44094, a Motion for Direct Contempt and to Dismiss based on Forum Shopping.[6][12] He also filed a similar motion with the Regional Trial Court of Pasay City in Civil Case No. 97-0734.[7][13]

Respondent filed a motion to withdraw the petition 14] which the Court of Appeals, in its Resolution dated December 10, 1997, granted. Thus, the case was dismissed with finality.[8][15]

IISSUE

Whether or not the specific performance is barred by the petition for declaratory relief case on the ground of res judicata.

RULING

the petition is GRANTED

It is true that the first case was a special civil action for declaratory relief while the second case was a civil action for specific performance. However, the difference in form and nature of the two actions is immaterial. The philosophy behind the rule on res judicata prohibits the parties from litigating the same issue more than once.[9][25] The issue involved in the declaratory relief case was whether respondent has rights over the property which was reconveyed to petitioner considering that he waived all his rights by executing the Agreement to Sell and Buy. In the specific performance case, the issue involved was the same, that is, whether respondent was entitled to the property reconveyed when the petitioner failed to comply with the terms of their agreement embodied in the same Agreement to Sell and Buy. Respondent’s alleged right in both cases depends on one and the same instrument, the Agreement to Sell and Buy. Clearly, respondent’s ultimate objective in instituting the two actions was to have the property reconveyed in its favor.

When material facts or questions in issue in a former action were conclusively settled by a judgment rendered therein, such facts or questions constitute res judicata and may not be again litigated in a subsequent action between the same parties or their privies regardless of the form of the latter. This is the essence of res judicata or bar by prior judgment. The parties are bound not only as regards every matter offered and received to sustain or defeat their claims or demand but as to any other admissible matter which might have been offered for that purpose and of all other matters that could have been adjudged in that case.[10][26]

Assuming res judicata finds no application in the instant case, the action for specific performance must nonetheless be dismissed. The Agreement to Sell and Buy, being one of the prestations of the compromise agreement which was judicially confirmed and had long become final and executory, cannot be enforced in a separate action.

There is res judicata where the following four essential conditions concur, viz: (1) there must be a final judgment or order; (2) the court rendering it must have jurisdiction over the subject matter and the parties; (3) it must be a judgment or order on the merits; and (4) there must be, between the two cases, identity of parties, subject matter and causes of action.

Reviewing the records of the case, there is no question that all the first three elements of res judicata are present. The declaratory relief case, which was elevated by way of a petition for certiorari to the Court of Appeals, has been dismissed with finality. The decision was rendered by a court of competent jurisdiction and the case was resolved on its merits.

As regards the fourth condition, it is clear that there is identity of parties in the two cases. The declaratory relief case was filed by respondent Titan against Executive Secretary Ruben D. Torres, DPWH Secretary Gregorio R. Vigilar, the Register of Deed of Pasay City, petitioner Jose V. Dela Rama and Esperanza Belmonte (deceased). On the other hand, the specific performance case was filed by respondent Titan against petitioner Dela Rama and the heirs of Esperanza Belmonte. Although the public respondents in the declaratory relief case were not impleaded in the specific performance case, only a substantial identity is necessary to warrant the application of res judicata.[12][20] The addition or elimination of some parties does not alter the situation.[

The subject matters and causes of action of the two cases are likewise identical. A subject matter is the item with respect to which the controversy has arisen, or concerning which the wrong has been done, and it is ordinarily the right, the thing, or the contract under dispute. In the case at bar, both the first and second actions involve the same real property. A cause of action, broadly defined, is an act or omission of one party in violation of the legal right of the other.[14][22] Its elements are the following: (1) the legal right of plaintiff; (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right.[15][23] Causes of action are identical when there is an identity in the facts essential to the maintenance of the two actions, or where the same evidence will sustain both actions. If the same facts or evidence can sustain either, the two actions are considered the same, so that the judgment in one is a bar to the other

The principle of res judicata requires that stability be accorded to judgments. Controversies once decided on the merits shall remain in repose for there should be an end to litigation which, without the doctrine, would be endless.[17][29] Given the circumstances in this case, we find that the trial court committed grave abuse of discretion when it denied the motion to dismiss filed by petitioners.

MARY M. BAUSA AND THE LEGAL HEIRS OF THE LATE HONESTO K. BAUSA NAMELY, RODOLFO M. BAUSA, WILHELMINA B. DACANAY, AND HONESTO K. BAUSA, JR., PETITIONERS, VS. HEIRS OF JUAN DINO, NAMELY, ADELINA DINO AYO AND DOMINGO DINO, BLANDINO DINO, HONESTO DINO AND ALL PERSONS CLAIMING UNDER THEM, RESPONDENTS.

This Petition for Certiorari assails the December 22, 2003 Decision[1] of the Court of Appeals in CA-G.R. CV No. 67994 holding that the independent action for revival of judgment filed by petitioners was time-barred, thereby reversing and setting aside the May 17, 2000 Decision[2] of the Regional Trial Court of Sorsogon, Sorsogon, Branch 51, in Civil Case No. 6433; and its January 11, 2005 Resolution[3]denying the motion for reconsideration.

On June 5, 1978, petitioners filed a complaint for recovery of possession of a 1.2 hectare parcel of land located in Caricaran, Bacon, Sorsogon, covered by Transfer Certificate of Title No. 182 registered in the name of petitioner Mary Manion Bausa. The case was docketed as Civil Case No. 639 and raffled to Branch 52 of the Regional Trial Court of Sorsogon, Sorsogon.

On October 2, 1985, the trial court rendered a Decision[4] declaring petitioners as owners of the subject property
On November 19, 1987, petitioners’ Motion for Execution[7] was granted by the trial court for which the corresponding Writ of Execution was issued. However, it was not served to defendant Juan Dino.

Meanwhile, respondents filed a Petition for Certiorari with this Court docketed as G.R. No. 78229 assailing the decision of the Court of Appeals, however, the case was dismissed in a Resolution dated May 20, 1987. The Resolution became final and executory on November 26, 1987 as shown in the Entry of Judgment.[8]

Considering that the writ of execution was not served to Juan Dino, petitioners filed a motion for the issuance of an alias writ of execution,[9] which was granted. Thereafter, a Delivery of Possession[10] was executed by Deputy Sheriff Edito Buban, a copy of which was received by private respondents but they refused to sign it and they remained in the said property.

Hence, petitioners filed a Petition for Demolition[11] which the court granted.

Unable to execute the October 2, 1985 Decision of Branch 52, Regional Trial Court of Sorsogon, petitioners filed a Complaint for Execution of Decision on January 30, 1998 .Juan Dino died, hence the complaint was filed against his heirs, herein private respondents who filed an Opposition contending that the action was barred by prescription.

On May 17, 2000, the Regional Trial Court of Sorsogon, Branch 51, rendered its Decision[14] holding that the action to revive the October 2, 1985 Decision was timely filed. The dispositive portion of said decision reads:

Respondents appealed to the Court of Appeals which reversed the Decision of the trial court and ruled that the action was not timely filed.

Petitioners filed a motion for reconsideration but it was denied.

ISSUES

Whether or not the petition for certiorari is erroneous because the same lies only when there is no plain, speedy and adequate remedy in the ordinary course of law; that petitioners’ remedy is to file a petition for review on certiorari under Rule 45 of the Rules of Court, the availability of which forecloses the use of certiorari; and that having been filed beyond the 15-day period prescribed by Rule 45, the assailed judgment of the Court of Appeals has become final.

RULING

petition is GRANTED.

The Court also notes that petitioners claim of ownership and right to recovery of possession was by virtue of a title registered in their names. The ruling of the trial court regarding the identity of the land in question and its inclusion in the said title was duly proven in the proceedings before it and said decision has attained finality. Thus, it was improper for the Court of Appeals to appreciate the tax declarations presented by respondents as evidence of ownership. It should be stressed that the issue of who has better rights of possession and ownership over the properties has long been adjudicated by the courts and has attained finality. The Court of Appeals likewise erred in reversing the order to vacate the premises on the ground that the writ of execution was not specific as to which area is claimed as the identity of the property under litigation was resolved in the earlier proceedings between the parties. Besides, the sufficiency of the writ should have been raised in the proceedings in Civil Case No. 639 before Branch 52; it is not an issue in the complaint for execution which is an independent action the cause of action of which is the judgment sought to be revived.

In the instant case, the Court gives due course to the petition for certiorari in the broader interest of justice and in view of the substantive issues raised. The Court of Appeals gravely abused its discretion in ruling that petitioners can no longer enforce the judgment of the trial court. Petitioners, in whose names the title of the subject property was registered, were stripped of their rights of ownership contrary to the provisions of Section 47 of P.D. No. 1529. The Court of Appeals erred in appreciating the tax declarations presented by respondents as evidence of ownership vis-Ã -vis the transfer certificate of title of the petitioners. Moreover, the issue of ownership over the subject property had long been adjudicated in favor of petitioners, which judgment has become final and executory. Thus, the Court of Appeals exceeded its authority in ruling on the issue of ownership. The only issue submitted for its resolution is whether petitioners’ independent action to revive the October 2, 1985 Decision of the trial court was timely filed. Likewise, the appellate court was without authority to rule that the trial court erred in ordering respondents to vacate the premises on the ground that the writ of execution was not specific as to which area is claimed.

In the instant case, petitioners are seeking to revive the judgment rendered on October 2, 1985 by Branch 52 of the Regional Trial Court of Sorsogon in Civil Case No. 639 declaring them as rightful owners of the property, and ordering respondents to vacate the premises, and to pay rents and other damages. The judgment became final and executory on January 28, 1987 as shown in the Entry of Judgment.[21] Thus, petitioners have five years therefrom to execute said judgment by mere motion and, should they fail to do so, have ten years from said date to revive the judgment by an independent action, which they filed on January 30, 1998.

The purpose of the law in prescribing time limitations for enforcing judgments by action is to prevent obligors from sleeping on their rights.[22] In the instant case, far from sleeping on their rights, petitioners pursued every available remedy to recover the subject property but failed due to the machinations of respondents. After the decision declaring them as rightful owners of the property became final and executory on January 28, 1987, petitioners filed on May 8, 1987 a motion for execution which was granted. However, the same was not served on defendant Juan Dino. Consequently, petitioners applied for the issuance of an alias writ of execution. Thereafter, the sheriff executed a Delivery of Possession. However, respondents refused to sign the same and remained in the premises. Thus, petitioners applied for a writ of demolition. Although the same was granted, it was not implemented due to respondents’ resistance. Thus, petitioners filed an action to revive the judgment of the trial court declaring them as owners of the property. Despite diligent efforts and the final and executory nature of the Decision, petitioners have yet to regain possession of what is legally their own. These circumstances clearly demonstrate that the failure to execute the judgment was due to respondents’ refusal to follow the several writs ordering them to vacate the premises. It would be unfair for the Court to allow respondents to profit from their defiance of valid court orders.

It is a better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to do so, manifest wrong or injustice would result.[23] It would be more in keeping with justice and equity to allow the revival of the judgment rendered by Branch 52 of the Regional Trial Court of Sorsogon in Civil Case No. 639. To rule otherwise would result in an absurd situation where the rightful owner of a property would be ousted by a usurper on mere technicalities. Indeed, it would be an idle ceremony to insist on the filing of another action that would only unduly prolong respondents’ unlawful retention of the premises which they had, through all devious means, unjustly withheld from petitioners all these years.[24]

ALLIED BANKING CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS AND FILOTEO ALANO, respondents.

This is a petition for review on certiorari to set aside the decision of the Court of Appeals in CA-G.R. CV No. 33307. The said decision affirmed in toto the order of the trial court dismissing the petitioner’s complaint on the ground of res judicata.

FACTS

The private respondent is one of several parties named as co-defendants of Dearfield, Incorporated (Dearfield) in a complaint 1 filed by the petitioner with the Regional Trial Court (RTC) of Makati on 25 May 1987, which was docketed as Civil Case No. 16837 (hereinafter the First Case) and raffled off to Branch 149 of the said court. The complaint is based on promissory notes, letters of credit, and trust receipts executed by the principal obligor, Dearfield. On 16 November 1987, the private respondent filed a motion to dismiss the complaint on the ground that it falls to state a cause of action as against him. 2 He specifically averred that a reading of the first to the seventh causes of action will reveal that he is never mentioned therein as having a contractual relation with the plaintiff; that the allegations therein “don’t even cite or mention any participation of defendant ALANO in these transactions”; that on the basis of the allegations of the complaint, the court cannot render a valid judgment against him; and that the complaint served on him did not contain Annexes “S”, “T”, and “U”, the alleged copies of the “Continuing Guaranty/Comprehensive Surety” documents, thereby violating Section 7, Rule 8 of the Rules of Court and rendering the complaint against him defective. The petitioner opposed the motion to dismiss. 3

On 31 October 1990, the petitioner filed with the RTC of Manila a new complaint 9 against the private respondent and Feliciana Camara, a surety who was also a defendant in the first complaint

In its Order of 1 March 1991, the trial court sustained the motion and ordered the dismissal of the case as against the private respondent. 11 The petitioner appealed the order to the Court of .The Court of Appeals found no reversible error in the challenged order and affirmed it in toto

ISSUE

whether the Court of Appeals committed a reversible error in affirming the ruling of the trial court dismissing the Second Case on the ground of res judicata.

RULING

The parties do not dispute the fact that Branch 149 of the RTC of Makati had jurisdiction over the First case. Its Order of 20 June 1988 dismissing the said case on the ground that “there is really no cause of action against defendant Alano” had long become final and executory and no less than this Court had affirmed its finality when it dismissed on 17 April 1989, on the grounds of late filing and lack of merit, the petitioner’s action (G.R. No. 86009) to set aside the trial court’s order. It is likewise undisputed that there is an identity of parties (insofar as the petitioner and the private respondent are concerned) and an identity of subject matter between the First and Second Case. The petitioner however submits that there is no identity of causes of action between the two cases since there was no cause of action against private respondent in the First case as held by the trial court, while there is now a cause of action in the Second Case. He also argues that there was no judgment on the merits in the First Case.

The argument that there is no identity of causes of action is meretricious. It betrays the petitioner’s misunderstanding of what a cause of action is as component of res judicata. That identity relates to the accuses of action in the prior or latter cases. No elaboration is needed to show that the causes of action both in the First Case the and Second Case are the same ? enforcement of the rights of the petitioner under the promissory notes, letters of credit, and trust receipts. Although the trial court declared that “on the basis of the allegations of the complaint, there is really no cause of action against defendant Alano,” it does not follow that the complaint states no cause of action at all. It must be stressed in this connection that, contrary to the petitioner’s contention, the trial court did not primarily base its conclusion of lack of cause of action on the failure of the petitioner to attach to the complaint copies of the alleged “Continuing Guaranty/Comprehensive Surety” agreements. Its main bases are the allegations in the complaint. Our own perusal of the complaint clearly sustains the conclusion of the trial court. Indeed, the complaint neither mentions the name of the private respondent in any of the causes of action nor suggests what his liability is. In short, the petitioner itself had shown beyond cavil, through its allegations in the complaint, that with respect to the promissory note, letters of credit, and trust receipts subject of the complaint, the private respondent had incurred in liability whatsoever.

Nor is there any doubt that the dismissal of the First Case was a dismissal on the merits. That the dismissal of the First case was not by virtue of a decision but of an order pursuant to a motion to dismiss does not make the dismissal any less an adjudication on the merits

All the essential requisites of res judicata are thus present and the dismissal of the Second Case on that ground was not tainted by any error or abuse of discretion. The petitioner cannot evade its application by varying the form of his action or adopting a different method of presenting his case, 20 or by simply adding or dropping parties in the subsequent case. 21 That in the Second Case the petitioner had attached the “Continuing Guaranty/Comprehensive Surety” agreements allegedly signed by the private respondent does not help the cause of the petitioner. Those documents were already touched upon in the pleadings relative to the motion to dismiss the First Case. Moreover, if we follow the arguments of the petitioner, said documents are inextricably linked to the promissory notes, letters of credit, and trust receipts which are, in fact, the subject of the two cases. It is settled that as between the same parties, on the same subject matter and causes of action, a final valid judgment is conclusive not only on the issues actually determined by the decision, but on all issues that could have been raised or litigated in the anterior suit.

Negotiable Instrument Law

January 13, 2009

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the order declaring him in default, 1 and from the order of said court in the same case denying his motion to set aside the judgment rendered after he was declared in default. 2 These two appeals of the defendant were docketed as

Upon motion of the defendant on he was allowed by the Court of Appeals to file one consolidated record on appeal of

In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the consolidated appeal to the Supreme Court on the ground that only questions of law are involved. 5

the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of about P35,000.00 with daily interest thereon from November 17, 1959 until fully paid and commission equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorney’s fees equivalent to 10% of the total amount due and costs. 6 The complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring to twenty-two (22) transactions entered into by the said Bank and Aruego on different dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought to be recovered represents the cost of the printing of “World Current Events,” a periodical published by the defendant. To facilitate the payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing of the “World Current Events,” the printer, Encal Press and Photo Engraving, collected the cost of printing by drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an added security for the payment of the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all obligations arising from the draft. 8

Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On December 14, 1959 defendant filed an urgent motion for extension of time to plead, and set the hearing on December 16, 1959. 10 At the hearing, the court denied defendant’s motion for extension. Whereupon, the defendant filed a motion to dismiss the complaint on December 17, 1959 on the ground that the complaint states no cause of action because:

a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts thereof had already been paid by the plaintiff to the drawer (Encal Press and Photo Engraving), without knowledge or consent of the defendant drawee.

b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an accommodating party only for the drawer (Encal Press and Photo-Engraving) and win be liable in the event that the accommodating party (drawer) fails to pay its obligation to the plaintiff. 11

The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the defendant on December 24, 1959. 12

On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the ground that the defendant should have filed his answer on March 11, 1960. He contends that by filing his answer on March 12, 1960, defendant was one day late. 17 On March 19, 1960 the trial court declared the defendant in default. 18 The defendant learned of the order declaring him in default on March 21, 1960. On March 22, 1960 the defendant filed a motion to set aside the order of default alleging that although the order of the court dated March 7, 1960 was received on March 11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected of the defendant to file his answer on the last day of the reglementary period, March 11, 1960, within office hours, especially because the order of the court dated March 7, 1960 was brought to the attention of counsel only in the early hours of March 12, 1960. The defendant also alleged that he has a good and substantial defense. Attached to the motion are the affidavits of deputy sheriff Mamerto de la Cruz that he served the order of the court dated March 7, 1960 on March 11, 1960, at 5:00 o’clock in the afternoon and the affidavit of the defendant Aruego that he has a good and substantial defense. 19 The trial court denied the defendant’s motion on March 25, 1960. 20 On May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the plaintiff the sum of P35,444.35 representing the total amount of his obligation to the said plaintiff under the twenty-two (22) causes of action alleged in the complaint as of November 15, 1957 and the sum of P10,000.00 as attorney’s fees. 21

It has been held that to entitle a party to relief from a judgment taken against him through his mistake, inadvertence, surprise or excusable neglect, he must show to the court that he has a meritorious defense. 32 In other words, in order to set aside the order of default, the defendant must not only show that his failure to answer was due to fraud, accident, mistake or excusable negligence but also that he has a meritorious defense.

However, while the defendant successfully proved that his failure to answer was due to excusable negligence, he has failed to show that he has a meritorious defense. The defendant does not have a good and substantial defense.

Defendant Aruego’s defenses consist of the following:

a) The defendant signed the bills of exchange referred to in the plaintiff’s complaint in a representative capacity, as the then President of the Philippine Education Foundation Company, publisher of “World Current Events and Decision Law Journal,” printed by Encal Press and Photo-Engraving, drawer of the said bills of exchange in favor of the plaintiff bank;

b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or additional party obligor, to add to the security of said plaintiff bank. The reason for this statement is that unlike real bills of exchange, where payment of the face value is advanced to the drawer only upon acceptance of the same by the drawee, in the case in question, payment for the supposed bills of exchange were made before acceptance; so that in effect, although these documents are labelled bills of exchange, legally they are not bills of exchange but mere instruments evidencing indebtedness of the drawee who received the face value thereof, with the defendant as only additional security of the same. 33

The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine Education Foundation Company where he is president. Section 20 of the Negotiable Instruments Law provides that “Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent or as filing a representative character, without disclosing his principal, does not exempt him from personal liability.”

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party. 35 In lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, he should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of evidence of indebtedness because payments were made before acceptance. This is also without merit. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in writting 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 a fixed or determinable future time a sum certain in money to order or to bearer. 36 As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.

It is evident then that the defendant’s appeal can not prosper. To grant the defendant’s prayer will result in a new trial which will serve no purpose and will just waste the time of the courts as well as of the parties because the defense is nil or ineffective. 37

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila denying the petition for relief from the judgment rendered in said case is hereby affirmed, without pronouncement as to costs.

PNB vs. Quimpo (GR L-53194, 14 March 1988)

Facts: On 3 July 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch of the PNB, went to the bank in his car accompanied by his friend Ernesto Santos whom he left in the car while he transacted business in the bank. When Santos saw that Gozon left his check book he took a check therefrom, filled it up for the amount of P5,000.00, forged the signature of Gozon, and thereafter he encashed the check in the bank on the same day. The account of Gozon was debited the said amount. Upon receipt of the statement of account from the bank, Gozon asked that the said amount of P5,000.00 should be returned to his account as his signature on the check was forged but the bank refused. Upon Gozon’s complaint on 1 February 1974 Ernesto Santos was apprehended by the police authorities and upon investigation he admitted that he stole the check of Gozon, forged his signature and encashed the same with the Bank.

Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus interest, damages, attorney’s fees and costs against the bank in the CFI Rizal (Branch XIC, Hon. Romulo S. Quimpo presiding). After the issues were joined and the trial on the merits ensued, a decision was rendered on 4 February 1980, ordering the bank to return the amount of P5,000 which it had unlawfully withheld, with interest at the legal rate from 22 September 1972 until the amount is fully delivered. The bank was further condemned to pay Gozon the sum of P2,000.00 as attorney’s fees and to pay the costs of the suit. The bank filed a petition for review on certiorari.

The Supreme Court dismissed the petition for lack of merit, with costs against the bank.

1. Bank bound to know signatures of customers
A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily change the amount so paid to the account of the depositor whose name was forged (San Carlos Milling Co. vs. Bank of the P.I., 59 Phil. 59).

2. Rule necessary to the circulation of drafts and checks; Result of neglect of duty rest upon the drawee
The rule is absolutely necessary to the circulation of drafts and checks, and is based upon the presumed negligence of the drawee in failing to meet its obligation to know the signature of its correspondent. There is nothing inequitable in such a rule. If the paper comes to the drawee in the regular course of business, and he, having the opportunity ascertaining its character, pronounces it to be valid and pays it, it is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places upon him, and the result of his negligence must rest upon him (12 ALR, 1901, citing many cases found in I Agbayani, supra).

3. Proof of negligence in verifying signature
A comparison of the signature on the forged check with Gozon’s exemplar signatures found in the PNB Form 35-A would immediately show the negligence of the employees of the bank. Even a not too careful comparison would immediately arrest one’s attention and direct it to the graceful lines of Gozon’ss exemplar signatures in the bank form. The formation of the first letter ‘F’ in the exemplars, which could be regarded as artistic, is completely different from the way the same letter is formed in the check. That alone should have alerted a more careful and prudent signature verifier.

4. Prudence required of bank
The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor on the check being encashed. It is expected to use reasonable business prudence in accepting and cashing a check presented to it.

5. Findings of facts of lower court conclusive upon the Court; Testimony of an unbiased scientific expert
The findings of facts of the court a quo are conclusive. The trial court found that a comparison of the signature on the forged check and the sample signatures of Gozon show marked differences as the graceful lines in the sample signature which is completely different from those of the signature on the forged check. Indeed the NBI handwriting expert Estelita Santiago Agnes whom the trial court considered to be an “unbiased scientific expert” indicated the marked differences between the signature of Gozon on the sample signatures and the questioned signature. Notwithstanding the testimony of Col. Fernandez, witness for the bank, advancing the opinion that the questioned signature appears to be genuine, the trial court by merely examining the pictorial report presented by said witness, found a marked difference in the second “c” in Francisco as written on the questioned signature as compared to the sample signatures, and the separation between the “s” and the “c” in the questioned signature while they are connected in the sample signatures.

6. Gozon’s negligence not sufficient to excuse bank from its own negligence
Gozon’s act in leaving his checkbook in the car while he went out for a short while can not be considered negligence sufficient to excuse the bank from its own negligence. When Gozon left his car, Ernesto Santos, a long time classmate and friend remained in the same. Gozon could not have been expected to know that the said Ernesto Santos would remove a check from his checkbook. Gozon had trust in his classmate and friend. He had no reason to suspect that the latter would breach that trust. Santos however removed and stole a check from his check book without Gozon’s knowledge and consent. Gozon cannot be considered negligent under the circumstances of the case.

Far East Realty Investment Inc. vs. Court of Appeals (GR L-36549, 5 October 1988)

Facts: In its complaint dated May 9, 1968, filed with the City Court of Manila, (Civil Case 170859) against Dy Hian Tat, Siy Chee and Gaw Suy An for the collection and payment of P4,500.00 representing the face value of an unpaid and dishonored check, Far East Realty Investment Inc. (FERII) alleged, among others, that on 13 September 1960, Dy et al. approached FERII at its office in Manila and asked the latter to extend to them an accommodation loan in the sum of P4,500.00, which they needed in their business, and which they promised to pay, jointly and severally, in one month time; that they proposed to pay FERII interest thereon at the rate of 14% per annum, as in fact they delivered to FERII the China Banking Corporation (ChinaBank) Check VN-915564, dated 13 September 1960, for P4,500.00, drawn by Dy, and signed by them at the back of said check, with the assurance that after one month from 13 September 1960, the said check would be redeemed by them by paying cash in the sum of P4,500.00, or the said check can be presented for payment on or immediately after one month and said bank would honor the same; that, in order to accommodate Dy et al., FERII agreed and actually extended to Dy et al. an accommodation loan in the sum of P4,500.00 under the aforesaid conditions proposed by Dy et al., which amount was delivered to the later; that on 5 March 1964, the aforesaid check was presented for payment to the ChinaBank, but said check bounced and was not cashed by said bank, for the reason that the current account of the drawer thereof had already been closed; and that subsequently, FERII demanded from Dy et al. the payment of their aforesaid loan obligation, but the latter failed and refused to pay notwithstanding repeated demands therefor. Gaw and Dy filed their answers, while on 31 March 1970, Siy was declared in default. After hearing, the City Court of Manila rendered its decision in favor of FERII, ordering Dy et al. to pay FERII, jointly and severally, the sum of P4,500.00 with interest thereon at the legal rate from 13 September 1960 until the said amount is fully paid; plus the sum of P500.00 by way of attorney’s fees, plus the costs of suit. The decision of the city court was appealed by Dy et al. to the Court of First Instance of Manila, where the case was heard de novo for lack of transcript of stenographic notes taken in the city court. After trial, the Court of First Instance of Manila, Branch IX, rendered a decision in Civil Case 80583, dated 15 October 1971, affirming the decision of the city court, ordering Dy et al. to pay, jointly and severally, FERII the sum of P4,500.00, plus interest at the rate of 14% per annum, from 13 September 1960, until fully paid, plus the sum of P1,000.00 in the concept of attorney’s fees; and costs of suit. Dy et al. filed a petition for review with the Court of Appeals. On 12 February 1973, the appellate court, finding that the questioned check was not given as collateral to guarantee a loan secured by Dy et al. who allegedly came as a group to FERII on 13 September 1960, but passed through other hands before reaching FERII and the said check was not presented within a reasonable time and after its issuance, reversed the decision of the Court of First Instance. Its motion for reconsideration having been denied, FERII filed the petition for review.

Issue: Whether presentment for payment and notice of dishonor of the questioned check were made within reasonable time.

Held: NO. Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof. Notice may be given as soon as the is dishonored; and unless delay is excused must be given within the time fixed by the law. No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable time, because “reasonable time” depends upon the peculiar facts and circumstances in each case. “Reasonable time” has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights and possibility of loss, if any, to the other party Herein, it is obvious that presentment and notice of dishonor were not made within a reasonable time. The check in question was issued on 13 September 1960, but was presented to the drawee bank only on 5 March 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor was made by FERII through a letter dated 27 April 1968. Under these circumstances, FERII undoubtedly failed to exercise prudence and diligence on what he ought to do as required by law. FERII likewise failed to show any justification for the unreasonable delay.

JUANITA SALAS, petitioner,
vs.
HON. COURT OF APPEALS and FIRST FINANCE & LEASING CORPORATION, respondents.

Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-G.R. CV No. 00757 entitled “Filinvest Finance & Leasing Corporation v. Salas”, which modified the decision of the Regional Trial Court of San Fernando, Pampanga in Civil Case No. 5915, a collection suit between the same parties.

Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (hereinafter referred to as private respondent) which financed the purchase.

Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed of chattel mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980.

This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of money against petitioner before the Regional Trial Court of San Fernando, Pampanga.

ordering the defendant to pay the plaintiff the sum of P28,414.40 with interest thereon at the rate of 14% from October 2, 1980 until the said sum is fully paid; and the further amount of P1,000.00 as attorney’s fees.

Both petitioner and private respondent appealed the aforesaid decision to the Court of Appeals.

Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner, the latter prayed for a reversal of the trial court’s decision so that she may be absolved from the obligation under the contract.

On October 27, 1986, the Court of Appeals rendered its assailed decision, the pertinent portion of which is quoted hereunder:

The allegations, statements, or admissions contained in a pleading are conclusive as against the pleader

Petitioner’s motion for reconsideration was denied; hence, the present recourse.

In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud, bad faith and misrepresentation of Violago Motor Sales Corporation in the conduct of its business and which fraud, bad faith and misrepresentation supposedly released petitioner from any liability to private respondent who should instead proceed against VMS. 3

Petitioner argues that in the light of the provision of the law on sales by description 4 which she alleges is applicable here, no contract ever existed between her and VMS and therefore none had been assigned in favor of private respondent.

Private respondent in its comment, prays for the dismissal of the petition and counters that the issues raised and the allegations adduced therein are a mere rehash of those presented and already passed upon in the court below, and that the judgment in the “breach of contract” suit cannot be invoked as an authority as the same is still pending determination in the appellate court.

The pivotal issue in this case is whether the promissory note in question is a negotiable instrument which will bar completely all the available defenses of the petitioner against private responden

Petitioner’s liability on the promissory note, the due execution and genuineness of which she never denied t. under oath is, under the foregoing factual milieu, as inevitable as it is clearly established.

Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., 6 this Court had the occasion to clearly distinguish between a negotiable and a non-negotiable instrument.

Among others, the instrument in order to be considered negotiable must contain the so-called “words of negotiability ? i.e., must be payable to “order” or “bearer””. Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may be made payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words “or order or “to the order of”, the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely “step into the shoes” of the person designated in the instrument and will thus be open to all defenses available against the latter. Such being the situation in the above-cited case, it was held that therein private respondent is not a holder in due course but a mere assignee against whom all defenses available to the assignor may be raised. 7

In the case at bar, however, the situation is different. Indubitably, the basis of private respondent’s claim against petitioner is a promissory note which bears all the earmarks of negotiability.

The pertinent portion of the note reads:

PROMISSORY NOTE
(MONTHLY)

P58,138.20
San Fernando , Pampanga , Philippines
Feb. 11, 1980

For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or order, at its office in San Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine currency, which amount includes interest at 14% per annum based on the diminishing balance, the said principal sum, to be payable, without need of notice or demand, in installments of the amounts following and at the dates hereinafter set forth, to wit: P1,614.95 monthly for “36″ months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of February 21, 1983. P_________ monthly for ______ months due and payable on the ______ day of each month starting _____198__ thru and inclusive of _____, 198________ provided that interest at 14% per annum shall be added on each unpaid installment from maturity hereof until fully paid.

xxx xxx xxx

Maker; Co-Maker:

(SIGNED) JUANITA SALAS _________________

Address:

____________________ ____________________

WITNESSES

SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE
TAN # TAN #

PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION

VIOLAGO MOTOR SALES CORPORATION
BY: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager 8

A careful study of the questioned promissory note shows that it is a negotiable instrument, having complied with the requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is “P1,614.95 monthly for 36 months due and payable on the 21 st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;” [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with certainty. 9

It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing Corporation 10 and it is an indorsement of the entire instrument. 11

Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the holder thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS Corporation. 12

Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. 13 This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and VMS.

Even assuming for the sake of argument that there is an iota of truth in petitioner’s allegation that there was in fact deception made upon her in that the vehicle she purchased was different from that actually delivered to her, this matter cannot be passed upon in the case before us, where the VMS was never impleaded as a party.

Whatever issue is raised or claim presented against VMS must be resolved in the “breach of contract” case.

Hence, we reach a similar opinion as did respondent court when it held:

We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate incident. Indeed, there is nothing We can do as far as the Violago Motor Sales Corporation is concerned since it is not a party in this case. To even discuss the issue as to whether or not the Violago Motor Sales Corporation is liable in the transaction in question would amount, to denial of due process, hence, improper and unconstitutional. She should have impleaded Violago Motor Sales. 14

IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against petitioner.

SO ORDERED.

Associated Bank vs. Court of Appeals (GR 89802, 7 May 1992)

Facts: Merle V. Reyes, doing business under the name and style “Melissa’s RTW,” is engaged in the business of ready-to-wear garments under the firm name “Melissa’s RTW.” She deals with, among other customers, Robinson’s Department Store, Payless Department Store, Rempson Department Store, and the Corona Bazaar. These companies issued in payment of their respective accounts crossed checks payable to Melissa’s RTW: Payless through Solid Bank, P3960 on 19 January 1982; Robinson’s through FEBTC, P4140 on 18 December 1981; Robinson’s through FEBTC, P1650 on 24 December 1981; Robinson’s through FEBTC, P1980 on 12 January 1982; Rempson through TRB, P1575 on 9 January 1982; and Corona through RCBC, P2500 on 22 December 1981. When she went to these companies to collect on what she thought were still unpaid accounts, she was informed of the issuance of the crossed checks. Further inquiry revealed that the said checks had been deposited with the Associated Bank and subsequently paid by it to one Rafael Sayson, one of its “trusted depositors,” in the words of its branch manager, Conrado Cruz. Sayson had not been authorized by Reyes to deposit and encash the said checks.

Reyes sued the Bank and Cruz in the RTC Quezon City for recovery of the total value of the checks plus damages. After trial, judgment was rendered requiring them to pay Reyes the total value of the subject checks in the amount of P15,805.00 plus 12% interest, P50,000.00 actual damages, P25,000.00 exemplary damages, P5,000.00 attorney’s fees, and the costs of the suit. Cruz and the bank appealed to the Court of Appeals, reiterating their argument that Reyes had no cause of action against them and should have proceeded instead against the companies that issued the checks. The appellate court denied the petition. Hence, the appeal.

The Supreme Court denied the petition, with costs against the bank.

1. Reyes’ cause of action
Reyes’ cause of action arose from the illegal, anomalous and irregular acts of the bank in violating common banking practices to the damage and prejudice of the former, in allowing to be deposited and encashed as well as paying to improper parties without the knowledge, consent, authority or endorsement of Reyes which totalled P15,805.00, the 6 checks in dispute which were “crossed checks” or “for payee’s account only,” Reyes being the payee.

2. Elements of a cause of action
The 3 elements of a cause of action are present in the present case, namely: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach thereof. (Republic Planters Bank vs. Intermediate Appellate Court, 131 SCRA 631).

3. Reyes’ cause of action proved by evidence of great weight
Reyes’ cause of action has been proved by evidence of great weight. The contents of the said checks issued by Reyes’ customers had not been questioned. There is no dispute that the same are crossed checks or for payee’s account only, which is Melissa’s RTW. Reyes had clearly shown that she had never authorized anyone to deposit the said checks nor to encash the same; that the bank had allowed all said checks to be deposited, cleared and paid to one Rafael Sayson in violation of the instructions in the said crossed checks that the same were for payee’s account only; and that Reyes maintained a savings account with the Prudential Bank, Cubao Branch, Quezon City which never cleared the said checks and Reyes had been damaged by such encashment of the same.

4. Crossing a check explained
Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top portion of the checks. The crossing is special where the name of a bank or a business institution is written between the two parallel lines, which means that the drawee should pay only with the intervention of that company. The crossing is general where the words written between the two parallel lines are “and Co. ” or “for payee’s account only.” This means that the drawee bank should not encash the check but merely accept it for deposit.

5. Effects of crossing a check
In State Investment House vs. IAC, it was declared that “the effects of crossing a check are: (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 he must inquire if he has received the check pursuant to that purpose.”

6. Presentment of payment
The effects of crossing a check relate to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments Law, presentment for payment, to be sufficient, must be made by the holder or by some person authorized to receive payment on his behalf. Who the holder or authorized person is depends on the instruction stated on the face of the check. In the present case, The six checks had been crossed and issued “for payee’s account only.” This could only signify that the drawers had intended the same for deposit only by the person indicated, to wit, Melissa’s RTW.

7. Bank assumed the warranty of the endorser
The subject checks were accepted for deposit by the Bank for the account of Rafael Sayson although they were crossed checks and the payee was not Sayson but Melissa’s RTW. The Bank stamped thereon its guarantee that “all prior endorsements and/or lack of endorsements (were) guaranteed.” By such deliberate and positive act, the Bank had for all legal intents and purposes treated the said checks as negotiable instruments and, accordingly, assumed the warranty of the endorser.

8. Act of bank amounts to conversion of the check
The weight of authority is to the effect that “the possession of a check on a forged or unauthorized indorsement is wrongful, and when the money is collected on the check, the bank can be held ‘for moneys had and received.’” The proceeds are held for the rightful owner of the payment and may be recovered by him. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected without indorsement at all. The act of the bank amounts to conversion of the check.

9. Bank liable to payee when bank paid the checks endorsed; whether aware or not of the unauthorized endorsement
The proceeds of the subject checks belonged to Reyes. As she had not at any time authorized Rafael Sayson to endorse or encash them, there was conversion of the funds by the Bank. When the Bank paid the checks so endorsed notwithstanding that title had not passed to the endorser, it did so at its peril and became liable to the payee for the value of the checks. This liability attached whether or not the Bank was aware of the unauthorized endorsement.

10. Bank negligent; No substantial distinction between actual forging of a name to a check as an endorsement by a person not authorized to make signature, etc.
The Bank and the manager were negligent when they permitted the encashment of the checks by Sayson. The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to Reyes’s account. Its failure to inquire into Sayson’s authority was a breach of a duty it owed to Reyes. Assuming that Eddie Reyes, Merle Reyes’ husband, did endorse the crossed checks, the Bank would still be liable to the Reyes because he was not authorized to make the endorsements. And even if the endorsements were forged, as alleged, the Bank would still be liable to Reyes for not verifying the endorser’s authority. There is no substantial difference between an actual forging of a name to a check as an endorsement by a person not authorized to make the signature and the affixing of a name to a check as an endorsement by a person not authorized to endorse it.

11. Diligence required of banks
As stressed in Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corp., “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.” In the present case, the Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire as to the authority of Rafael Sayson to deposit crossed checks payable to Melissa’s RTW upon a prior endorsement by Eddie Reyes. The failure of the Bank to make this inquiry was a breach of duty that made it liable to Reyes for the amount of the checks.

12. Payee of illegally encashed checks allowed to recover directly from bank responsible for such encashment (as a simplification of the proceedings)
There being no evidence that the crossed checks were actually received by Reyes, she would have a right of action against the drawer companies, which in turn could go against their respective drawee banks, which in turn could sue the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify proceedings, the payee of the illegally encashed checks should be allowed to recover directly from the bank responsible for such encashment regardless of whether or not the checks were actually delivered to the payee. The Court approved such direct action in the present case.

13. Bank’s stamp is an assurance that it has ascertained genuineness of all prior endorsements
Before presenting the checks for clearing and for payment, the Bank had stamped on the back thereof the words: “All prior endorsements and/or lack of endorsements guaranteed,” and thus made the assurance that it had ascertained the genuineness of all prior endorsements.

Travel On vs. CA

Facts: Travel-On Inc. is a travel agency selling airline tickets on commission basis for and in behalf of different airline companies. Arturo S. Miranda had a revolving credit line with Travel-On. He procured tickets on behalf of airline passengers and derived commissions therefrom. Miranda apparently owed Travel-On the amount of P278,201.57 (the value of airline tickets sold to the former), to which Miranda paid various amounts in cash and in kind. He thereafter issued 6 post-dated checks amounting to P115,000 which were all dishonored by the drawee bank. Travel-On filed suit to recover the value of the checks. Miranda countered that he instead overpaid his obligations, and that he merely issued the checks for purposes of accommodation as he allegedly had in the past accorded Travel-On.

Issue: Whether Miranda is indebted to Travel-On, or whether he is an accommodation party.

Held: A check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value. Thus, the mere introduction of the instrument sued on, in evidence prima facie, entitles the plaintiff to recovery. Such presumption subsists unless otherwise contradicted by other competent evidence. The checks, being presented for payment, were thus intended for encashment. There is nothing in the checks (nor in other documents) that stated otherwise. Travel-On was a payee, not an accommodated party for the checks, as it realized no value on the checks which bounced. Travel-On, thus, is entitled to the benefit of the presumption that it is a holder in due course.

SPOUSES CONSUELO and ARTURO ARANETA, petitioners,
vs.
THE COURT OF APPEALS, PILIPINAS BANK and DELTA MOTOR CORPORATION, respondents.

Petitioners Spouses Arturo and Consuelo Araneta pray for the reversal of the respondent Court’s September 13, 1990 decision 1 which affirmed the trial court’s decision of February 13, 1987 2 dismissing petitioners’ complaint against private respondent Pilipinas Bank for not physically delivering to them the Delta Motors Corporation Promissory Note No. 2777 Corporation (Philfinance), which was its undertaking under Denominated Custodian Receipt No. 10847 dated December 29, 1980 3 and the other private respondent Delta Motors Corporation for not honoring said promissory note it had issued to Philfinance on May 6, 1980 4 and which had matured by May 4, 1981.

FACTS

1. On March 2, 1978, Philfinance, then “engaged in the business of trading in securities,” and defendant (herein private respondent) Bank entered into a Securities Custodianship Agreement (Exh, 2-Bank) whereby the Bank was appointed as custodian of Philfinance’s “various government securities, promissory notes, and commercial papers issued by different companies (hereinafter referred to as “securities”) and belonging to its various clients” which the latter was holding in the course of its business. This agreement was subject to terms and conditions therein provided, among which is the following:

2. On May 6, 1980, defendant (herein private respondent) Delta, as maker, issued to Philfinance, as payee, as promissory note with Serial No. 2777 in the amount of P2,000,000.00 (Exh. 2-Delta). The said note was to mature on May 4, 1981, on which date the amount payable on the said note would be P2,302,500.00. On the face of said promissory note, the words “NON-NEGOTIABLE” are printed (Exh. 2-A, Delta). This note was subsequently delivered by Philfinance to the Bank for custody pursuant to the custodianship agreement.

Aside from the other defenses raised by respondent bank, it maintained that even if said security is within its custody, the same still forms part of the assets of Philfinance which have been frozen and, therefore, beyond the jurisdiction of the court a quo by virtue of the order dated June 18, 1981 of the SEC. 5

1. IN APPLYING AGAINST THE PETITIONERS SPOUSES IN ARANETA THE PROVISIONS OF THE SECURITIES CUSTODIANSHIP AGREEMENT EXECUTED BETWEEN RESPONDENT PILIPINAS BANK AND PHILFINANCE ALTHOUGH THE PETITIONERS SPOUSES ARANETA WERE NOT PARTIES THERETO.

2. IN EXONERATING THE RESPONDENT PILIPINAS BANK FROM LIABILITY ALTHOUGH IT FAILED TO COMPLY WITH ITS CONTRACTUAL OBLIGATIONS UNDER THE DENOMINATED CUSTODIAN RECEIPT TO THE DAMAGE AND PREJUDICE OF PETITIONERS SPOUSES ARANETA.

3. IN APPLYING THE PROVISIONS OF ACT NO. 2031, OTHERWISE KNOWN AS THE NEGOTIABLE INSTRUMENTS LAW, IN DETERMINING THE LIABILITY OF RESPONDENT DELTA TO PETITIONERS SPOUSES ARANETA UNDER ITS PROMISSORY NOTE, NOTWITHSTANDING THE FACT THAT SAID PROMISSORY NOTE WAS NONNEGOTIABLE.

The Court can draw some insight from the case of Dharmdas vs. Buenaflor 6 to resolve this case at bar. In Dharmdas, J.D. Ramnani & Co. was declared insolvent in Case No. 37784 of the Court of First Instance of Manila. In said insolvency proceedings, the Bank of the Philippine Islands was appointed receiver. But meanwhile the manager of J.D. Ramnani & Co. had transferred to Dharmdas and others goods belonging to the stock of said insolvent firm in the amount of P12,000.00 in alleged satisfaction of wages due to Dharmdas and the others as employees of the insolvent. When the receiver bank learned about this, it procured a search warrant which was placed in the hands of Buenaflor, the Iloilo Municipality Chief of Police. Whereupon, Buenaflor seized said goods and returned the same to the insolvent’s store. Thus, Dharmdas sued Buenaflor to recover the goods or its value in cash in the amount of P12,000.00 in the CFI of, Iloilo . The Bank of the Philippine Islands intervened and claimed the property as receiver of said insolvent. While Dharmdas was testifying in court, the CFI judge stopped the testimony and dismissed the case for lack of jurisdiction without prejudice to Dharmdas filing a complaint-in-intervention in the insolvency proceedings.

A careful scrutiny of petitioners’ exhibits reveals that although the Philfinance check which was not honored was dated March 30, 1981, 12 it was not until July 1, 1981 that said check was deposited. 13 The only plausible reason for this is that their son, then the Iloilo City Branch Manager of Philfinance 14 requested them not to encash the check on March 30, 1981 as Philfinance did not have the funds to honor said check. They were overtaken however by the SEC Order of June 18, 1981 placing Philfinance in a state of suspension of payments due to wanton financial mismanagement. This can be deduced from the fact that out of the petitioners’ money market placement of P200,000.00, Philfinance honored the first P100,000.00 but decided to forego payment of the second P100,000.00. This must have been Philfinance’s head office’s concession to their branch manager Araneta as over 700 other investors with investments of approximately P677,000,000.00 were not accorded any concession at all. 15

. . 16

Clearly, the complaint in the lower court was a scheme to go around the lawful order of the Securities and Exchange Commission.

Petitioners have admitted that they had filed a claim with the Securities and Exchange Commission (SEC) against Philfinance 18 after the latter was ordered placed in a state of suspension of payments by the SEC in its Orders of June 18, 1981, 19 June 25, 1981, 20 and August 7, 1981. 21

Petitioners cannot be allowed to obtain an unfair advantage over Philfinance’s other creditors by the simple expediency of this case which they filed against Philfinance’s custodian of its securities (private respondent bank) and the maker (private respondent Delta Motors) of the promissory note sold to them. Their petition must perforce be denied.

At this point in time, judicial notice can be taken of the fact that the liquidation of Philfinance as ordered by the SEC has been upheld by this Court in the resolutions dated December 9, 1985, March 20, 1986 and April 29, 1987 in G.R. No. 71821 (Ferrera vs. IAC); G.R. No. 71327 (Amor vs. IAC) and G.R. No. 72674 (Philippine Underwriters Finance Corporation vs. SEC), respectively. 22

There is no need, therefore, for Us to discuss the other issues raised by the petitioners.

WHEREFORE, premises considered, the questioned decision of the respondent court is hereby AFFIRMED en toto. Costs against the petitioners.

SO ORDERED.

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

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

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

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

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

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

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

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

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

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

The instant petition is bereft of merit.

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

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

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

(Sgd. Illegible) (Sgd. Illegible)

?????????? ???????????

AUTHORIZED SIGNATURES 5

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

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

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

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

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

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

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

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

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties’ bone of contention is with regard to requisite (d) set forth above

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

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

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

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

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

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

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

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

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

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

Respondent bank duly complied with this statutory requirement.

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

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

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

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

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

Republic Planters Bank vs. Court of Appeals (GR 93073, 21 December 1992)

Facts: Shozo Yamaguchi and Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing Inc. By virtue of Board Resolution 1 dated 1 August 1979, Yamaguchi and Canlas were authorized to apply for credit facilities with the Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. The bank issued nine promissory notes each of which were uniformly worded in the following manner: “_____________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of __________ PESOS ( ), Philippine Currency . . . .” On the right bottom margin of the promissory notes appeared the signatures of Yamaguchi and Canlas above their printed names with the phrase “and (in) his personal capacity” typewritten below. At the bottom of the promissory notes appeared: “Please credit proceeds of this note to: _____ Savings Account _____XX Current Account No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP. These entries were separated from the text of the notes with a bold line which ran horizontally across the pages. In the promissory notes, the name Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the signatures of Canlas. On 20 December 1982, Worldwide Garment Manufacturing Inc. voted to change its corporate name to Pinch Manufacturing Corporation.

On 5 February 1982, bank filed a complaint for the recovery of sums of money covered among others, by the 9 promissory notes with interest thereon, plus attorney’s fees and penalty charges. The complaint was originally brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing Inc. as defendant and substitute Pinch Manufacturing Corporation in its place. Pinch Manufacturing Corp. and Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only Canlas filed an Amended Answer wherein he denied having issued the promissory notes in question since according to him, he was not an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment Manufacturing Inc., and that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing Inc., the same were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature.

The Regional Trial Court rendered on 20 June 1985 a decision in favor of the Republic Planters Bank, ordering (1) Pinch, Yamaguchi and Canlas to pay, jointly and severally, the bank based on 5 promissory notes the sums of P300,000 with interest thereon at 16% per annum from 27 November 1980 until fully paid; P166,466 with the same interest from 29 January 1981; P86,130.31 with interest from 29 January 1981; P12,703.70 with interest from 27 November 1980; P281,875.91 with interest from 29 January 1981; and P200,000.00 with interest from 29 January 1981; ordering (2) Pinch and Yamaguchi to pay, jointly and severally, the bank the sum of P367,000.00 with interest of 16% per annum from 29 January 1981 until fully paid; and ordering (3) Pinch to pay the bank the sum of P140,000.00 with interest at 16% per annum from 27 November 1980 until fully paid, the sum of P231,120.81 with interest at 12% per annum from 1 July 1981, until fully paid, and the sum of P331,870.97 with interest from 28 March 1981, until fully paid; and ordering (4) Pinch, Yamaguchi, and Canlas to pay, jointly and severally, the bank the sum of P100,000.00 as and for reasonable attorney’s fee and the further sum equivalent to 3% per annum of the respective principal sums from the dates above stated as penalty charge until fully paid, plus 1% of the principal sums as service charge; with costs against them.

Canlas appealed to the then Intermediate Appellate Court (now the Court of Appeals, CA GR CV 07302). His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing Inc., he should not be held personally liable for such authorized corporate acts that he performed. The appellate court affirmed the decision except that it completely absolved Canlas from liability under the promissory notes and reduced the award for damages and attorney’s fees. The bank filed the appeal by way of a petition for Review on certiorari. It is the contention of the Bank that having unconditionally signed the 9 promissory notes with Yamaguchi, jointly and severally, Canlas is solidarily liable with Yamaguchi on each of the 9 notes.

The Supreme Court reversed and set aside the decision of the appellate court absolving Canlas, and rendered another declaring Canlas jointly and severally liable on all 9 promissory notes for the sum of P300,000.00 with interest from 29 January 1981 until fully paid; the sum of P40,000.00 with interest from 27 November 1980; the amount of P166,466.00 with interest from 29 January 1981; the amount of P367,000.00 with interest from 29 January 1981 until fully paid; the amount of P86,130.31 with interest from 29 January 1981; the sum of P140,000.00 with interest from 27 November 1980 until fully paid; the amount of P12,703.70 with interest from 27 November 1980; the sum of P281,875.91 with interest from 29 January 1981; and the sum of P200,000.00 with interest from 29 January 1981; the interest of which is 16% interest per annum. The Court also held that the liabilities of Pinch and Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in accordance with the judgment rendered by the lower Court; and held Canlas jointly and solidarily liable with Pinch and Yamaguchi for the amounts found by the lower Court with respect to attorney’s fees, and penalty and service charges; with costs against Canlas.

1. Canlas solidarily liable under Negotiable Instruments Law; Canlas a co-maker of promissory notes
Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature. The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder according to the tenor thereof. By law, there is no denying that Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom.

2. When instrument contains words “I promise to pay” and signed by two or more persons, the signatories are deemed jointly and severally liable thereon
Where an instrument containing the words “I promise to pay” is signed by two or more persons, they are deemed to be jointly and severally liable thereon. An instrument which begins with “I”, “We”, or “Either of us” promise to pay, when signed by two or more persons, makes them solidarily liable. The fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to pay the notes in full.

3. Joint and several note
The solidary liability of Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase “Joint and several” as describing the unconditional promise to pay to the order of Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit.

4. Common law joint and several obligation corresponds to a civil law solidary obligation
A joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share. In the present case, by making a joint and several promise to pay to the order of the Bank, Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch as solidary debtors.

5. Interpolation of “and (in) his personal capacity” immaterial to liability as joint and several debtor of the notes
As to whether the interpolation of the phrase “and (in) his personal capacity” below the signatures of the makers in the notes will affect the liability of the makers, it is immaterial and will not affect the liability of Canlas as a joint and several debtor of the notes. With or without the presence of said phrase, Canlas is primarily liable as a co maker of each of the notes and his liability is that of a solidary debtor.

6. Change of corporate name does not extinguish personality of original corporation
An amendment in a corporation’s Articles of Incorporation effecting a change of corporate name, such as from Worldwide Garment Manufacturing, Inc. to Pinch Manufacturing Corporation, extinguished the personality of the original corporation. The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original corporation. It is the same corporation with a different name, and its character is in no respect changed.

7. Change in corporate name has no effect to identity, property, rights and liabilities of the corporation
A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no effect on the identity of the corporation, or on its property, rights, or liabilities. The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or incurred.

8. Liability of officers or directors under old corporate name; Corporation still bound by acts of its agents if authorized by the Board
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board.

9. Liability of a person signing as an agent; Section 20 of the Negotiable Instruments Law
Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for. Section 20 of said law provides “”where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to the holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent’s personal liability.”

10. Promissory notes are stereotype printed form used by commercial banking institutions
A careful examination of the notes shows that they are the stereotype printed form of promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are incomplete because there are blank spaces to be filled up on material particulars such as payee’s name, amount of the loan, rate of interest, date of issue and the maturity date. The terms and conditions of the loan are printed on the note for the borrower-debtor’s perusal.

11. Incomplete instrument delivered to the borrower for his signature is governed by Section 14, NIL
An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law (Blanks; when may be filled) which provides “where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. . . . In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. . . .”

12. Customary procedure of commercial banks of requiring clientele to sign promissory notes in printed form with blanks already filled up; Notes not in blank, Section 14 does not apply
It is the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign as makers or co-makers. Thus, the Court chose to believe the bank’s testimony that the notes were filled up before they were given to Canlas and Yamaguchi for their signatures as joint and several promissors; and concluded that proof that the notes were signed in blank was only the self-serving testimony of Canlas, as determined by the trial court, so that the trial court “doubts that Canlas signed in blank the promissory notes”. Thus, when the notes were given to Canlas for his signature, the notes were complete in the sense that the spaces for the material particular had been filled up by the bank as per agreement. For signing the notes above their typewritten names, they bound themselves as unconditional makers. The notes were not incomplete instruments; neither were they given to Canlas in blank as he claims. Thus, Section 14 of the Negotiable Instruments Law is not applicable.

13. Reformina vs. Tomol, on interest rate, does not apply
The ruling in the case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the promissory notes from 16% to 12% per annum does not squarely apply to the present petition. In said case, the rate of 12% was applied to forebearances of money, goods or credit and court judgments thereon, only in the absence of any stipulation between the parties. In the present case however, it was found by the trial court that the rate of interest is 9% per annum, which interest rate the bank may at any time without notice, raise within the limits allowed by law. And so, as of 16 February 1984, the bank had fixed the interest at 16% per annum.

14. Usury Law applicable only to interest by way of compensation for use or forebearance of money; Article 2209 governs interests by way of damages; CB Circular 905, s. 1982, removed Usury Law ceiling on interest rates
The rates under the Usury Law, as amended by PD 116, are applicable only to interests by way of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the other hand, governs interests by way of damages. This fine distinction was not taken into consideration by the appellate court, which instead made a general statement that the interest rate be at 12% per annum. Inasmuch as the Court had declared that increases in interest rates are not subject to any ceiling prescribed by the Usury Law, the appellate court erred in limiting the interest rate at 12% per annum. Central Bank Circular 905, Series of 1982 removed the Usury Law ceiling on interest rates.

Preliminary Considerations

Philippine Education Co. Inc. vs. Soriano (GR L-22405, 30 June 1971)

Facts: On 18 April 1958 Enrique Montinola sought to purchase from the Manila Post Office 10 money orders of P200.00 each payable to E. P. Montinola with address at Lucena, Quezon. After the postal teller had made out money orders numbered 124685, 124687-124695, Montinola offered to pay for them with a private check. As private checks were not generally accepted in payment of money orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola managed to leave the building with his own check and the 10 money orders without the knowledge of the teller. On the same date, 18 April 1958, upon discovery of the disappearance of the unpaid money orders, an urgent message was sent to all postmasters, and the following day notice was likewise served upon all banks. instructing them not to pay anyone of the money orders aforesaid if presented for payment. The Blank of America received a copy of said notice 3 days later. On 23 April 1958 one of the above mentioned money orders numbered 124688 was received by Philippine Education Co. as part of its sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter cleared it with the Bureau of Posts and received from the latter its face value of P200.00. On 27 September 1961, Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting for and in behalf of Post-master Enrico Palomar, notified the Bank of America that money order 124688 attached to his letter had been found to have been irregularly issued and that, in view thereof, the amount it represented had been deducted from the bank’s clearing account. For its part, on August 2 of the same year, the Bank of America debited Philippine Education Co.’s account with the same amount and gave it advice thereof by means of a debit memo. On 12 October 1961 Philippine Education Co. requested the Postmaster General to reconsider the action taken by his office deducting the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was Philippine Education Co.’s subsequent request that the matter be referred to the Secretary of Justice for advice. Thereafter, Philippine Education Co. elevated the matter to the Secretary of Public Works and Communications, but the latter sustained the actions taken by the postal officers. In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of Manila (Criminal Case 43866) but after trial he was acquitted on the ground of reasonable doubt. On 8 January 1962 Philippine Education Co. filed an action against Soriano, et al. in the Municipal Court of Manila. On 17 November 1962, after the parties had submitted the stipulation of facts, the municipal court rendered judgment, ordering Soriano, et al. to countermand the notice given to the Bank of America on 27 September 1961, deducting from said Bank’s clearing account the sum of P200.00 representing the amount of postal money order 124688, or in the alternative, to indemnify Philippine Education Co. in the said sum of P200.00 with interest thereon at the rate of 8-1/2% per annum from 27 September 1961 until fully paid; without any pronouncement as to costs and attorney’s fees.” The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same stipulation of facts, the appealed decision dismissing the complaints with costs, was rendered. Philippine Education Co. appealed.

Issue: Whether the postal money order is a negotiable instrument.

Held: Philippine postal statutes were patterned after similar statutes in force in the United States . For this reason, Philippine postal statutes are generally construed in accordance with the construction given in the United States to their own postal statutes, in the absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United Status is that postal money orders are not negotiable instruments, the reason behind this rule being that, in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. Some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances.

Tibajia vs. Court of Appeals (GR 100290, 4 June 1993)

Facts: Case 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses (Norberto Jr. and Carmen). A writ of attachment was issued by the trial court on 17 August 1987 and on 17 September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in the Regional Trial Court (RTC) of Kalookan City in the amount of P442,750.00 in another case, had been garnished by him. On 10 March 1988, the RTC, Branch 151 of Pasig, Metro Manila rendered its decision in Civil Case 54863 in favor of Eden Tan, ordering the Tibajia spouses to pay her an amount in excess of P300,000.00. On appeal, the Court of Appeals modified the decision by reducing the award of moral and exemplary damages. The decision having become final, Eden Tan filed the corresponding motion for execution and thereafter, the garnished funds which by then were on deposit with the cashier of the RTC of Pasig, Metro Manila, were levied upon. On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment in the following form: (1) Cashier’s Check worth P262,750.00, and Cash in the amount of P135,733.70 (Totalling P398,483.70). Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted that the garnished funds deposited with the cashier of the RTC of Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991, the spouses filed a motion to lift the writ of execution on the ground that the judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial court on the ground that payment in cashier’s check is not payment in legal tender and that payment was made by a third party other than the defendant. A motion for reconsideration was denied on 8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari, prohibition and injunction in the Court of Appeals. The appellate court dismissed the petition on 24 April 1991 holding that payment by cashier’s check is not payment in legal tender as required by Republic Act 529. The motion for reconsideration was denied on 27 May 1991. The spouses filed the petition for review.

Issue: Whether payment by means of check (even by cashier’s check) is considered payment in legal tender as required by the Civil Code, Republic Act 529, and the Central Bank Act.

Held: Article 1249 of the Civil Code which provides that “The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines . The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance.” Section 1 of Republic Act 529, as amended, on the other hand, provides that “Every provision contained in, or made with respect to, any obligation which purports to give the obligee the right to require payment in gold or in any particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby declared against public policy, null and void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation thereafter incurred. Every obligation heretofore and hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts.” Also, Section 63 of Republic Act 265, amended (Central Bank Act) which provides that “Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, that 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.” Further, in the recent cases of Philippine Airlines, Inc. vs. Court of Appeals (GR 49188, 30 January 1990, 181 SCRA 557) and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court (GR 72110, 16 November 1990, 191 SCRA 411), the Court held that “A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.” The ruling in these two (2) cases merely applies the statutory provisions which lay down the rule that a check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager’s, cashier’s or personal check. In the more recent case of Fortunado vs. Court of Appeals (GR78556, 25 April 1991, 196 SCRA 269), the Court stressed that, “We are not, by this decision, sanctioning the use of a check for the payment of obligations over the objection of the creditor.”

Philippine Airlines vs. Court of Appeals (GR 49188, 30 January 1990)

Facts: On 8 November 1967, Amelia Tan, under the name and style of Able Printing Press commenced a complaint for damages before the Court of First Instance (CFI) of Manila (Civil Case 71307). After trial, the CFI of Manila, Branch 13, then presided over by the late Judge Jesus P. Morfe rendered judgment on 29 June 1972, in favor of Tan, ordering Philippine Airlines, Inc. (PAL) to pay Tan the amount of P75,000.00 as actual damages, with legal interest thereon from Tan’s extra-judicial demand made by the letter of 20 July 1967; P18,200.00, representing the unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest thereon from 20 July 1967; P20,000.00 as and for moral damages, with legal interest thereon from 20 July 1967; P5,000.00 damages as and for attorney’s fee; with costs against PAL. On 28 July 1972, PAL filed its appeal with the Court of Appeals ( CA-GR 51079 -R). On 3 February 1977, the appellate court rendered its decision, affirming but modifying the CFI’s decision, ordering PAL to pay the sum of P25,000.00 as damages and P5,000.00 as attorney’s fee. Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent thereto, a motion for reconsideration was filed by Tan, duly opposed by PAL. On 23 May 1977, the Court of Appeals rendered its resolution denying Tan’s motion for reconsideration for lack of merit. No further appeal having been taken by the parties, the judgment became final and executory and on 31 May 1977, judgment was correspondingly entered in the case.

The case was remanded to the trial court for execution and on 2 September 1977, Tan filed a motion praying for the issuance of a writ of execution of the judgment rendered by the Court of Appeals. On 11 October 1977, the trial court, presided over by Judge Ricardo D. Galano, issued its order of execution with the corresponding writ in favor of Tan. The writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of the Court of First Instance of Manila for enforcement. 4 months later, on 11 February 1978, Tan moved for the issuance of an alias writ of execution stating that the judgment rendered by the lower court, and affirmed with modification by the Court of Appeals, remained unsatisfied. On 1 March 1978, PAL filed an opposition to the motion for the issuance of an alias writ of execution stating that it had already fully paid its obligation to Tan through the deputy sheriff of the court, Reyes, as evidenced by cash vouchers properly signed and receipted by said Emilio Z. Reyes. On 3 March 1978, the Court of Appeals denied the issuance of the alias writ for being premature, ordering the executing sheriff Reyes to appear with his return and explain the reason for his failure to surrender the amounts paid to him by PAL. However, the order could not be served upon Deputy Sheriff Reyes who had absconded or disappeared. On 28 March 1978, motion for the issuance of a partial alias writ of execution was filed by Tan. On 19 April 1978, Tan filed a motion to withdraw “Motion for Partial Alias Writ of Execution” with Substitute Motion for Alias Writ of Execution. On 1 May 1978, the Judge issued an order granting the motion, and issuing the alias writ of execution. On 18 May 1978, PAL received a copy of the first alias writ of execution issued on the same day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with legal interest thereon from 20 July 1967 when Tan made an extrajudicial demand through a letter. Levy was also ordered for the further sum of P5,000.00 awarded as attorney’s fees. On 23 May 1978, PAL filed an urgent motion to quash the alias writ of execution stating that no return of the writ had as yet been made by Deputy Sheriff Reyes and that the judgment debt had already been fully satisfied by PAL as evidenced by the cash vouchers signed and receipted by the server of the writ of execution, Deputy Sheriff Reyes. On 26 May 1978, Special Sheriff del Rosario served a notice of garnishment on the depository bank of PAL, Far East Bank and Trust Company, Rosario Branch, Binondo, Manila , through its manager and garnished PAL’s deposit in the said bank in the total amount of P64,408.00 as of 16 May 1978. PAL filed the petition for certiorari.

Issue: Whether the payment made to the absconding sheriff by check in his name operate to satisfy the judgment debt.

Held: Under the initial judgment, Amelia Tan was found to have been wronged by PAL. She filed her complaint in 1967. After 10 years of protracted litigation in the Court of First Instance and the Court of Appeals, Ms. Tan won her case. Almost 22 years later, Ms. Tan has not seen a centavo of what the courts have solemnly declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has been deprived of what, technically, she should have been paid from the start, before 1967, without need of her going to court to enforce her rights. And all because PAL did not issue the checks intended for her, in her name. Under the peculiar circumstances of the case, the payment to the absconding sheriff by check in his name did not operate as a satisfaction of the judgment debt. In general, a payment, in order to be effective to discharge an obligation, must be made to the proper person. Article 1240 of the Civil Code provides that “Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it.” Further, Article 1249 of the Civil Code provides that “The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines . The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance.” In the absence of an agreement, either express or implied, payment means the discharge of a debt or obligation in money and unless the parties so agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of payment of his debt. Consequently, unless authorized to do so by law or by consent of the obligee, a public officer has no authority to accept anything other than money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by the sheriff of PAL’s checks does not, per se, operate as a discharge of the judgment debt. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.

Sesbreno vs. Court of Appeals (GR 89252, 24 May 1993)

Facts: On 9 February 1981, Raul Sesbreño made a money market placement in the amount of P300,000.00 with the Philippine Underwriters Finance Corporation (Philfinance), Cebu Branch; the placement, with a term of 32 days, would mature on 13 March 1981. Philfinance, also on 9 February 1981, issued the following documents to Sesbreno: (a) the Certificate of Confirmation of Sale, “without recourse,” 20496 of 1 Delta Motors Corporation Promissory Note (DMC PN) 2731 for a term of 32 days at 17.0 % per annum; (b) the Certificate of Securities Delivery Receipt 16587 indicating the sale of DMC PN 2731 to Sesbreno, with the notation that the said security was in custodianship of Pilipinas Bank, as per Denominated Custodian Receipt (DCR) 10805 dated 9 February 1981; and (c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of Sesbreno’s investment), with Sesbreno as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount of P304,533.33. On 13 March 1981, Sesbreno sought to encash the post-dated checks issued by Philfinance. However, the checks were dishonored for having been drawn against insufficient funds. On 26 March 1981, Philfinance delivered to Sesbreno the DCR 10805 issued by Pilipinas Bank (Pilipinas). On 2 April 1981, Sesbreno approached Ms. Elizabeth de Villa of Pilipinas, Makati Branch, and handed to her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the DCR 10805 had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the underlying promissory note. Sesbreno then examined the original of the DMC PN 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with Philfinance as “payee” and Delta Motors Corporation (Delta) as “maker;” and that on face of the promissory note was stamped “NON-NEGOTIABLE.” Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to Sesbreno. Sesbreno later made similar demand letters, dated 3 July 1981 and 3 August 1981, again asking Pilipinas for physical delivery of the original of DMC PN 2731. Pilipinas allegedly referred all of Sesbreno’s demand letters to Philfinance for written instructions, as had been supposedly agreed upon in a “Securities Custodianship Agreement” between Pilipinas and Philfinance. Philfinance never did provide the appropriate instructions; Pilipinas never released DMC PN 2731, nor any other instrument in respect thereof, to petitioner. Sesbreno also made a written demand on 14 July 1981 upon Delta for the partial satisfaction of DMC PN 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to Sesbreno on the promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC PN 2731 (along with DMC PN 2730) against Philfinance PN 143-A issued in favor of Delta. In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and Exchange Commission (SEC) and the Central Bank. Pilipinas delivered to the SEC DMC PN 2731, which to date apparently remains in the custody of the SEC. As Sesbreno had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for damages with the Regional Trial Court (RTC) of Cebu City , Branch 21, against Delta and Pilipinas. The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of merit and for lack of cause of action, with costs against Sesbreno. Sesbreno appealed to the Court of Appeals (CA GR CV 15195). In a Decision dated 21 March 1989, the Court of Appeals denied the appeal. Sesbreno moved for reconsideration of the above Decision, without success. Sesbreno filed the Petition for Review on Certiorari.

Issue: Whether the marking “non-negotiable” in DMC PN 2731 prohibited Philfinance from assigning or transferring the same to Sesbreno.

Held: The negotiation of a negotiable instrument must be distinguished from the assignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument: “The words ‘not negotiable,’ stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original parties.” Herein, DMC PN No. 2731, while marked “non-negotiable,” was not at the same time stamped “non-transferrable” or “non-assignable.” It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note. Further, there is nothing in the letter of agreement dated 10 April 1980 between Delta and Philfinance which can be reasonably construed as a prohibition upon Philfinance assigning or transferring all or part of DMC PN 2731, before the maturity thereof. It is scarcely necessary to add that, even had this “Letter of Agreement” set forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not disputed that Sesbreno was such an assignee or transferee.

[The issue whether Delta is liable for the value of the promissory to Sesbreno was resolved through Articles 1279 and 1636 of the New Civil Code as to compensation, and Article 1285 of the same as to the assignment of creditor's rights. The Court held that since Sesbreno failed to notify Delta of the assignment of the creditor's (Philfinance) rights at any time before the maturity date of DMC PN 2731, and because the record is bare of any indication that Philfinance had itself notified Delta of the assignment to Sesbreno, the Court was compelled to uphold the defense of compensation raised by Delta. The Court, however, held that Philfinance remained liable to Sesbreno under the terms of the assignment made by Philfinance to Sesbreno. As to the issue of Pilipinas’ liability to Sesbreno, on the other hand, the Court held that Pilipinas must respond to Sesbreno for damages sustained by him arising out of its breach of duty. By failing to deliver the Note to Sesbreno as depositor-beneficiary of the thing deposited -- when Pilipinas purported to require and await the instructions of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of "written instructions" from Sesbreño -- Pilipinas effectively and unlawfully deprived Sesbreno of the Note deposited with it. – Civil Law II issues, MVG.]

Form and interpretation of negotiable instruments

Metropolitan Bank & Trust Company vs. Court of Appeals

Facts: The Metropolitan Bank and Trust Co. (MetroBank) is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan, Mindoro , with Lucia Castillo, Magno Castillo and Gloria Castillo as its principal officers. In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of 2 months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and counter-signed by its Auditor. 6 of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account 2498 in the Metrobank branch in Calapan, Mindoro . They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. More than 2 weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however, “exasperated” over Gloria’s repeated inquiries and also as an accommodation for a “valued client,” MetroBank says it finally decided to allow Golden Savings to withdraw from the proceeds of the warrants. The first withdrawal was made on 9 July 1979, in the amount of P508,000.00, the second on 13 July 1979, in the amount of P310,000.00, and the third on 16 July 1979, in the amount of P150,000.00. The total withdrawal was P968,000.00. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was made on 16 July 1979. On 21 July 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on 19 July 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On 4 November 1986, the lower court modified its decision, by dismissing the complaint with costs against Metrobank; by issolving and lifting the writ of attachment of the properties of Golden Savings and Spouses Magno Castillo and Lucia Castillo; directing Metrobank to reverse its action of debiting Savings Account 2498 of the sum of P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was made including the amount of P812,033.37 in favor of Golden Savings and thereafter, to allow Golden Savings to withdraw the amount outstanding thereon before the debit; by ordering Metrobank to pay Golden Savings attorney’s fees and expenses of litigation in the amount of P200,000.00; and by ordering Metrobank to pay the Spouses Magno Castillo and Lucia Castillo attorney’s fees and expenses of litigation in the amount of P100,000.00. On appeal to the appellate court, the decision was affirmed, prompting Metrobank to file the petition for review.

Issue: Whether the treasury warrants in question are negotiable instruments.

Held: Clearly stamped on the treasury warrants’ face is the word “non-negotiable.” Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. Section 1 of the Negotiable Instruments Law, provides that “An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.” Section 3 (When promise is unconditional) thereof provides that “An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with — (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or (b) A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional.” The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay “not unconditional” and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the present case. Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were “genuine and in all respects what they purport to be,” in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: “All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch.”

Ang Tek Lian vs. Court of Appeals

Facts: Knowing he had no funds therefor, Ang Tek Lian drew on Saturday, 16 November 1946, a check upon the China Banking Corporation for the sum of P4,000, payable to the order of “cash”. He delivered it to Lee Hua Hong in exchange for money which the latter handed in the act. On 18 November 1946, the next business day, the check was presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335 only. Ang Tek Lian was charged and was convicted of estafa in the Court of First Instance of Manila. The Court of Appeals affirmed the verdict.

Issue: Whether indorsement is necessary for the presentation of a bearer instrument for payment.

Held: Under Section 9(d) of the Negotiable Instruments Law, a check drawn payable to the order of “cash” is a check payable to bearer, and the bank may pay it to the person presenting it for payment without the drawer’s indorsement. A check payable to the order of cash is a bearer instrument. Where a check is made payable to the order of “cash,” the word “cash “does not purport to be the name of any person, and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement.” Of course, if the bank is not sure of the bearer’s identity or financial solvency, it has the right to demand identification and/or assurance against possible complications, — for instance, (a) forgery of drawer’s signature, (b) loss of the check by the rightful owner, (c) raising of the amount payable, etc. The bank may therefore require, for its protection, that the indorsement of the drawer — or of some other person known to it — be obtained. But where the Bank is satisfied of the identity and/or the economic standing of the bearer who tenders the check for collection, it will pay the instrument without further question; and it would incur no liability to the drawer in thus acting. A check payable to bearer is authority for payment to the holder. Where a check is in the ordinary form, and is payable to bearer, so that no indorsement is required, a bank, to which it is presented for payment, need not have the holder identified, and is not negligent in failing to do so. Consequently, a drawee bank to which a bearer check is presented for payment need not necessarily have the holder identified and ordinarily may not be charged with negligence in failing to do so. If the bank has no reasonable cause for suspecting any irregularity, it will be protected in paying a bearer check, “no matter what facts unknown to it may have occurred prior to the presentment.” Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is entirely reasonable for the bank to insist that the holder give satisfactory proof of his identity. Herein anyway, it is significant, and conclusive, that the form of the check was totally unconnected with its dishonor. It was returned unsatisfied because the drawer had insufficient funds — not because the drawer’s indorsement was lacking.

Philippine National Bank vs. Manila Oil Refining & By-Products Company, Inc.

Facts: On 8 May 1920, the manager and the treasurer of the Manila Oil Refining & By-Products Company, Inc,. executed and delivered to the Philippine National Bank (PNB), a written instrument reading as follows: “RENEWAL. P61,000.00 MANILA , P.I., May 8, 1920. On demand after date we promise to pay to the order of the Philippine National Bank sixty-one thousand only pesos at Philippine National Bank, Manila , P.I. Without defalcation, value received; and do hereby authorize any attorney in the Philippine Islands, in case this note be not paid at maturity, to appear in my name and confess judgment for the above sum with interest, cost of suit and attorney’s fees of ten (10) per cent for collection, a release of all errors and waiver of all rights to inquisition and appeal, and to the benefit of all laws exempting property, real or personal, from levy or sale. Value received. No. —— Due —— MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) VICENTE SOTELO, Manager. MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) RAFAEL LOPEZ. Treasurer.” The Manila Oil Refining & By-Products Company, Inc. failed to pay the promissory note on demand. PNB brought action in the Court of First Instance of Manila, to recover P61,000, the amount of the note, together with interest and costs. Mr. Elias N. Recto, an attorney associated with PNB, entered his appearance in representation of Manila Oil, and filed a motion confessing judgment. Manila Oil, however, in a sworn declaration, objected strongly to the unsolicited representation of attorney Recto. Later, attorney Antonio Gonzalez appeared for Manila Oil and filed a demurrer, and when this was overruled, presented an answer. The trial judge rendered judgment on the motion of attorney Recto in the terms of the complaint. In the Supreme Court, the question of first impression raised in the case concerns the validity in this jurisdiction of a provision in a promissory note whereby in case the same is not paid at maturity, the maker authorizes any attorney to appear and confess judgment thereon for the principal amount, with interest, costs, and attorney’s fees, and waives all errors, rights to inquisition, and appeal, and all property exemptions.

Issue [1]: Whether the Negotiable Instruments Law (Act No. 2031) expressly recognized judgment notes, enforcible under the regular procedure.

Held [1]: The Negotiable Instruments Law, in section 5, provides that “The negotiable character of an instrument otherwise negotiable is not affected by a provision which (b) Authorizes confession of judgment if the instrument be not paid at maturity”; but this provision of law cannot be taken to sanction judgments by confession, because it is a portion of a uniform law which merely provides that, in jurisdictions where judgments notes are recognized, such clauses shall not affect the negotiable character of the instrument. Moreover, the same section of the Negotiable Instruments Law concludes with these words: “But nothing in this section shall validate any provision or stipulation otherwise illegal.”

Issue [2]: Whether provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in Philippine jurisdiction by implication.

Held [2]: Judgments by confession as appeared at common law were considered an amicable, easy, and cheap way to settle and secure debts. They are quick remedy serve to save the court’s time. Time also save time and money of the litigants and the government the expenses that a long litigation entails. In one sense, instruments of this character may be considered as special agreements, with power to enter up judgments on them, binding the parties to the result as they themselves viewed it. On the other hand, are disadvantages to the commercial world which outweigh the considerations just mentioned. Such warrants of attorney are void as against public policy, because they enlarge the field for fraud, because under these instruments the promissor bargains away his right to a day in court, and because the effect of the instrument is to strike down the right of appeal accorded by statute. The recognition of such form of obligation would bring about a complete reorganization of commercial customs and practices, with reference to short-term obligations. It can readily be seen that judgment notes, instead of resulting to the advantage of commercial life the Philippines might be the source of abuse and oppression, and make the courts involuntary parties thereto. If the bank has a meritorious case, the judgment is ultimately certain in the courts. The Court is of the opinion thus that warrants of attorney to confess judgment are not authorized nor contemplated by Philippine law; and that provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in this jurisdiction by implication and should only be considered as valid when given express legislative sanction.

Republic Planters Bank vs. Court of Appeals

Facts: Shozo Yamaguchi and Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution 1 dated 1 August 1979, Shozo Yamaguchi and Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic Planters Bank (RPB) in the forms of export advances and letters of credit/trust receipts accommodations. Republic Planters Bank issued nine promissory notes, each of which were uniformly worded in the following manner: “___________, after date, for value received, I/we, jointly and severaIly promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(….) Philippine Currency…” On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed names with the phrase “and (in) his personal capacity” typewritten below. At the bottom of the promissory notes appeared: “Please credit proceeds of this note to: “________ Savings Account ______XX Current”, “Account No. 1372-00257-6″, and “of WORLDWIDE GARMENT MFG. CORP.” These entries were separated from the text of the notes with a bold line which ran horizontally across the pages. In three promissory notes, the name Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the signatures of Yamaguchi and Canlas. On 20 December 1982, Worldwide Garment Manufacturing, Inc. (WGMI) noted to change its corporate name to Pinch Manufacturing Corporation (PMC). On 5 February 1982, RPB filed a complaint for the recovery of sums of money covered among others, by the nine promissory notes with interest thereon, plus attorney’s fees and penalty charges. The complainant was originally brought against WGMI inter alia, but it was later amended to drop WGMI as defendant and substitute PMC it its place. PMC and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only Canlas filed an Amended Answer wherein he, denied having issued the promissory notes in question since according to him, he was not an officer of PMC, but instead of WGMI, and that when he issued said promissory notes in behalf of WGMI, the same were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature. On 20 June 1985, The Regional Trial Court rendered a decision in favor of RPB, ordering PMC (formerly WGMI),Yamaguchi and Canlas to pay, jointly and severally, RPB the following sums with interest thereon at 16% per annum under 7 promissory notes, the sum of P300,000.00 with interest from 29 January 1981 until fully paid; P40,000.00 with interest from 27 November 1980; P166,466.00 which interest from 29 January 1981; P86,130.31 with interest from 29 January 1981; P12,703.70 with interest from 27 November 1980; P281,875.91 with interest from 29 January 1981; and P200,000.00 with interest from 29 January 1981. PMC and Yamaguchi were also ordered to pay jointly and severally, RPB the sum of P367,000.00 with interest of 16% per annum from 29 January 1980 under another promissory note. PMC was ordered to pay PRB the sum of P140,000.00 with interest at 16% per annum from 27 November 1980 until fully paid, under another promissory note; to pay the sum of P231,120.81 with interest at 12% per annum from 1 July 1981, until fully paid and the sum of P331,870.97 with interest from 28 March 1981, until fully paid. The court also ordered PMC, Yamaguchi, and Canlas to pay, jointly and severally, RPB the sum of P100,000.00 as and for reasonable attorney’s fee and the further sum equivalent to 3% per annum of the respective principal sums from the dates above stated as penalty charge until fully paid, plus 1% of the principal sums as service charge; with costs against PMC, et al. From the above decision only Canlas appealed to the then Intermediate Court (now the Court Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the defunct WGMI, he should not be held personally liable for such authorized corporate acts that he performed. The appellate court affirmed the decision of trial court except that it completely absolved Canlas from liability under the promissory notes and reduced the award for damages and attorney’s fees. RPB appealed by a way of a petition for review on certiorari. It is the contention of RPB that having unconditionally signed the 9 promissory notes with Yamaguchi, jointly and severally, Canlas is solidarity liable with Yamaguchi on each of the nine notes.

Issue [1]: Whether Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature.

Held [1]: Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature. The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder according to the tenor thereof. Based on the above provisions of law, there is no denying that Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom. Where an instrument containing the words “I promise to pay” is signed by two or more persons, they are deemed to be jointly and severally liable thereon. An instrument which begins” with “I” ,We” , or “Either of us” promise to, pay, when signed by two or more persons, makes them solidarily liable. The fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to pay the notes in full. Herein, the solidary liability of Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase “joint and several” as describing the unconditional promise to pay to the order of RPB. A joint and several note is one in which the makers bind themselves both jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. A joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share. By making a joint and several promise to pay to the order of RPB, Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and PMC as solidary debtors. As to whether the interpolation of the phrase “and (in) his personal capacity” below the signatures of the makers in the notes will affect the liability of the makers, it is immaterial and will not affect to the liability of Canlas as a joint and several debtor of the notes. With or without the presence of said phrase, Canlas is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor.

Issue [2]: Whether Canlas can avoid liability on the promissory notes by claiming to be a mere agent of the corporation.

Held [2]: As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for in Section 20 thereof, which provides that “Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent’s personal liability.”

Issue [3]: Whether the promissory notes were delivered to Canlas in blank for his signature, or were incomplete instruments, to allow the application of Section 14 of the Negotiable Instruments Law.

Evangelista vs. Mercator Finance Corp. (GR 148864, 21 August 2003)

Facts: Spouses Eduardo B. Evangelista and Epifania C. Evangelista filed a complaint for annulment of titles against Mercator Finance Corp. Lydia P. Salazar, Lamecs Realty and Development Corporation, and the Register of Deeds of Bulacan. The spouses Evangelista claimed being the registered owners of 5 parcels of land contained in the Real Estate Mortgage executed by them and Embassy Farms, Inc. They alleged that they executed the Real Estate Mortgage in favor of Mercator only as officers of Embassy Farms. They did not receive the proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they contended that the mortgage was without any consideration as to them since they did not personally obtain any loan or credit accommodations. There being no principal obligation on which the mortgage rests, the real estate mortgage is void. With the void mortgage, they assailed the validity of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same parcels of land to Lydia P. Salazar, and the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development Corporation. Mercator admitted that the spouses Evangelista were the owners of the subject parcels of land. It, however, contended that on 16 February 1982, the spouses executed a Mortgage in favor of Mercator for and in consideration of certain loans, and/or other forms of credit accommodations obtained from the Mortgagee (Mercator) amounting to P844,625.78 and to secure the payment of the same and those others that the Mortgagee may extend to the mortgagor. It contended that since the spouses and Embassy Farms signed the promissory note as co-makers, aside from the Continuing Suretyship Agreement subsequently executed to guarantee the indebtedness of Embassy Farms, and the succeeding promissory notes[8] restructuring the loan, then the spouses are jointly and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are valid. Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the validity of the title of Mercator. Lamecs admitted the prior ownership of the spouses of the subject parcels of land, but alleged that they are the present registered owner. Salazar and Lamecs likewise assailed the long silence and inaction by the spouses as it was only after a lapse of almost 10 years from the foreclosure of the property and the subsequent sales that they made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches. After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of damages, there is no factual issue to be litigated. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the promissory note, the continuing suretyship agreement and the subsequent promissory notes restructuring the loan, hence, there is no genuine issue regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the complaint must be dismissed. The spouses opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue, there is a need for a full-blown trial. The RTC granted the motion for summary judgment and dismissed the complaint. The spouses’ motion for reconsideration was denied for lack of merit. Thus, the spouses went up to the Court of Appeals, but again were unsuccessful. A motion for reconsideration by the spouses was likewise denied for lack of merit. The spouses filed the Petition for Review on Certiorari. The spouses allege, inter alia, that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form, then the ambiguity should be resolved against it.

Issue: Whether the spouses are solidarily liable with Embassy Farms, in light of the promissory note signed by them.

Held: The promissory note and the Continuing Suretyship Agreement prove that the spouses are solidary obligors with Embassy Farms. The promissory notes subsequently executed by the spouses and Embassy Farms, restructuring their loan, likewise prove that the spouses are solidarily liable with Embassy Farms. The spouses allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form, then the ambiguity should be resolved against it. Courts can interpret a contract only if there is doubt in its letter. But, an examination of the promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states that “Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: (g) Where an instrument containing the word ‘I promise to pay’ is signed by two or more persons, they are deemed to be jointly and severally liable thereon.” Further, even if the spouses intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal. The spouses cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. Having executed the suretyship agreement, there can be no dispute on the personal liability of the spouses.

Held [3]: A careful examination of the notes in question shows that they are the stereotype printed form of promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are incomplete because there are blank spaces to be filled up on material particulars such as payee’s name, amount of the loan, rate of interest, date of issue and the maturity date. The terms and conditions of the loan are printed on the note for the borrower-debtor’s perusal. An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law. Proof that the notes were signed in blank was only the self-serving testimony of Canlas. The Court chose to believe the bank’s testimony that the notes were filled up before they were given to Canlas and Yamaguchi for their signatures as joint and several promissors. For signing the notes above their typewritten names, they bound themselves as unconditional makers. The court took judicial notice of the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign as makers or co-makers. When the notes were given to Canlas for his signature, the notes were complete in the sense that the spaces for the material particular had been filled up by the bank as per agreement. The notes were not incomplete instruments; neither were they given to Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.

Negotiation

Consolidated Plywood Industries Inc. vs. IFC Leasing and Acceptance Corp.

Facts: Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the logging business. It had for its program of logging activities for the year 1978 the opening of additional roads, and simultaneous logging operations along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao Oriental. For this purpose, it needed 2 additional units of tractors. Cognizant of CPII’s need and purpose, Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm, Industrial Products Marketing (IPM), a corporation dealing in tractors and other heavy equipment business, offered to sell to CPII 2 “Used” Allis Crawler Tractors, 1 an HD-21-B and the other an HD-16-B. In order to ascertain the extent of work to which the tractors were to be exposed, and to determine the capability of the “Used” tractors being offered, CPII requested the seller-assignor to inspect the jobsite. After conducting said inspection, IPM assured CPII that the “Used” Allis Crawler Tractors which were being offered were fit for the job, and gave the corresponding warranty of 90 days performance of the machines and availability of parts. With said assurance and warranty, and relying on the IPM’s skill and judgment, CPII through Henry Wee and Rodolfo T. Vergara, president and vice-president, respectively, agreed to purchase on installment said 2 units of “Used” Allis Crawler Tractors. It also paid the down payment of P210,000.00. On 5 April 1978, IPM issued the sales invoice for the 2 units of tractors. At the same time, the deed of sale with chattel mortgage with promissory note was executed. Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note, IPM, by means of a deed of assignment, assigned its rights and interest in the chattel mortgage in favor of IFC Leasing and Acceptance Corporation. Immediately thereafter, IPM delivered said 2 units of “Used” tractors to CPII’s jobsite and as agreed, IPM stationed its own mechanics to supervise the operations of the machines. Barely 14 days had elapsed after their delivery when one of the tractors broke down and after another 9 days, the other tractor likewise broke down. On 25 April 1978, Vergara formally advised IPM of the fact that the tractors broke down and requested for IPM’s usual prompt attention under the warranty. In response to the formal advice by Vergara, IPM sent to the jobsite its mechanics to conduct the necessary repairs, but the tractors did not come out to be what they should be after the repairs were undertaken because the units were no longer serviceable. Because of the breaking down of the tractors, the road building and simultaneous logging operations of CPII were delayed and Vergara advised IPM that the payments of the installments as listed in the promissory note would likewise be delayed until IPM completely fulfills its obligation under its warranty. Since the tractors were no longer serviceable, on 7 April 1979, Wee asked IPM to pull out the units and have them reconditioned, and thereafter to offer them for sale. The proceeds were to be given to IFC Leasing and the excess, if any, to be divided between IPM and CPII which offered to bear 1/2 of the reconditioning cost. No response to this letter was received by CPII and despite several follow-up calls, IPM did nothing with regard to the request, until the complaint in the case was filed by IFC Leasing against CPII, Wee, and Vergara. The complaint was filed by IFC Leasing against CPII, et al. for the recovery of the principal sum of P1,093,789.71, accrued interest of P151,618.86 as of 15 August 1979, accruing interest there after at the rate of 12% per annum, attorney’s fees of P249,081.71 and costs of suit. CPII, et al. filed their amended answer praying for the dismissal of the complaint and asking the trial court to order IFC leasing to pay them damages in an amount at the sound discretion of the court, P20,000.00 as and for attorney’s fees, and P5,000.00 for expenses of litigation, among others. In a decision dated 20 April 1981, the trial court rendered judgment, ordering CPII, et al. to pay jointly and severally in their official and personal capacities the principal sum of P1,093,798.71 with accrued interest of P151,618.86 as of 15 August 1979 and accruing interest thereafter at the rate of 12% per annum; and attorney’s fees equivalent to 10% of the principal and to pay the costs of the suit. On 8 June 1981, the trial court issued an order denying the motion for reconsideration filed by CPII, et al. CPII, et al.appealed to the Intermediate Appellate Court. On 17 July 1985, the Intermediate Appellate Court issued the decision affirming in toto the decision of the trial court. CPII et al.’s motion for reconsideration was denied by the Intermediate Appellate Court in its resolution dated 17 October 1985, a copy of which was received by CPII, et al. on 21 October 1985. CPII, et al. filed the petition for certiorari under rule 45 of the Rules of Court.

Issue: Whether the promissory note in question is a negotiable instrument.

Held: The pertinent portion of the note provides that “”FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid.” Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note “must be payable to order or bearer,” it cannot be denied that the promissory note in question is not a negotiable instrument. The instrument in order to be considered negotiable must contain the so called “words of negotiability” — i.e., must be payable to “order” or “bearer.” These words serve as an expression of consent that the instrument may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one. Without the words “or order” or “to the order of,” the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely “step into the shoes” of the person designated in the instrument and will thus be open to all defenses available against the latter. Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that IFC Leasing can never be a holder in due course but remains a mere assignee of the note in question. Thus, CPII may raise against IFC Leasing all defenses available to it as against IPM. This being so, there was no need for CPII to implead IPM when it was sued by IFC Leasing because CPII’s defenses apply to both or either of them.

De la Victoria vs. Burgos

Facts: Raul H. Sesbreno filed a complaint for damages against Assistant City Fiscal Bienvenido N. Mabanto, Jr., et al. before the Regional Trial Court of Cebu City . After trial Judgment was rendered ordering Mabanto, et al. to pay P11,000.00 to Sesbreno. The decision having become final and executory, on motion of the latter, the trial court ordered its execution. This order was questioned by Mabanto, et al. before the Court of Appeals. However, on 15 January 1992 a writ of execution was issued. On 4 February 1992 a notice of garnishment was served on Loreto D. de la Victoria as City Fiscal of Mandaue City where Mabanto, Jr., was then detailed. The Notice directed De la Victoria not to disburse, transfer, release or convey to any other person except to the deputy sheriff concerned the salary checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of law. On 10 March 1992 Sesbreno filed a motion before the trial court for examination of the garnishees. On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial court, finding no more legal obstacle to act on the motion for examination of the garnishees, directed De la Victoria on 4 November 1992 to submit his report showing the amount of the garnished salaries of Mabanto, Jr., within 15 days from receipt taking into consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court. On 24 November 1992 Sesbreno filed a motion to require De la Victoria to explain why he should not be cited in contempt of court for failing to comply with the order of 4 November 1992. On the other hand, on 19 January 1993 De la Victoria moved to quash the notice of garnishment claiming that he was not in possession of any money, funds, credit, property or anything of value belonging to Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public funds which could not be subject to garnishment. On 9 March 1993 the trial court denied both motions and ordered De la Victoria to immediately comply with its order of 4 November 1992. It opined that the checks of Mabanto, Jr., had already been released through De la Victoria by the Department of Justice duly signed by the officer concerned; that upon service of the writ of garnishment, De la Victoria as custodian of the checks was under obligation to hold them for the judgment creditor; that De la Victoria became a virtual party to, or a forced intervenor in, the case and the trial court hereby acquired jurisdiction to bind him to its orders and processes with a view to the complete satisfaction of the judgment; and that additionally there was no sufficient reason for De la Victoria to hold the checks because they were no longer government funds and presumably delivered to the payee, conformably with the last sentence of Section 16 of the Negotiable Instruments Law. With regard to the contempt charge, the trial court was not morally convinced of De la Victoria ‘s guilt. On 20 April 1993 the motion for reconsideration was denied. De la Victoria filed the petition.

Issue: Whether a check still in the hands of the maker or its duly authorized representative is owned by the payee before physical delivery to the latter.

Held: Garnishment is considered as a species of attachment for reaching credits belonging to the Judgment debtor owing to him from a stranger to the litigation. As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his compensation in the form of checks from the Department of Justice through De la Victoria as City Fiscal of Mandaue City and head of office. Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or the drawer with intent to transfer title to the payee and recognize him as the holder thereof. Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had the character of public funds. As held in Tiro v. Hontanosas, “the salary check of a government officer or employee such a s a teacher does not belong to him before it is physically delivered to him. Until that time the check belongs to the government. Accordingly, before there is actual delivery of the check, the payee has no power over it; he cannot assign it without the consent of the Government.” As a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment. The rationale behind this doctrine is obvious consideration of public policy. The Court succinctly stated in Commissioner of Public Highways v. San Diego that “the functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated by law.” The trial court exceeded its jurisdiction in issuing the notice of garnishment concerning the salary checks of Mabanto, Jr., in the possession of De la Victoria .

Development Bank of Rizal vs. Sima Wei

Facts: In consideration for a loan extended by the Development Bank of Rizal (DBR) to Sima Wei, the latter executed and delivered to the former a promissory note, engaging to pay DBR or order the amount of P1,820,000.00 on or before 24 June 1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On 18 November 1983, Sima Wei issued two crossed checks payable to DBR drawn against China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued in full settlement of the drawer’s account evidenced by the promissory note. These two checks were not delivered to DBR or to any of its authorized representatives. For reasons not shown, these checks came into the possession of Lee Kian Huat, who deposited the checks without DBR’s indorsement (forged or otherwise) to the account of the Asian Industrial Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak Branch of Producers Bank, relying on the assurance of Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to DBR and bore no indorsement of the latter. On 5 July 1986, DBR filed the complaint for a sum of money against Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation and the Producers Bank of the Philippines, on two causes of actionL (1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed by Sima Wei on 9 June 1983; and (2) To enforce payment of two checks executed by Sima Wei, payable to DBR, and drawn against the China Banking Corporation, to pay the balance due on the promissory note. Except for Lee Kian Huat, Sima Wei, et al. filed their separate Motions to Dismiss alleging a common ground that the complaint states no cause of action. The trial court granted the Motions to Dismiss. The Court of Appeals affirmed the decision, to which DBR, represented by its Legal Liquidator, filed the Petition for Review by Certiorari.

Issue: Whether DBR, as the intended payee of the instrument, has a cause of action against any or all of the defendants, in the alternative or otherwise.

Held: The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount payable and the drawer’s signature. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give rise to any liability on his part, until and unless the check is delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part that “Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.” Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. Herein, the two (2) China Bank checks, numbered 384934 and 384935, were not delivered to the payee, DBR. Without the delivery of said checks to DBR, the former did not acquire any right or interest therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents. Since DBR never received the checks on which it based its action against said respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything which the respondents may have done with respect to said checks could not have prejudiced DBR. It had no right or interest in the checks which could have been violated by said respondents. DBR has therefore no cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against her co-respondents, if the allegations in the complaint are found to be true.

Metropol ( Bacolod ) Financing & Investment Corporation vs. Sambok Motors Co.

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

Issue: Whether Sambok is a qualified indorser of the subject promissory note.

Held: A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser’s signature the words “without recourse” or any words of similar import. Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law. However, Sambok indorsed the note “with recourse” and even waived the notice of demand, dishonor, protest and presentment. “Recourse” means resort to a person who is secondarily liable after the default of the person who is primarily liable. Sambok, by indorsing the note “with recourse” does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, Metropol can go after Sambok. The effect of such indorsement is that the note was indorsed without qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. Sambok’s intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand, dishonor, protest and presentment were all waived. The words added by Sambok do not limit his liability, but rather confirm his obligation as a general indorser. Further, after an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and becomes a principal debtor. His liability becomes the same as that of the original obligor. Consequently, the holder need not even proceed against the maker before suing the indorser.

Gempesaw vs. Court of Appeals

Facts: Natividad O. Gempesaw owns and operates four grocery stores located at Rizal Avenue Extension and at Second Avenue , both in Caloocan City . Among these groceries are D.G. Shopper’s Mart and D.G. Whole Sale Mart. Gempesaw maintains a checking account numbered 13-00038-1 with the Caloocan City Branch of PBCom. To facilitate payment of debts to her suppliers, Gempesaw draws checks against her checking account with PBCom as drawee. Her customary practice of issuing checks in payment of her suppliers was as follows: The checks were prepared and filled up as to all material particulars by her trusted bookkeeper, Alicia Galang, an employee for more than 8 years. After the bookkeeper prepared the checks, the completed checks were submitted to Gempesaw for her signature, together with the corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers. Gempesaw signed each and every check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. The issuance and delivery of the checks to the payees named therein were left to the bookkeeper. Gempesaw admitted that she did not make any verification as to whether the checks were actually delivered to their respective payees. Although PBCom notified her of all checks presented to and paid by the bank, Gempesaw did not verify the correctness of the returned checks, much less check if the payees actually received the checks in payment for the supplies she received. In the course of her business operations covering a period of 2 years, Gempesaw issued, following her usual practice, a total of 82 checks in favor of several suppliers. These checks were all presented by the indorsees as holders thereof to, and honored by PBCom. PBCom correspondingly debited the amounts thereof against Gempesaw’s checking account numbered 30-00038-1. Most of the checks were for amounts in excess of her actual obligations to the various payees as shown in their corresponding invoices. Practically, all the checks issued and honored by PBCom were crossed checks. Aside from the daily notice given to Gempesaw by PBCom, the latter also furnished her with a monthly statement of her bank transactions, attaching thereto all the cancelled checks she had issued and which were debited against her current account. It was only after the lapse of more than 2 years that Gempesaw found out about the fraudulent manipulations of her bookkeeper. All the 82 checks with forged signatures of the payees were brought to Ernest L. Boon, Chief Accountant of PBCom at the Buendia branch, who, without authority therefor, accepted them all for deposit at the Buendia branch to the credit and/or in the accounts of Alfredo Y. Romero and Benito Lam. Ernest L. Boon was a very close friend of Alfredo Y. Romero. 63 out of the 82 checks were deposited in Savings Account 00844-5 of Alfredo Y. Romero at PBCom’s Buendia branch, and 4 checks in his Savings Account 32-81-9 at its Ongpin branch. The rest of the checks were deposited in Account 0443-4, under the name of Benito Lam at the Elcano branch of the respondent drawee Bank. About 30 of the payees whose names were specifically written on the checks did not receive nor even see the subject checks and that the indorsements appearing at the back of the checks were not theirs. The team of auditors from the main office of PBCom which conducted periodical inspection of the branches’ operations failed to discover, check or stop the unauthorized acts of Ernest L. Boon. All the deposit slips of the 82 checks in question were initialed and/or approved for deposit by Ernest L. Boon, contrary to the rules of PBCom, where only a Branch Manager, and no other official of PBCom, may accept a second indorsement on a check for deposit. The Branch Managers of the Ongpin and Elcano branches accepted the deposits made in the Buendia branch and credited the accounts of Alfredo Y. Romero and Benito Lam in their respective branches. On 7 November 1984, Gempesaw made a written demand on PBCom to credit her account with the money value of the 82 checks totalling P1,208,606.89 for having been wrongfully charged against her account. PBCom refused to grant Gempesaw’s demand. On 23 January 1985, Gempesaw filed a Complaint against the Philippine Bank of Communications (PBCom) for recovery of the money value of 82 checks charged against Gempesaw’s account with PBCom on the ground that the payees’ indorsements were forgeries. The Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the case, rendered a decision on 17 November 1987 dismissing the complaint as well as PBCom’s counterclaim. On appeal, the Court of Appeals in a decision rendered on 22 February 1990, affirmed the decision of the RTC on two grounds, namely (1) that Gempesaw’s gross negligence in issuing the checks was the proximate cause of the loss and (2) assuming that the bank was also negligent, the loss must nevertheless be borne by the party whose negligence was the proximate cause of the loss. On 5 March 1990, Gempesaw filed the petition for review under Rule 45 of the Rules of Court.

Issue [1]: Whether the drawer’s account may be charged for checks where the indorsements were forged.

Held [1]: As a matter of practical significance, problems arising from forged indorsements of checks may generally be broken into two types of cases: (1) where forgery was accomplished by a person not associated with the drawer — for example a mail robbery; and (2) where the indorsement was forged by an agent of the drawer. This difference in situations would determine the effect of the drawer’s negligence with respect to forged indorsements. While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by the depositor’s own employees. And if the drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer is under duty promptly to report such fact to the drawee bank. For his negligence or failure either to discover or to report promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his account under the forged indorsement. As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer’s account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the forged indorsement by mere examination of his cancelled check. This accounts for the rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own signature, he has no similar duty as to forged indorsements. A different situation arises where the indorsement was forged by an employee or agent of the drawer, or done with the active participation of the latter. Most of the cases involving forgery by an agent or employee deal with the payee’s indorsement. The drawer and the payee oftentimes have business relations of long standing. The continued occurrence of business transactions of the same nature provides the opportunity for the agent/employee to commit the fraud after having developed familiarity with the signatures of the parties. However, sooner or later, some leak will show on the drawer’s books. It will then be just a question of time until the fraud is discovered. This is specially true when the agent perpetrates a series of forgeries as herein. The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a prudent businessman would under the circumstances. Herein, Gempesaw relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even verify the accuracy of the amounts of the checks she signed against the invoices attached thereto. Although she regularly received her bank statements, she apparently did not carefully examine the same nor the check stubs and the returned checks, and did not compare them with the sales invoices. Otherwise, she could have easily discovered the discrepancies between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been accomplished. It was not until 2 years after the bookkeeper commenced her fraudulent scheme that Gempesaw discovered that 82 checks were wrongfully charged to her account, at which time she notified PBCom. Gempesaw’s failure to make such adequate inquiry constituted negligence which resulted in the bank’s honoring of the subsequent checks with forged indorsements. Gempesaw’s negligence was the proximate cause of her loss. And since it was her negligence which caused PBCom to honor the forged checks or prevented it from recovering the amount it had already paid on the checks, Gempesaw cannot now complain should the bank refuse to recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank’s debiting of her account.

Issue [2]: Whether banking rules prohibiting the drawee bank from having checks with more than one indorsement invalidate the negotiation or transfer of the said check.

Held [2]: The banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not invalidate the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Under the Negotiable Instruments Law, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof. In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that it ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so. Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between them, as far as the drawer-depositor is concerned, such bank may not legally refuse to honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds. The drawee cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee, he incurs no liability on the check unless he accepts it. But the drawee will make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or check.

Holders

De Ocampo vs. Gatchalian

Facts: On or about 8 September 1953, in the evening, Anita C. Gatchalian who was then interested in looking for a car for the use of her husband and the family, was shown and offered a car by Manuel Gonzales who was accompanied by Emil Fajardo, the latter being personally known to Gatchalian. Gonzales represented to Gatchalian that he was duly authorized by the owner of the car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish said sale. Gatchalian, finding the price of the car quoted by Gonzales to her satisfaction, requested Gonzales to bring the car the day following together with the certificate of registration of the car, so that her husband would be able to see same. On this request of Gatchalian, Gonzales advised her that the owner of the car will not be willing to give the certificate of registration unless there is a showing that the party interested in the purchase of said car is ready and willing to make such purchase and that for this purpose Gonzales requested Gatchalian to give him a check which will be shown to the owner as evidence of buyer’s good faith in the intention to purchase the said car, the said check to be for safekeeping only of Gonzales and to be returned to Gatchalian the following day when Gonzales brings the car and the certificate of registration. Relying on these representations of Gonzales and with this assurance that said check will be only for safekeeping and which will be returned to Gatchalian the following day when the car and its certificate of registration will be brought by Gonzales to Gatchalian, Gatchalian drew and issued a check that Gonzales executed and issued a receipt for said check. On the failure of Gonzales to appear the day following and on his failure to bring the car and its certificate of registration and to return the check on the following day as previously agreed upon, Gatchalian issued a “Stop Payment Order” on the check with the drawee bank. When Gonzales received the check from Gatchalian under the representations and conditions above specified, he delivered the same to the Ocampo Clinic, in payment of the fees and expenses arising from the hospitalization of his wife. Vicente R. De Ocampo & Co. for and in consideration of fees and expenses of hospitalization and the release of the wife of Gonzales from its hospital, accepted said check, applying P441.75 thereof to payment of said fees and expenses and delivering to Gonzales the amount of P158.25 representing the balance on the amount of the said check. The acts of acceptance of the check and application of its proceeds in the manner specified were made without previous inquiry by De Ocampo from Gatchalian. De Ocampo filed with the Office of the City Fiscal of Manila, a complaint for estafa against Gonzales based on and arising from the acts of Gonzales in paying his obligations with De Ocampo and receiving the cash balance of the check and that said complaint was subsequently dropped.

De Ocampo subsequently filed an action for the recovery of the value of a check for P600 payable to De Ocampo and drawn by Gatchalian. The Court of First Instance of Manila, through Hon. Conrado M. Vasquez, presiding, sentenced Gatchalian and Gonzales to pay De Ocampo the sum of P600, with legal interest from 10 September 1953 until paid, and to pay the costs. Gatchalian, et al. appealed.

Issue [1]: Whether De Ocampo is a holder in due course.

Held [1]: NO. Section 52, Negotiable Instruments Law, defines holder in due course as “A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” Although De Ocampo was not aware of the circumstances under which the check was delivered to Gonzales, the circumstances — such as the fact that Gatchalian had no obligation or liability to the Ocampo Clinic, that the amount of the check did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not be converted into cash —- should have put De Ocampo to inquiry as to the why and wherefore of the possession of the check by Gonzales, and why he used it to pay Matilde’s account. It was payee’s duty to ascertain from the holder Gonzales what the nature of the latter’s title to the check was or the nature of his possession. Having failed in this respect, De Ocampo was guilty of gross neglect in not finding out the nature of the title and possession of Gonzales, amounting to legal absence of good faith, and it may not be considered as a holder of the check in good faith.

Issue [2]: Whether the rule that a possessor of the instrument is prima facie a holder in due course applies.

Held [2]: The rule that a possessor of the instrument is prima facie a holder in due course does not apply because there was a defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. On the other hand, the stipulation of facts — like the fact that the drawer had no account with the payee; that the holder did not show or tell the payee why he had the check in his possession and why he was using it for the payment of his own personal account —- show that holder’s title was defective or suspicious, to say the least. As holder’s title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in holder’s title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist. And having presented no evidence that it acquired the check in good faith, it (payee) cannot be considered as a holder in due course. In other words, under the circumstances of the case, instead of the presumption that payee was a holder in good faith, the fact is that it acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. The burden was, therefore, placed upon it to show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith.

Stelco Marketing Corp. vs. Court of Appeals

Facts: Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel bars. On 7 different occasions in September and October 1980, it sold to RYL Construction, Inc. quantities of steel bars of various sizes and rolls of G.I. wire. These bars and wire were delivered at different places at the indication of RYL Construction, Inc. The aggregate price for the purchases was P126,859.61. Although the corresponding invoices issued by STELCO stipulated that RYL would pay “COD” (cash on delivery), the latter made no payments for the construction materials thus ordered and delivered despite insistent demands for payment by the former. On April 4, 1981, RYL gave to Armstrong Industries — described by STELCO as its “sister corporation” and “manufacturing arm” — a check drawn against Metrobank in the amount of P126,129.86, numbered 765380 and dated 4 April 1981. That check was a company check of another corporation, Steelweld Corporation of the Philippines , signed by its President, Peter Rafael Limson, and its Vice-President, Artemio Torres. The check was issued by Limson at the behest of his friend, Romeo Y. Lim, President of RYL. Romeo Lim had asked Limson for financial assistance, and the latter had agreed to give Lim a check only by way of accommodation, “only as guaranty but not to pay for anything.” Why the check was made out in the amount of P126,129.86 is not explained. The check was actually issued in said amount of P126,129.86, and as already stated, was given by R.Y. Lim to Armstrong, Industries, in payment of an obligation. When the latter deposited the check at its bank, it was dishonored because “drawn against insufficient funds.” When so deposited, the check bore two (2) indorsements, that of “RYL Construction,” followed by that of “Armstrong Industries.” On account of the dishonor of Metrobank Check 765380, and on complaint of Armstrong Industries (through a Mr. Young), Rafael Limson and Artemio Torres were charged in the Regional Trial Court of Manila with a violation of Batas Pambansa Bilang 22. They were acquitted in a decision rendered on 28 June 1984 “on the ground that the check in question was not issued by the drawer ‘to apply on account for value,’ it being merely for accommodation purposes.” That judgment however conditioned the acquittal with the pronouncement that “this is not however to release Steelweld Corporation from its liability under Sec. 29 of the Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim.”

Eleven months later — and some 4 years after issuance of the check — in May, 1985, STELCO filed with the Regional Trial Court of Caloocan City a civil complaint against both RYL and STEELWELD for the recovery of the value of the steel bars and wire sold to and delivered to RYL in the amount of P126,129.86, plus 18% interest from 20 August 1980 and 25% of the total amount sought to be recovered as and by way of attorney’s fees. A preliminary attachment was issued by the trial court on the basis of the averments of the complaint but was shortly dissolved upon the filing of a counter-bond by STEELWELD. RYL could no longer be located and could not be served with summons. It never appeared. Only STEELWELD filed an answer, under date of 16 July 1985. Judgment was rendered on 26 June 1986. The judgment sentenced Steelweld to pay to Stelco the amount of P126,129.86 with legal rate of interest from 9 May 1985, when the case was instituted until fully paid, plus another sum equivalent to 25% of the total amount due as and for attorney’s fees. STELCO’s motion for reconsideration was denied by the Appellate Tribunal’s resolution dated 13 November 1990. STELCO appealed.

Issue[1]: Whether the fourth condition, i.e. as to notice, for a holder in due course is applicable to an accommodation party.

Held [1]: “A holder in due course,” says the law, “is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the persons negotiating it.” As regards an accommodation party (such as STEELWELD), the fourth condition, i.e., lack of notice of any infirmity in the instrument or defect in title of the persons negotiating it, has no application. This is because Section 29 of the law above quoted preserves the right of recourse of a “holder for value” against the accommodation party notwithstanding that “such holder, at the time of taking the instrument, knew him to be only an accommodation party.”

Issue [2]: Whether STELCO ever became a holder in due course of Check 765380, a bearer instrument within the contemplation of the Negotiable Instruments Law.

Held [2]: NO. It never did. There is no evidence whatever that STELCO’s possession of Check 765380 ever dated back to any time before the instrument’s presentment and dishonor. There is no evidence whatsoever that the check was ever given to it, or indorsed to it in any manner or form in payment of an obligation or as security for an obligation, or for any other purpose before it was presented for payment. On the contrary, STELCO never became a holder for value and that “(n)owhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or depositor thereof.” What the record shows is that: (1) the STEELWELD company check in question was given by its president to R.Y. Lim; (2) it was given only by way of accommodation, to be “used as collateral for another obligation;” (3) in breach of the agreement, however, R.Y. Lim indorsed the check to Armstrong in payment of an obligation; (4) Armstrong deposited the check to its account, after indorsing it; (5) the check was dishonored. The record does not show any intervention or participation by STELCO in any manner or form whatsoever in these transactions, or any communication of any sort between STEELWELD and STELCO, or between either of them and Armstrong Industries, at any time before the dishonor of the check. The record does show that after the check had been deposited and dishonored, STELCO came into possession of it in some way, and was able, several years after the dishonor of the check, to give it in evidence at the trial of the civil case it had instituted against the drawers of the check (Limson and Torres) and RYL. Possession of a negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor a holder for value within the meaning of the law; it gives rise to no liability on the part of the maker or drawer and indorsers. It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for value. It does not meet two of the essential requisites prescribed by the statute. It did not become “the holder of it before it was overdue, and without notice that it had been previously dishonored,” and it did not take the check “in good faith and for value.” Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the check, accepted the instrument and attempted to encash it in behalf, and as agent of STELCO. On the contrary, the indications are that Armstrong was really the intended payee of the check and was the party actually injured by its dishonor; it was after all its representative (a Mr. Young) who instituted the criminal prosecution of the drawers, Limson and Torres, albeit unsuccessfully.

Bataan Cigar and Cigarette Factory vs. Court of Appeals

Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George (George King), to deliver 2,000 bales of tobacco leaf starting October 1978. In consideration thereof, BCCFI, on 13 July 1978 issued crossed checks post dated sometime in March 1979 in the total amount of P820,000.00. Relying on the supplier’s representation that he would complete delivery within three months from 5 December 1978, BCCFI agreed to purchase additional 2,500 bales of tobacco leaves, despite the supplier’s failure to deliver in accordance with their earlier agreement. Again BCCFI issued postdated crossed checks in the total amount of P1,100,000.00, payable sometime in September 1979. During these times, George King was simultaneously dealing with State Investment House, Inc. (SIHI) On 19 July 1978, he sold at a discount check TCBT 551826 bearing an amount of P164,000.00, post dated 31 March 1979, drawn by BCCFI, naming George King as payee to SIHI. On December 19 and 26, 1978, he again sold to SIHI checks TCBT 608967 & 608968, both in the amount of P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by BCCFI in favor of George King. In as much as George King failed to deliver the bales of tobacco leaf as agreed despite BCCFI’s demand, BCCFI issued on 30 March 1979, a stop payment order on all checks payable to George King, including check TCBT 551826. Subsequently, stop payment was also ordered on checks TCBTs 608967 & 608968 on September 14 & 28, 1979, respectively, due to George King’s failure to deliver the tobacco leaves. Efforts of SIHI to collect from BCCFI having failed, it instituted the case for collection on three unpaid checks, naming only BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due course. It further said that the non-inclusion of King Tim Pua George as party defendant is immaterial in the case, since he, as payee, is not an indispensable party. The Court of Appeals affirmed the decision of the trial court. BCCFI filed the petition for review.

Issue: Whether SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able to collect from the drawer, BCCFI.

Held: The Negotiable Instruments Law states what constitutes a holder in due course, i.e. “A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” Section 59 of the NIL further states that every holder is deemed prima facie a holder in due course. However, when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims, acquired the title as holder in due course. Crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser’s title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law, and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course. Herein, BCCFI’s defense in stopping payment is as good to SIHI as it is to George King. Because, really, the checks were issued with the intention that George King would supply BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks.

(Note: It does not mean, however, that SIHI could not recover from the checks. The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were non-negotiable. Hence, SIHI can collect from the immediate indorser, George King.)

State Investment House Inc. (SIHI) vs. Intermediate Appellate Court

Facts: Shortly before 5 September 1980, New Sikatuna Wood Industries, Inc. (NSWII) requested for a loan from Harris Chua. The latter agreed to grant the same subject to the condition that the former should wait until December 1980 when he would have the money. In view of this agreement, Anita Pena Chua (Harris Chua’s wife) issued 3 crossed checks payable to NSWII all postdated 22 December 1980. The total value of the postdated checks amounted to P 299,450.00. Subsequently, NSWII entered into an agreement with State Investment House, Inc. (SIHI) whereby for and in consideration of the sum of Pl,047,402.91 under a deed of sale, the former assigned and discounted with SIHI 11 postdated checks including the 3 postdated checks issued by Peña Chua to NSWII. When the three checks issued by Pena Chua were allegedly deposited by SIHI, these checks were dishonored by reason of “insufficient funds”, “stop payment” and “account closed”, respectively. SIHI claimed that despite demands on Peña Chua to make good said checks, the latter failed to pay the same necessitating the former to file an action for collection against the latter and her husband before the Regional Trial Court of Manila, Branch XXXVII (Civil Case 82-10547). The spouses Chua filed a third party complaint against NSWII for reimbursement and indemnification in the event that they be held liable to SIHI. For failure of NSWII to answer the third party complaint despite due service of summons, the latter was declared in default. On 30 April 1984, the lower court rendered judgment against the spouses, ordering them to pay jointly and severally to SIHI P 229,450.00 with interest at the rate of 12% per annum from 24 February 1981 until fully paid; P 29,945.00 as and for attorney’s fees; and the costs of suit. On the third party complaint, NSWII was ordered to pay the spouses all amounts said spouses may pay to SIHI on account of the case. On appeal filed by the spouses (AC-GR CV 04523), the Intermediate Appellate Court (now Court of Appeals) reversed the lower court’s judgment in its decision, dismissing the complaint, with costs against SIHI. SIHI filed the petition for review.

Issue [1]: Whether SIHI is a holder in due course as to entitle it to proceed against the spouses Chua for the amount stated in the dishonored cross checks.

Held [1]: NO. Section 52(c) of the Negotiable Instruments Law defines a holder in due course as one who takes the instrument “in good faith and for value”. On the other hand, Section 52(d) provides that in order that one may be a holder in due course, it is necessary that “at the time the instrument was negotiated to him he had no notice of any defect in the title of the person negotiating it.” However, under Section 59 every holder is deemed prima facie to be a holder in due course. Admittedly, the Negotiable Instruments Law regulating the issuance of negotiable checks as well as the lights and liabilities arising therefrom, does not mention “crossed checks”. But the Court has taken cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and may not be converted into cash. Consequently, such circumstance should put the payee on inquiry and upon him devolves the duty to ascertain the holder’s title to the check or the nature of his possession. Failing in this respect, the payee is declared guilty of gross negligence amounting to legal absence of good faith and as such the consensus of authority is to the effect that the holder of the check is not a holder in good faith. Relying on the ruling in Ocampo v. Gatchalian (GR L-15126, 30 November 1961), the Intermediate Appellate Court (now Court of Appeals), correctly elucidated that the effects of crossing a check are: the check may not be encashed but only deposited in the bank; the check may be negotiated only once to one who has an account with a bank; and 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 he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course. Further, the appellate court said that when SIHI rediscounted the check knowing that it was a crossed check he was knowingly violating the avowed intention of crossing the check; that his failure to inquire from the holder, NSWII, the purpose for which the three checks were cross despite the warning of the crossing, prevents him from being considered in good faith and thus he is not a holder in due course; that being not a holder in due course, SIHI was subject to personal defenses, such as lack of consideration between the spouses and NSWII (no deposits were made, hence no loan was made, hence the three checks are without consideration as per Section 28, NIL); that NSWII negotiated the three checks in breach of faith in violation of Section 55, Negotiable Instruments Law, which is a personal defense available to the drawer of the check; that such instruments are mentioned in Section 541 of the Code of Commerce; and that tThe payment made to a person other than the banker or institution shall not exempt the person on whom it is drawn, if the payment was not correctly made. The Supreme Court agreed with the appellate court.

Issue [2]: Whether SIHI is a proper party authorized to make presentment of the cross checks in question.

Held [2]: NO. Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the check. The crossing may be special wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or crossing may be general wherein between two parallel diagonal lines are written the words “and Co.” or none at all as in the case at bar, in which case the drawee should not encash the same but merely accept the same for deposit. The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some person authorized to receive payment on his behalf. As to who the holder or authorized person will be depends on the instructions stated on the face of the check. Herein, the three subject checks had been crossed generally and issued payable to NSWII which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable. Consequently, no right of recourse is available to SIHI against the drawer of the subject checks, Pena Chua, considering that SIHI is not the proper party authorized to make presentment of the checks in question.

Issue [3]: Whether SIHI can still recover even if it is not a holder in due course.

Held [3]: YES. It does not follow that simply because SIHI was not a holder in due course as found by the appellate court for having taken the instruments in question with notice that the same is for deposit only to the account of payee named in the subject checks, SIHI could not recover on the checks. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument. Herein, SIHI may recover from NSWII if the latter has no valid excuse for refusing payment. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.

Yang vs. Court of Appeals

Facts: On or before 22 December 1987, Cely Yang and Prem Chandiramani entered into an agreement whereby the latter was to give Yang a Philippine Commercial International Bank (PCIB) manager’s check in the amount of P4.2 million in exchange for 2 of Yang’s manager’s checks, each in the amount of P2.087 million, both payable to the order of Fernando David. Yang and Chandiramani agreed that the difference of P26,000.00 in the exchange would be their profit to be divided equally between them. Yang and Chandiramani also further agreed that the former would secure from Far East Bank & Trust Company (FEBTC) a dollar draft in the amount of US$200,000.00, payable to PCIB FCDU Account 4195-01165-2, which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong . Accordingly, on December 22, 1987, Yang procured (a) Equitable Banking Corporation [ECB] Cashier’s Check CCPS 14-009467 in the sum of P2,087,000.00, dated 22 December 1987, payable to the order of Fernando David; (b) FEBTC Cashier’s Check 287078, in the amount of P2,087,000.00, dated 22 December 1987, likewise payable to the order of Fernando David; and (c) FEBTC Dollar Draft 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00, dated 22 December 1987, payable to PCIB FCDU Account 4195-01165-2. At about 1:00 p.m. of the same day, Yang gave the aforementioned cashier’s checks and dollar drafts to her business associate, Albert Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala Avenue , Makati City, Metro Manila where he would turn over Yang’s cashier’s checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB manager’s check in the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange. Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashier’s checks and the dollar draft bought by Yang. Ranigo reported the alleged loss of the checks and the dollar draft to Liong at 4:30 p.m. of 22 December 1987. Liong, in turn, informed Yang, and the loss was then reported to the police. It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said instruments, without delivering the exchange consideration consisting of the PCIB manager’s check and the Hang Seng Bank dollar draft. At 3:00 p.m. or some 2 hours after Chandiramani and Ranigo were to meet in Makati City , Chandiramani delivered to David at China Banking Corporation branch in San Fernando City , Pampanga, the (a) FEBTC Cashier’s Check 287078, and the (b) Equitable Cashier’s Check CCPS 14-009467. In exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the savings account of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas, who held FCDU Account 124 with the United Coconut Planters Bank (UCPB) branch in Greenhills, San Juan , Metro Manila. Chandiramani also deposited FEBTC Dollar Draft 4771, in PCIB FCDU Account 4195-01165-2 on the same date. Meanwhile, Yang requested FEBTC and ECB to stop payment on the instruments she believed to be lost. Both banks complied with her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft 4771, thus enabling the holder of PCIB FCDU Account 4195-01165-2 to receive the amount of US$200,000.00.

On 28 December 1987, Yang lodged a Complaint for injunction and damages against ECB, Chandiramani, and David, with prayer for a temporary restraining order, with the Regional Trial Court of Pasay City (Civil Case 5479). The Complaint was subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million, with interest thereon until fully paid. On 12 January 1988, Yang filed a separate case for injunction and damages, with prayer for a writ of preliminary injunction against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case No. 5492. This complaint was later amended to include a prayer that FEBTC et al return to Yang the amount of P2.087 million, the value of FEBTC Dollar Draft 4771, with interest at 18% annually until fully paid. On 9 February 1988, upon the filing of a bond by Yang, the trial court issued a writ of preliminary injunction in Civil Case No. 5479. A writ of preliminary injunction was subsequently issued in Civil Case 5492 also. Meanwhile, David moved for dismissal of the cases against him and for reconsideration of the Orders granting the writ of preliminary injunction, but these motions were denied. David then elevated the matter to the Court of Appeals in a special civil action for certiorari (CA-GR SP 14843), which was dismissed by the appellate court. As Civil Cases 5479 and 5492 arose from the same set of facts, the two cases were consolidated. The trial court then conducted pre-trial and trial of the two cases, but the proceedings had to be suspended after a fire gutted the Pasay City Hall and destroyed the records of the courts. After the records were reconstituted, the proceedings resumed and the parties agreed that the money in dispute be invested in Treasury Bills to be awarded in favor of the prevailing side, and limiting the issues in the case. On 4 July 1995, the trial court handed down its decision in Civil Cases 5479 and 5492, in favor of David declaring him entitled to the proceeds of the 2 cashier’s checks, together with the earnings derived therefrom pendente lite; ordering Yang to pay David moral damages in the amount of P100,000.00; attorney’s fees in the amount of P100,000.00 and to pay the costs. The trial court dismissed the complaint against FEBTC, PCIB and EBC; without prejudice to whatever action Yang will file against Chandiramani for reimbursement of the amounts received by him from David. Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its Order of 20 September 1995. Yang seasonably filed an appeal with the Court of Appeals (CA-GR CV 52398). On 25 March 1999, the appellate court affirmed the decision of the trial court with modification and ordered Yang to pay PCIB the amount of P25,000.00, as attorney’s fees. Yang filed the petition for review on certiorari.

Issue: Whether David was a holder in due course.

Held: Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law, meaning a “payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.” Herein, it is not disputed that David was the payee of the checks in question. The weight of authority sustains the view that a payee may be a holder in due course. Hence, the presumption that he is a prima facie holder in due course applies in his favor. However, said presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the checks under the conditions provided for in Section 52 of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in David’s case, otherwise he cannot be deemed a holder in due course. Yang’s challenge to David’s status as a holder in due course hinges on two arguments: (1) the lack of proof to show that David tendered any valuable consideration for the disputed checks; and (2) David’s failure to inquire from Chandiramani as to how the latter acquired possession of the checks, thus resulting in David’s intentional ignorance tantamount to bad faith. In sum, Yang posits that the last two requisites of Section 52 are missing, thereby preventing David from being considered a holder in due course. Unfortunately for Yang, her arguments on this score are less than meritorious and far from persuasive.

Issue [a]: Whether there is lack of proof to show that David tendered any valuable consideration for the disputed checks.

Held [a]: With respect to consideration, Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration or for value. Thus, the law itself creates a presumption in David’s favor that he gave valuable consideration for the checks in question. In alleging otherwise, Yang has the onus to prove that David got hold of the checks absent said consideration. In other words, Yang must present convincing evidence to overthrow the presumption. The records, however, shows that Yang failed to discharge her burden of proof. Yang’s averment that David did not give valuable consideration when he took possession of the checks is unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found that David did not receive the checks gratis, but instead gave Chandiramani US$360,000.00 as consideration for the said instruments. Factual findings of the Court of Appeals are conclusive on the parties and not reviewable by the Supreme Court; they carry great weight when the factual findings of the trial court are affirmed by the appellate court.

Issue [b]: Whether David’s failure to inquire from Chandiramani as to how the latter acquired possession of the checks, resulted in David’s intentional ignorance tantamount to bad fait

Held [b]: Yang fails to point any circumstance which should have put David on inquiry as to the why and wherefore of the possession of the checks by Chandiramani. David was not privy to the transaction between Yang and Chandiramani. Instead, Chandiramani and David had a separate dealing in which it was precisely Chandiramani’s duty to deliver the checks to David as payee. The evidence shows that Chandiramani performed said task to the letter. Yang admits that David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the genuineness of the checks and only accepted the same after being assured that there was nothing wrong with said checks. At that time, David was not aware of any “stop payment” order. Under these circumstances, David thus had no obligation to ascertain from Chandiramani what the nature of the latter’s title to the checks was, if any, or the nature of his possession. Thus, he cannot be held guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Chandiramani’s acquisition or possession of the checks. David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon Yang, absent any knowledge on his part that the action in taking the instruments amounted to bad faith.

Issue [c]: Whether David should at least have inquired as to whether he was acquiring said checks for the purpose for which they were issued, pursuant to Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals.

Held [c]: Yang’s reliance on the Bataan Cigar case, however, is misplaced. The facts in the case are not on all fours with Bataan Cigar. In the latter case, the crossed checks were negotiated and sold at a discount by the payee, while herein, the payee did not negotiate further the checks in question but promptly deposited them in his bank account. The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce makes reference to such instruments. Nonetheless, the Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and not converted into cash. The effects of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by the payee knowingly violated the avowed intention of crossing the check. Thus, in accepting the cross checks and paying cash for them, despite the warning of the crossing, the subsequent holder could not be considered in good faith and thus, not a holder in due course. The ruling in Bataan Cigar reiterates that in De Ocampo & Co. v. Gatchalian. The factual circumstances in De Ocampo and in Bataan Cigar are not present herein. For here, there is no dispute that the crossed checks were delivered and duly deposited by David, the payee named therein, in his bank account. In other words, the purpose behind the crossing of the checks was satisfied by the payee.

Liability of Parties

Philippine National Bank (PNB) vs. Picornell

Facts: Bartolome Picornell, following instruction Hyndman, Tavera & Ventura, bought in Cebu 1,735 bales of tobacco. Picornell obtained from the branch of the National Bank in Cebu the sum of P39,529,83, the value of the tobacco, together with his commission of 1 real per quintal, having, in turn, drawn the a bill of exchange. This instrument was delivered to the branch of the Philippine National Bank (PNB) in Cebu, together with the invoice and bill of lading of the tobacco, which was shipped in the boat Don Ildefonso, on 27 February 1920, consigned to Hyndman, Tavera & Ventura at Manila . The invoice and bill of lading were delivered to PNB with the understanding that the bank should not deliver them to Hyndman, Tavera & Ventura except upon payment of the bill; which condition was expressed by the well-known formula “D/P” (documents for [against] payment). The central office of PNB in Manila received the bill and the aforesaid documents annexed thereto. On 3 March 1920, PNB presented the bill to Hyndman, Tavera & Ventura, who accepted it, stating on the bill face thereof that “Accepted, 3d March, 1920. Due, 2d April, 1920, Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de Tavera, member of the firm.” The tobacco having arrived at Manila, the firm of Tambunting, owner of the ship Don Ildefonso, that brought the shipment, requested Hyndman, Tavera & Ventura to send for the goods, which was done by the company without the knowledge of PNB which retained and always had in its possession the invoice and bill of lading of the tobacco, until it presented them as evidence at the trial. Hyndman, Tavera & Ventura proceeded to the examination of the tobacco, which was deposited in their warehouses, and wrote and cabled to Picornell, notifying him that of the tobacco received, there was a certain portion which was of no use and was damaged. To these communications, Through these communications, therefore, Picornell learned that Hyndman, Tavera & Ventura had in their possession the tobacco. In view of the question raised by the said company as to the quality of the aforesaid tobacco, more correspondence was exchanged between the company and Picornell. Picornell requested PNB to extend the time for payment of the bill for P39,529,83 against Messrs. Hyndman, Tavera & Ventura of Manila for 30 days. PNB granted the request of Picornell; wherefore Hyndman, Tavera & Ventura reaccepted the bill in the terms: “Accepted for thirty days. Due May 2d, 1920. Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de Tavera, member of the firm.” 2 May 1920, arrived and the bill was not paid. On the 4th of the same month, Hyndman, Tavera & Ventura sent a letter to PNB informing the latter that it absolutely refise to pay draft 2 for P39,529.83, referring to 1,871,235 quintals of Leaf Tobacco Barili, owing to noncompliance of the contract by the drawer. PNB protested the bill, took possession of the tobacco, and had it appraised on the 12th of the same month, its value having been fixed at P28,790.72. The bank brought the action for the recovery of the value of the bill of exchange, and about September 1921, sold the tobacco, obtaining from the sale P6,708.82.

In a decision rendered 9 January 1922, and amended by an order of February 18th next, the Court of First Instance of Manila sentenced Bartolome Picornell et al. to pay solidarily to the Philippine National Bank (PNB) the sum of P28, 790.72 with interest at the rate of 9% per annum from 3 May 1921, and costs; and Picornell, specifically, to pay PNB the sum of P10,739.11 with interest at 9% per annum, all as aforesaid, deducting the sum of P6, 708.82 from such amounts to be paid by Picornell et al. This total sum which Picornell et al are required to pay represents the value of a bill of exchange drawn by Picornell in favor of PNB, against the firm of Hyndman, Tavera & Ventura, now dissolved, its only successor being Joaquin Pardo de Tavera. From this judgment Picornell et al. appealed.

Issue [1]: Whether Hyndman, Tavera & Ventura company can escape liability due to want of full consideration.

Held [1]: Whether the tobacco was worth the value of the bill, does not concern PNB. Such partial want of consideration, if it was, does not exist with respect to the bank which paid to Picornell the full value of said bill of exchange. The bank was a holder in due course, and was such for value full and complete. The Hyndman, Tavera & Ventura company cannot escape liability in view of section 28 of the Negotiable Instruments Law. The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer himself. But the drawer and acceptor are the immediate parties to the consideration, and if the acceptance be without consideration, the drawer cannot recover of the acceptor. The payee holds a different relation; he is a stranger to the transaction between the drawer and the acceptor, and is, therefore, in a legal sense a remote party. In a suit by him against the acceptor, the question as to the consideration between the drawer and the acceptor cannot be inquired into. The payee or holder gives value to the drawer, and if he is ignorant of the equities between the drawer and the acceptor, he is in the position of a bona fide indorsee. Hence, it is no defense to a suit against the acceptor of a draft which has been discounted, and upon which money has been advanced by the plaintiff, that the draft was accepted for the accommodation of the drawer.

Issue [2]: Whether Bartolome Picornell, even as a commissioned agent of Hyndman, Tavera & Ventuta in the purchase of the tobacco, is liable for the bill.

Held [2]: As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon proper presentment and paid in due course, and as it was not paid, he became liable to the payment of its value to the holder thereof, which is the plaintiff bank. (Sec. 61, Negotiable Instruments Law.) The fact that Picornell was a commission agent of Hyndman, Tavera & Ventura, in the purchase of the tobacco, does not necessarily make him an agent of the company in its obligations arising from the drawing of the bill by him. His acts in negotiating the bill constitute a different contract from that made by his having purchased the tobacco on behalf of Hyndman, Tavera & Ventura. Furthermore, he cannot exempt himself from responsibility by the fact of his having been a mere agent of this company, because nothing to this effect was indicated or added to his signature on signing the bill. (Sec. 20, Negotiable Instruments Law.) The fact that the tobacco was or was not of inferior quality does not affect the responsibility of Picornell, because while it may have an effect upon the contract between him and the firm of Hyndman, Tavera, Ventura, yet it cannot have upon the responsibility of both to the bank, upon the bill drawn and accepted as above stated.

(Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of recourse, which it exercised, against the drawer. [Sec. 84, Negotiable Instruments Law] The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de Tavera, accepted the bill and is primarily liable for the value of the negotiable instrument, while the drawer, Bartolome Picornell, is secondarily liable.)

People vs. Maniego

Facts: The information which initiated the criminal proceedings in the Court of First Instance of Rizal indicted 3 persons — Lt. Rizalino M. Ubay, Mrs. Milagros Pamintuan, and Mrs. Julia T. Maniego — for the crime of MALVERSATION, committed as follows: “That on or about the period covering the month of May, 1957 up to and including the month of August, 1957, in Quezon City, Philippines, the above-named accused, conspiring together, confederating with and helping one another, with intent of gain and without authority of law, did, then and there, wilfully, unlawfully and feloniously malverse, misappropriate and misapply public funds in the amount of P66,434.50 belonging to the Republic of the Philippines, in the following manner, to wit: the accused, Lt. RIZALINO M. Ubay, a duly appointed officer in the Armed Forces of the Philippines in active duty, who, during the period specified above, was designated as Disbursing Officer in the Officer of the Chief of Finance, GHQ, Camp Murphy, Quezon City, and as such was entrusted with and had under his custody and control public funds, conspiring and confederating with his co-accused, MILAGROS T. PAMINTUAN and JULIA T. MANIEGO, did then and there, unlawfully, willfully and feloniously, with intent of gain and without authority of law, and in pursuance of their conspiracy, take, receive, and accept from his said co-accused several personal checks drawn against the Philippine National Bank and the Bank of the Philippine Islands, of which the accused, MILAGROS T. PAMINTUAN is the drawer and the accused, JULIA T. MANIEGO, is the indorser, in the total amount of P66,434.50, cashing said checks and using for this purpose the public funds entrusted to and placed under the custody and control of the said Lt. Rizalino M. Ubay, all the said accused knowing fully well that the said checks are worthless and are not covered by funds in the aforementioned banks, for which reason the same were dishonored and rejected by the said banks when presented for encashment, to the damage and prejudice of the Republic of the Philippines, in the amount of P66,434.50, Philippine currency.” Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having apparently fled to the United States in August, 1962. Both Ubay and Maniego entered a plea of not guilty. After trial judgment was rendered by the Court of First Instance, convicting Ubay of the crime of malversation and sentenced him to suffer the penalty of reclusion temporal of 12 years, 1 day to 14 years, 8 months, and a fine of P57,434.50 which is the amount malversed, and to suffer perpetual special disqualification; while acquitting Maniego but ordering her to pay solidarily with Ubay the amount of P57,434.50 to the government. Maniego sought reconsideration of the judgment, praying that she be absolved from civil liability or, at the very least, that her liability be reduced to P46,934.50. The Court declined to negate her civil liability, but did reduce the amount thereof to P46,934.50. She appealed to the Court of Appeals as Ubay had earlier done. Ubay’s appeal was subsequently dismissed by the Appellate Court because of his failure to file brief. On the other hand, Maniego submitted her brief in due course. Because, in the Appellate Court’s view, Maniego’s brief raised only questions of law, her appeal was later certified to the Supreme Court.

Issue: Whether a mere indorser may be made liable on account of the dishonor of the checks indorsed by her.

Held: Under the law, the holder or last indorsee of a negotiable instrument has the right to “enforce payment of the instrument for the full amount thereof against all parties liable thereon.” Among the “parties liable thereon” is an indorser of the instrument i.e., “a person placing his signature upon an instrument

otherwise than as maker, drawer, or acceptor unless he clearly indicates by appropriate words his intention to be bound in some other capacity.” Such an indorser “who indorses without qualification,” inter alia “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 indorser who may be compelled to pay it.” Maniego may also be deemed an “accommodation party” in the light of the facts, i.e., a person “who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person.” As such, she is under the law “liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew her to be only an accommodation party,” although she has the right, after paying the holder, to obtain reimbursement from the party accommodated, “since the relation between them is in effect that of principal and surety, the accommodation party being the surety.”

Astro Electronics Corp. vs. Philippine Export and Foreign Loan Guarantee Corporation (GR 136729, 23 September 2003)

Facts: Astro Electronics Corporation (Astro) was granted several loans by the Philippine Trust Company (Philtrust) amounting to P3,000,000.00 with interest and secured by three promissory notes: PN PFX-254 dated 14 December 1981 for P600,000.00, PN PFX-258 also dated 14 December 1981 for P400,000.00 and PN 15477 dated 27 August 1981 for P2,000,000.00. In each of these promissory notes, it appears that Peter Roxas signed twice, as President of Astro and in his personal capacity. Roxas also signed a Continuing Suretyship Agreement in favor of Philtrust Bank, as President of Astro and as surety. Thereafter, Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee), with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astro’s loan, subject to the condition that upon payment by Philguarantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro. As a result of Astro’s failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of Makati. In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the same in blank and the phrases “in his personal capacity” and “in his official capacity” were fraudulently inserted without his knowledge. After trial, the RTC rendered its decision in favor of Philguarantee, ordering Astro and Roxas to solidarily pay Philguarantee the sum of P3,621,187.52 representing the total obligation of Astro and Roxas in favor of Philguarantee as of 31 December 1984 with interest at the stipulated rate of 16% per annum and stipulated penalty charges of 16% per annum computed from 1 January 1985 until the amount is fully paid. On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court that Roxas failed to explain satisfactorily why he had to sign twice in the contract and therefore the presumption that private transactions have been fair and regular must be sustained. Astro and Roxas filed the petition for review on certiorari.

Issue: Whether Roxas should be jointly and severally liable (solidary) with Astro for the sum awarded by the RTC.

Held: YES. Astro’s loan with Philtrust Bank is secured by three promissory notes. These promissory notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as president of Astro and second, in his personal capacity. In signing his name aside from being the President of Astro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers, promising that they will pay to the order of the payee or any holder according to its tenor. Thus, even without the phrase “personal capacity,” Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal. Further, the three promissory notes uniformly provide: “FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK or order.” An instrument which begins with “I”, “We”, or “Either of us” promise to pay, when signed by two or more persons, makes them solidarily liable. Also, the phrase “joint and several” binds the makers jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. Having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro. Furthermore, Roxas is the President of Astro and reasonably, a businessman who is presumed to take ordinary care of his concerns. Absent any countervailing evidence, it cannot be gainsaid that he will not sign a document without first informing himself of its contents and consequences. Clearly, he knew the nature of the transactions and documents involved as he not only executed these notes on two different dates but he also executed, and again, signed twice, a “Continuing Suretyship Agreement” notarized on 31 July 1981. Such continuing suretyship agreement even re-enforced his solidary liability to Philtrust because as a surety, he bound himself jointly and severally with Astro’s obligation. Roxas cannot now avoid liability by hiding under the convenient excuse that he merely signed the notes in blank and the phrases “in his personal capacity” and “in his official capacity” were fraudulently inserted without his knowledge.

Garcia vs. Llamas

Facts: The case started out as a complaint for sum of money and damages by Dionisio Llamas against Romeo Garcia and Eduardo de Jesus (Civil Case Q97-32-873), the complaint alleged that on 23 December 1996, Garcia and de Jesus borrowed P400,000.00 from Llamas; that, on the same day, they executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month; that the loan has long been overdue and, despite repeated demands, Garcia and de Jesus have failed and refused to pay it; and that, by reason of their unjustified refusal, Llamas was compelled to engage the services of counsel to whom he agreed to pay 25% of the sum to be recovered from Garcia and de Jesus, plus P2,000.00 for every appearance in court. Annexed to the complaint were the promissory note and a demand letter, dated 2 May 1997, by Llamas addressed to Garcia and de Jesus. Resisting the complaint, Garcia, in his answer, averred that he assumed no liability under the promissory note because he signed it merely as an accommodation party for de Jesus; among others. During the pre-trial conference, de Jesus and his lawyer did not appear, nor did they file any pre-trial brief. Neither did Garcia file a pre-trial brief, and his counsel even manifested that he would no longer present evidence. Given this development, the trial court gave Llamas permission to present his evidence ex parte against de Jesus; and, as regards Garcia, the trial court directed Llamas to file a motion for judgment on the pleadings, and for Garcia to file his comment or opposition thereto. Instead, Llamas filed a Motion to declare Garcia in default and to allow him to present his evidence ex parte. Meanwhile, Garcia filed a Manifestation submitting his defense to a judgment on the pleadings. Subsequently, Llamas filed a Manifestation/Motion to submit the case for judgment on the pleadings, withdrawing in the process his previous motion. Thereunder, he asserted that Garcia’s and de Jesus’ solidary liability under the promissory note cannot be any clearer, and that the check issued by de Jesus did not discharge the loan since the check bounced. On 7 July 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case, rendering the decision in favor of Llamas and ordering Garcia and De Jesus] to pay, jointly and severally, Llamas the sums of P400,000.00 representing the principal amount plus 5% interest thereon per month from 23 January 1997 until the same shall have been fully paid, less the amount of P120,000.00 representing interests already paid by de Jesus; P100,000.00 as attorney’s fees plus appearance fee of P2,000.00 for each day of court appearance, and; Cost of this suit. On appeal and on 26 November 2001, the Court of Appeals, insofar as it pertains to Garcia, affirmed the decision of the trial court subject to the modification that the award for attorney’s fees and cost of suit was deleted. As to portion pertainng to de Jesus, the Court set said portion aside and ordered the case against de Jesus remanded to the court of origin for purposes of receiving ex parte Llamas’ evidence against de Jesus. On 26 June 2002, the appellate court denied Garcia’s motion for reconsideration. Garcia filed the petition for review.

Issue: Whether a person, who signed the promissory note merely as an accommodation party, was released as obligor when the maker agreed to extend the term of the obligation.

Held: The note in question is not a negotiable instrument. By its terms, the note was made payable to a specific person rather than to bearer or to order — a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, Garcia cannot avail himself of the NIL’s provisions on the liabilities and defenses of an accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may have been created by the assent of the parties. The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL. Even granting arguendo that the NIL was applicable, still, Garcia would be liable for the promissory note. Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promisor and debtor from the beginning. The liability is immediate and direct.

Defenses

Crisologo-Jose vs. Court of Appeals

Facts: In 1980, Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. On 30 April 1980, Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued Check 093553 drawn against Traders Royal Bank, dated 14 June 1980, in the amount of P45,000.00 payable to Ernestina Crisologo-Jose. Since the check was under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of Mover Enterprises was not available, Atty. Benares prevailed upon Santos to sign the aforesaid check as an alternate signatory. Santos did sign the check. The check was issued to Crisologo-Jose in consideration of the waiver or quitclaim by Crisologo-Jose over a certain property which the Government Service Insurance System (GSIS) agreed to sell to the clients of Atty. Benares, the spouses Ong, with the understanding that upon approval by the GSIS of the compromise agreement with the spouses Ong, the check will be encashed accordingly. However, since the compromise agreement was not approved within the expected period of time, the aforesaid check for P45,000.00 was replaced by Atty. Benares with another Traders Royal Bank check bearing 379299 dated 10 August 1980, in the same amount of P45,000.00, also payable to Crisologo-Jose. This replacement check was also signed by Atty. Benares and by Santos When Crisologo-Jose deposited this replacement check with her account at Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds. A subsequent redepositing of the said check was likewise dishonored by the bank for the same reason. Hence, Crisologo-Jose through counsel was constrained to file a criminal complaint for violation of Batas Pambansa 22 (BP22) with the Quezon City Fiscal’s Office against Atty. Benares and Santos The investigating Assistant City Fiscal, Alfonso Llamas, accordingly filed an amended information with the court charging both Benares and Santos for violation of BP 22 (Criminal Case Q-14867) of then Court of First Instance of Rizal, Quezon City.

Meanwhile, during the preliminary investigation of the criminal charge against Benares and Santos, before Assistant City Fiscal Llamas, Santos tendered cashier’s check CC 160152 for P45,000.00 dated 10 April 1981 to Crisologo-Jose, the complainant in that criminal case. Crisologo-Jose refused to receive the cashier’s check in payment of the dishonored check in the amount of P45,000.00. Hence, Santos encashed the aforesaid cashier’s check and subsequently deposited said amount of P45,000.00 with the Clerk of Court on 14 August 1981. Incidentally, the cashier’s check adverted to above was purchased by Atty. Benares and given to Santos to be applied in payment of the dishonored check. After trial, the court a quo, holding that it was “not persuaded to believe that consignation referred to in Article 1256 of the Civil Code is applicable to this case,” rendered judgment dismissing Santos ‘ complaint for consignation and Crisologo-Jose’s counterclaim. On appeal and on 8 September 1987, the appellate court reversed and set aside said judgment of dismissal and revived the complaint for consignation, directing the trial court to give due course thereto. Crisologo-Jose filed the petition.

Issue [1]: Whether Santos, as an accommodation party, is liable thereon under the Negotiable Instruments Law.

Held [1]: Section 29 (Liability of accommodation party) of the Negotiable Instruments Law provides that “An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.” Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of some other person. Based on the foregoing requisites, it is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in the sense that he has not received any valuable consideration for the instrument he signs. Nevertheless, he is liable to a holder for value as if the contract was not for accommodation, in whatever capacity such accommodation party signed the instrument, whether primarily or secondarily. Thus, it has been held that in lending his name to the accommodated party, the accommodation party is in effect a surety for the latter.

Issue [2]: Whether Mover Enterprises, Inc. may be held liable on the accommodation instrument, i.e. the check issued in favor of Crisologo-Jose.

Held [2]: The provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be only an accommodation party, does not include nor apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of another, he cannot recover against the corporation thereon.

Issue [3]: Whether Santos, who signed the check in question in a representative capacity as vice-president of Mover Enterprises Inc., is liable thereon under the Negotiable Instruments Law.

Held [3]: An officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do so. Corollarily, corporate officers, such as the president and vice-president, have no power to execute for mere accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced against the corporation, especially since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in logic is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their acts in connection therewith.

Issue [4]: Whether the lack of capacity of the corporation absolved the signatories of the instrument.

Held [4]: The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby absolve, but should render personally liable, the signatories of said instrument where the facts show that the accommodation involved was for their personal account, undertaking or purpose and the creditor was aware thereof. Crisologo-Jose was evidently charged with the knowledge that the check was issued at the instance and for the personal account of Atty. Benares who merely prevailed upon Santos to act as co-signatory in accordance with the arrangement of the corporation with its depository bank. That it was a personal undertaking of said corporate officers was apparent to Crisologo-Jose by reason of her personal involvement in the financial arrangement and the fact that, while it was the corporation’s check which was issued to her for the amount involved, she actually had no transaction directly with said corporation. There should be no legal obstacle, therefore, to Crisologo-Jose’s claims being directed personally against Atty. Benares and Santos , president and vice-president, respectively, of Mover Enterprises, Inc.

Salas vs. Court of Appeals

Facts: On 6 February 1980, Juanita Salas bought a motor vehicle from the Violago Motor Sales Corporation (VMS) for P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (Fininvest) which financed the purchase. Salas defaulted in her installments beginning 21 May 1980 allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed of chattel mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980. This failure to pay prompted Filinvest to initiate Civil Case 5915 for a sum of money against Salas before the Regional Trial Court of San Fernando, Pampanga. In its decision dated 10 September 1982, the trial court rendered judgment ordering Salas to pay Philinvest the sum of P28,414.40 with interest thereon at the rate of 14% from 2 October 1980 until the said sum is fully paid; and the further amount of P1,000.00 as attorney’s fees. The court dismissed Salas’ counterclaim. Both Salas and Filinvest appealed the aforesaid decision to the Court of Appeals. Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different vehicle to Salas, the latter prayed for a reversal of the trial court’s decision so that she may be absolved from the obligation under the contract. On 27 October 1986, the Court of Appeals rendered its decision, modifying the trial court’s decision. The appellate court ordered Salas to pay Philinvest the sum of P54,908.30 at 14% per annum from 2 October 1980 until full payment, with costs against Salas. Salas’ motion for reconsideration was denied. Salas filed the petition for review on certiorari.

Issue: Whether the promissory note in question is a negotiable instrument which will bar completely all the available defenses of Salas against Philinvest.

Held: Salas’ liability on the promissory note, the due execution and genuineness of which she never denied under oath was, under the factual milieu, as inevitable as it was clearly established. The records revealed that what was involved was not a simple case of assignment of credit as Salas would have it appear, where the assignee merely steps into the shoes of, is open to all defenses available against and can enforce payment only to the same extent as, the assignor-vendor. Herein, the basis of Filinvest’s claim against Salas is a promissory note which bears all the earmarks of negotiability. The questioned promissory note is a negotiable instrument, having complied with the requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is “P1,614.95 monthly for 36 months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;” [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with certainty. It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing Corporation and it is an indorsement of the entire instrument. Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the holder thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS Corporation. Accordingly, Filinvest holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. This being so, Salas cannot set up against Filinvest the defense of nullity of the contract of sale between her and VMS.

Philippine National Bank vs. Court of Appeals

Facts: A check with serial number 7-3666-223-3, dated 7 August 1981 in the amount of P97,650.00 was issued by the Ministry of Education Culture (now Department of Education, Culture and Sports [DECS]) payable to F. Abante Marketing. This check was drawn against Philippine National Bank (PNB). On 11 August 1981, Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the questioned check in its savings account with said bank. In turn, Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to PNB for clearing. PNB cleared the check as good and thereafter, PBCom credited Capitol’s account for the amount stated in the check. However, on 19 October 1981, PNB returned the check to PBCom and debited PBCom’s account for the amount covered by the check, the reason being that there was a “material alteration” of the check number. PBCom, as collecting agent of Capitol, then proceeded to debit the latter’s account for the same amount, and subsequently, sent the check back to petitioner. PNB, however, returned the check to PBCom. On the other hand, Capitol could not in turn, debit Abante Marketing’s account since the latter had already withdrawn the amount of the check as of 15 October 1981. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom followed suit by requesting an explanation and re-crediting from PNB. Since the demands of Capitol were not heeded, it filed a civil suit with the Regional trial Court of Manila against PBCom which in turn, filed a third-party complaint against PNB for reimbursement/indemnity with respect to the claims of Capitol. PNB, on its part, filed a fourth-party complaint against Abante Marketing. On 3 October 1989; the Regional Trial Court rendered its decision, ordering PBCom to re-credit or reimburse Capitol the amount of P97,650.00, plus interest of 12% thereto from 19 October 1981 until the amount is fully paid; PNB to reimburse and indemnify PBCom for whatever amount PBCom pays to Capitol; F. Abante Marketing to reimburse and indemnify PNB for whatever amount PNB pays to PBCom. On attorney’s fees, the trial court ordered PBCom to pay Capitol attorney’s fees in the amount of P10,000.00; but that PBCom is entitled to reimburse/indemnify from PNB; and PNB to be, in turn, reimbursed or indemnified by F. Abante Marketing for the same amount. The court dismissed the counterclaims of PBCom and PNB; without pronouncement as to costs. An appeal was interposed before the Court of Appeals which rendered its decision on 29 April 1992, which modified the appealed judgment by exempting PBCom from liability to Capitol for attorney’s fees and ordering PNB to honor the check for P97,650.00, with interest as declared by the trial court, and pay Capitol attorney’s fees of P10,000.00. After the check shall have been honored by PNB, the court ordered PBCom to re-credit Capitol’s account with it the amount; without pronouncement as to costs. A motion for reconsideration of the decision was denied by the appellate Court in its resolution dated 16 September 1992 for lack of merit. PNB filed the petition for review on certiorari.

Issue: Whether the change in the serial number of the check may be considered a change that alters the effect of the instrument, and thus is a material alteration.

Held: The present case 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. The check’s serial number is not the sole indication of its origin. The name of the government agency which issued the subject check was prominently printed therein. The check’s issuer was therefore insufficiently identified, rendering the referral to the serial number redundant and inconsequential. If the purpose of the serial number is merely to identify the issuing government office or agency, its alteration had no material effect whatsoever on the integrity of the check. The identity of the issuing government office or agency was not changed thereby and the amount of the check was not charged against the account of the another government office or agency which had no liability under the check. The owner issuer of the check is boldly and clearly printed on its face, second line from the top: “MINISTRY OF EDUCATION AND CULTURE,” and below the name of the payee are the rubber-stamped words: “Ministry of Educ. & Culture.” These words are not alleged to have been falsely or fraudulently intercalated into the check. The ownership of the check is established without the necessity of recourse to the serial number. Neither is there any proof that the amount of the check was erroneously charged against the account of a government office or agency other than the Ministry of Education and Culture. Hence, the alteration in the number of the check did not affect or change the liability of the Ministry of Education and Culture under the check and, therefore, is immaterial. The genuineness of the amount and the signatures therein of then Deputy Minister of Education Hermenegildo C. Dumlao and of the resident Auditor, Penomio C. Alvarez are not challenged. Neither is the authenticity of the different codes appearing therein questioned. PNB, 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.

Associated Bank vs. Court of Appeals

Facts: The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are deposited. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan. A portion of the funds of the province is allocated to the Concepcion Emergency Hospital . The allotment checks for said government hospital are drawn to the order of ” Concepcion Emergency Hospital , Concepcion , Tarlac” or “The Chief, Concepcion Emergency Hospital , Concepcion , Tarlac.” The checks are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier. In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered that the hospital did not receive several allotment checks drawn by the Province. On 19 February 1981, the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital until his retirement on 28 February 1978, collected the checks from the office of the Provincial Treasurer. He claimed to be assisting or helping the hospital follow up the release of the checks and had official receipts. Pangilinan sought to encash the first check with Associated Bank. However, the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account with the same bank. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB. After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the second check, in the amount of P5,000.00 and dated 20 April 1978, as well as for 28 other checks of various amounts and on various dates. The last check negotiated by Pangilinan was for P8,000.00 and dated 10 February 1981. All the checks bore the stamp of Associated Bank which reads “All prior endorsements guaranteed Associated Bank.” Jesus David, the manager of Associated Bank, alleged that Pangilinan made it appear that the checks were paid to him for certain projects with the hospital. He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital . While he admitted that his wife and Pangilinan’s wife are first cousins, the manager denied having given Pangilinan preferential treatment on this account. On 26 February 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the current account of the Province. In turn, the PNB manager demanded reimbursement from the Associated Bank on 15 May 1981. As both banks resisted payment, the Province brought suit against PNB which, in turn, impleaded Associated Bank as third-party defendant. The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. After trial on the merits, the lower court rendered its decision on 21 March 1988, on the basic complaint, in favor of the Province and against PNB, ordering the latter to pay to the former, the sum of P203,300.00 with legal interest thereon from 20 March 1981 until fully paid; on the third-party complaint, in favor of PNB and against Associated Bank ordering the latter to reimburse to the former the amount of P203,300.00 with legal interests thereon from 20 March 1981 until fully paid; on the fourth-party complaint, the same was ordered dismissed for lack of cause of action as against Adena Canlas and lack of jurisdiction over the person of Fausto Pangilinan as against the latter. The court also dismissed the counterclaims on the complaint, third-party complaint and fourth-party complaint, for lack of merit. PNB and Associated Bank appealed to the Court of Appeals. The appellate court affirmed the trial court’s decision in toto on 30 September 1992. Hence the consolidated petitions which seek a reversal of the appellate court’s decision.

Issue: Whether PNB was at fault and should solely bear the loss because it cleared and paid the forged checks.

Held: The present case concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. They were properly issued and bear the genuine signatures of the drawer, the Province of Tarlac . The infirmity in the questioned checks lies in the payee’s ( Concepcion Emergency Hospital ) indorsements which are forgeries. At the time of their indorsement, the checks were order instruments. Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer. Where the instrument is payable to order at the time of the forgery, such as the checks in the case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holder’s indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. An indorser of an order instrument warrants “that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting.” He cannot interpose the defense that signatures prior to him are forged. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the banks’ client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The drawee bank’s duty is but to verify the genuineness of the drawer’s signature and not of the indorsement because the drawer is its client. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. Herein, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. The Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital. With the exception of the first check (dated 17 January 1978), all the checks were issued and released after Pangilinan’s retirement on 28 February 1978. After nearly three years, the Treasurer’s office was still releasing the checks to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurer’s office of the fraud being committed. There is also evidence indicating that the provincial employees were aware of Pangilinan’s retirement and consequent dissociation from the hospital. Hence, due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospital’s real cashier, the Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for 50% thereof. In effect, the Province of Tarlac can only recover 50% of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for 50% of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee’s indorsement.

The Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Banking Corp.

Facts: The Great Eastern Life Insurance Co. (GELIC) is an insurance corporation, while Hongkong & Shanghai Banking Corp. (HSBC) and Philippine National Bank (PNB) are banking corporations, and each is duly licensed to do its respective business in the Philippine Islands. On 3 May 1920, GELIC drew its check for P2,000 on HSBC with whom it had an account, payable to the order of Lazaro Melicor. E.M. Maasim fraudulently obtained possession of the check, forged Melicor’s signature, as an endorser, and then personally endorsed and presented it to PNB where the amount of the check was placed to his credit. After having paid the check, and on the next day, PNB endorsed the check to HSBC, which paid it, and charged the amount of the check to the account of GELIC. In the ordinary course of business, HSBC rendered a bank statement to GELIC showing that the amount of the check was charged to its account, and no objection was then made to the statement. About 4 months after the check was charged to the account of GELIC, it developed that Melicor, to whom the check was made payable, had never received it, and that his signature, as an endorser, was forged by Maasim, who presented and deposited it to his private account in PNB. With this knowledge, GELIC promptly made a demand upon HSBC that it should be given credit for the amount of the forged check, which the bank refused to do, and GELIC commenced the action to recover the P2,000 which was paid on the forged check. On the petition of HSBC, PNB was made defendant. HSBC denies any liability, but prays that, if a judgment should be rendered against it, in turn, it should have like judgment against PNB which denies all liability to either party. Upon the issued being joined, a trial was had and judgment was rendered against GELIC and in favor HSBC and PNB from which GELIC appealed.

Issue: Whether GELIC can recover inasmuch as Melicor’s indorsement was forged.

Held: GELIC’s check was drawn on HSBC payable to the order of Melicor. In other words, GELIC authorized and directed HSBC to pay Melicor, or his order, P2,000. It did not authorize or direct the bank to pay the check to any other person than Melicor, or his order, and the testimony is undisputed that Melicor never did part with his title or endorse the check, and never received any of its proceeds. Neither is GELIC estopped or bound by the bank statement, which was made to it by HSBC. This is not a case where GELIC’s own signature was forged to one of its checks. The forgery was that of Melicor, who was the payee of the check, and the legal presumption is that the bank would not honor the check without the genuine endorsement of Melicor. In other words, when GELIC received its bank statement, it had a right to assume that Melicor had personally endorsed the check, and that, otherwise, the bank would not have paid it. Section 23 of the Negotiable Instruments Law is square in point. The money was on deposit in HSBC, and it had no legal right to pay it out to anyone except GELIC or its order. Here, GELIC ordered HSBC to pay the P2,000 to Melicor, and the money was actually paid to Maasim and was never paid to Melicor, and he never personally endorsed the check, or authorized any one to endorse it for him, and the alleged endorsement was a forgery. Hence, upon the undisputed facts, it must follow that HSBC has no defense to the present action. It is admitted that PNB cashed the check upon a forged signature, and placed the money to the credit of Maasim, who was the forger. That PNB then endorsed the check and forwarded it to HSBC by whom it was paid. PNB had no license or authority to pay the money to Maasim or anyone else upon a forged signature. It was its legal duty to know that Melicor’s endorsement was genuine before cashing the check. Its remedy is against Maasim to whom it paid the money. The Supreme Court reversed the lower court’s judgment, and entered another in favor of GELIC and against HSBC for P2,000, with interest thereon from 8 November 1920, at the rate of 6% per annum, and the costs of the action, and a corresponding judgment will be entered in favor of HSBC against PNB for the same amount, together with the amount of its costs in the action.

Republic Bank vs. Ebrada

Facts: On or about 27 February 1963, Mauricia T. Ebrada, encashed Back Pay Check 508060 dated 15 January 1963 for P1,246.08 at the main office of the Republic Bank at Escolta, Manila. The check was issued by the Bureau of Treasury. Republic Bank was later advised by the said bureau that the alleged indorsement on the reverse side of the aforesaid check by the payee, “Martin Lorenzo” was a forgery since the latter had allegedly died as of 14 July 1952. Republic Bank was then requested by the Bureau of Treasury to refund the amount of P1,246.08. To recover what it had refunded to the Bureau of Treasury, Republic Bank made verbal and formal demands upon Ebrada to account for the sum of P1,246.08, but Ebrada refused to do so. So Republic Bank sued Ebrada before the City Court of Manila. On 11 July 1966, Ebrada filed her answer denying the material allegations of the complaint and as affirmative defenses alleged that she was a holder in due course of the check in question, or at the very least, has acquired her rights from a holder in due course and therefore entitled to the proceeds thereof. She also alleged that the Republic Bank has no cause of action against her; that it is in estoppel, or so negligent as not to be entitled to recover anything from her. On the same date, Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in turn, filed on 14 September 1966 a Fourth-Party complaint against Justina Tinio. On 21 March 1967, the City Court of Manila rendered judgment for the Republic Bank against Ebrada; for Ebrada against Dominguez, and for Dominguez against Tinio. From the judgment of the City Court, Ebrada took an appeal to the Court of First Instance of Manila, where a partial stipulation of facts was submitted. Based on the stipulation of facts and the documentary evidence presented, the trial court rendered a decision, ordering Ebrada to pay Republic Bank the amount of P1,246.08, with interest as the legal rate from the filing of the complaint on 16 June 1966, until fully paid, plus the costs in both instances against Ebrada; reserving therein the right of Ebrada to file whatever claim she may have against Dominguez in connection with the case, as well as the right of the estate of Dominguez to file the fourth-party complaint against Tinio. Ebrada appealed.

Issue [1]: Whether the existence of one forged signature in a negotiable instrument will render void all the other negotiations of the check with respect to the other parties whose signature are genuine.

Held [1]: In the case of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, where a check has several indorsements on it, it was held that it is only the negotiation based on the forged or unauthorized signature which is inoperative. Applying this principle to the case, it can be safely concluded that it is only the negotiation predicated on the forged indorsement that should be declared inoperative. This means that the negotiation of the check in question from Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second indorser, should be declared of no effect, but the negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the third indorser, and from Adelaida Dominguez to Ebrada who did not know of the forgery, should be considered valid and enforceable, barring any claim of forgery.

Issue [2]: Whether the drawee bank recover from the one who encashed the check if, after the drawee bank has paid the amount of the check to the holder thereof, it was discovered that the signature of the payee was forged.

Held [2]: In the case of State v. Broadway Mut. Bank, 282 S.W. 196, 197, it was held that the drawee of a check can recover from the holder the money paid to him on a forged instrument. It is not supposed to be its duty to ascertain whether the signatures of the payee or indorsers are genuine or not. This is because the indorser is supposed to warrant to the drawee that the signatures of the payee and previous indorsers are genuine, warranty not extending only to holders in due course. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee who has paid the forged check, without actual negligence on his part, may recover the money paid from such negligent purchasers. In such cases the recovery is permitted because although the drawee was in a way negligent in failing to detect the forgery, yet if the encasher of the check had performed his duty, the forgery would in all probability, have been detected and the fraud defeated. The reason for allowing the drawee bank to recover from the encasher is that “Every one with even the least experience in business knows that no business man would accept a check in exchange for money or goods unless he is satisfied that the check is genuine. He accepts it only because he has proof that it is genuine, or because he has sufficient confidence in the honesty and financial responsibility of the person who vouches for it. If he is deceived he has suffered a loss of his cash or goods through his own mistake. His own credulity or recklessness, or misplaced confidence was the sole cause of the loss. Why should he be permitted to shift the loss due to his own fault in assuming the risk, upon the drawee, simply because of the accidental circumstance that the drawee afterwards failed to detect the forgery when the check was presented?” Herein, Ebrada, upon receiving the check in question from Adelaida Dominguez, was duty-bound to ascertain whether the check in question was genuine before presenting it to Republic Bank for payment. Her failure to do so makes her liable for the loss and the Republic Bank may recover from her the money she received for the check. Had she performed the duty of ascertaining the genuineness of the check, in all probability the forgery would have been detected and the fraud defeated. As held in the Great Eastern Life Insurance Company case, “Where a check is drawn payable to the order of one person and is presented to a bank by another and purports upon its face to have been duly indorsed by the payee of the check, it is the duty of the bank to know that the check was duly indorsed by the original payee, and where the Bank pays the amount of the check to a third person, who has forged the signature of the payee, the loss falls upon the bank who cashed the check, and its only remedy is against the person to whom it paid the money.” Hence, the Republic Bank should suffer the loss when it paid the amount of the check in question to Ebrada, but it has the remedy to recover from the latter the amount it paid to her. Although Ebrada to whom the Republic Bank paid the check was not proven to be the author of the supposed forgery, yet as last indorser of the check, she has warranted that she has good title to it even if in fact she did not have it because the payee of the check was already dead 11 years before the check was issued. The fact that immediately after receiving the cash proceeds of the check in question in the amount of P1,246.08 from the Republic Bank, Ebrada immediately turned over said amount to Dominguez who in turn handed the amount to Tinio on the same date would not exempt her from liability because by doing so, she acted as an accommodation party in the check for which she is also liable under Section 29 of the Negotiable Instruments Law.

Philippine National Bank vs. Quimpo

Facts: On 3 July 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch of the Philippine National Bank (PNB), went to the bank in his car accompanied by his friend Ernesto Santos whom he left in the car while he transacted business in the bank. When Santos saw that Gozon left his check book he took a check therefrom, filled it up for the amount of P5,000.00, forged the signature of Gozon, and thereafter he encashed the check in the bank on the same day. The account of Gozon was debited the said amount. Upon receipt of the statement of account from the bank, Gozon asked that the said amount of P5,000.00 should be returned to his account as his signature on the check was forged but the bank refused. Upon Gozon’s complaint on 1 February 1974 Ernesto Santos was apprehended by the police authorities and upon investigation he admitted that he stole the check of Gozon, forged his signature and encashed the same with the Bank. Gozon filed the complaint for recovery of the amount of P5,000.00, plus interest, damages, attorney’s fees and costs against the bank in the CFI Rizal (Branch XIC, Hon. Romulo S. Quimpo presiding). After the issues were joined and the trial on the merits ensued, a decision was rendered on 4 February 1980, by the Court, ordering the bank to return the amount of P5,000 which it had unlawfully withheld, with interest at the legal rate from 22 September 1972 until the amount is fully delivered. The bank was further condemned to pay Gozon the sum of P2,000.00 as attorney’s fees and to pay the costs of the suit. The bank filed a petition for review on certiorari.

Issue: Whether the act of Gozon in putting his checkbook containing the forged check into the hands of Santos was the proximate cause of the loss, precluding him from setting up the defense of forgery.

Held: The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor on the check being encashed. It is expected to use reasonable business prudence in accepting and cashing a check presented to it. A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily change the amount so paid to the account of the depositor whose name was forged. This rule is absolutely necessary to the circulation of drafts and checks, and is based upon the presumed negligence of the drawee in failing to meet its obligation to know the signature of its correspondent. There is nothing inequitable in such a rule. If the paper comes to the drawee in the regular course of business, and he, having the opportunity ascertaining its character, pronounces it to be valid and pays it, it is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places upon him, and the result of his negligence must rest upon him. The act of Gozon in leaving his checkbook in the car while he went out for a short while can not be considered negligence sufficient to excuse PNB from its own negligence. It should be borne in mind that when Gozon left his car, Santos , a long time classmate and friend remained in the same. Gozon could not have been expected to know that the said Santos would remove a check from his checkbook. Gozon had trust in his classmate and friend. He had no reason to suspect that the latter would breach that trust.

Philippine Commercial International Bank vs. Court of Appeals

Facts: [GRs 121413 and 121479] On 19 October 1977, Ford Philippines drew and issued its Citibank Check SN-04867 — a crossed check in that, on its face were two parallel lines and written in between said lines was the phrase “Payee’s Account Only” — in the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of Ford’s percentage or manufacturer’s sales taxes for the third quarter of 1977. The aforesaid check was deposited with the Insular Bank of Asia and America (IBAA) and was subsequently cleared at the Central Bank. Upon presentment with Citibank N.A., the proceeds of the check was paid to IBAA as collecting or depository bank. The proceeds of the same Citibank check of Ford was never paid to or received by the payee thereof, the Commissioner of Internal Revenue. The amount of P4,746,114.41 was debited in Ford’s account with Citibank and the check was returned to Ford. Upon verification, Ford discovered that its Citibank Check SN-04867 in the amount of P4,746,114.41 was not paid to the Commissioner of Internal Revenue. In separate letters dated 26 October 1979, addressed to Citibank and IBAA, Ford notified the latter that in case it will be re-assessed by the BIR for the payment of the taxes covered by the said checks, then Ford shall hold Citibank and IBAA liable for reimbursement of the face value of the same. IBAA and Citibank denied liability and refused to pay. In a letter dated 28 February 1980 by the Acting Commissioner of Internal Revenue addressed to Ford officially informing the latter, among others, that its check in the amount of P4,746,114.41 was not paid to the government or its authorized agent and instead encashed by unauthorized persons, hence, Ford has to pay the said amount within 15 days from receipt of the letter. Upon advice of Ford’s lawyers, Ford, on 11 March 1982, paid to the BIR the amount of P4,746,114.41, representing payment of its percentage tax for the third quarter of 1977. Said second payment of Ford in the amount of P4,746,114.41 was duly received by the BIR. As a consequence of Citibank’s refusal to reimburse Ford of the payment it had made for the second time to the BIR of its percentage taxes, Ford filed on 20 January 1983 its original complaint before the court. On 24 December 1985, IBAA was merged with the Philippine Commercial International Bank (PCIB) with the latter as the surviving entity. It was learned during an investigation by the National Bureau of Investigation (NBI) that Citibank Check SN-04867 was recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back the check because there was an error in the computation of the tax due to BIR. With Rivera’s instruction, PCIB replaced the check with two of its own Manager’s Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific Banking Corporation (PBC). Ford, with leave of court, filed a third-party complaint before the trial court impleading PBC and Rivera, as third party defendants. But the court dismissed the complaint against PBC for lack of cause of action. The court likewise dismissed the third-party complaint against Rivera because he could not be served with summons as the NBI declared him as a “fugitive from justice”. On 15 June 1989, the trial court rendered its decision, ordering Citibank and IBAA/PCIB to solidarily pay Ford the amount of P4,746,114.41 representing the face value of Ford’s Citibank Check SN-04867, with interest thereon at the legal rate starting 20 January 1983, the date when the original complaint was filed until the amount is fully paid, plus costs; ordering IBAA/PCIB to reimburse Citibank for whatever amount the latter has paid or may pay to Ford; with costs against Citibank and IBAA. Not satisfied with the said decision, Citibank and PCIB, elevated their respective petitions for review on certiorari to the Court of Appeals. On 27 March 1995, the appellate court issued its judgment affirming the trial court’s decision with modifications; dismissing the complaint in Civil Case 49287 insofar as Citibank was concerned; ordering IBAA/PCIB to pay Ford the amount of P4,746,114.41 representing the face value of Ford’s Citibank Check SN-04867, with interest thereon at the legal rate starting 20 January 1983. the date when the original complaint was filed until the amount is fully paid; with costs against IBAA/PCIB. PCIB moved to reconsider the decision of the Court of Appeals, while Ford filed a “Motion for Partial Reconsideration.” Both motions were denied for lack of merit. Separately, PCIBank and Ford filed before the Supre,e Court, petitions for review by certiorari under Rule 45.

[GR 128604] Ford drew Citibank Check SN-10597 on 19 July 1978 in the amount of P5,851,706.37 representing the percentage tax due for the second quarter of 1978 payable to the Commissioner of Internal Revenue. A BIR Revenue Tax Receipt 28645385 was issued for the said purpose. On 20 April 1979, Ford drew another Citibank Check SN-16508 in the amount of P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 and payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt A-1697160 was issued for the said purpose. Both checks were “crossed checks” and contain two diagonal lines on its upper left corner between which were written the words “payable to the payee’s account only.” The checks never reached the payee, CIR. Thus, in a letter dated 28 February 1980, the BIR, Region 4-B, demanded for the said tax payments the corresponding periods above-mentioned. As far as the BIR is concerned, the said two BIR Revenue Tax Receipts were considered “fake and spurious”. This anomaly was confirmed by the NBI upon the initiative of the BIR. The findings forced Ford to pay the BIR anew, while an action was filed against Citibank and PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508. On 9 December 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank Citibank liable for the value of the two checks while absolving PCIB from any liability. Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of the trial court. Hence, the petition for review.

[1] GRs 121413 and 121479

Issue [a]: Whether the forgery committed by the drawer-payor’s confidential employees precludes Ford from recovering the amount of its checks.

Held [a]: NO. Although the employees of Ford initiated the transactions attributable to an organized syndicate, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of Ford’s negligence, if any, could not be characterized as the proximate cause of the injury to the parties. The Board of Directors of Ford did not confirm the request of Godofredo Rivera to recall Citibank Check SN-04867. Rivera’s instruction to replace the said check with PCIB’s Manager’s Check was not in the ordinary course of business which could have prompted PCIB to validate the same. As to the preparation of Citibank Checks SN-10597 and 16508, it was established that these checks were made payable to the CIR. Both were crossed checks. These checks were apparently turned around by Ford’s employees, who were acting on their own personal capacity. Given these circumstances, the mere fact that the forgery was committed by a drawer-payor’s confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession.

Issue [b]: Whether the collecting bank (PCIB) was negligent in preparing two manager’s check to replace Citibank Check SN-04867, on orders of persons besides the CIR.

Held [b]: YES. Citibank Check SN-04867 was deposited at PCIB through its Ermita Branch. It was coursed through the ordinary banking transaction, sent to Central Clearing with the indorsement at the back “all prior indorsements and/or lack of indorsements guaranteed,” and was presented to Citibank for payment. Thereafter PCIB, instead of remitting the proceeds to the CIR, prepared two of its Manager’s checks and enabled the syndicate to encash the same. On record, PCIB failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIB employees to verify whether his letter requesting for the replacement of the Citibank Check SN-04867 was duly authorized, showed lack of care and prudence required in the circumstances. Furthermore, it was admitted that PCIB is authorized to collect the payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIB is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent. As agent of the BIR, IBAA/PCIB should receive instructions only from its principal BIR and not from any other person especially so when that person is not known to IBAA/PCIB. It is very imprudent on the part of IBAA/PCIB to just rely on the alleged telephone call of one (Rivera) and in his signature to the authenticity of such signature considering that the Ford is not a client of IBAA/PCIB.

[2] GR 128604

Issue [a]: Whether PCIB is liable for fraud (embezzlement) committed by PCIB employees while the checks were in transit for clearing.

Held [a]: YES. Even if PCIB had no official act in the ordinary course of business that would attribute to it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508, because PCIB did not actually receive nor hold the two Ford checks at all; that the switching operation (involving the checks while in transit for “clearing”) were the clandestine or hidden actuations performed by the members of the syndicate in their own personal, covert and private capacity and done without the knowledge of PCIB; as a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an essential element. Herein, although a situation exist where the PCIB appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had participated; a bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or authority. And if an officer or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum. Moreover, Section 5 of Central Bank Circular 580, Series of 1977 provides that any theft affecting items in transit for clearing, shall be for the account of sending bank, which in this case is PCIB.

Issue [b]: Whether Citibank can raise the defenses that it has no knowledge of any infirmity in the issuance of the checks in question amd that the endorsement of the Payee or lack thereof was guaranteed by IBAA/PCIB and thus, it has the obligation to honor and pay the same; among others.

Held [b]: NO. Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to establish that its payment of Ford’s checks were made in due course and legally in order. As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to the collecting bank of the BIR. The clearing stamps at the back of Citibank Check SN 10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to Citibank Checks 10597 and 16508 would have been discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably constitutes negligence in carrying out the bank’s duty to its depositors. 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.

Papa vs. Valencia

Facts: Sometime in June 1982, A.U. Valencia and Co., Inc. and Felix Peñarroyo, filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte. The complaint alleged that on 15 June 1973, Myron C. Papa, acting as attorney-in-fact of Angela M. Butte, sold to Peñarroyo, through Valencia, a parcel of land, consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City, and covered by Transfer Certificate of Title 28993 of the Register of Deeds of Quezon City; that prior to the alleged sale, the said property, together with several other parcels of land likewise owned by Butte, had been mortgaged by her to the Associated Banking Corporation (now Associated Citizens Bank); that after the alleged sale, but before the title to the subject property had been released, Butte passed away; that despite representations made by Valencia to the bank to release the title to the property sold to Peñarroyo, the bank refused to release it unless and until all the mortgaged properties of the late Butte were also redeemed; that in order to protect his rights and interests over the property, Peñarroyo caused the annotation on the title of an adverse claim as evidenced by Entry No. PE. — 6118/T-28993, inscribed on 18 January 1977. The complaint further alleged that it was only upon the release of the title to the property, sometime in April 1977, that Valencia and Peñarroyo discovered that the mortgage rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as special administrator of the Estate of Ramon Papa. Jr., on 12 April 1977; that since then, Papa had been collecting monthly rentals in the amount of P800.00 from the tenants of the property, knowing that said property had already been sold to Valencia and Peñarroyo on 15 June 1973; that despite repeated demands from said respondents, Papa refused and failed to deliver the title to the property. Valencia and Peñarroyo prayed that Papa be ordered to deliver to Peñarroyo the title to the subject property (TCT 28993); to turn over to the latter the sum of P72,000.00 as accrued rentals as of April 1982, and the monthly rental of P800.00 until the property is delivered to Peñarroyo; to pay Valencia and Peñarroyo the sum of P20,000.00 as attorney’s fees; and to pay the costs of the suit. Upon his motion, Delfin Jao was allowed to intervene in the case. Making common cause with Valencia and Peñarroyo, Jao alleged that the subject lot which had been sold to Peñarroyo through Valencia was in turn sold to him on 20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the amount of P5,000.00. For his part, Papa, as administrator of the Testate Estate of Butte, filed a third-party complaint against spouses Arsenio B. Reyes and Amanda Santos, the winning bidders in public auction sale held by the City Treasurer of Quezon City when the estate of Butte was not able to pay the real estate tax of said property. On 29 June 1987, the trial court rendered a decision, allowing Papa to redeem from the Reyes spouses and ordering the spouses to allow the former to redeem the property in question, by paying the sum of P14,000.00 plus legal interest of 12% thereon from 2 January 1980; ordering Papa to execute a Deed of Absolute Sale in favor of Peñarroyo covering the property in question and to deliver peaceful possession and enjoyment of the said property to Peñarroyo, free from any liens and encumbrances, and that should that be impossible, for any reason not attributable to Papa, said Papa was ordered to pay to Peñarroyo the sum of P45,000.00 plus legal interest of 12% from 15 June 1973; ordering Peñarroyo to execute and deliver to intervenor a deed of absolute sale over the same property, upon the latter’s payment to the former of the balance of the purchase price of P71,500.00, and that should that be impossible, Peñarroyo was ordered to pay Jao the sum of P5,000.00 plus legal interest of 12% from 23 August 1973; and ordering Papa to pay Valencia and Peñarroyo the amount of P5,000.00 for and as attorney’s fees and litigation expenses. Papa appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among others that the sale was never “consummated” as he did not encash the check (in the amount of P40,000.00) given by Valencia and Peñarroyo in payment of the full purchase price of the subject lot. He maintained that what Valencia and Peñarroyo had actually paid was only the amount of P5,000.00 (in cash) as earnest money. The Reyes spouses, likewise, appealed the above decision. However, their appeal was dismissed because of failure to file their appellants’ brief. On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial court’s decision, by ordering Papa to deliver to Valencia and Peñarroyo the owner’s duplicate of TCT 28993 of Angela M. Butte and the peaceful possession and enjoyment of the lot in question or, if the owner’s duplicate certificate cannot be produced, to authorize the Register of Deeds to cancel it and issue a certificate of title in the name of Peñarroyo; withh costs against Papa. Papa filed the petition for review on certiorari.

Issue: Whether the alleged sale of the subject property had been consummated, on the presumption that the check in the amount of P40,000 was encashed.

Held: Valencia and Peñarroyo had given Papa the amounts of P5,000.00 in cash on 24 May 1973, and P40,000.00 in check on 15 June 1973, in payment of the purchase price of the subject lot. Papa himself admits having received said amounts, and having issued receipts therefor. Papa’s assertion that he never encashed the aforesaid check is not substantiated and is at odds with his statement in his answer that “he can no longer recall the transaction which is supposed to have happened 10 years ago.” After more than 10 years from the payment in part by cash and in part by check, the presumption is that the check had been encashed. He even waived the presentation of oral evidence. Granting that Papa had never encashed the check, his failure to do so for more than 10 years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay. While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Article 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given. It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged. Considering that Valencia and Peñarroyo had fulfilled their part of the contract of sale by delivering the payment of the purchase price, they, therefore, had the right to compel Papa to deliver to them the owner’s duplicate of TCT 28993 of Angela M. Butte and the peaceful possession and enjoyment of the lot in question.

Enforcement of Liability

Far East Realty Investment Inc. vs. Court of Appeals

Facts: In its complaint dated May 9, 1968, filed with the City Court of Manila, (Civil Case 170859) against Dy Hian Tat, Siy Chee and Gaw Suy An for the collection and payment of P4,500.00 representing the face value of an unpaid and dishonored check, Far East Realty Investment Inc. (FERII) alleged, among others, that on 13 September 1960, Dy et al. approached FERII at its office in Manila and asked the latter to extend to them an accommodation loan in the sum of P4,500.00, which they needed in their business, and which they promised to pay, jointly and severally, in one month time; that they proposed to pay FERII interest thereon at the rate of 14% per annum, as in fact they delivered to FERII the China Banking Corporation (ChinaBank) Check VN-915564, dated 13 September 1960, for P4,500.00, drawn by Dy, and signed by them at the back of said check, with the assurance that after one month from 13 September 1960, the said check would be redeemed by them by paying cash in the sum of P4,500.00, or the said check can be presented for payment on or immediately after one month and said bank would honor the same; that, in order to accommodate Dy et al., FERII agreed and actually extended to Dy et al. an accommodation loan in the sum of P4,500.00 under the aforesaid conditions proposed by Dy et al., which amount was delivered to the later; that on 5 March 1964, the aforesaid check was presented for payment to the ChinaBank, but said check bounced and was not cashed by said bank, for the reason that the current account of the drawer thereof had already been closed; and that subsequently, FERII demanded from Dy et al. the payment of their aforesaid loan obligation, but the latter failed and refused to pay notwithstanding repeated demands therefor. Gaw and Dy filed their answers, while on 31 March 1970, Siy was declared in default. After hearing, the City Court of Manila rendered its decision in favor of FERII, ordering Dy et al. to pay FERII, jointly and severally, the sum of P4,500.00 with interest thereon at the legal rate from 13 September 1960 until the said amount is fully paid; plus the sum of P500.00 by way of attorney’s fees, plus the costs of suit. The decision of the city court was appealed by Dy et al. to the Court of First Instance of Manila, where the case was heard de novo for lack of transcript of stenographic notes taken in the city court. After trial, the Court of First Instance of Manila, Branch IX, rendered a decision in Civil Case 80583, dated 15 October 1971, affirming the decision of the city court, ordering Dy et al. to pay, jointly and severally, FERII the sum of P4,500.00, plus interest at the rate of 14% per annum, from 13 September 1960, until fully paid, plus the sum of P1,000.00 in the concept of attorney’s fees; and costs of suit. Dy et al. filed a petition for review with the Court of Appeals. On 12 February 1973, the appellate court, finding that the questioned check was not given as collateral to guarantee a loan secured by Dy et al. who allegedly came as a group to FERII on 13 September 1960, but passed through other hands before reaching FERII and the said check was not presented within a reasonable time and after its issuance, reversed the decision of the Court of First Instance. Its motion for reconsideration having been denied, FERII filed the petition for review.

Issue: Whether presentment for payment and notice of dishonor of the questioned check were made within reasonable time.

Held: NO. Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof. Notice may be given as soon as the is dishonored; and unless delay is excused must be given within the time fixed by the law. No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable time, because “reasonable time” depends upon the peculiar facts and circumstances in each case. “Reasonable time” has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights and possibility of loss, if any, to the other party Herein, it is obvious that presentment and notice of dishonor were not made within a reasonable time. The check in question was issued on 13 September 1960, but was presented to the drawee bank only on 5 March 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor was made by FERII through a letter dated 27 April 1968. Under these circumstances, FERII undoubtedly failed to exercise prudence and diligence on what he ought to do as required by law. FERII likewise failed to show any justification for the unreasonable delay.

Wong vs. Court of Appeals

Facts: Luis S. Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. LPI would print sample calendars, then give them to agents to present to customers. The agents would get the purchase orders of customers and forward them to LPI. After printing the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come around to collect the payments. Wong, however, had a history of unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed with his wife. Hence, Wong’s customers were required to issue postdated checks before LPI would accept their purchase orders. In early December 1985, Wong issued 6 postdated checks totaling P18,025.00, all dated 30 December 1985 and drawn payable to the order of LPI. These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However, following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of Wong’s unremitted collections for 1984 amounting to P18,077.07. LPI waived the P52.07 difference. Before the maturity of the checks, Wong prevailed upon LPI not to deposit the checks and promised to replace them within 30 days. However, Wong reneged on his promise. Hence, on 5 June 1986, LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned for the reason “account closed.” The dishonor of the checks was evidenced by the RCBC return slip. On 20 June 1986, LPI through counsel notified Wong of the dishonor. Wong failed to make arrangements for payment within 5 banking days. On 6 November 1987, Wong was charged with 3 counts of violation of BP 22 under three separate Informations for the three checks amounting to P5,500.00, P3,375.00, and P6,410.00 (Criminal Case CBU-12055, 12057, and 12058. Upon arraignment, Wong pleaded not guilty. Trial ensued. On 30 August 1990, the trial court issued its decision, finding Wong guilty beyond reasonable doubt of the offense of Violations of Section 1 of BP 22 in 3 Counts and sentencing Wong to serve an imprisonment of 4 months for each count; to pay Limtong the sums of P5,500.00, P6,410.00 and P3,375.00 corresponding to the amounts indicated in Allied Banking Checks 660143451, 66[0]143464 and 660143463 all issued on 30 December 1985 together with the legal rate of interest from the time of the filing of the criminal charges in Court and pay the costs. Wong appealed his conviction to the Court of Appeals. On 28 October 1994, it affirmed the trial court’s decision in toto. Wong filed the petition for review on certiorari.

Issue: Whether the presumption of knowledge of lack of funds under Section 2 of BP 22 should not apply to Wong, as he avers that LPI deposited the checks 157 days after the 30 December 1985 maturity date, and that he should not be expected to keep his bank account active and funded beyond the 90-day period.

Held: Section 2 (Evidence of knowledge of insufficient funds) of BP 22 provides that “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.” An essential element of the offense is “knowledge” on the part of the maker or drawer of the check of the insufficiency of his funds in or credit with the bank to cover the check upon its presentment. Since this involves a state of mind difficult to establish, the statute itself creates a prima facie presumption of such knowledge where payment of the check “is refused by the drawee because of insufficient funds in or credit with such bank when presented within 90 days from the date of the check.” To mitigate the harshness of the law in its application, the statute provides that such presumption shall not arise if within 5 banking days from receipt of the notice of dishonor, the maker or drawer makes arrangements for payment of the check by the bank or pays the holder the amount of the check. Contrary to Wong’s assertions, nowhere in said provision does the law require a maker to maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the following conditions (1) presentment within 90 days from date of the check, and (2) the dishonor of the check and failure of the maker to make arrangements for payment in full within 5 banking days after notice thereof. That the check must be deposited within 90 days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither does it discharge Wong from his duty to maintain sufficient funds in the account within a reasonable time thereof. Under Section 186 of the Negotiable Instruments Law, “a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.” By current banking practice, a check becomes stale after more than 6 months, or 180 days. LPI deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. LPI did not deposit the checks because of the reassurance of Wong that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were dishonored, Wong was duly notified of such fact but failed to make arrangements for full payment within 5 banking days thereof. There is sufficient evidence that Wong had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks.

The International Corporate Bank (now Union Bank of the Philippines ) vs. Spouses Gueco

Facts: Spouses Francis S. Gueco and Ma. Luz E. Gueco obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines ) to purchase a car — a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of installments. Consequently, the Bank filed on 7 August 1995 a civil action (Civil Case 658-95) for “Sum of Money with Prayer for a Writ of Replevin” before the Metropolitan Trial Court of Pasay City , Branch 45. On 25 August 1995, Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Bank’s Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the car was detained inside the bank’s compound. On 28 August 1995, Dr. Gueco went to the bank and talked with its Administrative Support Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00. On 29 August 1995, Dr. Gueco delivered a manager’s check in the amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. the Bank, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. After several demand letters and meetings with bank representatives, the Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch 33. The Metropolitan Trial Court dismissed the complaint for lack of merit. On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. The court further ordered the bank to return immediately the subject car to the spouses in good working condition; and to pay the spouses the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages, and P25,000.00 as attorney’s fees, and to pay the cost of suit. In other respect, the court affirmed the decision of the Metropolitan Trial Court Branch 33. The case was elevated to the Court of Appeals, which on 17 February 2000, issued the decision, denying the petition for review on certiorari and affirming the Decision of the RTC of Quezon City, Branch 227, in Civil Case Q-97-31176, in toto; with costs against the bank. The bank filed the petition for review on certiorari with the Supreme Court.

(Short facts: In the meeting of 29 August 1995, Dr. Gueco delivered a manager’s check representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a representative of the bank However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a statement to the effect that he was withholding the payment of the check. Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank, dated 4 September 1995, Dr. Gueco instructed the bank to disregard the “hold order” letter and demanded the immediate release of his car, to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the check which could be claimed by Dr. Gueco anytime. While there is controversy as to whether the document evidencing the order to hold payment of the check was formally offered as evidence by the bank, it appears from the pleadings that said check has not been encashed.)

Issue: Whether the bank was negligent in opting not to deposit or use the manager’s check.

Held: NO. A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. A check must be presented for payment within a reasonable time after its issue, and in determining what is a “reasonable time,” regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed such diligence as a prudent man exercises in his own affairs. This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check. Failure of a payee to encash a check for more than 10 years undoubtedly resulted in the check becoming stale. Thus, even a delay of 1 week or two (2) days, under the specific circumstances of the certain cases constituted unreasonable time as a matter of law. Herein, the check involved is not an ordinary bill of exchange but a manager’s check. A manager’s check is one drawn by the bank’s manager upon the bank itself. It is similar to a cashier’s check both as to effect and use. A cashier’s check is a check of the bank’s 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 bank’s 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. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager’s check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. Herein, the bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. The Court saw no bad faith or negligence in this position taken by the Bank.

State Investment House Inc. vs. Court of Appeals

Facts: Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, 2 post-dated Equitable Banking Corporation checks in the amount of P50,000 each, one dated 30 August 1979 and the other, 30 September 1979. Thereafter, the payee negotiated the checks to the State Investment House Inc. (SIHI). Moulic failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The checks, however, could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates, Moulic withdrew her funds from the drawee bank.Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20 December 1979, SIHI allegedly notified Moulic of the dishonor of the checks and requested that it be paid in cash instead, although Moulic avers that no such notice was given her. On 6 October 1983, SIHI sued to recover the value of the checks plus attorney’s fees and expenses of litigation. In her Answer, Moulic contends that she incurred no obligation on the checks because the jewelry was never sold and the checks were negotiated without her knowledge and consent. She also instituted a Third-Party Complaint against Corazon Victoriano, who later assumed full responsibility for the checks. On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and ordered SIHI to pay Moulic P3,000.00 for attorney’s fees. SIHI elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground that the Notice of Dishonor to Moulic was made beyond the period prescribed by the Negotiable Instruments Law and that even if SIHI did serve such notice on Moulic within the reglementary period it would be of no consequence as the checks should never have been presented for payment. SIHI filed the petition for review.

Issue [1]: Whether the alleged issuance of the post-dated checks as security is a ground for the discharge of the instrument as against a holder in due course.

Held [1]: Section 119 of the Negotiable Instrument Law outlined the grounds in which an instrument is discharged. The provision states that “A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the princiWhether the post-dated checks, issued as security, is a ground for the discharge of the instrument as against a holder in due course. pal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.” Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up, burning it, or writing the word “cancelled” on the instrument. The act of destroying the instrument must also be made by the holder of the instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks, the intentional cancellation of the said checks is altogether impossible. On the other hand, the acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing legislations since Section 119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code which enumerates the modes of extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant case as Section 119 contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. Herein, the payee, Corazon Victoriano, was no longer MOULIC’s creditor at the time the jewelry was returned. Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her checks to a holder in due course.

Issue [2]: Whether the requirement that SIHI should give Notice of Dishonor to MOULIC is indispensable.

Held [2]: The need for notice is not absolute; there are exceptions under Section 114 of the Negotiable Instruments Law. Section 114 (When notice need not be given to drawer) provides that “Notice of dishonor is not required to be given to the drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment; (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded payment.” Indeed, MOULIC’S actuations leave much to be desired. She did not retrieve the checks when she returned the jewelry. She simply withdrew her funds from her drawee bank and transferred them to another to protect herself. After withdrawing her funds, she could not have expected her checks to be honored. In other words, she was responsible for the dishonor of her checks, hence, there was no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not been paid, and that the party notified is expected to pay it. In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. Herein, such withdrawal renders the drawer, Moulic, liable to SIHI, a holder in due course of the checks. SIHI could not expect payment as MOULIC left no funds with the drawee bank to meet her obligation on the checks, so that Notice of Dishonor would be futile.

Asia Banking Corporation vs. Javier

Facts: On 10 May 1920, Salvador B. Chaves drew a check on the Philippine National Bank (PNB) for P11,000 in favor of La Insular, a concern doing business in this city. This check was endorsed by the limited partners of La Insular, and then deposited by Salvador B. Chaves in his current account with Asia Banking Corporation. The deposit was made on 14 July 1920. On 25 June 1920, Salvador B. Chaves drew another check for P18,785.30 on PNB, in favor of La Insular. This check was also endorsed by the limited partners of La Insular, and was likewise deposited by Chaves in his current account with Asia Banking, on 6 July 1920. The amount represented by both checks was used by Chaves after they were deposited in Asia Banking, by drawing checks on the latter. Subsequently these checks were presented by Asia Banking to PNB for payment, but the latter refused to pay on the ground that the drawer, Chaves, had no funds therein. Asia Banking brought the action against Juan Javier, as endorser, for the payment of the value of both checks. The lower court sentenced Javier to pay Asia Banking P11,000, upon the check of 10 May 1920, with interest thereon at 9% per annum from 10 July 1920, and P18,778.34 on the check of 25 June 1920, with interest thereon at 9% per annum from 5 August 1920. From this judgment the defendant appealed.

Issue: Whether Javier’s liability as endorsed of the checks in question was extinguished.

Held: Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that, when a negotiable instrument is dishonored for non-acceptance or non-payment, notice thereof must be given to the drawer and of each of the endorsers, and those who are not notified that the document was dishonored. Then, under the general principle of the law of procedure, it will be incumbent upon Asia Banking, who seeks to enforce Javiwe’s liability upon these checks as endorser, to establish said liability by proving that notice was given to Javier within the time, and in the manner, required by the law that the checks in question had been dishonored. If these facts are not proven, Asia Banking has not sufficiently established Javier’s liability. There is no proof in the record tending to show that plaintiff gave any notice whatsoever to the defendant that the checks in question had been dishonored, and therefore it has not established its cause of action. The Supreme Court reversed the judgment appealed from and absolved Javier from the complaint without special pronouncement as to costs.

Nyco Sales Corporation vs. BA Finance Corp.

Facts: Nyco Sales Corporation whose president and general manager is Rufino Yao, is engaged in the business of selling construction materials with principal office in Davao City . Sometime in 1978, the brothers Santiago and Renato Fernandez, both acting in behalf of Sanshell Corporation, approached Rufino Yao for credit accommodation. They requested Nyco, thru Yao , to grant Sanshell discounting privileges which Nyco had with BA Finance Corporation. Yao apparently acquiesced, hence on or about 15 November 1978, the Fernandezes went to Yao for the purpose of discounting Sanshell’s post-dated check which was a BPI-Davao Branch Check 499648 dated 17 February 1979 for the amount of P60,000.00. The said check was payable to Nyco. Following the discounting process agreed upon, Nyco, thru Yao , endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check payable to Nyco which endorsed it in favor of Sanshell. Sanshell then made use of and/or negotiated the check. Accompanying the exchange of checks was a Deed of Assignment executed by Nyco in favor of BA Finance with the conformity of Sanshell. Nyco was represented by Rufino Yao, while Sanshell was represented by the Fernandez brothers. Under the said Deed, the subject of the discounting was the aforecited check. At the back thereof and of every deed of assignment was the Continuing Suretyship Agreement whereby the Fernandezes unconditionally guaranteed to BA Finance the full, faithful and prompt payment and discharge of any and all indebtedness of Nyco. The BPI check, however, was dishonored by the drawee bank upon presentment for payment. BA Finance immediately reported the matter to the Fernandezes who thereupon issued a substitute check dated 19 February 1979 for the same amount in favor of BA Finance. It was a Security Bank and Trust Company check bearing the number 183157, which was again dishonored when it was presented for payment. Despite repeated demands, Nyco and the Fernandezes failed to settle the obligation with BA Finance, thus prompting the latter to institute an action in court. Nyco and the Fernandezes, despite having been served with summons and copies of the complaint, failed to file their answer and were consequently declared in default. On 16 May 1980, the lower court ruled in favor of BA Finance ordering them to pay the former jointly and severally, the sum of P65,536.67 plus 14% interest per annum from 1 July 1979 and attorney’s fees in the amount of P3,000.00 as well as the costs of suit. Nyco, however, moved to set aside the order of default, to have its answer admitted and to be able to implead Sanshell. The prayer was granted through an order dated 23 June 1980, wherein the decision of the court was set aside only as regards Nyco. Trial ensued once more until the court reached a second decision, ordering Nyco to pay BA Finance P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per annum from 1 February 1979 until fully paid; the amount of P10,000.00 as and for attorney’s fees; and one-third (1/3) of the costs of the suit. With respect to the Fernandezes, the decision of 16 May 1980 stood. On appeal, the appellate court also upheld BA Finance but modified the lower court’s decision by ordering that the interest should run from 19 February 1979 until paid and not from 1 February 1979. Nyco’s subsequent motion for reconsideration was denied. Nyco filed the petition for review on certiorari.

Issue: Whether Nyco was actually discharged of its liability over the SBTC check when BA Finance failed to give it a notice of dishonor.

Held: NO. Nyco’s pretension that it had not been notified of the fact of dishonor is belied not only by the formal demand letter but also by the findings of the trial court that Rufino Yao of Nyco and the Fernandez Brothers of Sanshell had frequent contacts before, during and after the dishonor. More importantly, it fails to realize that for as long as the credit remains outstanding, it shall continue to be liable to BA Finance as its assignor. The dishonor of an assigned check simply stresses its liability and the failure to give a notice of dishonor will not discharge it from such liability. This is because the cause of action stems from the breach of the warranties embodied in the Deed of Assignment, and not from the dishonoring of the check alone.

Checks

New Pacific Timber & Supply Company vs. Seneris

Facts: New Pacific Timber & Supply Company, Inc. (NPTSCI) is the defendant in a complaint for collection of a sum of money filed by Ricardo A. Tong. On 19 July 1974, a compromise judgment was rendered by Judge Alberto V. Seneris in accordance with an amicable settlement entered into by the parties the terms and conditions of which are (1) that NPTSCI will pay to Tong the amount of P54,500.00 at 6% interest per annum to be reckoned from 25 August 1972; (2) that NPTSCI will pay to Tong the amount of P6,000.00 as attorney’s fees for which P5,000.00 had been acknowledged received by Tong under Consolidated Bank and Trust Corporation Check 16-135022 amounting to P5,000.00 having a balance of P1,000.00; (3) that the entire amount of P54,500.00 plus interest, plus the balance of P1,000.00 for attorney’s fees will be paid by NPTSCI to Tong within 5 months from 19 July 1974; and (4) that failure on the part of NPTSCI to comply with any of the conditions, a writ of execution may be issued by the Court for the satisfaction of the obligation. For failure of NPTSCI to comply with his judgment obligation, Judge Seneris, upon motion of Tong, issued an order for the issuance of a writ of execution on 21 December 1974. Accordingly, writ of execution was issued for the amount of P63,130.00 pursuant to which, the Ex-Officio Sheriff (Hakim S. Abdulwahid) levied upon personal properties of NPTSCI, i.e. a unit of American Lathe 24″, 1 Unit of American Lathe 18″ Cracker Wheeler, and 1 Unit Rockford Shaper 24″; and set the auction sale thereof on 15 January 1975. The auction sale was then postponed on the following day, 16 January 1975 at 10:00 a.m. In the course of the proceedings, Deputy Sheriff Castro sold the levied properties item by item to Tong as the highest bidder in the amount of P50,000.00. As a result thereof, the Ex-Officio Sheriff declared a deficiency of P13,130.00. Thereafter, on 16 January 1975, the Ex-Officio Sheriff issued a “Sheriff’s Certificate of Sale” in favor of Tong for the total amount of P50,000.00 only. Subsequently, on 17 January 1975, NPTSCI filed an ex-parte motion for issuance of certificate of satisfaction of judgment. This motion was denied by Judge Seneris in his order dated 28 August 1975. In view thereof, NPTSCI filed the petition for certiorari with preliminary injunction.

Issue: Whether Tong can validly refuse acceptance of the payment of the judgment obligation made by NPTSCI consisting of P50,000.00 in Cashier’s Check and P13,130.00 in cash which it deposited with the Ex-Officio Sheriff before the date of the scheduled auction sale.

Held: The check deposited by NPTSCI in the amount of P50,000.00 is not an ordinary check but a Cashier’s Check of the Equitable Banking Corporation, a bank of good standing and reputation. As testified to by the Ex-Officio Sheriff with whom it has been deposited, it is a certified crossed check. It is a well-known and accepted practice in the business sector that a Cashier’s Check is deemed as cash. Moreover, since 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 in circulation, a certificate of deposit payable to the order of the 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 equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account” shall apply in the present case. Considering that the whole amount deposited by NPTSCI consisting of Cashier’s Check of P50,000.00 and P13,130.00 in cash covers the judgment obligation of P63,000.00 as mentioned in the writ of execution, then, the Court sees no valid reason for Tong to have refused acceptance of the payment of the obligation in his favor. The auction sale, therefore, was uncalled for. NPTSCI’s motion for the issuance of a certificate of satisfaction of judgment is clearly meritorious and Judge Seneris gravely abused his discretion in not granting the same under the circumstances.

Philippine National Bank vs. National City Bank of New York

Facts: On April 7 and 9, 1933, an unknown person or persons negotiated with Motor Service Company, Inc. (MSCI), two checks in payment for automobile tires purchased from MSCI’s stores, purporting to have been issued by the ‘Pangasinan Transportation Co., Inc. (Pantranco) by J.L. Klar, Manager and Treasurer’, against the Philippine National Bank (PNB) and in favor of the International Auto Repair Shop, for P144.50 and P215.75. Said checks were indorsed by said unknown persons in the manner indicated at the back thereof, the MSCI, believing at the time that the signatures of J.L. Klar, Manager and Treasurer of Pantranco on both checks were genuine. The checks were then indorsed for deposit by MSCI at the National City Bank of New York and the former was accordingly credited with the amounts thereof, or P144.50 and P215.75. On April 8 and 10, 1933, the said checks were cleared at the clearing house and PNB credited the National City Bank for the amounts thereof, believing at the time that the signatures of the drawer were genuine, that the payee is an existing entity and the endorsements at the bank thereof regular and genuine. The PNB then found out that the purported signatures of J.L. Klar, as Manager and Treasurer of Pantranco were forged when so informed by the said Company, and it accordingly demanded from the National City Bank and MSCI and the reimbursement of the amounts for which it credited the National City Bank at the clearing house and for which the latter credited MSCI, but MSCI and National City Bank refused, and continue to refuse, to make such reimbursements. Pantranco objected to have the proceeds of said check deducted from their deposit. PNB filed the case in the municipal court of Manila against National City Bank and MSCI. Upon PNB’s motion, the case was dismissed before trial as to the National City Bank. A decision was thereafter rendered giving PNB judgment for the total amount of P360.25, with interest and costs. From this decision MSCI appealed.

Issue [1]: Whether the payment of the checks in question made by the drawee bank constitutes an “acceptance”, and, consequently, the case should be governed by the provisions of section 62 of the Negotiable Instruments Law.

Held [1]: A check is a bill of exchange payable on demand and only the rules governing bills of exchange payable on demand are applicable to it, according to section 185 of the Negotiable Instruments Law. In view of the fact that acceptance is a step unnecessary in so far as bills of exchange payable on demand are concerned, it follows that the provisions relative to “acceptance” are without application to checks. Acceptance implies, in effect, subsequent negotiation of the instrument, which is not true in case of the payment of a check because from the moment a check is paid it is withdrawn from circulation. The warranty established by section 62, is in favor of holders of the instrument after its acceptance. When the drawee bank cashes or pays a check, the cycle of negotiation is terminated, and it is illogical thereafter to speak of subsequent holders who can invoke the warranty provided in section 62 against the drawee. Moreover, according to section 191, “acceptance” means “an acceptance completed by delivery or notification” and this concept is entirely incompatible with payment, because when payment is made the check is retained by the bank, and there is no such thing as delivery or notification to the party receiving the payment. There can be no such thing as “acceptance” in the ordinary sense of the term. A check being payable immediately and on demand, the bank can fulfill its duty to the depositor only by paying the amount demanded. The holder has no right to demand from the bank anything but payment of the check, and the bank has no right, as against the drawer, to do anything but pay it. A check is not an instrument which in the ordinary course of business calls for acceptance. The holder can never claim acceptance as his legal right. He can present for payment, and only for payment.

Issue [2]: Whether the law or business practice prevents the presentation of checks for acceptance before they are paid.

Held [2]: There is nothing in the law or in business practice against the presentation of checks for acceptance, before they are paid, in which case there is a “certification” equivalent to “acceptance” according to section 187, which provides that “where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance”, and it is then that the warranty under section 62 exists. This certification or acceptance consists in the signification by the drawee of his assent to the order of the drawer, which must not express that the drawee will perform his promise by any other means than the payment of money. When the holder of a check procures it to be accepted or certified, the drawer will perform his promise by any other means than the payment of money. When the holder of a check procedures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon, and then the check operates as an assignment of a part of the funds to the credit of the drawer with the bank. There is nothing in the nature of the check which intrinsically precludes its acceptance, in like manner and with like effect as a bill of exchange or draft may be accepted. The bank may accept if it chooses; and it is frequently induced by convenience, by the exigencies of business, or by the desire to oblige customers, voluntarily to incur the obligation. The act by which the bank places itself under obligation to pay to the holder the sum called for by a check must be the expressed promise or undertaking of the bank signifying its intent to assume the obligation, or some act from which the law will imperatively imply such valid promise or undertaking. The most ordinary form which such an act assumes is the acceptance by the bank of the check, or, as it is perhaps more often called, the certifying of the check.

Issue [3]: Whether MSCI’s negligence in purchasing the checks in question is such as to give PNB the right to recover upon said checks, and on the other hand, whether PNB was not itself negligent, except for its constructive fault in now knowing the signature of the drawer and detecting the forgery.

Held [3]: Check number 637023-D was dated 6 April 1933, whereas check number 637020-D and is dated 7 April 1933. Therefore, the later check, which is prior in number to the former check, is however, issued on a later date. This circumstance must have aroused at least the curiosity of MSCI. MSCI further accepted the two checks from unknown persons. Furthermore, check 637023-D was indorsed by a subagent of the agent of the payee, International Auto Repair Shop. MSCI made no inquiry whatsoever as to the extent of the authority of these unknown persons. Check 637020-D, aside from having been indorsed by a supposed agent of the International Auto Repair Shop is crossed generally. The existence of two parallel lines transversally drawn on the face of this check was a warning that the check could only be collected through a banking institution. Yet MSCI accepted the check in payment for merchandise. The facts of case do not make it one between two equally innocent persons, the drawee bank and the holder. Section 23 of the Negotiable Instruments Act provides that “when a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.” It not appearing that PNB did not warrant to MCSI the genuineness of the checks in question, by its acceptance thereof, nor did it perform any act which would have induced MSCI to believe in the genuineness of said instruments before MSCI purchased them for value, it can not be said that PNB is precluded from setting up the forgery and, therefore, MSCI is not entitled to retain the amount of the forged check paid to it by PNB.

Issue [4]: Whether the drawee bank should be allowed recovery, as MSCI’s position would not become worse than if the drawee had refused the payment of these checks upon their presentation.

Held [4]: A drawee of a check, who is deceived by a forgery of the drawer’s signature may recover the payment back, unless his mistake has placed an innocent holder of the paper in a worse position than he would have been in if the discover of the forgery had been made on presentation. Forgeries often deceived the eye of the most cautions experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. Herein, MSCI has lost nothing by anything which the drawee has done. It had in its hands some forged worthless papers. It did not purchase or acquire these papers because of any representation made to it by the drawee. It purchased them from unknown persons and under suspicious circumstances. It had no valid title to them, because the persons from whom it received them did not have such title. MSCI could not have compelled the drawee to pay them, and the drawee could have refused payment had it been able to detect the forgery. By making a refund, MSCI would only be returning what it had received without any title or right. And when MCSI pays back the money it has received it will be entitled to have restored to it the forged papers it parted with. There is no good reason why the accidental payment made by PNB should inure to the benefit of MSCI. If there were injury to MCSI said injury was caused not by the failure of PNB to detect the forgery but by the very negligence of MCSI in purchasing commercial papers from unknown persons without making inquiry as to their genuineness.

(The court held in the case (1) That where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness of the drawer’s signature and his capacity to issue the instrument; (2) That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it cannot recover from a holder who did not participate in the forgery and did not have actual notice thereof; (3) That the payment of a check does not include or imply its acceptance in the sense that this word is used in section 62 of the Negotiable Instruments Law; (4) That in the case of the payment of a forged check, even without former acceptance, the drawee can not recover from a holder in due course not chargeable with any act of negligence or disregard of duty; (5) That to entitle the holder of a forged check to retain the money obtained thereon, there must be a showing that the duty to ascertain the genuineness of the signature rested entirely upon the drawee, and that the constructive negligence of such drawee in failing to detect the forgery was not affected by any disregard of duty on the part of the holder, or by failure of any precaution which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had the right to believe he had taken; (6) That in the absence of actual fault on the part of the drawee, his constructive fault in not knowing the signature of the drawer and detecting the forgery will not preclude his recovery from one who took the check under circumstances of suspicion and without proper precaution, or whose conduct has been such as to mislead the drawee or induce him to pay the check without the usual scrutiny or other precautions against mistake or fraud; (7) That one who purchases a check or draft is bound to satisfy himself that the paper is genuine, and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he performed his duty; (8) That while the foregoing rule, chosen from a welter of decisions on the issue as the correct one, will not hinder the circulation of two recognized mediums of exchange by which the great bulk of business is carried on, namely, drafts and checks, on the other hand, it will encourage and demand prudent business methods on the part of those receiving such mediums of exchange; (9) That it being a matter of record in the present case, that PNB is no more chargeable with the knowledge of the drawer’s signature than MCSI is, as the drawer was as much the customer of MSCI as of PNB, the presumption that a drawee bank is bound to know more than any indorser the signature nature of its depositor does not hold; (1) that according to the undisputed facts of the case MSCI in purchasing the papers in question from unknown persons without making any inquiry as to the identity and authority of the said persons negotiating and indorsing them, acted negligently and contributed to PNB’s constructive negligence in failing to detect the forgery; and (11) that under the circumstances of the case, if PNB is allowed to recover, there will be no change of position as to the injury or prejudice of MCSI.)

Moran vs. Court of Appeals

Facts: George and Librada Moran are the owners of the Wack-Wack Petron gasoline station located at Shaw Boulevard , corner Old Wack-Wack Road , Mandaluyong, Metro Manila. They regularly purchased bulk fuel and other related products from Petrophil Corporation on cash on delivery (COD) basis. Orders for bulk fuel and other related products were made by telephone and payments were effected by personal checks upon delivery. The Morans maintained 3 joint accounts, namely 1 current account (37-00066-7) and 2 savings accounts, (1037002387 and 1037001372) with the Shaw Boulevard branch of Citytrust Banking Corporation. As a special privilege to the Morans, whom it considered as valued clients, the bank allowed them to maintain a zero balance in their current account. Transfers from Savings Account 1037002387 to their current account could be made only with their prior authorization, but they gave written authority to Citytrust to automatically transfer funds from their Savings Account 1037001372 to their Current Account 37-00066-7 at any time whenever the funds in their current account were insufficient to meet withdrawals from said current account. Such arrangement for automatic transfer of funds was called a pre-authorized transfer (PAT) agreement. On 12 December 1983, the Morans, through Librada, drew a check (Citytrust 041960) for P50,576.00 payable to Petrophil Corporation. The next day, 13 December 1983, the Morans, again through Librada, issued another check (Citytrust 041962) in the amount of P56,090.00 in favor of the same corporation. The total sum of the two checks was P106,666.00. On 14 December 1983, Petrophil deposited the two aforementioned checks to its account with the Pandacan branch of the Philippine National Bank (PNB), the collecting bank. In turn, PNB Pandacan branch presented them for clearing with the Philippine Clearing House Corporation in the afternoon of the same day. The records show that on 14 December 1983, Current Account 37-00066-7 had a zero balance, while Savings Account 1037001372 (covered by the PAT) had an available balance of P26,104.30 and Savings Account 1037002387 had an available balance of P43,268.39. At about 10 a.m. of the following day, 15 December 1983, George Moran went to the bank, as was his regular practice, to personally oversee their daily transactions with the bank. He deposited in their Savings Account 1037002387 the amounts of P10,874.58 and P6,754.25, 8 and he likewise deposited in their Savings Account 1037001372 the amounts of P5,900.00, P35,100.00 and 30.00. The amount of P40,000.00 was then transferred by him from Saving Account 1037002387 to their current account by means of a pro forma withdrawal form (a debit memorandum), which was provided by the bank, authorizing the latter to make the necessary transfer. At the same time, the amount of P66,666.00 was transferred from Savings Account 1037001372 to the same current account through the pre-authorized transfer (PAT) agreement. Sometime on December 15 or 16, 1983 George Moran was informed by his wife Librada, that Petrophil refused to deliver their orders on a credit basis because the two checks they had previously issued were dishonored upon presentment for payment. Apparently, the bank dishonored the checks due to “insufficiency of funds.” The non-delivery of gasoline forced the Morans to temporarily stop business operations, allegedly causing them to suffer loss of earnings. In addition, Petrophil cancelled their credit accommodation, forcing them to pay for their purchases in cash. George Moran, furious and upset, demanded an explanation from Raul Diaz, the branch manager. Failing to get a sufficient explanation, he talked to a certain Villareal, a bank officer, who allegedly told him that Amy Belen Ragodo, the customer service officer, had committed a “grave error”. On December 16 or 17, 1983, Diaz went to the Moran residence to get the signatures of the petitioners on an application for a manager’s check so that the dishonored checks could be redeemed. Diaz then went to Petrophil to personally present the checks in payment for the two dishonored checks. In a chance meeting around May or June, 1984, George Moran learned from one Constancio Magno, credit manager of Petrophil, that the latter received from Citytrust, through Diaz, a letter dated 16 December 1983, notifying them that the two checks were “inadvertently dishonored . . . due to operational error.” Said letter was received by Petrophil on 4 January 1984. On 24 July 1984, or a little over six months after the incident, petitioners, through counsel, wrote Citytrust claiming that the bank’s dishonor of the checks caused them besmirched business and personal reputation, shame and anxiety, hence they were contemplating the filing of the necessary legal actions unless the bank issued a certification clearing their name and paid them P1,000,000.00 as moral damages. The bank did not act favorably on their demands, hence the Morans filed a complaint for damages on 8 September 1984, with the RTC Pasig (Branch 159, Civil Case 51549). In turn, Citytrust filed a counterclaim for damages, alleging that the case filed against it was unfounded and unjust. After trial, a decision dated 9 October 1989 was rendered by the trial court dismissing both the complaint and the counterclaim. On appeal, the Court of Appeals rendered judgment in CA-GR CV 25009 on 9 October 1989 affirming the decision of the trial court.

Issue [1]: Whether a bank is not liable for its refusal to pay a check on account of insufficient funds, but wherein a deposit may be made later in the day.

Held [1]: Fixed savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. In other words, the relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages. Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. Before a bank depositor may maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand.

Issue [2]: Whether the Spouses Moran had sufficient funds in their accounts when the bank dishonored the checks in question.

Held [2]: The available balance on 14 December 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the two checks, although what was stamped on the dorsal side of the two checks in question was “DAIF/12-15-83,” since 15 December 1983 was the actual date when the checks were processed. When the Morans’ checks were dishonored due to insufficiency of funds, the available balance of Savings Account 1037001372, which was the subject of the PAT agreement, was not enough to cover either of the two checks. On 14 December 1983, when PNB, Pandacan branch presented the checks for collection, the available balance for Savings Account 1037001372 was only P26,104.30 while Current Account 37-0006-7 had no available balance. It was only on 15 December 1983 at around 10:00 a.m. that the necessary funds were deposited, which unfortunately was too late to prevent the dishonor of the checks.

Issue [3]: Whether the bank is required to give notice before dishonoring checks drawn upon insufficient funds.

Held [3]: If ever the spouses Moran on previous occasions were given notices every time a check was presented for clearing and payment and there were no adequate funds in their accounts, these were, at most, mere accommodations on the part of CityTrust. It was not a requirement or a general banking practice, hence non-compliance therewith could not lay the bank open to blame or rebuke. Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to speak of in the first place. If the demand is by check, a drawer must have to his credit enough to cover the demand. If his credit with the bank is less than the amount on the face of the check, the bank may lawfully refuse payment.

Search and Seizure

January 13, 2009

Ople vs. Torres (G.R. No. 127685, 23 July 1998, penned by Chief Justice Reynaldo Puno)

In 1996, President Fidel Ramos issued Administrative Order No. 308, entitled “Adoption of a National Computerized Identification Reference System,” the pertinent portions of which reads:
ADOPTION OF A NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE SYSTEM
SECTION 1. Establishment of a National Computerized Identification Reference System. A decentralized Identification Reference System among the key basic services and social security providers is hereby established.
xxx
SEC. 4. Linkage Among Agencies. The Population Reference Number (PRN) generated by the NSO shall serve as the common reference number to establish a linkage among concerned agencies. The IACC Secretariat shall coordinate with the different Social Security and Services Agencies to establish the standards in the use of Biometrics Technology and in computer application designs of their respective systems.
A.O. 308 involves a subject that is not appropriate to be covered by an administrative order and usurps the power of Congress to legislate
Congress is vested with the power to enact laws, while the President executes the laws. The President’s administrative power is concerned with the work of applying policies and enforcing orders as determined by proper governmental organs. An “administrative order” refers to “[a]cts of the President which relate to particular aspects of governmental operation in pursuance of his duties as administrative head shall be promulgated in administrative orders.” An administrative order is an ordinance issued by the President which relates to specific aspects in the administrative operation of government. It must be in harmony with the law and should be for the sole purpose of implementing the law and carrying out the legislative policy.
A.O. No. 308 establishes for the first time a National Computerized Identification Reference System. It does not simply implement the Administrative Code of 1987. This administrative order redefines the parameters of some basic rights of the citizenry vis-a-vis the State, as well as the line that separates the administrative power of the President to make rules and the legislative power of Congress. It deals with a subject that should be covered by law.
A.O. violates the right to privacy
In striking down A.O. 308, the SC emphasized that the Court is not per se against the use of computers to accumulate, store, process, retrieve and transmit data to improve our bureaucracy. The SC also emphasized that the right to privacy does not bar all incursions into the right to individual privacy. This right merely requires that the law be narrowly focused and a compelling interest justify such intrusions. Intrusions into the right must be accompanied by proper safeguards and well-defined standards to prevent unconstitutional invasions.
The right to privacy is a constitutional right, granted recognition independently of its identification with liberty. It is recognized and enshrined in several provisions of our Constitution, specifically in Sections 1, 2, 3 (1), 6, 8 and 17 of the Bill of Rights. Zones of privacy are also recognized and protected in our laws, including certain provisions of the Civil Code and the Revised Penal Code, as well as in special laws (e.g., Anti-Wiretapping Law, the Secrecy of Bank Deposit Act and the Intellectual Property Code).
The right to privacy is a fundamental right guaranteed by the Constitution. Thefore, it is the burden of government to show that A.O. 308 is justified by some compelling state interest and that it is narrowly drawn. The government failed to discharge this burden.
A.O. 308 is predicated on two considerations: (1) the need to provide our citizens and foreigners with the facility to conveniently transact business with basic service and social security providers and other government instrumentalities and (2) the need to reduce, if not totally eradicate, fraudulent transactions and misrepresentations by persons seeking basic services. While it is debatable whether these interests are compelling enough to warrant the issuance of A.O. 308, it is not arguable that the broadness, the vagueness, the overbreadth of A.O. 308, if implemented, will put our people’s right to privacy in clear and present danger.
The heart of A.O. 308 lies in its Section 4 which provides for a Population Reference Number (PRN) as a “common reference number to establish a linkage among concerned agencies” through the use of “Biometrics Technology” and “computer application designs.” Biometry or biometrics is “the science of the application of statistical methods to biological facts; a mathematical analysis of biological data.” The methods or forms of biological encoding include finger-scanning and retinal scanning, as well as the method known as the “artificial nose” and the thermogram. A.O. 308 does not state what specific biological characteristics and what particular biometrics technology shall be used.
Moreover, A.O. 308 does not state whether encoding of data is limited to biological information alone for identification purposes. The Solicitor General’s claim that the adoption of the Identification Reference System will contribute to the “generation of population data for development planning” is an admission that the PRN will not be used solely for identification but for the generation of other data with remote relation to the avowed purposes of A.O. 308. The computer linkage gives other government agencies access to the information, but there are no controls to guard against leakage of information. When the access code of the control programs of the particular computer system is broken, an intruder, without fear of sanction or penalty, can make use of the data for whatever purpose, or worse, manipulate the data stored within the system.
A.O. 308 falls short of assuring that personal information which will be gathered about our people will only be processed for unequivocally specified purposes. The lack of proper safeguards in this regard of A.O. 308 may interfere with the individual’s liberty of abode and travel by enabling authorities to track down his movement; it may also enable unscrupulous persons to access confidential information and circumvent the right against self-incrimination; it may pave the way for “fishing expeditions” by government authorities and evade the right against unreasonable searches and seizures. The possibilities of abuse and misuse of the PRN, biometrics and computer technology are accentuated when we consider that the individual lacks control over what can be read or placed on his ID, much less verify the correctness of the data encoded. They threaten the very abuses that the Bill of Rights seeks to prevent

 

Umil vs. Ramos (July 9, 1990)

187 SCRA 311

FACTS: This consolidated case of 8 petitions for habeas corpus assails the validity of the arrests and searches made by the military on the petitioners. The arrests relied on the “confidential information” that the authorities received. Except for one case where inciting to sedition was charged, the rest are charged with subversion for being a member of the New People’s Army.

HELD/RATIO: Arrests were legal. Regarding the subversion cases, the arrests were legal since subversion is a form of a continuing crime – together with rebellion, conspiracy or proposal to commit rebellion/subversion, and crimes committed in furtherance thereof or in connection therewith. On the inciting to sedition case, the arrest was legal since an information was filed prior to his arrest. Lastly, the arrests were not fishing expeditions but a result of an in-depth surveillance of NPA safe houses pinpointed by none other than members of the NPA.
The right to preliminary investigation should be exercised by the offender ASAP. Otherwise, it would be considered as impliedly waived and the filing of information can proceed. This sort of irregularity is not sufficient to set aside a valid judgment upon a sufficient complaint and after a trial free from error.
Dissent (Sarmiento, J.): The “confidential information” was nothing but hearsay. The searches and arrests made where bereft of probable cause and that the petitioners were not caught in flagrante delicto or in any overt act. Utmost, the authorities was lucky in their fishing expeditions.
Case Digest on Roan v. Gonzales, 145 SCRA 687 (1986)

Roan v. Gonzales, 145 SCRA 687 ( 1986)

F: The challenged SW was issued by the resp. judge on 5/10/84. The petitioner”s house was searched 2 days later but none of the articles listed in the warrant was discovered. The officers conducting the search found 1 colt Magnum revolver & 18 live bullets w/c they confiscated. They are now the bases of the charge against the petitioner. RULING: Search warrant issued by resp. judge is hereby declared null and void and accordingly set aside. The petitioner claims that no depositions were taken by the resp. judge in accordance w/ Rule 126, Sec. 4 of the ROC, but this is not entirely true. Depositions were taken of the complainant”s 2 witnesses in addition to the affidavit executed by them. It is correct to say, however, that the complainant himself was not subjected to a similar interrogation. By his own accounts, all that resp. judge did was question Capt. Quillosa on the contents of his affidavit only “to ascertain among others, if he knew and understood the same,” and only bec. “the application was not yet subscribed and sworn to.” The suggestion is that he would not have asked any questions at all if the affidavit had already been completed when it was submitted to him. In any case, he did not ask his own searching questions.
He limited himself to the contents of the affidavit. He did not take the applicant”s deposition in writing and attach them to the record, together w/ the affidavit presented to him. Such written deposition is necessary in order that the Judge may be able to properly determine the existence or non-existence of the probable cause, to hold liable for perjury the person giving it if it will be found later that his declarations are false. (Mata v. Bayona.) The applicant was asking for the issuance of the SW on the basis of mere hearsay and not of info. personally known to him. His application, standing alone, was insufficient to justify the issuance of the warrant sought. It was, therefore, necessary for the witnesses themselves, by their own personal info., to establish the applicant”s claims.
Even assuming then that it would have suffied to take the deposition only of the witnesses and not of the applicant himself, there is still the question of the sufficiency of their depositions. A study of the deposition taken from witnesess Esmael Morada and Jesus Tohilida, who both claimed to be “intelligence informers,” shows that they were in the main a mere restatement of their allegations in their affidavits, except that they were made in the form of answers to the questions put to them by the resp. judge. One may well wonder why it did not occur to the resp. judge to ask how the witness could be so certain even as to the caliber of the guns, or how far he was from the window, or whether it was on the first floor or second floor, or why his presence was not noticed at all, or if the acts related were really done openly, in the full view of the witnesses, considering that these acts were against the law. These would have been judicious questions but they were injudiciously omitted. Instead, the declaration of the witnesses were readily accepted and the warrant sought was issued forthwith. SOL-GEN ARGUES THAT THE PETITIONER WAIVED WHATEVER DEFECT WHEN THE PETITIONER VOLUNTARILY SUBMITTED TO THE SEARCH AND MANIFESTED HIS CONFORMITY IN WRITING. We do not agree. What we see here is pressure exerted by the military authorities, who practically coerced the petitioner to sign the supposed waiver as guaran

Valmonte V. De Villa, 170 SCRA 256 ( 1989)

F: On 1/20/87, the NCRDC was activated w/ the mission of conducting security operations w/in its area or responsibility and peripheral areas, for the purpose of establishing an effective territorial defense, maintaining peace and order, and providing an atmosphere conducive to the social, economic and political dev”t of the NCR. As part of its duty to maitain peace and order, the NCRDC installed checkpoints in various parts of Valenzuela and MM. Petitioners aver that, bec. of the institution of said checkpoints, the Valenzuela residents are worried of being harassed and of their sarety being placed at the arbitrary, capricious and whimsical disposition of the military manning the checkpoints, considering that their cars and vehicles are being subjected to regular searches and check-ups, especially at night or at dawn, w/o a SW and/ or court order. Their alleged fear for their safety increased when Benjamin Parpon, was gaunned down allegedly in cold blood by members of the NCRDC for ignoring and/ or continuing to speed off inspite of warning shots fired in the air.
HELD: Petitioner”s concern for their safety and apprehension at being harassed by the military manning the checkpoints are not sufficient grounds to declare the checkpoints per se, illegal. No proof has been presented before the Court to show that, in the course of their routine checks, the military, indeed, committed specific violations of petitioners” rights against unlawful search and seizure of other rights. The constitutional right against unreasonable searches and seizures is a personal right invocable only by those whose rights have been infringed, or threatened to be infringed. Not all searches and seizures are prohibited. Those w/c are reasonable are not forbidden. The setting up of the questioned checkpoints may be considered as a security measure to enable the NCRDC to pursue its mission of establishing effective territorial defense and maintaining peace and order for the benfit of the public. Checkpoints may not also be regarded as measures to thwart plots to destabilize the govt, in the interest of public security. Between the inherent right of the state to protect its existence and promote public welfare and an individual”s right against a warrantless search w/c is, however, reasonably conducted, the former should prevail. True, the manning of checkpoints by the military is susceptible of abuse by the military in the same manner that all governmental power is susceptible of abuse. But, at the cost of occasional inconveninece, discomfort and even irritation to the citizen, the checkpoints during these abnormal times, when conducted w/in reasonable limits, are part of the price we pay for an orderly society and a peaceful community.

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January 13, 2009

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