ECOND DIVISION

[G.R. No. 93397. March 3, 1997.]

TRADERS ROYAL BANK, petitioner, vs. COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE
CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Jaime M. Cabiles for respondent Central Bank.
Ruben L. Almadro for respondent Filriters.
SYLLABUS
1.
COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; FREEDOM OF NEGOTIABILITY; NOT PRESENT
IN CERTIFICATE OF INDEBTEDNESS. The language of negotiability which characterize a negotiable
paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of
negotiability is the touchstone relating to the protection of holders in due course, and the freedom of
negotiability is the foundation for the protection which the law throws around a holder in due course
(11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate of indebtedness as it
merely acknowledges to pay a sum of money to a specified person or entity for a period of time.
2.
ID.; CORPORATIONS; PIERCING THE VEIL OF CORPORATE ENTITY; ELABORATED; NOT PROPER IN
CASE AT BAR. Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is
merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a
mere alter ego or business conduit of a person. Piercing the veil of corporate entity requires the court to
see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they
could be subject to or distinguishes one corporation from a seemingly separate one, were it not for the
existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused,
to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his,
her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate
entity which the law aims to protect by this doctrine. Though it is true that when valid reasons exist, the
legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and
from other corporations may be disregarded, in the absence of such grounds, the general rule must be
upheld. The fact that Philfinance owns majority shares in Filriters is not by itself a ground to disregard
the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, the
mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate
personalities. In the case at bar, there is sufficient showing that the petitioner was not defrauded at all
when it acquired the subject certificate of indebtedness from Philfinance.
3.
ID.; BANKS; CENTRAL BANK CIRCULAR NO. 769; REQUIREMENTS; NON COMPLIANCE THEREOF,
FATAL; CASE AT BAR. Petitioner, being a commercial bank, cannot feign ignorance of Central Bank

Circular 769, and its requirements. An entity which deals with corporate agents within circumstances
showing that the agents are acting in excess of corporate authority, may not hold the corporation liable.
This is only fair, as everyone must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith. The transfer made by Filriters
to Philfinance did not conform to the said Central Bank Circular, which for all intents, is considered part
of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of assignment
from Filriters to Philfinance, purportedly for and in favor of Filriters was fictitious, and therefore void
and inexistent, as there was no consideration for the same. This is fatal to the petitioner's cause, for
then, Philfinance had no title over the subject certificate to convey to Traders Royal Bank. Nemo potest
nisi quod de jure potest no man can do anything except what he can do lawfully. Concededly, the
subject CBCI (Central Bank Certificate of Indebtedness) was acquired by Filriters to form part of its legal
and capital reserves, which are required by law to be maintained at a mandated level. It cannot,
therefore, be taken out of the said fund, without violating the requirements of the law. Thus, the
unauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said
corporation, not without the approval of its Board of Directors, and the maintenance of the required
reserve fund. Consequently, the title of Filriters over the subject certificate of indebtedness must be
upheld over the claimed interest of Traders Royal Bank.
DECISION
TORRES, JR., J p:
Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals
dated January 29, 1990, 1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness
(CBCI) No. D891, 2 with a face value of P500,000.00 from the Philippine Underwriters Finance
Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement 3
dated February 4, 1981, and a Detached Assignment 4 dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was
originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central
Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank
(TRB).
In the said petition, TRB stated that:
"3.
On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a
'Detached Assignment' . . ., whereby Filriters, as registered owner, sold, transferred, assigned and
delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central
Bank Certificates of Indebtedness (CBCI) Nos. D890 to D896, inclusive, each in the denomination of
PESOS: FIVE HUNDRED THOUSAND (P500,000.00) and having an aggregate value of PESOS: THREE
MILLION FIVE HUNDRED THOUSAND (P3,500,000.00);
4.
The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by
the transferor intended to complete the assignment through the registration of the transfer in the name

of PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably

authorized the said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal
agent;
5.
On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . .,
whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00),
PhilFinance sold, transferred and delivered to petitioner CBCI 4-year, 8th series, Serial No. D891 with a
face value of P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance from
Filriters as averred in paragraph 3 of the Petition;
6.
Pursuant to the aforesaid Repurchase Agreement (Annex 'B'), Philfinance agreed to repurchase
CBCI Serial No. D891 (Annex 'C'), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND
THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;
7.
PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when
the checks it issued in favor of petitioner were dishonored for insufficient funds;
8.
Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the
Petitioner to enable the latter to have its title completed and registered in the books of the respondent.
And by means of said Detachment Assignment, Philfinance transferred and assigned all its rights and
title in the said CBCI (Annex 'C') to petitioner and, furthermore, it did thereby 'irrevocably authorize the
said issuer (respondent herein) to transfer the said bond/certificate on the books of its fiscal agent.' . . .
9.
Petitioner presented the CBCI (Annex 'C'), together with the two (2) aforementioned Detached
Assignments (Annexes 'B' and 'D'), to the Securities Servicing Department of the respondent, and
requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the
name of petitioner as absolute owner thereof;
10.
Respondent failed and refused to register the transfer as requested, and continues to do so
notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing,
the latest of which is hereto attached as Annex 'E' and made an integral part hereof;
11.
The express provisions governing the transfer of the CBCI were substantially complied with in
petitioner's request for registration, to wit: cdasia
'No transfer thereof shall be valid unless made at said office (where the Certificate has been registered)
by the registered owner hereof, in person or by his attorney duly authorized in writing, and similarly
noted hereon, and upon payment of a nominal transfer fee which may be required, a new Certificate
shall be issued to the transferee of the registered holder thereof.'
and, without a doubt, the Detached Assignments presented to respondent were sufficient
authorizations in writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as
required by the above-quoted provision;

12.
Upon such compliance with the aforesaid requirements, the ministerial duties of registering a
transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the
respondent;"
Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its
name.
On December 4, 1984, the Regional Trial Court trying the case took cognizance of the defendant Central
Bank of the Philippines' Motion for Admission of Amended Answer with Counter Claim for Interpleader,
6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation (Filriters), the
registered owner of the subject CBCI as respondent.
For its part, Filriters interjected as Special Defenses the following:
"11.

Respondent is the registered owner of CBCI No. 891;

12.
The CBCI constitutes part of the reserve investment against liabilities required of respondent as
an insurance company under the Insurance Code;
13.
Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust
fund doctrine and to the prejudice of policyholders and to all who have present or future claim against
policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any
board resolution, knowledge or consent of the board of directors of Filriters and without any clearance
or authorization from the Insurance Commissioner, executed a detached assignment purportedly
assigning CBCI No. 891 to Philfinance;
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14.
Subsequently, Alberto Fabella, Senior Vice-President-Comptroller and Pilar Jacobe, VicePresident-Treasury of Filriters (both of whom were holding the same positions in Philfinance), without
any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy
holders and all who have present or future claims against its policies, executed similar detached
assignment forms transferring the CBCI to plaintiff;
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15.
The detached assignment is patently void and inoperative because the assignment is without
the knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as
required by Article V, Section 3 of CB Circular No. 769;
16.
The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the
corporate act of Filriters and as such null and void;
a)
The assignment was executed without consideration and for that reason, the assignment is void
from the beginning (Article 1409, Civil Code);

b)
The assignment was executed without any knowledge and consent of the board of directors of
Filriters;
c)
The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement
under the Insurance Code for its existence as an insurance company and the pursuit of its business
operations. The assignment of the CBCI is illegal act, in the sense of malum in se or malum prohibitum,
for anyone to make, either as corporate or personal act;
d)
The transfer or diminution of reserve investments of Filriters is expressly prohibited by law, is
immoral and against public policy;
e)
The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency
of Filriters (and has in fact helped in placing Filriters under conservatorship), an inevitable result known
to the officer who executed the detached assignment.
17.
Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the
assignment;
a)
The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not
payable to bearer but is registered in the name of Filriters;
b)
The provision on transfer of the CBCIs, provides that the Central Bank shall treat the registered
owner as the absolute owner and that the value of the registered certificates shall be payable only to
the registered owner; a sufficient notice to plaintiff that the assignments do not give them the
registered owner's right as absolute owner of the CBCIs;
c)
CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that registered
certificates are payable only to the registered owner (Article II, Section 1).
18.
Plaintiff knew fully well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a
regular transaction made in the usual or ordinary course of business;
a)
The CBCI constitutes part of the reserve investments of Filriters against liabilities required by the
Insurance Code and its assignment or transfer is expressly prohibited by law. There was no attempt to
get any clearance or authorization from the Insurance Commissioner;
b)
The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course
of its business;
c)
The CBCI involved substantial amount and its assignment clearly constitutes disposition of 'all or
substantially all' of the assets of Filriters, which requires the affirmative action of the stockholders
(Section 40, Corporation [sic] Code). 7
In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXII found the
assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI

by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. The dispositive
portion of the decision reads:
"ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance
Corporation and against the plaintiff Traders Royal Bank:
(a)
Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent
assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no
force and effect;
(b)
Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to
pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation;
(c)
Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp.
the sum of P10,000 as attorney's fees; and
(d)

to pay the costs.

SO ORDERED." 9
The petitioner assailed the decision of the trial court in the Court of Appeals, 10 but their appeal likewise
failed. The findings of fact of the said court are hereby reproduced:
"The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of
assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters
Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still
registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a
repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the
instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date,
it executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its rights and title
to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in
its name before the Security and Servicing Department of the Central Bank (CB). Central Bank, however,
refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in the
Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a case
of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and
the court adjudge which of them is entitled to the ownership of CBCI No. D891. Failing to get a favorable
judgment. TRB now comes to this Court on appeal." 11
In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having
acquired the said certificate from Philfinance as a holder in due course, its possession of the same is
thus free from any defect of title of prior parties and from any defense available to prior parties among

themselves, and it may thus, enforce payment of the instrument for the full amount thereof against all
parties liable thereon. 12
In ignoring said argument, the appellate court said that the CBCI is not a negotiable instrument, since
the instrument clearly stated that it was payable to Filriters, the registered owner, whose name was
inscribed thereon, and that the certificate lacked the words of negotiability which serve as an expression
of consent that the instrument may be transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having been made
without consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better
known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness," which
provided that any "assignment of registered certificates shall not be valid unless made . . . by the
registered owner thereof in person or by his representative duly authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from Philfinance, whose interest was
inexistent, having acquired the certificate through simulation. What happened was Philfinance merely
borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its financing operations.
Said the Court:
"In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf
of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to
act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated
at the same time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the
nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of
Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to
Traders Royal Bank and which the latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.
SO ORDERED." 13
Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriter's equity
and the two corporations have identical corporate officers, thus demanding the application of the
doctrine of piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from the
registered owner to petitioner TRB. 14 This renders the payment by TRB to Philfinance for CBCI, as
actual payment to Filriters. Thus, there is no merit to the lower courts' ruling that the transfer of the
CBCI from Filriters to Philfinance was null and void for lack of consideration. cda
Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability
within the meaning of the negotiable instruments law (Act 2031).
The pertinent portions of the subject CBCI read:

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The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay to bearer, or if
this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the
registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.
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Properly understood, a certificate of indebtedness pertains to certificates for the creation and
maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being
equivalent to a bond, it is properly understood as an acknowledgment of an obligation to pay a fixed
sum of money. It is usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:
"As worded, the instrument provides a promise 'to pay Filriters Guaranty Assurance Corporation, the
registered owner hereof.' Very clearly, the instrument is payable only to Filriters, the registered owner,
whose name is inscribed thereon. It lacks the words of negotiability which should have served as an
expression of consent that the instrument may be transferred by negotiation." 15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE
CORPORATION, and to no one else, thus, discounting the petitioner's submission that the same is a
negotiable instrument, and that it is a holder in due course of the certificate.
The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom
to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the
protection of holders in due course, and the freedom of negotiability is the foundation for the
protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in
negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of
money to a specified person or entity for a period of time.
As held in Caltex (Philippines), Inc. vs. Court of Appeals 16 :
"The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention
of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of
surrounding 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."
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not
governed by the negotiable instruments law. The pertinent question then is, was the transfer of the

CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing law,
so as to entitle TRB to have the CBCI registered in its name with the Central Bank?
The following are the appellate court's pronouncements on the matter:
"Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it
acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the
transfer was for 'value received,' there was really no consideration involved. What happened was
Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation. Thus, for lack of any
consideration, the assignment made is a complete nullity.
What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central Bank
Circular No. 769, series of 1980, otherwise known as the 'Rules and Regulations Governing Central Bank
Certificates of Indebtedness', under which the note was issued. Published in the Official Gazette on
November 19, 1980, Section 3 thereof provides that 'any assignment of registered certificates shall not
be valid unless made . . . by the registered owner thereof in person or by his representative duly
authorized in writing.'
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf
of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to
act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated
at the same time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the
nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of
Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to
Traders Royal Bank and which the latter can register with the Central Bank."
Petitioner now argues that the transfer of the subject CBCI to TRB must be upheld, as the respondent
Filriters and Philfinance, though separate corporate entities on paper, have used their corporate fiction
to defraud TRB into purchasing the subject CBCI, which purchase now is refused registration by the
Central Bank.
Says the petitioner:
"Since Philfinance owns about 90% of Filriters and the two companies have the same corporate officers,
if the principle of piercing the veil of corporate entity were to be applied in this case, then TRB's
payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to
Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it has, that it never
received any payment for that CBCI sold and that said CBCI was sold without its authority.
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We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely
borrowed by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing

operations, if it were to be consistent therewith, on the issue raised by TRB that there was a piercing a
veil of corporate entity, the Court of Appeals should have ruled that such veil of corporate entity was, in
fact, pierced, and the payment by TRB to Philfinance should be construed as payment to Filriters." 17
We disagree with the Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely an equitable
remedy, and may be awarded only in cases when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or
business conduit of a person. 18
Piercing the veil of corporate entity requires the court to see through the protective shroud which
exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one
corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this,
the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or
crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the
interests of innocent third persons dealing with the corporate entity which the law aims to protect by
this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence
on the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the
identity of one shall be maintained as to the other, there is nothing else which could lead the court
under the circumstances to disregard their corporate personalities. cdasia
Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a
juridical personality separate from its stockholders and from other corporations may be disregarded, 19
in the absence of such grounds, the general rule must be upheld. The fact that Philfinance owns majority
shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In
Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it
acquired the subject certificate of indebtedness from Philfinance.
On its face, the subject certificates state that it is registered in the name of Filriters. This should have put
the petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same
or its authority to assign the certificate. As it is, there is no showing to the effect that petitioner had any
dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
"TRANSFER: This Certificate shall pass by delivery unless it is registered in the owner's name at any office
of the Bank or any agency duly authorized by the Bank, and such registration is noted hereon. After such
registration no transfer thereof shall be valid unless made at said office (where the Certificate has been

registered) by the registered owner hereof, in person, or by his attorney, duly authorized in writing and
similarly noted hereon and upon payment of a nominal transfer fee which may be required, a new
Certificate shall be issued to the transferee of the registered owner thereof. The bank or any agency
duly authorized by the Bank may deem and treat the bearer of this Certificate, or if this Certificate is
registered as herein authorized, the person in whose name the same is registered as the absolute owner
of this Certificate, for the purpose of receiving payment hereof, or on account hereof, and for all other
purpose whether or not this Certificate shall be overdue."
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require
Philfinance to submit such an authorization from Filriters.
Petitioner knew that Philfinance is not the registered owner of CBCI No. D891. The fact that a nonowner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to
verify or inquire as to the title of Philfinance to dispose of the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1980 21 , known as the Rules and
Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides
that:
"SEC. 3. Assignment of Registered Certificates. Assignment of registered certificates shall not be valid
unless made at the office where the same have been issued and registered or at the Securities Servicing
Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his
representative, duly authorized in writing. For this purpose, the transferee may be designated as the
representative of the registered owner."
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its
requirements. An entity which deals with corporate agents within circumstances showing that the
agents are acting in excess of corporate authority, may not hold the corporation liable. 22 This is only
fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith. 23
The transfer made by Filriters to Philfinance did not conform to the said Central Bank Circular, which for
all intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had
signed the deed of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did
not have the necessary written authorization from the Board of Directors of Filriters to act for the latter.
As it is, the sale from Filriters to Philfinance was fictitious, and therefore void and inexistent, as there
was no consideration for the same. This is fatal to the petitioner's cause, for then, Philfinance had no
title over the subject certificate to convey to Traders Royal Bank. Nemo potest nisi quod de jure potest
no man can do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves,
which are required by law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia,
Manager-in-Charge of respondent Filriters, in his testimony given before the court on May 30, 1986.

"Q
Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the face
value of P500,000.00 subject of this case?
A

Yes, sir.

Why do you know this?

A
Well, this was the CBCI of the company sought to be examined by the Insurance Commission
sometime in early 1981 and this CBCI No. 891 was among the CBCI's that were found to be missing.
Q
Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891
before 1981?
A
Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal
reserve of the company.
Q

Legal reserve for the purpose of what?

A
Well, you see, the Insurance companies are required to put up legal reserves under Section 213
of the Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance
Commission requires this reserve to be invested preferably in government securities or government
bonds. This is how this CBCI came to be purchased by the company."
It cannot, therefore, be taken out of the said fund, without violating the requirements of the law. Thus,
the unauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said
corporation, not without the approval of its Board of Directors, and the maintenance of the required
reserve fund.
Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the
claimed interest of Traders Royal Bank.
ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is
hereby AFFIRMED.
SO ORDERED.
Regalado, Romero and Mendoza, JJ., concur.
Puno, J., took no part.
SECOND DIVISION
[G.R. No. L-35767. June 18, 1976.]
RAYMUNDO A. CRYSTAL, petitioner, vs. COURT OF APPEALS and PELAGIA OCANG, PACITA, TEODULO,
FELICISIMO, PABLO, LYDIA, DIOSCORA and RODRIGO, all surnamed DE GRACIA, respondents.
SYNOPSIS

The Supreme Court affirmed the decision of the Court of Appeals dismissing the petition for certiorari
which sought the annulment and setting aside of the lower court's order directing the issuance of a writ
of possession in favor of private respondents. Petitioner questioned the trial court's jurisdiction to issue
the writ of possession sought by private respondents on the ground that the lower court itself had
issued an order to the effect that the legality and effectiveness of the redemption, as well as the
question of ownership of the redemptioner, was to be decided in another case, in view of which order
petitioner filed a separate case which is still pending trial.
Upon a motion for reconsideration, the Supreme Court reconsidered and modified its decision and
remanded the case to the trial court for further proceedings, taking into consideration the possible
injustice that might result from its unqualified reliance in its decision on the finding of the Court of
Appeals insofar as the validity of petitioner's redemption is concerned.
SYLLABUS
1.
NEGOTIABLE INSTRUMENTS; CHECKS; DISHONORED AND STALE CHECKS; LEGAL CONSEQUENCES
IN CASE AT BAR. The dishonoring of a check upon presentment, and its being stale for not being
presented at all time, are incompatible developments that naturally have variant legal consequences.
Thus, if indeed the check in question had been dishonored then there can be no doubt that petitioner's
redemption was null and void. On the other hand, if it had only be come stale, then it becomes
imperative that the circumstances that caused its non-presentment be determined, for if this was not
due to the fault of the petitioner, then it would be unfair to deprive him of the rights he had acquired as
redemptioner, particularly, if, after all, the value of the check has otherwise been received or realized by
the party concerned.
2.
JUDGMENTS; FINALITY; SUPREME COURT SHOULD NOT ALLOW ITS DECISION TO BECOME FINAL
WHEN SUBSTANTIAL JUSTICE MIGHT SUFFER. The Supreme Court should not allow any of its decisions
to become final when it is properly made to appear in a motion for reconsideration based on relevant
facts and circumstances not previously brought to its attention, although demonstrable from the
records, that even if the technical consideration on which it is based is well taken, substantial justice
might be sacrificed, if further proceedings are not ordered to be held to verify undeniable facts which
might have escaped the eyes of Court of Appeals.
3.
ID.; ID.; ID.; CASE AT BAR. Where possible injustice that might result from the Supreme
Court's unqualified reliance in its decision on the finding of the Court of Appeals that the check for
P11,200 paid by petitioner for the redemption in dispute had been dishonored, in the face of the other
finding in the same decision of the Court of Appeals indicating that instead of having been dishonored,
the said check had only become stale, albeit it was being replaced with new ones from time to time, its
decision should not be allowed to become final.
4.
SPECIAL CIVIL ACTIONS; CERTIORARI; SCRUTINY LIMITED TO POINT OF JURISDICTION
COMPLAINED OF. Courts should confine its scrutiny in certiorari cases only to the specific point of
jurisdiction complained of.

RESOLUTION
BARREDO, J p:
Motion for reconsideration of the decision of this Court in this case promulgated on February 25, 1975
affirming the decision of the Court of Appeals in favor of private respondents which held that
petitioner's redemption of the property acquired by said respondents in an execution sale pursuant to a
final judgment of the trial court in Civil Case No. R-1666, Court of First Instance of Cebu, was invalid
inasmuch as the check which petitioner had used in paying the redemption price had been either
dishonored or had become stale, hence its value was never realized, thus upholding in the process the
jurisdiction of the trial court to rule on the question of validity of the redemption in question
notwithstanding that by order of that same court, said matter had been made the subject of a separate
suit, Civil Case No. 62-T also of the Court of First Instance of Cebu, filed on August 9, 1060.
In his motion for reconsideration, petitioner insists that it was an act in excess of jurisdiction on the part
of the trial court in R-1666, to issue on May 31, 1971 the writ of possession sought by private
respondents, thru Pelagia Ocang, in her motion of August 15, 1970, considering that court had
previously pointedly observed in its order of March 24, 1960 that "the question as to whether or not the
redemption allegedly made by Mr. Crystal by paying the amount to Mrs. Pelagia Ocang without using
the said P11,200 deposited with the sheriff is legal and effective" has to be decided in "another proper
case" and, furthermore, in its order of June 4, 1960 in the same case, the same court had more
definitely ruled that "the question of ownership of Mr. Raymundo Crystal, the redemptioner, is not a
proper matter to be decided in this case but in another case where the legality or validity of the alleged
deed of redemption executed in favor of Mr. Crystal will be amply raised and threshed out" and,
accordingly, in attention to such observations and ruling, petitioner did file Civil Case No. 62-T, which is
still pending trial.
While, as already explained in Our decision, such pose of petitioner has its merits, We deem it
inadvisable at this point to modify Our ruling that there is really no issue of jurisdiction involved here
and that it is preferable, under the peculiar circumstances obtaining in this particular case, that the root
of the controversy between the parties be inquired into and determined in the incident already taken
cognizance of by the trial court in Civil Case No. R-1666 regarding the right of possession over the
property in dispute. In this connection, it is to be noted that even after he had filed Civil Case No. 62-T,
evidently in reliance of what he must have considered as his right as redemptioner of the property sold
in execution under a judgment in Civil Case No. R-1666, petitioner regained possession of the four (4)
parcels of land in question without the aid of the court, taking the same from Pelagia Ocang who had
previously taken it away from him also extrajudicially, claiming that she had legally acquired the same
precisely in that same execution and that petitioner's redemption was null and void because the check
he used to pay the redemption price had been dishonored for lack of sufficient funds. In other words,
both petitioner and Ocang, predicating their respective claims to rightful possession on the same sale on
execution in the same case, Civil Case No. R-1666, had alternately taken the law in their hands to obtain
possession of the lands in question in disregard of the proper procedure for the complete satisfaction of
the judgment of the court in that case. In the light of these peculiar circumstances, it does appear to be

more appropriate that, since it was the court in that Civil Case No. R1666 that rendered the judgment
and subsequently ordered the execution sale from which the disputed redemption was made, it should
be the one to settle the whole controversy among all the interested parties, including even the
judgment debtors, the heirs of Nicolas Rafols themselves, who, according to the records, have claim of
their own relative to the same redemption, which might just as well be inquired into in said case, rather
than in Case No. 62-T in which they are not parties. Otherwise stated, in issuing the impugned writ of
possession, the court took the bull by the horns, so to speak, thereby overturning its own previous stand
on the matter announced in its orders of March 24 and June 4, 1960 aforementioned. Consequently, We
overrule the argument of jurisdiction or even abuse of discretion raised by petitioner and reiterate what
We have said in regard thereto in Our decision.
This is not to say that the procedure followed by Ocang and sanctioned by the trial court of resorting to
the issuance of a writ of possession is not open to question, since a writ of possession is not always
available in all controversies concerning possession of real estate. But We see no need to resolve that
point here. More importantly, what impresses Us in the motion for reconsideration is the possible
injustice that might result from Our unqualified reliance in Our decision on the finding of the Court of
Appeals that the check for P11,200 paid by petitioner for the redemption in dispute had been
dishonored, in the face of the other finding in the same decision of the Court of Appeals indicating that
instead of having been dishonored, the said check had only become stale, albeit it was being replaced
with new ones from time to time. Surely, for a check to be dishonored upon presentment, on the one
hand, and to be stale for not being presented at all in time, on the other, are incompatible
developments that naturally have variant legal consequences. Thus, if indeed the check in question had
been dishonored, then there can be no doubt that petitioner's redemption was null and void. On the
other hand, if it had only become stale, then it becomes imperative that the circumstances that caused
its non-presentment be determined, for if this was not due to the fault of the petitioner, then it would
be unfair to deprive him of the rights he had acquired as redemptioner, particularly, if, after all, the
value of the check has otherwise been received or realized by the party concerned. From the motion for
reconsideration and its annexes, We gather that petitioner has ready evidence showing that when
Pelagia Ocang secured the writ of possession in question, she had already been paid the full amount of
the check in dispute. What is more, there are a number of circumstances pointed out in said motion,
apparently supported by corresponding evidence, tending to show that a compromise had already been
agreed upon by the parties, although not yet approved by the court, or, at least, that Ocang has made
admissions which indicate that the issue regarding the supposed dishonoring or becoming stale of the
repeatedly mentioned check is no longer of any legal significance and, for that matter, the observations
We made in Our decision in regard to the duties of the sheriff in the premises have been rendered
academic.
Needless to say, the Supreme Court should not allow any of its decisions to become final when it is
properly made to appear in a motion for reconsideration based on relevant facts and circumstances not
previously brought to its attention, although demonstrate from the records, that even if the technical
consideration on which it is based is well taken, substantial justice might be sacrificed, if further
proceedings are not ordered to be held to verify undeniable facts which might have escaped the eyes of

the Court of Appeals. In the instant case, We took it as proven, per statements of fact in the decision of
the Court of Appeals, that the check with which petitioner redeemed the property in dispute had been
dishonored. On that premise and seeing that even if We upheld the technical point of jurisdiction raised
by petitioner, the final outcome of the controversy between the parties would not be different, We
opted to put aside the procedural aspect of the dispute, and proceeded to decide the merits of the
respective substantive claims of the parties We felt that in view of the findings of fact of the Court of
Appeals, equity demanded that the case be earlier terminated by ignoring not only whatever flaw there
was in the procedure adopted by the court below but also the seemingly unusual departure by the Court
of Appeals from the orthodox rule requiring courts to confine its scrutiny in certiorari cases only to the
specific point of jurisdiction complained of.
Now, however, there is a strong showing in the motion for reconsideration, premised on no less than
other portions of the very decision of the intermediate court and other apparently credible evidence,
that not only was said check not dishonored, although it became stale, but that respondent Pelagia
Ocang had actually been paid already the full value thereof. And in this connection, it is notable that in
the comment of respondents on petitioner's motion for reconsideration, there is no clear and
categorical denial of these important and decisive facts.
One more point. In Our decision, We assumed that the findings of fact of the Court of Appeals were the
result of an exhaustive consideration of evidence presented in due course by the parties. It turns out
now, that inasmuch as the trial court itself had previously ruled that the validity of the redemption in
controversy should be the subject of a separate action and that, in fact, such separate action had
already been filed by petitioner, it was in this other case that petitioner was to present the
corresponding evidence. Hence, whatever evidence was before the trial court in Case No. R-1666 when
it issued the subject writ of possession could not have been complete, much less incontrovertible. Cdpr
With these substantial considerations in view, We find no just alternative than to reconsider Our
decision in so far as the matter of validity or invalidity of petitioner's redemption is concerned. It being
shown that the pivotal finding of the Court of Appeals regarding the check in question might actually
belied in a more appropriate proceeding, the foundation of Our own decision has been shaken. Indeed,
We are now convinced that it is but fair and just that the trial court should be allowed to receive all
relevant and competent evidence the parties may wish to present relative to the issue of whether or not
respondent Pelagia Ocang has already received in one form or another, directly or indirectly, the full
amount of P11,200 as redemption price of the four (4) parcels of land in dispute, as well as to all other
facts which might affect the validity of the redemption here in controversy. Withal, should it be found by
the trial court that the redemption was invalid, because the redemption price has not been fully paid, it
should further determine who made the improvements found on said lands, in order that if it should
turn out that they were introduced by petitioner, possession may not be awarded to respondents unless
said improvements are first properly and fully reimbursed to petitioner. It goes without saying that the
proceedings herein contemplated are to be held in Civil Case No. R-1666. Correspondingly, Civil Case No.
62-T and the other case reviewing the same should be deemed academic.

WHEREFORE, the decision of this Court of February 25, 1975 is hereby reconsidered and modified in line
with the foregoing opinion and this case is remanded to the trial court for further proceedings as therein
indicated.
SECOND DIVISION
[G.R. No. L-41764. December 19, 1980.]
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner, vs. HON. ALBERTO V. SENERIS, RICARDO A.
TONG and EX-OFFICIO SHERIFF HAKIM S. ABDULWAHID, respondents.
SYNOPSIS
Before the auction sale set by the Clerk of Court as Ex-Officio sheriff, pursuant to a writ of execution
issued by respondent Judge at the instance of private respondent, upon failure of petitioner to pay the
judgment obligation in the amount of P63,130.00, the latter deposited with the Clerk of Court the
amount of P50,000.00 in cashier's check and P13,130.00 in cash which were both refused by private
respondent. The sheriff proceeded with auction sale, sold the levied properties to private respondent as
highest bidder in the amount of P50, 000.00, declared a deficiency of P13,130.00 and issued a certificate
of sale in favor of private respondent for P50,000.00 only. Petitioner filed an ex-parte motion for the
issuance of a certificate of satisfaction of judgment which was denied in an order by the trial court.
Hence, this petition.
On certiorari, the Supreme Court holding that respondent Judge gravely abused his discretion in denying
said motion, ruled that private respondent cannot validly refuse acceptance of payment in cashier's
check which is deemed as cash in the business sector and that a special civil action of certiorari is proper
and not an appeal which is not an adequate and speedy remedy in this case, apart from the fact that the
subject of the petition as having been issued in grave abuse of discretion is not the decision, but the
order which was issued in execution of said decision.
Petition granted, order of execution set aside.
SYLLABUS
1.
MERCANTILE LAW; NEGOTIABLE INSTRUMENT; CASHIER'S CHECK GOOD AS CASH. It is a wellknown 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 to be 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.

2.
ID.; ID.; ID.; OBJECT OR CERTIFICATION. The object of certifying a check, as regards both
parties, is to enable the holder to use it as money. (PNB vs. Nat. City Bank of New York, 63 Phil. 711, 718719.) When the holder procures the check to be certified, "the check operates as an assignment of a
part of the funds to the creditors". (PNB vs. Nat. City Bank of New York, supra, 711-717; Sec. 189.)
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.
3.
REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; SATISFACTION OF; PAYMENT IN CASHIER'S
CHECK GOOD AS CASH; REFUSAL OF RESPONDENT JUDGE TO ISSUE CERTIFICATE OF SATISFACTION OF
JUDGMENT; GRAVE ABUSE OF DISCRETION; CASE AT BAR. Where the check deposited by the
judgment debtor is not an ordinary check but a Cashier's Check of the Equitable Banking Corporation, a
bank of good standing and reputation and the whole amount deposited by the petitioners consisting of
Cashier's Check of P150,000.00 and P13,130.00 in cash covers the judgment obligation of P63,130.00 as
mentioned in the writ of execution, there is no valid reason for the private respondent to have refused
acceptance of the payment of the obligation in his favor. The auction sale, therefore, was uncalled for.
Further, it appears that on January 17, 1975, the Cashier's check was even withdrawn by the petitioner
and replaced with cash in the corresponding amount of P50,000.00 but private respondent still refused
to receive the same. Thus, petitioner's motion for the issuance of a certificate of satisfaction of
Judgment is clearly meritorious and the respondent Judge gravely abused his discretion in not granting
the same under the circumstances.
4.
ID.; SPECIAL CIVIL ACTION; CERTIORARI, ADEQUATE AND PROPER WHERE WRIT OF EXECUTION
ALREADY ISSUED. The contention that appeal and not a special civil action for the certiorari is the
proper remedy in this case, and that since the period to appeal from the decision has already expired,
then the present petition has been filed out of time, is untenable. The decision of the respondent judge
in Civil Case No. 250 (166) has long become final and executory and so the same is not being questioned
herein. The subject of the petition at bar as having been issued in grave abuse of discretion is the order
dated August 28, 1975 of the respondent judge which was merely issued in execution of the said
decision. Thus, even granting that appeal is open to the petitioner, the same is not an adequate and
speedy remedy for the respondent judge had already issued a writ of execution.
DECISION
CONCEPCION, JR., J p:
A petition for certiorari with preliminary injunction to annul and/or modify the order of the Court of
First Instance of Zamboanga City (Branch II) dated August 28, 1975 denying petitioner's Ex-Parte Motion
for Issuance of Certificate Of Satisfaction Of Judgment. LLphil
Herein petitioner is the defendant in a complaint for collection of a sum of money filed by the private
respondent. 1 On July 19, 1974, a compromise judgment was rendered by the respondent Judge in
accordance with an amicable settlement entered into by the parties the terms and conditions of which,
are as follows:

"(1)
That defendant will pay to the plaintiff the amount of Fifty Four Thousand Five Hundred Pesos
(P54,500.00) at 6% interest per annum to be reckoned from August 25, 1972;
"(2)
That defendant will pay to the plaintiff the amount of Six Thousand Pesos (P6,000.00) as
attorney's fees for which P5,000.00 had been acknowledged received by the plaintiff under
Consolidated Bank and Trust Corporation Check No. 16-135022 amounting to P5,000.00 having a
balance of One Thousand Pesos (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 defendant to the plaintiff within five months from today, July 19, 1974; and
"(4)
Failure on the part of the defendant to comply with any of the above-conditions, a writ of
execution may be issued by this Court for the satisfaction of the obligation." 2
For failure of petitioner to comply with his judgment obligation, the respondent Judge, upon motion of
the private respondent, issued an order for the issuance of a writ of execution on December 21, 1974.
Accordingly, writ of execution was issued for the amount of P63,130.00 pursuant to which, the ExOfficio Sheriff levied upon the following personal properties of the petitioner, to wit: prcd
(1)

Unit American Lathe 24"

(1)

Unit American Lathe 18" Cracker Wheeler

(1)

Unit Rockford Shaper 24"

and set the auction sale thereof on January 15, 1975. However, prior to January 15, 1975, petitioner
deposited with the Clerk of Court, Court of First Instance, Zamboanga City, in his capacity as Ex-Officio
Sheriff of Zamboanga City, the sum of P63,130.00 for the payment of the judgment obligation,
consisting of the following:
1.
P50,000 in Cashier's Check no. S-314361 dated January 3, 1975 of the Equitable Banking
Corporation; and
2.

P13,130.00 in cash. 3

In a letter dated January 14, 1975, to the Ex-Officio Sheriff, 4 private respondent through counsel,
refused to accept the check as well as the cash deposit. In the same letter, private respondent requested
the scheduled auction sale on January 15, 1975 to proceed if the petitioner cannot produce the cash.
However, the scheduled auction sale at 10:00 a.m. on January 15, 1975 was postponed to 3:00 o'clock
p.m. of the same day due to further attempts to settle the case. Again the scheduled auction sale that
afternoon did not push through because of a last ditch attempt to convince the private respondent to
accept the check, The auction sale was then postponed on the following day, January 16, 1975 at 10:00
o'clock a.m. 5 At about 9:15 a.m., on January 16, 1975, a certain Mr. Mr. Taedo representing the
petitioner appeared in the office of the Ex-Officio Sheriff and the latter reminded Mr. Taedo that the
auction sale would proceed at 10:00 o'clock. At 10:00 a.m., Mr. Taedo and Mr. Librado, both

representing the petitioner requested the Ex-Officio Sheriff to give them fifteen minutes within which to
contract their lawyer which request was granted. After Mr. Taedo and Mr. Librado failed to return,
counsel for private respondent insisted that the sale must proceed and the Ex Officio Sheriff proceeded
with the auction sale. 6 In the course of the proceedings, Deputy Sheriff Castro sold the levied
properties item by item to the private respondent 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. 7 Thereafter, on January 16,
1975, the Ex-Officio Sheriff issued a "Sheriff's Certificate of Sale" in favor of the private respondent,
Ricardo Tong, married to Pascuala Tong for the total amount of P50,000.00 only. 8 Subsequently, on
January 17, 1975, petitioner filed an ex-parte motion for issuance of certificate of satisfaction of
judgment. This motion was denied by the respondent Judge in his order dated August 28, 1975. In view
thereof, petitioner now questions said order by way of the present petition alleging in the main that said
respondent Judge capriciously and whimsically abused his discretion in not granting the motion for
issuance of certificate of satisfaction of judgment for the following reasons: (1) that there was already a
full satisfaction of the judgment before the auction sale was conducted with the deposit made to the ExOfficio Sheriff in the amount of P63,000.00 consisting of P50,000.00 in Cashier's Check and P13,130.00
in cash; and (2) that the auction sale was invalid for lack of proper notice to the petitioner and its
counsel when the Ex-Officio Sheriff postponed the sale from June 15, 1975 to January 16, 1976 contrary
to Section 24, Rule 39 of the Rules of Court. On November 10, 1975, the Court issued a temporary
restraining order enjoining the respondent Ex-Officio Sheriff from delivering the personal properties
subject of the petition to Ricardo A. Tong in view of the issuance of the "Sheriff Certificate of Sale."
We find the petition to be impressed with merit. cdll
The main issue to be resolved in this instance is as to whether or not the private respondent can validly
refuse acceptance of the payment of the judgment obligation made by the petitioner 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. In upholding private respondent's claim that he has the
right to refuse payment by means of a check, the respondent Judge cited the following:
Section 63 of the Central Bank Act:
"Sec. 63.
Legal Character. Checks representing deposit money do not have legal tender power
and then acceptance in 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 in cash in an amount equal to the amount credited to his
account."
Article 1249 of the New Civil Code:
"Art. 1249. 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."
Likewise, the respondent Judge sustained the contention of the private respondent that he has the right
to refuse payment of the amount of P13,130.00 in cash because the said amount is less than the
judgment obligation, citing the following Article of the New Civil Code:
"Art. 1248.
Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the presentations in which the obligation consists. Neither may the debtor be
required to make partial payment.
"However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and
the debtor may effect the payment of the former without waiting for the liquidation of the latter."
It is to be emphasized in this connection that the check deposited by the petitioner 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. 9 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. 10 Where a check is
certified by the bank on which it is drawn, the certification is equivalent to acceptance. 11 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." 12 When the holder procures the check to be
certified, "the check operates as an assignment of a part of the funds to the creditors". 13 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 this case.
Considering that the whole amount deposited by the petitioner 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, We see no valid reason for the private respondent to have refused acceptance
of the payment of the obligation in his favor. The auction sale, therefore, was uncalled for. Furthermore,
it appears that on January 17, 1975, the Cashier's Check was even withdrawn by the petitioner and
replaced with cash in the corresponding amount of P50,000.00 on January 27, 1975 pursuant to an
agreement entered into by the parties at the instance of the respondent Judge. However, the private

respondent still refused to receive the same. Obviously, the private respondent is more interested in the
levied properties than in the mere satisfaction of the judgment obligation. Thus, petitioner's motion for
the issuance of a certificate of satisfaction of judgment is clearly meritorious and the respondent Judge
gravely abused his discretion in not granting the same under the circumstances.
In view of the conclusion reached in this instance, We find no more need to discuss the ground relied in
the petition. Cdpr
It is also contended by the private respondent that Appeal and not a special civil action for certiorari is
the proper remedy in this case, and that since the period to appeal from the decision of the respondent
Judge has already expired, then, the present petition has been filed out of time. The contention is
untenable. The decision of the respondent Judge in Civil Case No. 250 (166) has long become final and
executory and so, the same is not being questioned herein. The subject of the petition at bar as having
been issued in grave abuse of discretion is the order dated August 28, 1975 of the respondent Judge
which was merely issued in execution of the said decision. Thus, even granting that appeal is open to the
petitioner, the same is not an adequate and speedy remedy for the respondent Judge had already issued
a writ of execution. 14
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
1.

Declaring as null and void the order of the respondent Judge dated August 28, 1975;

2.
Declaring as null and void the auction sale conducted on January 16, 1975 and the certificate of
sale issued pursuant thereto;
3.
Ordering the private respondent to accept the sum of P63,130.00 under deposit as payment of
the judgment obligation in his favor;
4.
Ordering the respondent Judge and respondent Ex-Officio Sheriff to release the levied
properties to the herein petitioner.
The temporary restraining order issued is hereby made permanent.
Costs against the private respondent.
SO ORDERED.
Barredo, Aquino, Abad Santos and De Castro, JJ ., concur.
SECOND DIVISION
[G.R. No. L-222. April 26, 1950.]
SALVACION F. VDA. DE EDUQUE, ETC., plaintiff-appellee, vs. JOSE M. OCAMPO, defendant-appellant.
Alfredo B. Cacnio and Padilla, Carlos & Fernando for appellant.

Jose Feria for appellee.

Delfin L. Gonzalez for plaintiff-intervenor.
SYLLABUS
OBLIGATIONS AND CONTRACTS; TENDER OF PAYMENT; CASHIER'S CHECK WHERE NO OBJECTION IS
MADE. A cashier's check may constitute a sufficient tender where no objection is made on this
ground.
DECISION
MORAN, C.J p:
This is an action to compel acceptance of payment of a mortgage debt.
On February 16, 1935, Dr. Jose Eduque secured two loans from Mariano Ocampo de Leon, Doa
Escolastica de los Reyes and Don Jose M. Ocampo, the first in the amount of P40,000 and the second in
the sum of P15,000, both payable within the period of twenty years, with interest at the rate of 5 per
cent per annum. Payment of these two loans was guaranteed by mortgage on real property. In the
mortgage contract it is stipulated that any of the mortgage creditors may receive payment and execute
deeds of cancellation of the mortgage debts.
On December 6, 1943, plaintiff and appellee, as administratrix of the estate of the deceased Dr. Jose
Eduque, tendered payment, by means of a cashier's check, of the total amount of the two loans,
P55,000, to defendant-appellant Jose M. Ocampo, one of the creditors, who refused to accept payment.
By reason of such refusal, an action was brought and a cashier's check for the total amount of P55,000
was deposited in court. After trial, judgment was rendered against defendant compelling him to accept
the P55,000 deposited in court, to issue deeds for cancellation of the mortgage debts, and to pay the
expenses of consignation and costs.
Defendant accepted the judgment with respect to the second loan of P15,000 upon the ground that,
according to him, in the deed of mortgage corresponding to that loan it clearly appeared that the loan
was payable "durante el trmino de 20 aos," and that the only question remaining between the parties
is the interpretation of the first deed of mortgage regarding the first loan of P40,000. And he asked the
court to order "que de la cantidad de P55,000 consignada en este Juzgado, se entregue al demandado la
suma de P15,000, despus de descontar proporcionalmente cualesquiera cantidades por depsito y
otros conceptos segn los trminos de la decisin promulgada." The order was issued accordingly and
the sum P15,000 out of the P55,000 deposited in court was delivered to the defendant.
The present appeal concerns the decision of the lower court regarding the first loan of P40,000, and the
principal error assigned by the appellant is that tender of payment by means of a cashier's check
representing Japanese war notes is not valid.

We have already held that Japanese military notes were legal tender during the Japanese occupation.
But appellant argues, further, that the consignation of a cashier's check, which is not legal tender, is not
binding upon him. This question, however, has never been raised in the lower court. Upon the contrary,
defendant accepted impliedly the consignation of the cashier's check when he himself asked the court
that out of the money thus consigned he be paid the amount of the second loan of P15,000. It is a rule
that "a cashier's check may constitute a sufficient tender where no objection is made on this ground."
(62 C. J., p. 670; see also 40 Amer. Jur., p. 764.)
For all the foregoing, judgment is affirmed with costs against appellant.
Ozaeta, Pablo, Bengzon, Montemayor, and Reyes, JJ., concur.
Judgment affirmed.
Separate Opinion
TUASON, J., dissenting:
I am constrained to dissent from the majority decision on the ground on which I rested my dissent in
various cases involving the validity of payments in Japanese military notes.
I maintain that Japanese war notes were not legal tender and could not be made so by military orders.
Accordingly, payment in that currency of pre-war obligation over the protest of the creditor did not
operate to discharge the debt except to the extent he was or could have been benefited by the
payment.
SECOND DIVISION
[G.R. No. 72110. November 16, 1990.]
ROMAN CATHOLIC BISHOP OF MALOLOS, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, and
ROBES-FRANCISCO REALTY AND DEVELOPMENT CORPORATION, respondents.
Rodrigo Law Office for petitioner.
Antonio P. Barredo and Napoleon M. Malinas for private respondent.
SYLLABUS
1.
CIVIL LAW; CONTRACTS; TENDER OF PAYMENT; CANNOT BE PRESUMED BY MERE INFERENCE
FROM SURROUNDING CIRCUMSTANCES. We agree with the petitioner that a finding that the private
respondent had sufficient available funds on or before the grace period for the payment of its obligation
does not constitute proof of tender of payment by the latter for its obligation within the said period.
Tender of payment involves a positive and unconditional act by the obligor of offering legal tender
currency as payment to the obligee for the former's obligation and demanding that the latter accept the
same. Thus, tender of payment cannot be presumed by a mere inference from surrounding
circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the

obligor to fulfill his part of the bargain. But whether or not the obligor avails himself of such funds to
settle his outstanding account remains to be proven by independent and credible evidence. Tender of
payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of
performing his obligation. Ab posse ad actu non vale illatio. "A proof that an act could have been done is
no proof that it was actually done." The respondent court was therefore in error to have concluded from
the sheer proof of sufficient available funds on the part of the private respondent to meet more than
the total obligation within the grace period, the alleged truth of tender of payment. The same is a classic
case of non-sequitur.
2.
ID.; ID.; ID.; NOT VALIDLY CONSTITUTED BY PAYMENT OF A CERTIFIED PERSONAL CHECK.
With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding
issues, the case of the private respondent still can not succeed in view of the fact that the latter used a
certified personal check which is not legal tender nor the currency stipulated, and therefore, can not
constitute valid tender of payment. The first paragraph of Art. 1249 of the Civil Code provides that "the
payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines. The Court en banc in the
recent case of Philippine Airlines v. Court of Appeals, (Promulgated on January 30, 1990) G.R. No. L49188, stated thus: Since a negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as payment (citing Sec. 189, Act 2031 on
Negs. Insts.; Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9
Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary check, is not legal tender, and
an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by
the obligee or creditor. Hence, where the tender of payment by the private respondent was not valid for
failure to comply with the requisite payment in legal tender or currency stipulated within the grace
period and as such, was validly refused receipt by the petitioner, the subsequent consignation did not
operate to discharge the former from its obligation to the latter.
3.
ID.; ID.; OBLIGATIONS ARISING THEREFROM HAVE THE FORCE OF LAW BETWEEN THE
CONTRACTING PARTIES. Art. 1159 of the Civil Code of the Philippines provides that "obligations
arising from contracts have the force of law between the contracting parties and should be complied
with in good faith." And unless the stipulations in said contract are contrary to law, morals, good
customs, public order, or public policy, the same are binding as between the parties. (Article 1409, Civil
Code, par. 1). What the private respondent should have done if it was indeed desirous of complying with
its obligations would have been to pay the petitioner within the grace period and obtain a receipt of
such payment duly issued by the latter. Thereafter, or, allowing a reasonable time, the private
respondent could have demanded from the petitioner the execution of the necessary documents. In
case the petitioner refused, the private respondent could have had always resorted to judicial action for
the legitimate enforcement of its right. For the failure of the private respondent to undertake this more
judicious course of action, it alone shall suffer the consequences.
4.
REMEDIAL LAW; APPEAL; FACTUAL FINDINGS OF TRIAL COURT AS A RULE, SHOULD BE
ACCORDED FULL CONSIDERATION AND RESPECT. On the contrary, the respondent court finds itself
remiss in overlooking or taking lightly the more important findings of fact made by the trial court which

we have earlier mentioned and which as a rule, are entitled to great weight on appeal and should be
accorded full consideration and respect and should not be disturbed unless for strong and cogent
reasons. (Natividad del Rosario Vda. de Alberto v. Court of Appeals, G.R. 29759, May 18, 1989;
Matabuena v. Court of Appeals, G.R. 76542, May 5, 1989).
5.
ID.; SUPREME COURT; INSTANCES WHEN THE COURT HAS TO REVIEW THE EVIDENCE. While
the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at variance with
those of the trial court, (Robleza v. Court of Appeals, G.R. 80364, June 28, 1989) or when the inference
of the Court of Appeals from its findings of fact is manifestly mistaken, (Reynolds Philippine Corporation
v. Court of Appeals, G.R. 38187, January 17, 1987) the Court has to review the evidence in order to
arrive at the correct findings based on the record.
DECISION
SARMIENTO, J p:
This is a petition for review on certiorari which seeks the reversal and setting aside of the decision 1 of
the Court of Appeals, 2 the dispositive portion of which reads: LLpr
WHEREFORE, the decision appealed from is hereby reversed and set aside and another one entered for
the plaintiff ordering the defendant-appellee Roman Catholic Bishop of Malolos, Inc. to accept the
balance of P124,000.00 being paid by plaintiff-appellant and thereafter to execute in favor of RobesFrancisco Realty Corporation a registerable Deed of Absolute Sale over 20,655 square meters portion of
that parcel of land situated in San Jose del Monte, Bulacan described in OCT No. 575 (now Transfer
Certificates of Title Nos. T-169493, 169494,169495 and 169496) of the Register of Deeds of Bulacan. In
case of refusal of the defendant to execute the Deed of Final Sale, the clerk of court is directed to
execute the said document. Without pronouncement as to damages and attorney's fees. Costs against
the defendant-appellee. 3
The case at bar arose from a complaint filed by the private respondent, then plaintiff, against the
petitioner, then defendant, in the Court of First Instance (now Regional Trial Court) of Bulacan, at Sta.
Maria, Bulacan, 4 for specific performance with damages, based on a contract 5 executed on July 7,
1971.
The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of the 30,655 sq.m.
total area, of a parcel of land covered by Original Certificate of Title No. 575 of the Province of Bulacan,
issued and registered in the name of the petitioner which it sold to the private respondent for and in
consideration of P123,930.00. cdphil
The crux of the instant controversy lies in the compliance or non-compliance by the private respondent
with the provision for payment to the petitioner of the principal balance of P100,000.00 and the accrued
interest of P24,000.00 within the grace period.

A chronological narration of the antecedent facts is as follows:

On July 7, 1971, the subject contract over the land in question was executed between the petitioner as
vendor and the private respondent through its then president, Mr. Carlos F. Robes, as vendee,
stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per
annum to be paid within four (4) years from execution of the contract, that is, on or before July 7, 1975.
The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of
the land in question in case the private respondent would fail to complete payment within the said
period.
On March 12, 1973, the private respondent, through its new president, Atty. Adalia Francisco, addressed
a letter 6 to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished
with a copy of the subject contract and the supporting documents.
On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same Atty.
Francisco wrote the petitioner a formal request 7 that her company be allowed to pay the principal
amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment
and the accrued interest of P24,000.00 to be paid immediately upon approval of the said request.
On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez, formally denied the said
request of the private respondent, but granted the latter a grace period of five (5) days from the receipt
of the denial 8 to pay the total balance of P124,000.00, otherwise, the provisions of the contract
regarding cancellation, forfeiture, and reconveyance would be implemented.
On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote 9 the counsel of
the petitioner requesting an extension of 30 days from said date to fully settle its account. The counsel
for the petitioner, Atty. Fernandez, received the said letter on the same day. Upon consultation with the
petitioner in Malolos, Bulacan, Atty. Fernandez, as instructed, wrote the private respondent a letter 10
dated August 7, 1975 informing the latter of the denial of the request for an extension of the grace
period.
Consequently, Atty. Francisco, the private respondent's president, wrote a letter 11 dated August 22,
1975, directly addressed to the petitioner, protesting the alleged refusal of the latter to accept tender of
payment purportedly made by the former on August 5, 1975, the last day of the grace period. In the
same letter of August 22, 1975, received on the following day by the petitioner, the private respondent
demanded the execution of a deed of absolute sale over the land in question and after which it would
pay its account in full, otherwise, judicial action would be resorted to. prLL
On August 27, 1975, the petitioner's counsel, Atty. Fernandez, wrote a reply 12 to the private
respondent stating the refusal of his client to execute the deed of absolute sale due to its (private
respondent's) failure to pay its full obligation. Moreover, the petitioner denied that the private
respondent had made any tender of payment whatsoever within the grace period. In view of this alleged
breach of contract, the petitioner cancelled the contract and considered all previous payments forfeited
and the land as ipso facto reconveyed.

From a perusal of the foregoing facts, we find that both the contending parties have conflicting versions
on the main question of tender of payment.
The trial court, in its ratiocination, preferred not to give credence to the evidence presented by the
private respondent. According to the trial court:
. . . What made Atty. Francisco suddenly decide to pay plaintiff's obligation on August 5, 1975, go to
defendant's office at Malolos, and there tender her payment, when her request of August 4, 1975 had
not yet been acted upon until August 7, 1975? If Atty. Francisco had decided to pay the obligation and
had available funds for the purpose on August 5, 1975, then there would have been no need for her to
write defendant on August 4, 1975 to request an extension of time. Indeed, Atty. Francisco's claim that
she made a tender of payment on August 5, 1975 such alleged act, considered in relation to the
circumstances both antecedent and subsequent thereto, being not in accord with the normal pattern of
human conduct is not worthy of credence. 13
The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of the
private respondent, who earlier testified that a certain Mila Policarpio accompanied her on August 5,
1975 to the office of the petitioner. Another person, however, named Aurora Oracion, was presented to
testify as the secretary-companion of Atty. Francisco on that same occasion.
Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court the
certified personal check allegedly tendered as payment or, at least, its xerox copy, or even bank records
thereof. Finally, the trial court found that the private respondent had insufficient funds available to fulfill
the entire obligation considering that the latter, through its president, Atty. Francisco, only had a savings
account deposit of P64,840.00, and although the latter had a money-market placement of P300,000.00,
the same was to mature only after the expiration of the 5-day grace period.
Based on the above considerations, the trial court rendered a decision in favor of the petitioner, the
dispositive portion of which reads: cdphil
WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares the subject
contract cancelled and plaintiff's downpayment of P23,930.00 forfeited in favor of defendant, and
hereby dismisses the complaint; and on the counterclaim, the Court orders plaintiff to pay defendant.
(1)

Attorney's fees of P10,000.00;

(2)

Litigation expenses of P2,000.00; and

(3)

Judicial costs.

SO ORDERED. 14
Not satisfied with the said decision, the private respondent appealed to the respondent Intermediate
Appellate Court (now Court of Appeals) assigning as reversible errors, among others, the findings of the

trial court that the available funds of the private respondent were insufficient and that the latter did not
effect a valid tender of payment and consignation.
The respondent court, in reversing the decision of the trial court, essentially relies on the following
findings:
. . . We are convinced from the testimony of Atty. Adalia Francisco and her witnesses that in behalf of
the plaintiff-appellant they have a total available sum of P364,840.00 at her and at the plaintiff's
disposal on or before August 4, 1975 to answer for the obligation of the plaintiff-appellant. It was not
correct for the trial court to conclude that the plaintiff-appellant had only about P64,840.00 in savings
deposit on or before August 5, 1975, a sum not enough to pay the outstanding account of P124,000.00.
The plaintiff-appellant, through Atty. Francisco proved and the trial court even acknowledged that Atty.
Adalia Francisco had about P300,000.00 in money market placement. The error of the trial court has in
concluding that the money market placement of P300,000.00 was out of reach of Atty. Francisco. But as
testified to by Mr. Catalino Estrella, a representative of the Insular Bank of Asia and America, Atty.
Francisco could withdraw anytime her money market placement and place it at her disposal, thus
proving her financial capability of meeting more than the whole of P124,000.00 then due per contract.
This situation, We believe, proves the truth that Atty. Francisco apprehensive that her request for a 30day grace period would be denied, she tendered payment on August 4, 1975 which offer defendant
through its representative and counsel refused to receive. . .15 (Emphasis supplied)
In other words, the respondent court, finding that the private respondent had sufficient available funds,
ipso facto concluded that the latter had tendered payment. Is such conclusion warranted by the facts
proven? The petitioner submits that it is not. LexLib
Hence, this petition. 16
The petitioner presents the following issues for resolution:
xxx

xxx

xxx

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

xxx

xxx

B.
Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in favor
of the private respondent (as vendee) before the latter has actually paid the complete consideration of
the sale where the contract between and executed by the parties stipulates
"That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall
cause the execution of a Deed of Absolute Sale in favor of the VENDEE."
xxx

xxx

xxx.

C.
Is an offer of a check a valid tender of payment of an obligation under a contract which
stipulates that the consideration of the sale is in Philippine Currency? 17
We find the petition impressed with merit.
With respect to the first issue, we agree with the petitioner that a finding that the private respondent
had sufficient available funds on or before the grace period for the payment of its obligation does not
constitute proof of tender of payment by the latter for its obligation within the said period. Tender of
payment involves a positive and unconditional act by the obligor of offering legal tender currency as
payment to the obligee for the former's obligation and demanding that the latter accept the same. Thus,
tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most,
sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part
of the bargain. But whether or not the obligor avails himself of such funds to settle his outstanding
account remains to be proven by independent and credible evidence. Tender of payment presupposes
not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation.
Ab posse ad actu non vale illatio. "A proof that an act could have been done is no proof that it was
actually done."
The respondent court was therefore in error to have concluded from the sheer proof of sufficient
available funds on the part of the private respondent to meet more than the total obligation within the
grace period, the alleged truth of tender of payment. The same is a classic case of non-sequitur. cdphil
On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more
important findings of fact made by the trial court which we have earlier mentioned and which as a rule,
are entitled to great weight on appeal and should be accorded full consideration and respect and should
not be disturbed unless for strong and cogent reasons. 18
While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at
variance with those of the trial court, 19 or when the inference of the Court of Appeals from its findings
of fact is manifestly mistaken, 20 the Court has to review the evidence in order to arrive at the correct
findings based on the record.
Apropos the second issue raised, although admittedly the documents for the deed of absolute sale had
not been prepared, the subject contract clearly provides that the full payment by the private respondent
is an a priori condition for the execution of the said documents by the petitioner.
That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall
cause the execution of a Deed of Absolute Sale in favor of the VENDEE. 21
The private respondent is therefore in estoppel to claim otherwise as the latter did in the testimony in
cross-examination of its president, Atty. Francisco, which reads:
Q
Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final deed
of sale before you would given (sic) the personal certified check in payment of your balance, is that
correct?

A
xxx

Yes, sir. 22
xxx

xxx

Art. 1159 of the Civil Code of the Philippines provides that "obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith." And unless the
stipulations in said contract are contrary to law, morals, good customs, public order, or public policy, the
same are binding as between the parties. 23
What the private respondent should have done if it was indeed desirous of complying with its
obligations would have been to pay the petitioner within the grace period and obtain a receipt of such
payment duly issued by the latter. Thereafter, or, allowing a reasonable time, the private respondent
could have demanded from the petitioner the execution of the necessary documents. In case the
petitioner refused, the private respondent could have had always resorted to judicial action for the
legitimate enforcement of its right. For the failure of the private respondent to undertake this more
judicious course of action, it alone shall suffer the consequences. LibLex
With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding
issues, the case of the private respondent still can not succeed in view of the fact that the latter used a
certified personal check which is not legal tender nor the currency stipulated, and therefore, can not
constitute valid tender of payment. The first paragraph of Art. 1249 of the Civil Code provides that "the
payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.
The Court en banc in the recent case of Philippine Airlines v. Court of Appeals, 24 G.R. No. L-49188,
stated thus:
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249,
Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60,
61). A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or
creditor.
Hence, where the tender of payment by the private respondent was not valid for failure to comply with
the requisite payment in legal tender or currency stipulated within the grace period and as such, was
validly refused receipt by the petitioner, the subsequent consignation did not operate to discharge the
former from its obligation to the latter.
In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject
contract, did validly order therefore the cancellation of the said contract, the forfeiture of the previous
payment, and the reconveyance ipso facto of the land in question. llcd

WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the respondent
court promulgated on April 25, 1985 is hereby SET ASIDE and ANNULLED and the DECISION of the trial
court dated May 25, 1981 is hereby REINSTATED. Costs against the private respondent.
SO ORDERED.
Melencio-Herrera, Paras and Regalado, JJ., concur.
Padilla, J., took no part.
SECOND DIVISION
[G.R. No. 100290. June 4, 1993.]
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners, vs. THE HONORABLE COURT OF APPEALS and
EDEN TAN, respondents.
SYLLABUS
1.
CIVIL LAW; EXTINGUISHMENT OF OBLIGATIONS; PAYMENT OR PERFORMANCE; LEGAL TENDER;
CASHIER'S CHECK IS NOT LEGAL TENDER. In the recent cases of Philippine Airlines, Inc. vs. Court of
Appeals and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, this 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. Petitioners erroneously rely on one of the dissenting
opinions in the Philippine Airlines case to support their cause. The dissenting opinion however does not
in any way support the contention that a check is legal tender but, on the contrary, states that "If the
PAL checks in question had not been encashed by Sheriff Reyes, there would be no payment by the PAL
and, consequently, no discharge or satisfaction of its judgment obligation." Moreover, the
circumstances in the Philippine Airlines case are quite different from those in the case at bar for in that
case the checks issued by the judgment debtor were made payable to the sheriff, Emilio Z. Reyes, who
encashed the checks but failed to deliver the proceeds of said encashment to the judgment creditor. In
the more recent case of Fortunado vs. Court of Appeals, this 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."
DECISION
PADILLA, J p:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court assailing the decision
* of respondent appellate court dated 24 April 1991 in CA-G.R. SP No. 24164 denying their petition for
certiorari, prohibition, and injunction which sought to annul the order of Judge Eutropio Migrino of the

Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil Case No. 54863 entitled "Eden Tan vs. Sps.
Norberto and Carmen Tibajia." LibLex
Stated briefly, the relevant facts are as follows:
Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses.
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 of Kalookan City in the amount of Four Hundred Forty Two Thousand Seven Hundred and Fifty
Pesos (P442,750.00) in another case, had been garnished by him. On 10 March 1988, the Regional Trial
Court, Branch 151 of Pasig, Metro Manila rendered its decision in Civil Case No. 54863 in favor of the
plaintiff Eden Tan, ordering the Tibajia spouses to pay her an amount in excess of Three Hundred
Thousand Pesos (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 Regional Trial Court of Pasig, Metro Manila, were levied upon. LexLib
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money
judgment in the following form:
Cashier's Check P262,750.00
Cash

135,733.70

Total

P398,483.70

Private respondent, 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 Regional Trial Court of Pasig, Metro
Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991, defendant spouses
(petitioners) 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 No. 529. The motion for reconsideration was denied
on 27 May 1991. cdphil
In this petition for review, the Tibajia spouses raise the following issues:
"I
WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE AMOUNT OF P262,750.00
TENDERED BY PETITIONERS FOR PAYMENT OF THE JUDGMENT DEBT, IS 'LEGAL TENDER'.

II
WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY REFUSE THE TENDER OF PAYMENT
PARTLY IN CHECK AND PARTLY IN CASH MADE BY PETITIONERS, THRU AURORA VITO AND COUNSEL, FOR
THE SATISFACTION OF THE MONETARY OBLIGATION OF PETITIONERS-SPOUSES." 1
The only issue to be resolved in this case is whether or not payment by means of check (even by
cashier's check) is considered payment in legal tender as required by the Civil Code, Republic Act No.
529, and the Central Bank Act.
It is contended by the petitioners that the check, which was a cashier's check of the Bank of the
Philippine Islands, undoubtedly a bank of good standing and reputation, and which was a crossed check
marked "For Payee's Account Only" and payable to private respondent Eden Tan, is considered legal
tender, payment with which operates to discharge their monetary obligation. 2 Petitioners, to support
their contention, cite the case of New Pacific Timber and Supply Co., Inc. v. Seneris 3 where this Court
held through Mr. Justice Hermogenes Concepcion, Jr. that "It is a well-known and accepted practice in
the business sector that a cashier's check is deemed as cash".
The provisions of law applicable to the case at bar are the following:
a.

Article 1249 of the Civil Code which provides:

"Article 1249. 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.";
b.

Section 1 of Republic Act No. 529, as amended, which provides:

"Section 1.
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."
c.

Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:

"Section 63.
Legal character 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."
From the aforequoted provisions of law, it is clear that this petition must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals 4 and Roman Catholic Bishop of
Malolos, Inc. vs. Intermediate Appellate Court, 5 this 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.
Petitioners erroneously rely on one of the dissenting opinions in the Philippine Airlines case 6 to
support their cause. The dissenting opinion however does not in any way support the contention that a
check is legal tender but, on the contrary, states that "If the PAL checks in question had not been
encashed by Sheriff Reyes, there would be no payment by PAL and, consequently, no discharge or
satisfaction of its judgment obligation." 7 Moreover, the circumstances in the Philippine Airlines case are
quite different from those in the case at bar for in that case the checks issued by the judgment debtor
were made payable to the sheriff, Emilio Z. Reyes, who encashed the checks but failed to deliver the
proceeds of said encashment to the judgment creditor.
In the more recent case of Fortunado vs. Court of Appeals, 8 this 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."
WHEREFORE, the petition is DENIED. The appealed decision is hereby AFFIRMED, with costs against the
petitioners.
SO ORDERED.
Narvasa, C .J ., Regalado and Nocon, JJ ., concur. THIRD DIVISION
[G.R. No. 89252. May 24, 1993.]
RAUL SESBREO, petitioner, vs. HON. COURT OF APPEALS, DELTA MOTORS CORPORATION and
PILIPINAS BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.
SYLLABUS

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

6.
MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; MONEY MARKET; CONSTRUED. The
money market is an 'impersonal market', free from personal considerations.' The market mechanism is
intended to provide quick mobility of money and securities.' The impersonal character of the money
market device overlooks the individual or entities concerned. The issuer of a commercial paper in the
money market necessarily knows in advance that it would be expeditiously transacted and transferred
to any investor/lender without need of notice to said issuer. In practice, no notification is given to the
borrower or issuer of commercial paper of the sale or transfer to the investor. . . . There is need to
individuate a money market transaction, a relatively novel institution in the Philippine commercial
scene. It has been intended to facilitate the flow and acquisition of capital on an impersonal basis. And
as specifically required by Presidential Decree No. 678, the investing public must be given adequate and
effective protection in availing of the credit of a borrower in the commercial paper market." (Perez v.
Court of Appeals, 127 SCRA 636 [1984]).
7.
CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONDENSATION; EFFECTS THEREOF NOT AFFECTED
BY SUBSEQUENT ASSIGNMENT OF CREDIT; CASE AT BAR. We turn to Delta's arguments concerning
alleged compensation or offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It is
important to note that at the time Philfinance sold part of its rights under DMC PN No. 2731 to
petitioner on 9 February 1981, no compensation had as yet taken place and indeed none could have
taken place. The essential requirements of compensation are listed in the Civil Code. On 9 February
1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly recognized by
Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledged that the
relevant promissory notes were "to be off settled (sic) against [Philfinance] PN No. 143-A upon coterminal maturity." The record shows, however, that petitioner notified Delta of the fact of the
assignment to him only on 14 July 1981, that is, after the maturity not only of the money market
placement made by petitioner but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other
words, petitioner notified Delta of his rights as assignee after compensation had taken place by
operation of law because the offsetting instruments had both reached maturity. At the time that Delta
was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No. 2731 had
already been discharged by compensation. It bears some emphasis that petitioner could have notified
Delta of the assignment in his favor as soon as that assignment or sale was effected on 9 February 1981.
He could have also notified Delta as soon as his money market placement matured on 13 March 1981
without payment thereof being made by Philfinance; at that time, compensation had yet to set in and
discharge DMC PN No. 2731. Again, petitioner could have notified Delta on 26 March 1981 when
petitioner received from Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805 issued
by private respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta at any
time before the maturity date of DMC PN No. 2731. Because petitioner failed to do so, and because the
record is bare of any indication that Philfinance had itself notified Delta of the assignment to petitioner,
the Court is compelled to uphold the defense of compensation raised by private respondent Delta. Of
course, Philfinance remains liable to petitioner under the terms of the assignment made by Philfinance
to petitioner.

8.
ID.; ID.; ASSIGNMENT; VALID WHEN MADE BEFORE COMPENSATION TAKES PLACE; CASE AT BAR.
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days
before the "co-terminal maturity" date, that is to say, before any compensation had taken place.
Further, the assignment to petitioner would have prevented compensation from taking place between
Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor
of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other in their
own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the
assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner accordingly
became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him.
9.
ID.; ID.; ID.; RIGHTS OF THE ASSIGNEE, NOT GREATER THAN THE RIGHTS OF THE ASSIGNOR. It
is a firmly settled doctrine that the rights of an assignee are not any greater than the rights of the
assignor, since the assignee is merely substituted in the place of the assignor and that the assignee
acquires his rights subject to the equities i.e., the defenses which the debtor could have set up
against the original assignor before notice of the assignment was given to the debtor. (Article 1285 of
the Civil Code)
10.
ID.; ID.; SOLIDARY OBLIGATIONS; EXPRESS ASSUMPTION OF SOLIDARY LIABILITY, REQUIRED;
ABSENCE OF EVIDENCE TO SUPPORT ALLEGATION IN CASE AT BAR. We find nothing in the DCR that
establishes an obligation on the part of Pilipinas to pay petitioner the amount of P307,933.33 nor any
assumption of liability in solidum with Philfinance and Delta under DMC PN No. 2731. We find nothing
written in printers ink on the DCR which could reasonably be read as converting Pilipinas into an obligor
under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity thereof or at any
other time. We note that both in his complaint and in his testimony before the trial court, petitioner
referred merely to the obligation of private respondent Pilipinas to effect physical delivery to him of
DMC PN No. 2731. Accordingly, petitioner's theory that Pilipinas had assumed a solidary obligation to
pay the amount represented by the portion of the Note assigned to him by Philfinance, appears to be a
new theory constructed only after the trial court had ruled against him. The solidary liability that
petitioner seeks to impute to Pilipinas cannot, however, be lightly inferred. Under Article 1207 of the
Civil Code, "there is a solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity." The record here exhibits no express assumption of
solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed us to any law
which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the
custodianship assumed by private respondent Pilipinas necessarily implies solidary liability under the
securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily
liable with Philfinance and private respondent Delta under DMC PN No. 2731.
11.
ID.; ID.; DEPOSIT; ACT OF DESIGNATING PILIPINAS AS CUSTODIAN OR DEPOSITORY BANK; CASE
AT BAR. We believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the
obligation of the depositary was owed, however, to petitioner Sesbreo as beneficiary of the
custodianship or depositary agreement. We do not consider that this is a simple case of a stipulation
pour autrui. The custodianship or depositary agreement was established as an integral part of the

money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of
DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the
thing sold would be placed outside the control of the vendor. Indeed, the constituting of the depositary
or custodianship agreement was equivalent to constructive delivery of the Note (to the extent it had
been sold or assigned to petitioner) to petitioner. It will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis for confidence on the part
of the investors or placers that the instruments bought by them are effectively taken out of the pocket,
as it were, of the vendors and placed safely beyond their reach, that those instruments will be there
available to the placers of funds should they have need of them.
12.
ID.; ID.; ID.; ID.; DEPOSITARY OBLIGED TO RETURN THE SECURITY OR THING DEPOSITED UPON
DEMAND OF DEPOSITOR; RATIONALE. The depositary in a contract of deposit is obliged to return the
security or the thing deposited upon demand of the depositor (or, in the present case, of the
beneficiary) of the contract, even though a term for such return may have been established in the said
contract. Accordingly, any stipulation in the contract of deposit or custodianship that runs counter to
the fundamental purpose of that agreement or which was not brought to the notice of and accepted by
the placer-beneficiary, cannot be enforced as against such beneficiary-placer. We believe that the
position taken above is supported by considerations of public policy. If there is any party that needs the
equalizing protection of the law in money market transactions, it is the members of the general public
who place their savings in such market for the purpose of generating interest revenues. The custodian
bank, if it is not related either in terms of equity ownership or management control to the borrower of
the funds, or the commercial paper dealer, is normally a preferred or traditional banker of such
borrower or dealer (here, Philfinance). The custodian bank would have every incentive to protect the
interest of its client the borrower or dealer as against the placer of funds. The providers of such funds
must be safeguarded from the impact of stipulations privately made between the borrowers or dealers
and the custodian banks, and disclosed to fund-providers only after trouble has erupted.
13.
ID.; ID.; ID.; ID.; ID.; DEPOSITARY LIABLE FOR DAMAGES FOR BREACH OF DUTY; CASE AT BAR.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with
it when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this
connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation
or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the
demand of petitioner, Pilipinas purported to require and await the instructions of Philfinance, in obvious
contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of
"written instructions" from petitioner Sesbreo. The ostensible term written into the DCR (i.e., "should
this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a defense against
petitioner's demand for physical surrender of the Note on at least three grounds: firstly, such term was
never brought to the attention of petitioner Sesbreo at the time the money market placement with
Philfinance was made; secondly, such term runs counter to the very purpose of the custodianship or
depositary agreement as an integral part of a money market transaction; and thirdly, it is inconsistent
with the provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner became
entitled to demand physical delivery of the Note held by Pilipinas as soon as petitioner's money market

placement matured on 13 March 1981 without payment from Philfinance. We conclude, therefore, that
private respondent Pilipinas must respond to petitioner for damages sustained by him arising out of its
breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing
deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it.
Whether or not Pilipinas itself benefited from such conversion or unlawful deprivation inflicted upon
petitioner, is of no moment for present purposes.' Prima facie, the damages suffered by petitioner
consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but lost by him by
reason of discharge of the Note by compensation, plus legal interest of six percent (6%) per annum
counting from 14 March 1981.
14.
MERCANTILE LAW; CORPORATION LAW; PIERCING OF CORPORATE ENTITIES; ABSENCE OF
EVIDENCE TO JUSTIFY DISREGARD OF SEPARATE CORPORATE PERSONALITIES; CASE AT BAR. It is not
disputed that Philfinance and private respondents Delta and Pilipinas have been organized as separate
corporate entities. Petitioner asks us to pierce their separate corporate entities, but has been able only
to cite the presence of a common Director Mr. Ricardo Silverio, Sr., sitting on the Boards of Directors
of all three (3) companies. Petitioner has neither alleged nor proved that one or another of the three (3)
concededly related companies used the other two (2) as mere alter egos or that the corporate affairs of
the other two (2) were administered and managed for the benefit of one. There is simply not enough
evidence of record to justify disregarding the separate corporate personalities of Delta and Pilipinas and
to hold them liable for any assumed or undetermined liability of Philfinance to petitioner.
DECISION
FELICIANO, J p:
On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the
placement, with a term of thirty-two (32) days, would mature on 13 March 1981. Philfinance, also on 9
February 1981, issued the following documents to petitioner:
(a)
the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors
Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0 % per annum;
(b)
the Certificate of Securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731
to petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per
Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and
(c)
post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment),
with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the
total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the 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 petitioner the DCR No. 10805 issued by private respondent
Pilipinas Bank ("Pilipinas"). It read as follows:
"PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila
February 9, 1981

VALUE DATE
TO Raul Sesbreo
April 6, 1981

MATURITY DATE.
NO. 10805
DENOMINATED CUSTODIAN RECEIPT

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

SERIAL MAT.

FACE

ISSUED REGISTERED

NUMBER

DATE

VALUE BY

AMOUNT

HOLDER PAYEE

2731

4-6-81 2,300,833.34

DMC

PHIL.

307,933.33

UNDERWRITERS
FINANCE CORP.

We further certify that these securities may be inspected by you or your duly authorized representative
at any time during regular banking hours.
Upon your written instructions we shall undertake physical delivery of the above securities fully assigned
to you should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days
after its maturity.'
PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)" 1
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati
Branch, and handed to her a demand letter informing the bank that his placement with Philfinance in
the amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect
was asking for the physical delivery of the underlying promissory note. Petitioner then examined the
original of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that it
would mature on 6 April 1981; that it had a face value of P2,300,833.33, with Philfinance as "payee" and
private respondent Delta Motors Corporation ("Delta") as "maker;" and that on face of the promissory
note was stamped "NON-NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of
participation in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking
private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly
referred all of petitioner's demand letters to Philfinance for written instructions, as had been supposedly
agreed upon in a "Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance
never did provide the appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other
instrument in respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said
Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory
note, and explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731
(along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities
and Exchange Commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No.
2731, which to date apparently remains in the custody of the SEC. 4
As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an
action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas. 5 The trial court, in a decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for lack of cause of action, with costs against
petitioner.

Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21
March 1989, the Court of Appeals denied the appeal and held; 6
"Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of
plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:
'This act of Philfinance in accepting the investment of plaintiff and charging it against DMC P.N. No. 2731
when its entire face value was already obligated or earmarked for set-off or compensation is difficult to
comprehend and may have been motivated with bad faith. Philfinance, therefore, is solely and legally
obligated to return the investment of plaintiff, together with its earnings, and to answer all the damages
plaintiff has suffered incident thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one
of the defendants in this case at bar; hence, this Court is without jurisdiction to pronounce judgment
against it. (p. 11, Decision).'
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in
toto. Cost against plaintiff-appellant."
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to
give due course to the petition and required the parties to file their respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent Court of Appeals gravely erred: (i) in concluding that he cannot recover from private
respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent
Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805
issued in favor of petitioner; and (iii) in refusing to pierce the veil of corporate entity between
Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong to
the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of
course, there is a third relationship that is of critical importance: the relationship of petitioner and
Philfinance. However, since Philfinance has not been impleaded in this case, neither the trial court nor
the Court of Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not
necessary for present purposes to deal with this third relationship, except to the extent it necessarily
impinges upon or intersects the first and second relationships.
I
We consider first the relationship between petitioner and Delta.

The Court of Appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the
Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to
the extent of P304,533.33. The Court of Appeals said on this point:
"Nor could plaintiff-appellant have acquired any right over DMC P.N. No. 2731 as the same is `nonnegotiable' as stamped on its face (Exhibit `6'), negotiation being defined as the transfer of an
instrument from one person to another so as to constitute the transferee the holder of the instrument
(Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the instrument in his own
name and cannot demand or receive payment (Section 51, id.)." 9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that that Note had been
validly transferred, in part, to him by assignment and that as a result of such transfer, Delta as debtormaker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the
payee Philfinance. LLjur
Delta, however, disputes petitioner's contention and argues:
(1)
that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by
Philfinance as manifested by the word "non-negotiable" stamp across the face of the Note 10 and
because maker Delta and payee Philfinance intended that this Note would be offset against the
outstanding obligation of Philfinance represented by Philfinance PN No. 143-A issued to Delta as payee;
(2)
that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not
against its instructions; and
(3)
assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner
took that Note subject to the defenses available to Delta, in particular, the offsetting of DMC PN No.
2731 against Philfinance PN No. 143-A. 11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be
distinguished from the assignment or transfer of an instrument whether that be negotiable or nonnegotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from
assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition
against assignment or transfer written in the face of the instrument:
"The words 'not negotiable,' stamped on the face of the bill of lading, did not destroy its assignability,
but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill,
though not negotiable, may be transferred by assignment; the assignee taking subject to the equities
between the original parties." 12 (Emphasis added)

DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "nontransferrable" or "non-assignable." It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should
be quoted in full:
"April 10, 1980
Philippine Underwriters Finance Corp.
Benavidez St., Makati
Metro Manila.
Attention: Mr. Alfredo O. Banaria
SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No.
143-A, dated April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00
each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very Truly Yours,
(Sgd.)
Florencio B. Biagan
Senior Vice President" 13
We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is
scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the
Note who parted with valuable consideration in good faith and without notice of such prohibition. It is
not disputed that petitioner was such an assignee or transferee. Our conclusion on this point is
reinforced by the fact that what Philfinance and Delta were doing by their exchange of promissory notes
was this: Delta invested, by making a money market placement with Philfinance, approximately
P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the bulk of that
placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN

No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not P4,600,000.00 but only
P600,000.00 in cash and the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been
effected without the consent of Delta, we note that such consent was not necessary for the validity and
enforceability of the assignment in favor of petitioner. 14 Delta's argument that Philfinance's sale or
assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which
required its (Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is
never lightly inferred, 15 must be clearly established by the unequivocal terms of the substituting
obligation or by the evident incompatibility of the new and old obligations on every point. 16 Nothing of
the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other
securities, and more generally, in money market transactions. In Perez v. Court of Appeals, 17 the Court,
speaking through Mme. Justice Herrera, made the following important statement: Cdpr
"There is another aspect to this case. What is involved here is a money market transaction. As defined
by Lawrence Smith `the money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each other but through
a middle man or dealer in the open market.' It involves 'commercial papers' which are instruments
'evidencing indebtedness of any person or entity . . ., which are issued, endorsed, sold or transferred or
in any manner conveyed to another person or entity, with or without recourse'. The fundamental
function of the money market device in its operation is to match and bring together in a most
impersonal manner both the 'fund users' and the 'fund suppliers.' The money market is an 'impersonal
market', free from personal considerations.' The market mechanism is intended to provide quick
mobility of money and securities.'
The impersonal character of the money market device overlooks the individual or entities concerned.
The issuer of a commercial paper in the money market necessarily knows in advance that it would be
expeditiously transacted and transferred to any investor/lender without need of notice to said issuer. In
practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer to
the investor.
xxx

xxx

xxx

There is need to individuate a money market transaction, a relatively novel institution in the Philippine
commercial scene. It has been intended to facilitate the flow and acquisition of capital on an impersonal
basis. And as specifically required by Presidential Decree No. 678, the investing public must be given
adequate and effective protection in availing of the credit of a borrower in the commercial paper
market." 18 (Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731
and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights

under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and
indeed none could have taken place. The essential requirements of compensation are listed in the Civil
Code as follows:
"Art. 1279.

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

(1)
That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2)
That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same qualify if the latter has been stated;
(3)

That the two debts are due;

(4)

That they be liquidated and demandable;

(5)
That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor." (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly
recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta
acknowledged that the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN
No. 143-A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days
before the "co-terminal maturity" date, that is to say, before any compensation had taken place.
Further, the assignment to petitioner would have prevented compensation from taking place between
Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor
of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other in their
own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the
assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner accordingly
became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on
14 July 1981, 19 that is, after the maturity not only of the money market placement made by petitioner
but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified
Delta of his rights as assignee after compensation had taken place by operation of law because the
offsetting instruments had both reached maturity. It is a firmly settled doctrine that the rights of an
assignee are not any greater than the rights of the assignor, since the assignee is merely substituted in
the place of the assignor 20 and that the assignee acquires his rights subject to the equities i.e., the
defenses which the debtor could have set up against the original assignor before notice of the
assignment was given to the debtor. Article 1285 of the Civil Code provides that:
"ART. 1285.
The debtor who has consented to the assignment of rights made by a creditor in favor of
a third person, cannot set up against the assignee the compensation which would pertain to him against

the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he had knowledge of the assignment." (Emphasis
supplied). llcd
Article 1626 of the same Code states that: "the debtor who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation." In Sison v. Yap-Tico, 21 the Court explained
that:
"[n]o man is bound to remain a debtor; he may pay to him with whom he contracted to pay; and if he
pay before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is
the duty of the person who has acquired a title by transfer to demand payment of the debt, to give his
debtor notice." 22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance could
not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment in his favor as soon
as that assignment or sale was effected on 9 February 1981. He could have also notified Delta as soon as
his money market placement matured on 13 March 1981 without payment thereof being made by
Philfinance; at that time, compensation had yet to set in and discharge DMC PN No. 2731. Again,
petitioner could have notified Delta on 26 March 1981 when petitioner received from Philfinance the
Denominated Custodianship Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in favor of
petitioner. Petitioner could, in fine, have notified Delta at any time before the maturity date of DMC PN
No. 2731. Because petitioner failed to do so, and because the record is bare of any indication that
Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled to uphold the
defense of compensation raised by private respondent Delta. Of course, Philfinance remains liable to
petitioner under the terms of the assignment made by Philfinance to petitioner.
II
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner
contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No.
10805 with the following words:
"Upon your written instructions, we [Pilipinas] shall undertake physical delivery of the above securities
fully assigned to you " 23

The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of
Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with
Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of
Pilipinas that:
(1)
it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face
value, to mature on 6 April 1981 and payable to the order of Philfinance;
(2)
Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February
1981), holding that Note on behalf and for the benefit of petitioner, at least to the extent it had been
assigned to petitioner by payee Philfinance; 24
(3)
petitioner may inspect the Note either "personally or by authorized representative", at any time
during regular bank hours; and
(4)
upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731
(or a participation therein to the extent of P307,933.33) "should this Denominated Custodianship
Receipt remain outstanding in [petitioner's] favor thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting
Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon
maturity thereof or at any other time. We note that both in his complaint and in his testimony before
the trial court, petitioner referred merely to the obligation of private respondent Pilipinas to effect
physical delivery to him of DMC PN No. 2731. 25 Accordingly, petitioner's theory that Pilipinas had
assumed a solidary obligation to pay the amount represented by the portion of the Note assigned to him
by Philfinance, appears to be a new theory constructed only after the trial court had ruled against him.
The solidary liability that petitioner seeks to impute to Pilipinas cannot, however, be lightly inferred.
Under Article 1207 of the Civil Code, "there is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity." The record here exhibits no
express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not
pointed us to any law which imposed such liability upon Pilipinas nor has petitioner argued that the very
nature of the custodianship assumed by private respondent Pilipinas necessarily implies solidary liability
under the securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold
Pilipinas solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of
petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to petitioner
Sesbreo. llcd
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the
obligation of the depositary was owed, however, to petitioner Sesbreo as beneficiary of the
custodianship or depositary agreement. We do not consider that this is a simple case of a stipulation

pour autrui. The custodianship or depositary agreement was established as an integral part of the
money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of
DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the
thing sold would be placed outside the control of the vendor. Indeed, the constituting of the depositary
or custodianship agreement was equivalent to constructive delivery of the Note (to the extent it had
been sold or assigned to petitioner) to petitioner. It will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis for confidence on the part
of the investors or placers that the instruments bought by them are effectively taken out of the pocket,
as it were, of the vendors and placed safely beyond their reach, that those instruments will be there
available to the placers of funds should they have need of them. The depositary in a contract of deposit
is obliged to return the security or the thing deposited upon demand of the depositor (or, in the present
case, of the beneficiary) of the contract, even though a term for such return may have been established
in the said contract. 26 Accordingly, any stipulation in the contract of deposit or custodianship that runs
counter to the fundamental purpose of that agreement or which was not brought to the notice of and
accepted by the placer-beneficiary, cannot be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of public policy. If there is any
party that needs the equalizing protection of the law in money market transactions, it is the members of
the general public who place their savings in such market for the purpose of generating interest
revenues. 27 The custodian bank, if it is not related either in terms of equity ownership or management
control to the borrower of the funds, or the commercial paper dealer, is normally a preferred or
traditional banker of such borrower or dealer (here, Philfinance). The custodian bank would have every
incentive to protect the interest of its client the borrower or dealer as against the placer of funds. The
providers of such funds must be safeguarded from the impact of stipulations privately made between
the borrowers or dealers and the custodian banks, and disclosed to fund-providers only after trouble
has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with
it when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this
connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation
or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the
demand of petitioner, Pilipinas purported to require and await the instructions of Philfinance, in obvious
contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of
"written instructions" from petitioner Sesbreo. The ostensible term written into the DCR (i.e., "should
this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a defense against
petitioner's demand for physical surrender of the Note on at least three grounds: firstly, such term was
never brought to the attention of petitioner Sesbreo at the time the money market placement with
Philfinance was made; secondly, such term runs counter to the very purpose of the custodianship or
depositary agreement as an integral part of a money market transaction; and thirdly, it is inconsistent
with the provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner became
entitled to demand physical delivery of the Note held by Pilipinas as soon as petitioner's money market
placement matured on 13 March 1981 without payment from Philfinance.

We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages
sustained by him arising out of its breach of duty. By failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of
the Note deposited with it. Whether or not Pilipinas itself benefited from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for present purposes.' Prima facie, the damages
suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to
petitioner but lost by him by reason of discharge of the Note by compensation, plus legal interest of six
percent (6%) per annum counting from 14 March 1981.
The conclusion we have here reached is, of course, without prejudice to such right of reimbursement as
Pilipinas may have vis-a-vis Philfinance.
III
The third principal contention of petitioner that Philfinance and private respondents Delta and
Pilipinas should be treated as one corporate entity need not detain us for long. LLphil
In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either
by the trial court nor by the respondent Court of appeals. Petitioner similarly did not seek to implead
Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been
organized as separate corporate entities. Petitioner asks us to pierce their separate corporate entities,
but has been able only to cite the presence of a common Director Mr. Ricardo Silverio, Sr., sitting on
the Boards of Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or
another of the three (3) concededly related companies used the other two (2) as mere alter egos or that
the corporate affairs of the other two (2) were administered and managed for the benefit of one. There
is simply not enough evidence of record to justify disregarding the separate corporate personalities of
Delta and Pilipinas and to hold them liable for any assumed or undetermined liability of Philfinance to
petitioner. 28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV
No. 15195 dated 21 March 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to
the extent that such Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank.
Private respondent Pilipinas Bank is hereby ORDERED to indemnify petitioner for damages in the
amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%) per annum counted
from 2 April 1981. As so modified, the Decision and Resolution of the Court of Appeals are hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ ., concur. FIRST DIVISION
[G.R. Nos. L-25836-37. January 31, 1981.]

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

Sumulong, Sumulong and Libongco for plaintiff-appellee.
Aruego, Benitez-Mamaril for defendant-appellant.
SYNOPSIS
Plaintiff bank instituted an action against defendant Jose M. Aruego for recovery of money it had paid
on various drafts drawn against it and signed by defendant as follows: "JOSE ARUEGO (Acceptor) (SGD)
JOSE ARUEGO". The complaint was dismissed upon motion of defendant filed on the last day for filing
his answer. The court, however, reconsidered its dismissal order and defendant received the order
setting it aside at 5:00 o'clock in the afternoon on March 11, 1960, he filed his answer on March 12,
1960 interposing as defenses that he signed the drafts in a representative capacity, that he signed only
as accommodation party, and that the drafts were really no bills of exchange. Declared in default for
having filed his answer one day late, defendant moved to set the order aside alleging that it could not
have been possible for him to file his answer on March 11, 1960, and that he had good and substantial
defenses. The court denied the motion and rendered judgment by default. Defendant appealed from
both the orders denying his motions to set aside the default order and the judgment by default, which
appeals were consolidated and certified to the Supreme Court by the Court of Appeals.
The Supreme Court affirmed the appealed judgment holding that although it has been shown that
defendant's failure to answer on time is excusable, his defenses are nil and ineffective.
SYLLABUS
1.
REMEDIAL LAW; JUDGMENTS RELIEF THEREFROM; REQUISITES. To entitle a party to relief
from judgment taken against him, through his mistake, inadvertence, supervise or excusable neglect, he
must show to the court that he has a meritorious defense. 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.
2.
ID.; ID.; ID.; ID.; FAILURE TO FILE ANSWER EXCUSABLE IN CASE AT BAR. The failure of the
defendant to file his answer on the last day for pleading is excusable where the order setting aside the
dismissal of the complaint was received at 5:00 o'clock in the afternoon of such last day for pleading,
and it was therefore impossible for him to have filed his answer on that same day because the courts
then held office only up to 5:00 o'clock in the afternoon; and where the defendant immediately filed his
answer on the following day.
3.
ID.; ID.; ID.; ID.; CASE AT BAR FAILS TO SHOW MERITORIOUS DEFENSE. Where the defense
interposed by the defendant who has been declared in default is not meritorious, his petition for relief
from judgment should be denied; for, 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 the parties because the defense is
nil or ineffective.

4.
COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; BILLS OF EXCHANGE; PERSONS SIGNING
IN REPRESENTATIVE CAPACITY SHOULD DISCLOSE PRINCIPAL. Where an inspection of the drafts
accepted by the defendant shows that nowhere has he disclosed that he was signing as a representative
of the Philippine Education Foundation Company, and he merely signed as follows: "JOSE ARUEGO
(Acceptor) (SGD) JOSE ARUEGO", he is personally liable for the drafts accepted by him and he may not
interpose as a defense that he signed the drafts merely as an agent of the Philippines Education
Foundation Company of which he is president.
5.
ID.; ID.; ID.; ACCOMMODATION PARTY DIFFERENTIATED FROM DRAWEE/ACCEPTOR; CASE AT
BAR. An accommodation party is one who has signed the instrument as maker, drawer, acceptor,
indorser, without receiving value thereof 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. In lending his name to the
party accommodated, 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 Instruments Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, really
intended to be secondarily liable only, he should not have signed as an acceptor/drawee. In doing so, he
became primarily and personally liable for the drafts.
6.
ID.; ID.; ID.; NATURE OF ACCEPTANCE NOT DETERMINATE AS TO WHETHER COMMERCIAL PAPER
IS BILL OF EXCHANGE OR NOT. Under the Negotiable Instruments Law, a bill of exchange is an
unconditional order in writing addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to party on demand or at a fixed or determinable future
time a sum certain in money to order or to bearer. 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 determination of whether a commercial paper is a bill of exchange or not. Thus, in the
case at bar, defendant's contentions 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, is not
meritorious.
DECISION
FERNANDEZ, J p:
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 CA-G.R. No. 27734-R and CA-G.R. No. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one
consolidated record on appeal of CA-G.R. No. 27734-R and CA-G.R. No. 27940-R. 4

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
On December 1, 1959, 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 PhotoEngraving, 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 the 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: LibLex
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 in the drawer (Encal Press and PhotoEngraving), 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 will 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 January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon
the motion for reconsideration filed by the plaintiff, the trial court set aside its order dismissing the
complaint and set the case for hearing on March 15, 1960 at 8:00 in the morning. 14 A copy of the order
setting aside the order of dismissal was received by the defendant on March 11, 1960 at 5:00 o'clock in
the afternoon according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to postpone the trial of the case on the
ground that there having been no answer as yet, the issues had not yet been joined. 15 On the same

date, the defendant filed his answer to the complaint interposing the following defenses; That he signed
the document upon which the plaintiff sues in his capacity as President of the Philippine Education
Foundation; that his liability is only secondary; and that he believed that he was signing only as an
accommodation party. 16
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
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying his
motion to set aside the order declaring him in default, an appeal bond in the amount of P60.00, and his
record on appeal. The plaintiff filed his opposition to the approval of defendant's record on appeal on
May 13, 1960. The following day, May 14, 1960, the lower court dismissed defendant's appeal from the
order dated March 25, 1960 denying his motion to set aside the order of default. 22 On May 19, 1960,
the defendant filed a motion for reconsideration of the trial court's order dismissing his appeal. 23 The
plaintiff, on May 20, 1960, opposed the defendant's motion for reconsideration of the order dismissing
appeal. 24 On May 21, 1960, the trial court reconsidered its previous order dismissing the appeal and
approved the defendant's record on appeal. 25 On May 30, 1960, the defendant received a copy of a
notice from the Clerk of Court dated May 26, 1960, informing the defendant that the record on appeal
filed by the defendant was forwarded to the Clerk of the Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in
default reiterating the same ground previously advanced by him in his motion for relief from the order
of default. 27 Upon opposition of the plaintiff filed on June 3, 1960, 28 the trial court denied the
defendant's motion to set aside the judgment by default in an order of June 11, 1960. 29 On June 20,
1960, the defendant filed his notice of appeal from the order of the court denying his motion to set
aside the judgment by default, his appeal bond, and his record on appeal. The defendant's record on
appeal was approved by the trial court on June 25, 1960. 30 Thus, the defendant had two appeals with
the Court of Appeals; (1) Appeal from the order of the lower court denying his motion to set aside the

order of default docketed as CA-G.R. No. 27734-R; (2) Appeal from the order denying his motion to set
aside the judgment by default docketed as CA-G.R. No. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
"I
THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.
"II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN DEFAULT
ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING
OF SAID ANSWER IN AN APPROPRIATE ACTION.
"III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF OF ORDER OF DEFAULT AND
FROM JUDGMENT BY DEFAULT AGAINST DEFENDANT." 31
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.
The record discloses that Aruego received a copy of the complaint together with the summons on
December 2, 1960; that on December 17, 1960, the last day for filing his answer, Aruego filed a motion
to dismiss; that on December 22, 1960 the lower court dismissed the complaint; that on January 23,
1960, the plaintiff filed a motion for reconsideration and on March 7, 1960, acting upon the motion for
reconsideration, the trial court issued an order setting aside the order of dismissal; that a copy of the
order was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon as shown in the
affidavit of the deputy sheriff; and that on the following day, March 12, 1960, the defendant filed his
answer to the complaint. LexLib
The failure then of the defendant to file his answer on the last day for pleading is excusable. The order
setting aside the dismissal of the complaint was received at 5:00 o'clock in the afternoon. It was
therefore impossible for him to have filed his answer on that same day because the courts then held
office only up to 5:00 o'clock in the afternoon. Moreover, the defendant immediately filed his answer on
the following day.
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 PhotoEngraving, 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 filling a representative character, without disclosing his principal, does not exempt him from personal
liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was
signing as representative of the Philippine Education Foundation Company. 34 He merely signed as
follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO." For failure to disclose his principal, Aruego is
personally liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an accommodation party and as such,
should be made liable only after a showing that the drawer is incapable of paying. This contention is also
without merit.
An accommodation party is one who has signed the instrument as maker, drawer, acceptor, 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 Instruments Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, really
intended to be secondarily liable only, 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
writing addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at 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. cdll
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.
SO ORDERED.
Teehankee, Makasiar, Guerrero and Melencio-Herrera, JJ., concur. SECOND DIVISION
[G.R. No. 96405. June 26, 1996.]
BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
Emilio G. Abrogena for petitioner.
Teogenes X. Velez for private respondent.
SYLLABUS
1.
REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; DOES NOT SPECIFY THAT THE WRITTEN
AGREEMENT BE A PUBLIC INSTRUMENT. Clearly, the rule does not specify that the written agreement
be a public document. What is required is that the agreement be in writing as the rule is in fact founded
on "long experience that written evidence is so much more certain and accurate than that which rests in
fleeting memory only, that it would be unsafe, when parties have expressed the terms of their contract
in writing, to admit weaker evidence to control and vary the stronger and to show that the parties
intended a different contract from that expressed in the writing signed by them" [FRANCISCO, THE
RULES OF COURT OF THE PHILIPPINES, Vol. VII, Part I, 1990 ed., p. 179] Thus, for the parol evidence rule
to apply, a written contract need not be in any particular form, or be signed by both parties. As a general
rule, bills, notes and other instruments of a similar nature are not subject to be varied or contracted by
parol or extrinsic evidence.

2.
CIVIL LAW; OBLIGATIONS; SOLIDARY OR JOINT AND SEVERAL OBLIGATION, DEFINED. A
solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and
each creditor is entitled to demand the whole obligation. [TOLENTINO, CIVIL CODE OF THE PHILIPPINES,
Vol. IV, 1991 ed., p. 217] Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and
several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same
obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for the
proportionate part of the debt. There is a solidary liability only when the obligation expressly so states,
when the law so provides or when the nature of the obligation so requires. [Sesbreo v. Court of
Appeals, G.R. No. 89252, May 24, 1993, 222 SCRA 466, 481.]
3.
ID.; GUARANTY; GUARANTOR AS DISTINGUISHED FROM SOLIDARY DEBTOR. While a
guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different
from that of a solidary debtor. Thus, Tolentino explains: "A guarantor who binds himself in solidum with
the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor
to all intents and purposes. There is a difference between a solidary co-debtor, and a fiador in solidum
(surety). The latter, outside of the liability he assumes to pay the debt before the property of the
principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to
him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon
him in Section 4, Chapter 3, Title I, Book IV of the Civil Code." [TOLENTINO, CIVIL CODE OF THE
PHILIPPINES, Vol. V, 1992 ed., p. 502]
DECISION
ROMERO, J p:
This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of the
Regional Trial Court of Misamis Oriental, Branch 18, 1 which disposed of Civil Case No. 10507 for
collection of a sum of money and damages, as follows:
"WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily liable and ordered to pay to
the plaintiff Philippine Bank of Communications, Cagayan de Oro City, the amount of FIFTY THOUSAND
PESOS (P50,000.00), with interest thereon from May 5, 1983 at 16% per annum until fully paid; and 6%
per annum on the total amount due, as liquidated damages or penalty from May 5, 1983 until fully paid;
plus 10% of the total amount due for expenses of litigation and attorney's fees; and to pay the costs.
The counterclaim, as well as the cross claim, are dismissed for lack of merit.
SO ORDERED."
Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which he signed
with Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointly and
severally liable to private respondent Philippine Bank of Communications, Cagayan de Oro City branch.
The promissory note was due on May 5, 1983.

Said due date expired without the promissors having paid their obligation. Consequently, on November
14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams demanding payment
thereof. 2 On December 11, 1984 private respondent also sent by registered mail a final letter of
demand to Rene C. Naybe. Since both obligors did not respond to the demands made, private
respondent filed on January 24, 1986 a complaint for collection of the sum of P50,000.00 against the
three obligors.
On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the case.
However, on January 9, 1987, the lower court reconsidered the dismissal order and required the sheriff
to serve the summonses. On January 27, 1987, the lower court dismissed the case against defendant
Pantanosas as prayed for by the private respondent herein. Meanwhile, only the summons addressed to
petitioner was served as the sheriff learned that defendant Naybe had gone to Saudi Arabia.
In his answer, petitioner alleged that sometime in January 1983, he was approached by his friend, Rudy
Campos, who told him that he was a partner of Pio Tio, the branch manager of private respondent in
Cagayan de Oro City, in the falcata logs operation business. Campos also intimated to him that Rene C.
Naybe was interested in the business and would contribute a chainsaw to the venture. He added that,
although Naybe had no money to buy the equipment, Pio Tio had assured Naybe of the approval of a
loan he would make with private respondent. Campos then persuaded petitioner to act as a "co-maker"
in the said loan. Petitioner allegedly acceded but with the understanding that he would only be a comaker for the loan of P5,000.00.
Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos
at his office. He affixed his signature thereto but in one copy, he indicated that he bound himself only
for the amount of P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made
liable for the amount of P50,000.00.
In the aforementioned decision of the lower court, it noted that the typewritten figure "P50,000-"
clearly appears directly below the admitted signature of the petitioner in the promissory note. 3 Hence,
the latter's uncorroborated testimony on his limited liability cannot prevail over the presumed regularity
and fairness of the transaction, under Sec. 5 (q) of Rule 131. The lower court added that it was "rather
odd" for petitioner to have indicated in a copy and not in the original, of the promissory note, his
supposed obligation in the amount of P5,000.00 only. Finally, the lower court held that, even granting
that said limited amount had actually been agreed upon, the same would have been merely collateral
between him and Naybe and, therefore, not binding upon the private respondent as creditor-bank.
The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a labor
consultant who was supposed to take due care of his concerns, and that, on the witness stand, Pio Tio
denied having participated in the alleged business venture although he knew for a fact that the falcata
logs operation was encouraged by the bank for its export potential.
Petitioner appealed the said decision to the Court of Appeals which, in its decision of August 31, 1990,
affirmed that of the lower court. His motion for reconsideration of the said decision having been denied,
he filed the instant petition for review on certiorari.

On February 6, 1991, the Court denied the petition for failure of petitioner to comply with the Rules of
Court and paragraph 2 of Circular No. 1-88, and to sufficiently show that respondent court had
committed any reversible error in its questioned decision. 4 His motion for the reconsideration of the
denial of his petition was likewise denied with finality in the Resolution of April 24, 1991. 5 Thereafter,
petitioner filed a motion for leave to file a second motion for reconsideration which, in the Resolution of
May 27, 1991, the Court denied. In the same Resolution, the Court ordered the entry of judgment in this
case. 6
Unfazed, petitioner filed a motion for leave to file a motion for clarification. In the latter motion, he
asserted that he had attached Registry Receipt No. 3268 to page 14 of the petition in compliance with
Circular No. 1-88. Thus, on August 7, 1991, the Court granted his prayer that his petition be given due
course and reinstated the same. 7
Nonetheless, we find the petition unmeritorious.
Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after the rendition of the
decision of the lower court, by Gregorio Pantanosas, Jr., an MTCC judge and petitioner's co-maker in the
promissory note. It supports petitioner's allegation that they were induced to sign the promissory note
on the belief that it was only for P5,000.00, adding that it was Campos who caused the amount of the
loan to be increased to P50,000.00.
The affidavit is clearly intended to buttress petitioner's contention in the instant petition that the Court
of Appeals should have declared the promissory note null and void on the following grounds: (a) the
promissory note was signed in the office of Judge Pantanosas, outside the premises of the bank; (b) the
loan was incurred for the purpose of buying a second-hand chainsaw which cost only P5,000.00; (c) even
a new chainsaw would cost only P27,500.00; (d) the loan was not approved by the board or credit
committee which was the practice, at it exceeded P5,000.00; (e) the loan had no collateral; (f) petitioner
and Judge Pantanosas were not present at the time the loan was released in contravention of the bank
practice, and (g) notices of default are sent simultaneously and separately but no notice was validly sent
to him. 8 Finally, petitioner contends that in signing the promissory note, his consent was vitiated by
fraud as, contrary to their agreement that the loan was only for the amount of P5,000.00, the
promissory note stated the amount of P50,000.00.
The above-stated points are clearly factual. Petitioner is to be reminded of the basic rule that this Court
is not a trier of facts. Having lost the chance to fully ventilate his factual claims below, petitioner may no
longer be accorded the same opportunity in the absence of grave abuse of discretion on the part of the
court below. Had he presented Judge Pantanosas' affidavit before the lower court, it would have
strengthened his claim that the promissory note did not reflect the correct amount of the loan.
Nor is there merit in petitioner's assertion that since the promissory note "is not a public deed with the
formalities prescribed by law but . . . a mere commercial paper which does not bear the signature of . . .
attesting witnesses," parol evidence may "overcome" the contents of the promissory note. 9 The first
paragraph of the parol evidence rule 10 states:

"When the terms of an agreement have been reduced to writing, it is considered as containing all the
terms agreed upon and there can be, between the parties and their successors-in-interest, no evidence
of such terms other than the contents of the written agreement."
Clearly, the rule does not specify that the written agreement be a public document.
What is required is that agreement be in writing as the rule is in fact founded on "long experience that
written evidence is so much more certain and accurate than that which rests in fleeting memory only,
that it would be unsafe, when parties have expressed the terms of their contract in writing, to admit
weaker evidence to control and vary the stronger and to show that the parties intended a different
contract from that expressed in the writing signed by them." 11 Thus, for the parol evidence rule to
apply, a written contract need not be in any particular form, or be signed by both parties. 12 As a
general rule, bills, notes and other instruments of a similar nature are not subject to be varied or
contradicted by parol or extrinsic evidence. 13
By alleging fraud in his answer, 14 petitioner was actually in the right direction towards proving that he
and his co-makers agreed to a loan of P5,000.00 only considering that, where a parol contemporaneous
agreement was the inducing and moving cause of the written contract, it may be shown by parol
evidence. 15 However, fraud must be established by clear and convincing evidence, mere
preponderance of evidence, not even being adequate. 16 Petitioner's attempt to prove fraud must,
therefore, fail as it was evidenced only by his own uncorroborated and, expectedly, self-serving
testimony.
Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and
against Pantanosas, his co-maker, constituted a release of his obligation, especially because the
dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites as
basis for his argument, Article 2080 of the Civil Code which provides that:
"The guarantors, even though they be solidary, are released from their obligation whenever by some act
of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter."
It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as
a guarantor. This is patent even from the first sentence of the promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the
PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum
of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest . . . at the rate
of SIXTEEN (16) per cent per annum until fully paid."
A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation,
and each creditor is entitled to demand the whole obligation. 17 On the other hand, Article 2047 of the
Civil Code states:
"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I
of this Book shall be observed. In such a case the contract is called a suretyship." (Emphasis supplied.)
While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is
different from that of a solidary debtor. Thus, Tolentino explains:
"A guarantor who binds himself in solidum with the principal debtor under the provisions of the second
paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference
between a solidary co-debtor, and a fiador in solidum (surety). The later, outside of the liability he
assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of the fianza; while a solidary codebtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the
Civil Code." 18
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations.
Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the
presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate
part of the debt. There is a solidary liability only when the obligation expressly so states, when the law
so provides or when the nature of the obligation so requires. 19
Because the promissory note involved in this case expressly states that the three signatories therein are
jointly and severally liable, any one, some or all of them may be proceeded against for the entire
obligation. 20 The choice is left to the solidary creditor to determine against whom he will enforce
collection. 21 Consequently, the dismissal of the case against Judge Pontanosas may not be deemed as
having discharged petitioner from liability as well. As regards Naybe, suffice it to say that the court never
acquired jurisdiction over him. Petitioner, therefore, may only have recourse against his co-makers, as
provided by law.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned decision
of the Court of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
Regalado, Puno, Mendoza and Torres, JJ ., concur. SECOND DIVISION
[G.R. No. 93073. December 21, 1992.]
REPUBLIC PLANTERS BANK, petitioner, vs. COURT OF APPEALS and FERMIN CANLAS, respondents.
SYLLABUS
1.
MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; PROMISSORY NOTES; CO-MAKER;
CANNOT ESCAPE LIABILITY ARISING THEREFROM; CASE AT BAR. 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. Based on the above provisions of law, there is no denying that private respondent Fermin
Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising
therefrom.
2.
ID.; ID.; ID.; LIABILITY THERETO IS SOLIDARY WHERE SINGULAR PRONOUN ARE USED IN THE
INSTRUMENT. 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.
ID.; ID.; ID.; JOINT AND SEVERAL OBLIGATION, CONSTRUED; CASE AT BAR. In the case at bar,
the solidary liability of private respondent Fermin 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. 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 Republic Planters Bank, private respondent
Fermin 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 Manufacturing Corporation as solidary debtors.
4.
ID.; ID.; ID.; LIABILITY THERETO NOT AFFECTED BY CHANGE OF CORPORATE NAME; REASON.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's
Articles of Incorporation effecting a change of corporate name, in this case 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. 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.
5.
ID.; ID.; LIABILITY OF AN AGENT TO AN INSTRUMENT IS PERSONAL WHEN THERE IS FAILURE TO
DISCLOSE PRINCIPAL. 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. 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.
6.
ID.; ID.; PROMISSORY NOTES; RULE IN THE CASE OF REFORMINA VS. TOMOL (139 SCRA 260
[1985]), NOT APPLICABLE TO INSTRUMENTS WITH STIPULATED INTEREST; CASE AT BAR. This Court
takes note that the respondent Court, relying on Reformina vs. Tomol, lowered the interest rate on the
promissory notes from 16% to 12%. 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 instant petition. In the abovecited 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 case at bar however, it was found by the trial court that the rate
of interest is 9% per annum, which interest rate the plaintiff may at any time without notice, raise within
the limits allowed by law. And so, as of February 16, 1984, the plaintiff had fixed the interest at 16% per
annum.
7.
ID.; USURY LAW; RATE, APPLICABLE ONLY TO INTEREST FOR USE OR FORBEARANCE OF MONEY;
INCREASE IN RATE, NOT SUBJECT TO ANY CEILING. This Court has held that the rates under the Usury
Law, as amended by Presidential Decree No. 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 this 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 No. 905, Series of 1982 removed the Usury Law ceiling on interest rates.
DECISION
CAMPOS, JR., J p:
This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of
Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank, Plaintiff-Appellee vs. Pinch
Manufacturing Corporation, et al., Defendants and Fermin Canlas, Defendant-Appellant", which
affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin Canlas from
liability under the promissory notes and reduced the award for damages and attorney's fees. The RTC
decision, rendered on June 20, 1985, is quoted hereunder:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic
Planters Bank, ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment
Manufacturing, Inc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally,
the plaintiff bank the following sums with interest thereon at 16% per annum from the dates indicated,
to wit:

Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981
until fully paid; under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from November
27, 1980; under the promissory note (Exhibit "C"), the sum of P166,466.00 with interest from January
29, 1981; under the promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January 29,
1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with interest from November 27,
1980; under the promissory note (Exhibit "H"), the sum of P281,875.91 with interest from January 29,
1981; and under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from January
29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named
Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi are ordered to pay, jointly and severally,
the plaintiff bank the sum of P367,000.00 with interest of 16% per annum from January 29, 1981 until
fully paid. llcd
Under the promissory note (Exhibit "F"), defendant corporation Pinch (formerly Worldwide) is ordered
to pay the plaintiff bank the sum of P140,000.00 with interest at 16% per annum from November 27,
1980 until fully paid.
Defendant Pinch (formerly Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81
with interest at 12% per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with
interest from March 28, 1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the plaintiff 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 one percent (1%) of
the principal sums as service charge.
With costs against the defendants.
SO ORDERED." 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Appellate
Court (now the Court of Appeals). 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. It is now the contention of the
petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory notes with
Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarily liable with Shozo
Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent
Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide
Garment Manufacturing, Inc. By virtue of Board Resolution No. 1 dated August 1, 1979, defendant Shozo
Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities with the

petitioner Republic Planters Bank in the forms of export advances and letters of credit/trust receipts
accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A to I inclusive, 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 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 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 marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing,
Inc. was apparently rubber stamped above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. voted to change its corporate name to
Pinch Manufacturing Corporation. cdll
On February 5, 1982, petitioner bank 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 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. Defendants Pinch Manufacturing Corporation and Shozo
Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference
despite due notice. Only private respondent Fermin 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.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private
respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing
Corporation and Shozo Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes
bearing his signature for the following reasons:
The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments
Law. 2

Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes
are makers and are liable as such. 3 By signing the notes, the maker promises to pay to the order of the
payee or any holder 4 according to the tenor thereof. 5 Based on the above provisions of law, there is no
denying that private respondent Fermin 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. 6 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. 7 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.
In the case at bar, the solidary liability of private respondent Fermin 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. 8 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. 9 By making a joint and several promise to pay to the order of Republic Planters
Bank, private respondent Fermin 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 Manufacturing
Corporation 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, We do not find it necessary to resolve and
decide, because it is immaterial and will not affect the liability of private respondent Fermin Canlas as a
joint and several debtor of the notes. With or without the presence of said phrase, private respondent
Fermin Canlas is primarily liable as a co maker of each of the notes and his liability is that of a solidary
debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's
Articles of Incorporation effecting a change of corporate name, in this case 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. 10
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. 11

The corporation continues, as before, responsible in its new name for all debts or other liabilities which
it had previously contracted or incurred. 12
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 as follows: LibLex
SECTION 20.
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 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. 13
On the private respondent's contention that the promissory notes were delivered to him in blank for his
signature, we rule otherwise. 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 which provides, in so far as
relevant to this case, thus:
SECTION 14.
Blanks; when may be filled. 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. . . .
Proof that the notes were signed in blank was only the self-serving testimony of private respondent
Fermin Canlas, as determined by the trial court, so that the trial court "doubts that the defendant
(Canlas) signed in blank the promissory notes". We chose to believe the bank's testimony that the notes
were filled up before they were given to private respondent Fermin Canlas and defendant Shozo
Yamaguchi for their signatures as joint and several promissors. For signing the notes above their
typewritten names, they bound themselves as unconditional makers. We take 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 private respondent Fermin 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
private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the Negotiable Instruments
Law is not applicable.
This Court takes note that the respondent Court, relying on Reformina vs. Tomol, 14 lowered the
interest rate on the promissory notes from 16% to 12%.
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 instant
petition. In the abovecited 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 case at bar however, it was found by the trial court that the rate of interest is 9% per annum,
which interest rate the plaintiff may at any time without notice, raise within the limits allowed by law.
And so, as of February 16, 1984, the plaintiff had fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 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. 15 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 this 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 No. 905, Series of 1982 removed the Usury Law ceiling on interest rates. 16
In the light of the foregoing analysis and under the plain language of the statute and jurisprudence on
the matter, the decision of the respondent Court of Appeals absolving private respondent Fermin Canlas
is REVERSED and SET ASIDE. Judgment is hereby rendered declaring private respondent Fermin Canlas
jointly and severally liable on all the nine promissory notes with the following sums and at 16% interest
per annum from the dates indicated, to wit:
Under the promissory note marked as Exhibit A, the sum of P300,000.00 with interest from January 29,
1981 until fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest
from November 27, 1980; under the promissory note denominated as Exhibit C, the amount of
P166,466.00 with interest from January 29, 1981; under the promissory note denominated as Exhibit D,
the amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory
note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981; under the
promissory note marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980

until fully paid; under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest
from November 27, 1980; the promissory note marked as Exhibit H, the sum of P281,875.91 with
interest from January 29, 1981; and the promissory note marked as Exhibit I, the sum of P200,000.00
with interest from January 29, 1981. LLpr
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment
Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial court,
shall be adjudged in accordance with the judgment rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas
is hereby held jointly and solidarily liable with defendants for the amounts found by the Court a quo.
With costs against private respondent.
SO ORDERED.
Narvasa, C .J ., Feliciano, Regalado and Nocon, JJ ., concur. FIRST DIVISION
[G.R. No. L-49494. May 31, 1979]
NELIA G. PONCE and VICENTE C. PONCE, petitioners, vs. THE HONORABLE COURT OF APPEALS, and
JESUSA B. AFABLE, respondents.
Romeo L. Mendoza & Gallardo S. Tongohan for petitioners.
Ramon M. Velayo for private respondent.
SYNOPSIS
The Court of Appeals reconsidered its previous decision and rendered another one reversing the
judgment of the Court of First Instance in favor of petitioners, stating that since the promissory note was
payable in US dollars, the transaction is illegal, being contrary to Republic Act 529, and, therefore,
neither party is entitled to recover under the pari delicto rule.
On petition for review, the Supreme Court held that what Republic Act No. 529 prohibits is the
requirement that payment of the obligation be made in currency other than Philippine legal tender, and
that even if an agreement were illegal, when it requires payment in foreign currency, still the creditor
can demand the payment of the obligation in Philippine currency at the prevailing rate of exchange at
the time of payment.
SYLLABUS
1.
OBLIGATION AND CONTRACTS; PROMISSORY NOTE; AGREEMENT TO PAY IN CURRENCY OTHER
THAN PHILIPPINE LEGAL TENDER WHILE NULL AND VOID DOES NOT DEFEAT A CREDITOR'S RIGHT.
While an agreement to pay in dollars is declared as null and void and of no effect, what Section 1 of
Republic Act No. 529 (An Act to Assure Uniform Value to Philippines Coins and Currency) specifically
prohibits is payment in currency other than legal tender. It does not defeat a creditor's claim for

payment, as it specifically provides that "every other domestic obligation . . . 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." A contrary rule would allow a person to profit or enrich himself inequitably at another's expense.
2.
ID.; ID.; ID.; REPUBLIC ACT 529 PROHIBITS PAYMENT OF OBLIGATION IN FOREIGN CURRENCY:
The fact that the agreement between the parties originally involved dollar transaction and that the
creditors expected to be paid in dollars, does not defeat the creditor's claim for payment, where it
appears that the creditors do not insist on their agreement for payment of the obligation in dollars, but,
on the contrary, are suing on the basis of the promissory note whereby the parties agreed to convert
the dollar loan into Philippine currency, and that the note contains no provision "giving the obligee the
right to require payment in a particular kind of currency," which is what is specifically prohibited by
Republic Act 529.
3.
ID.; ID.; ID.; CREDITOR MAY RECOVER THE PESO EQUIVALENT OF THE OBLIGATION: Even if
the parties really intended to provide for payment of the obligation in dollars, the creditors can still
recover the amount in its peso equivalent. What is prohibited by Republic Act 529 is the payment of an
obligation in dollars, meaning that creditor cannot oblige the debtor to pay him in dollars, even if the
loan were given in said currency. In such a case, the indemnity to be allowed should be expressed in
Philippine currency on the basis of the current rate of exchange at the time of payment.
DECISION
MELENCIO-HERRERA, J p:
This is a Petition for Certiorari seeking to set aside the Resolution of the Court of Appeals, dated June
8,1978, reconsidering its Decision dated December 17, 1977 and reversing the judgment of the Court of
First Instance of Manila in favor of petitioners as well as the Resolutions, dated July 6, 1978 and
November 27, 1978, denying petitioners' Motion for Reconsideration.
The factual background of the case is as follows:
On June 3, 1969, private respondent Jesusa B. Afable, together with Felisa L. Mendoza and Ma. Aurora
C. Dio, executed a promissory note in favor of petitioner Nelia G. Ponce in the sum of P814,868.42,
Philippine Currency, payable, without interest, on or before July 31, 1969. It was further provided
therein that should the indebtedness be not paid at maturity, it shall draw interest at 12% per annum,
without demand; that should it be necessary to bring suit to enforce payment of the note, the debtors
shall pay a sum equivalent to 10% of the total amount due for attorney's fees; and, in the event of
failure to pay the indebtedness plus interest in accordance with its terms, the debtors shall execute a
first mortgage in favor of the creditor over their properties or of the Carmen Planas Memorial, Inc.
Upon the failure of the debtors to comply with the terms of the promissory note, petitioners (Nelia G.
Ponce and her husband) filed, on July 27, 1970, a Complaint against them with the Court of First
Instance of Manila for the recovery of the principal sum of P814,868.42, plus interest and damages.

Defendant Ma. Aurora C. Dio's Answer consisted more of a general denial and the contention that she
did not borrow any amount from plaintiffs and that her signature on the promissory note was obtained
by plaintiffs on their assurance that the same was for "formality only." prLL
Defendant Jesusa B. Afable, for her part, asserted in her Answer that the promissory note failed to
express the true intent and agreement of the parties, the true agreement being that the obligation
therein mentioned would be assumed and paid entirely by defendant Felisa L. Mendoza; that she had
signed said document only as President of the Carmen Planas Memorial, Inc., and that she was not to
incur any personal obligation as to the payment thereof because the same would be repaid by
defendant Mendoza and or Carmen Planas Memorial, Inc.
In her Amended Answer, defendant Felisa L. Mendoza admitted the authenticity and due execution of
the promissory note, but averred that it was a recapitulation of a series of transactions between her and
the plaintiffs, "with defendant Ma. Aurora C. Dio and Jesusa B. Afable coming only as accommodation
parties." As affirmative defense, defendant Mendoza contended that the promissory note was the result
of usurious transactions, and, as counterclaim, she prayed that plaintiffs be ordered to account for all
the interests paid.
Plaintiffs filed their Answer to defendant Mendoza's counterclaim denying under oath the allegations of
usury.
After petitioners had rested, the case was deemed submitted for decision since respondent Afable and
her co-debtors had repeatedly failed to appear before the trial Court for the presentation of their
evidence.
On March 9, 1972, the trial Court rendered judgment ordering respondent Afable and her co-debtors,
Felisa L. Mendoza and Ma. Aurora C. Dio, to pay petitioners, jointly and severally, the sum of
P814,868.42, plus 12% interest per annum from July 31, 1969 until full payment, and a sum equivalent
to 10% of the total amount due as attorney's fees and costs.
From said Decision, only respondent Afable appealed to the Court of Appeals. She argued that the
contract under consideration involved the payment of US dollars and was, therefore, illegal; and that
under the in pari delicto rule, since both parties are guilty of violating the law, neither one can recover.
It is to be noted that said defense was not raised in her Answer.
On December 13, 1977, the Court of Appeals * rendered judgment affirming the decision of the trial
Court. In a Resolution dated February 27, 1978, the Court of Appeals denied respondent's Motion for
Reconsideration. However, in a Resolution dated June 8, 1978, the Court of Appeals, ** acting on the
Second Motion for Reconsideration filed by private respondent, set aside the Decision of December 13,
1977, reversed the judgment of the trial Court and dismissed the Complaint. The Court of Appeals
opined that the intent of the parties was that the promissory note was payable in US dollars, and,
therefore, the transaction was illegal, with neither party entitled to recover under the in pari delicto
rule.

Their Motions for Reconsideration having been denied in the Resolutions dated July 6, 1978 and
November 27, 1978, petitioners filed the instant Petition raising the following Assignments of Error:
"I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE PROMISSORY NOTE
EVIDENCING THE TRANSACTION OF THE PARTIES IS PAYABLE IN U.S. DOLLARS THEREBY DETERMINING
THE INTENT OF THE PARTIES OUTSIDE OF THEIR PROMISSORY NOTE DESPITE LACK OF SHOWING THAT IT
FAILED TO EXPRESS THE TRUE INTENT OR AGREEMENT OF THE PARTIES AND ITS PAYABILITY IN
PHILIPPINE PESOS WHICH IS EXPRESSED, AMONG OTHERS, BY ITS CLEAR AND PRECISE TERMS.
"II
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT REPUBLIC ACT 529, OTHERWISE
KNOWN AS 'AN ACT TO ASSURE UNIFORM VALUE TO PHILIPPINE COINS AND CURRENCY,' COVERS THE
TRANSACTION OF THE PARTIES HEREIN.
"III
THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT PRIVATE RESPONDENT JESUSA B.
AFABLE COULD NOT FAVORABLY AVAIL HERSELF OF THE DEFENSE OF ALLEGED APPLICABILITY OF
REPUBLIC ACT 529 AND THE DOCTRINE OF IN PARI DELICTO AS THESE WERE NOT PLEADED NOR
ADOPTED BY HER IN THE TRIAL.
"IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING, ASSUMING ARGUENDO THAT REPUBLIC
ACT 529 COVERS THE PARTIES TRANSACTION, THAT THE DOCTRINE OF IN PARI DELICTO DOES NOT
APPLY AND THE PARTIES AGREEMENT WAS NOT NULL AND VOID PURSUANT TO THE RULING IN
OCTAVIO A. KALALO VS. ALFREDO J. LUZ, NO.-27782, JULY 31, 1970."
In the Resolution dated June 8, 1978, the Court of Appeals made the following observations: cdrep
"We are convinced from the evidence that the amount awarded by the lower Court was indeed owed by
the defendants to the plaintiffs. However, the sole issue raised in this second motion for reconsideration
is not the existence of the obligation itself but the legality of the subject matter of the contract. If the
subject matter is illegal and against public policy, the doctrine of pari delicto applies.
xxx

xxx

xxx

"We are constrained to reverse our December 13, 1977 decision. While it is true that the promissory
note does not mention any obligation to pay in dollars, plaintiff-appellee Ponce himself admitted that
there was an agreement that he would be paid in dollars by the defendants. The promissory note is
payable in U.S. dollars. The intent of the parties prevails over the bare words of the written contracts.
xxx

xxx

xxx

"The agreement is null and void and of no effect under Republic Act No. 529. Under the doctrine of pari
delicto, no recovery can be made in favor of the plaintiffs for being themselves guilty of violating the
law." 1
We are constrained to disagree.
Reproduced hereunder is Section 1 of Republic Act No. 529, which was enacted on June 16, 1950:
"Section 1.
Every provision contained in, or made with respect to, any domestic obligation to wit,
any obligation contracted in the Philippines which provision purports to give the obligee the right to
require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an
amount of money of the Philippines measured thereby, be as it is hereby declared against public policy,
and null void and of no effect and no such provision shall be contained in or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply to (a) transactions were the funds
involved are the proceeds of loans or investments made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their agencies and instrumentalities, and
international financial and banking institutions so long as the funds are identifiable, as having emanated
from the sources enumerated above; (b) transactions affecting high priority economic projects for
agricultural, industrial and power development as may be determined by the National Economic Council
which are financed by or through foreign funds; (c) forward exchange transactions entered into between
banks or between banks and individuals or juridical persons; (d) import-export and other international
banking, financial investment and industrial transactions. With the exception of the cases enumerated in
items (a), (b), (c) and (d) in the foregoing provision, in which cases the terms of the parties' agreement
shall apply, every other domestic obligation heretofore or 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: Provided, That if the obligation was incurred prior to the enactment of this Act and required
payment in a particular kind of coin or currency other than Philippine currency, it shall be discharged in
Philippine currency measured at the prevailing rates of exchange at the time the obligation was incurred
except in case of a loan made in a foreign currency stipulated to be payable in the same currency in
which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All
coin and currency, including Central Bank notes, heretofore and hereafter issued and declared by the
Government of the Philippines shall be legal tender for all debts, public and private." (As amended by RA
4100, Section 1, approved June 19, 1964) (Emphasis supplied).
It is to be noted that while an agreement to pay in dollars is declared as null and void and of no effect,
what the law specifically prohibits is payment in currency other than legal tender. It does not defeat a
creditor's claim for payment, as it specifically provides that "every other domestic obligation . . .
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." A contrary rule would allow a person to profit or enrich himself inequitably
at another's expense.

As the Court of Appeals itself found, the promissory note in question provided on its face for payment of
the obligation in Philippine currency, i.e., P814,868.42. So that, while the agreement between the
parties originally involved a dollar transaction and that petitioners expected to be paid in the amount of
US $194,016.29, petitioners are not now insisting on their agreement with respondent Afable for the
payment of the obligation in dollars. On the contrary, they are suing on the basis of the promissory note
whereby the parties have already agreed to convert the dollar loan into Philippine currency at the rate
of P4.20 to $1.00. 2 It may likewise be pointed out that the Promissory Note contains no provision
"giving the obligee the right to require payment in a particular kind of currency other than Philippine
currency," which is what is specifically prohibited by RA No. 529. llcd
At any rate, even if we were to disregard the promissory note providing for the payment of the
obligation in Philippine currency and consider that the intention of the parties was really to provide for
payment of the obligation would be made in dollars, petitioners can still recover the amount of US
$194,016.29, which respondent Afable and her co-debtors do not deny having received, in its peso
equivalent. As held in Eastboard Navigation, Ltd. vs. Juan Ysmael & Co. Inc., 102 Phil. 1 (1957), and
Arrieta vs. National Rice & Corn Corp., 3 if there is any agreement to pay an obligation in a currency
other than Philippine legal tender, the same is null and void as contrary to public policy, pursuant to
Republic Act No. 529, and the most that could be demanded is to pay said obligation in Philippine
currency. In other words, what is prohibited by RA No. 529 is the payment of an obligation in dollars,
meaning that a creditor cannot oblige the debtor to pay him in dollars, even if the loan were given in
said currency. In such a case, the indemnity to be allowed should be expressed in Philippine currency on
the basis of the current rate of exchange at the time of payment. 4
The foregoing premises considered, we deem it unnecessary to discuss the other errors assigned by
petitioners.
WHEREFORE, the Resolutions of the Court of Appeals dated June 8, 1978, July 6, 1978 and November 27,
1978 are hereby set aside, and judgment is hereby rendered reinstating the Decision of the Court of First
Instance of Manila.
No pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Fernandez, Guerrero and De Castro, JJ., concur.
Makasiar, J., took no part. EN BANC
[G.R. No. L-27782. July 31, 1970.]
OCTAVIO A. KALALO, plaintiff-appellee, vs. ALFREDO J. LUZ, defendant-appellant.
Amelia K. del Rosario for plaintiff-appellee.
Pelaez, Jalandoni & Jamir for defendant-appellant.

DECISION
ZALDIVAR, J p:
Appeal from the decision, dated February 10, 1967, of the Court of First Instance of Rizal (Branch V,
Quezon City) in its Civil Case No. Q-6561.
On November 17, 1959, plaintiff-appellee Octavio A. Kalalo (hereinafter referred to as appellee), a
licensed civil engineer doing business under the firm name of O. A. Kalalo and Associates, entered into
an agreement (Exhibit A) 1 with defendant-appellant Alfredo J. Luz (hereinafter referred to as appellant),
a licensed architect, doing business under firm name of A. J. Luz and Associates, whereby the former
was to render engineering design services to the latter for fees, as stipulated in the agreement. The
services included design computation and sketches, contract drawing and technical specifications of all
engineering phases of the project designed by O. A. Kalalo and Associates, bill of quantities and cost
estimate, and consultation and advice during construction relative to the work. The fees agreed upon
were percentages of the architect's fee, to wit: structural engineering, 12-1/2%; electrical engineering,
2-1/2 %. The agreement was subsequently supplemented by a "clarification to letter-proposal" which
provided, among other things, that "the schedule of engineering fees in this agreement does not cover
the following: . . . D. Foundation soil exploration, testing and evaluation; E. Projects that are principally
engineering works such as industrial plants, . . ." and "O. A. Kalalo and Associates reserve the right to
increase fees on projects which cost less than P100,000 . . ." 2 Pursuant to said agreement, appellee
rendered engineering services to appellant in the following projects:
(a)

Fil-American Life Insurance Building at Legaspi City;

(b)

Fil-American Life Insurance Building at Iloilo City;

(c)

General Milling Corporation Flour Mill at Opon, Cebu;

(d)

Menzi Building at Ayala Blvd., Makati, Rizal;

(e)

International Rice Research Institute, Research Center, Los Baos, Laguna;

(f)

Aurelia's Building at Mabini, Ermita, Manila;

(g)

Far East Bank's Office at Fil-American Life Insurance Building at Isaac Peral, Ermita, Manila;

(h)

Arthur Young's residence at Forbes Park, Makati, Rizal;

(i)

L & S Building at Dewey Blvd., Manila; and

(j)

Stanvac Refinery Service Building at Limay, Bataan.

On December 11, 1961, appellee sent to appellant a statement of account (Exhibit "1"), 3 to which was
attached an itemized statement of defendant-appellant's account (Exh. "1-A"), according to which the
total engineering fee asked by appellee for services rendered amounted to P116,565.00 from which sum

was to be deducted the previous payments made in the amount of P57,000.00, thus leaving a balance
due in the amount of P59,565.00.
On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees, according to
appellant, amounted to P10,861.08 instead of the amount claimed by the appellee. On June 14, 1962
appellant sent appellee a cheek for said amount, which appellee refused to accept as full payment of the
balance of the fees due him.
On August 10, 1962, appellee filed a complaint against, appellant, containing four causes of action. In
the first cause of action, appellee alleged that for services rendered in connection with the different
projects therein mentioned there was due him fees in sums consisting of $28,000 (U.S.) and
P100,204.46, excluding interests, of which sums only P69,323.21 had been paid, thus leaving unpaid the
$28,000.00 and the balance of P30,881.25. In the second cause of action, appellee claimed P17,000.00
as consequential and moral damages; in the third cause of action he claimed P55,000.00 as moral
damages, attorney's fees and expenses of litigation; and in the fourth cause of action he claimed
P25,000.00 as actual damages, and also for attorney's fees and expenses of litigation.
In his answer, appellant admitted that appellee rendered engineering services, as alleged in the first
cause of action, but averred that some of appellee's services were not in accordance with the
agreement and appellee's claims were not justified by the services actually rendered, and that the
aggregate amount actually due to appellee was only P80,336.29, of which P69,475.21 had already been
paid, thus leaving a balance of only P10,861.08. Appellant denied liability for any damage claimed by
appellee to have suffered, as alleged in the second, third and fourth causes of action. Appellant set up
affirmative and special defenses, alleging that appellee had no cause of action, that appellee was in
estoppel because of certain acts, representations, admissions and/or silence, which led appellant to
believe certain facts to exist and to act upon said facts, that appellee's claim regarding the Menzi project
was premature because appellant had not yet been paid for said project, and that appellee's services
were not complete or were performed in violation of the agreement and/or otherwise unsatisfactory.
Appellant also set up a counterclaim for actual and moral damages for such amount as the court may
deem fair to assess, and for attorney's fees of P10,000.00.
Inasmuch as the pleadings showed that the appellee's right to certain fees for services rendered was not
denied, the only question being the assessment of the proper fees and the balance due to appellee after
deducting the admitted payments made by appellant, the trial court, upon agreement of the parties,
authorized the case to be heard before a Commissioner. The Commissioner rendered a report which, in
resume, states that the amount due to appellee was $28,000.00 (U.S.) as his fee in the International
Research Institute Project which was twenty per cent (20%) of the $140,000.00 that was paid to
appellant, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by
the appellant, The Commissioner also recommended the payment to appellee of the sum of P5,000.00
as attorney's fees.
At the hearing on the Report of the Commissioner, the respective counsel of the parties manifested to
the court that they had no objection to the findings of fact of the Commissioner contained in the Report,

and they agreed that the said Report posed only two legal issues, namely: (1) whether under the facts
stated in the Report, the doctrine of estoppel would apply; and (2) whether the recommendation in the
Report that the payment of the amount due to the plaintiff in dollars was legally permissible, and if not,
at what rate of exchange it should be paid in pesos. After the parties had submitted their respective
memorandum on said issues, the trial court rendered its decision, dated February 10, 1967, the
dispositive portion of which reads as follows:
"WHEREFORE, judgment is rendered in favor of plaintiff and against the defendant, by ordering the
defendant to pay plaintiff the sum of P51,539.91 and $28,000.00, the latter to be converted into the
Philippine currency on the basis of the current rate of exchange at the time of the payment of this
judgment, as certified to by the Central Bank of the Philippines, from which shall be deducted the sum
of P69,475.46, which the defendant had paid the plaintiff, and the legal rate of interest thereon from
the filing of the complaint in this case until fully paid for; by ordering the defendant to pay to plaintiff
the further sum of P8,000.00 by way of attorney's fees which the Court finds to be reasonable in the
premises, with costs against the defendant. The counterclaim of the defendant is ordered dismissed."
From the decision, this appeal was brought directly to this Court, raising only questions of law.
During the pendency of this appeal, appellee filed a petition for the issuance of a writ of attachment
under Section 1 (f) of Rule 57 of the Rules of Court upon the ground that appellant is presently residing
in Canada as a permanent resident thereof. On June 3, 1969, this Court resolved, upon appellee's
posting a bond of P10,000.00, to issue the writ of attachment, and ordered the Provincial Sheriff of Rizal
to attach the estate, real and personal, of appellant Alfredo J. Luz within the province, to the value of
not less than P140,000.00.
The appellant made the following assignments of errors:
I.
The lower court erred in not declaring and holding that plaintiff-appellee's letter dated
December 11, 1961 (Exhibit "1") and the statement of account (Exhibit "1-A") therein enclosed, had the
effect, cumulatively or alternatively, of placing plaintiff-appellee in estoppel from thereafter modifying
the representations made in said exhibits, or of making plaintiff-appellee otherwise bound by said
representations, or of being of decisive weight in determining the true intent of the parties as to the
nature and extent of the engineering services rendered and/or the amount of fees due.
II.
The lower court erred in declaring and holding that the balance owing from defendant-appellant
to plaintiff-appellee on the IRRI Project should be paid on the basis of the rate of exchange of the U.S.
dollar to the Philippine peso at the time of payment of judgment.
III.
The lower court erred in not declaring and holding that the aggregate amount of the balance
due from defendant-appellant to plaintiff-appellee is only P15,792.05.
IV.
The lower court erred in awarding attorney's fees in the sum of P8,000.00, despite the
commissioner's finding, which plaintiff-appellee has accepted and has not questioned, that said fee be
only P5,000.00; and

V.

The lower court erred in not granting defendant-appellant relief on his counter-claim."

1.
In support of his first assignment of error appellant argues that in Exhibit 1-A, which is a
statement of accounts dated December 11, 1961, sent by appellee to appellant, appellee specified the
various projects for which he claimed engineering fees, the precise amount due on each particular
engineering service rendered on each of the various projects, and the total of his claims; that such a
statement barred appellee from asserting any claim contrary to what was stated therein, or from taking
any position different from what he asserted therein with respect to the nature of the engineering
services rendered; and consequently the trial court could not award fees in excess of what was stated in
said statement of accounts. Appellant argues that for estoppel to apply it is not necessary, contrary to
the ruling of the trial court, that the appellant should have actually relied on the representation, but
that it is sufficient that the representations were intended to make the defendant act thereon; that
assuming arguendo that Exhibit 1-A did not put appellee in estoppel, the said Exhibit 1-A nevertheless
constituted a formal admission that would be binding on appellee under the law on evidence, and would
not only belie any inconsistent claim but also would discredit any evidence adduce by appellee is
support of any claim inconsistent with what appears therein; that, moreover, Exhibit 1-A, being a
statement of account, establishes prima facie the accuracy and correctness of the items stated therein
and its correctness can no longer be impeached except for fraud or mistake; that Exhibit 1-A,
furthermore, constitutes appellee's own interpretation of the contract between him and appellant, and
hence, is conclusive against him.
On the other hand, appellee admits that Exhibit 1-A itemized the services rendered by him in the various
construction projects of appellant and that the total engineering fees charged therein was P116,565.00,
but maintains that he was not in estoppel: first, because when he prepared Exhibit 1-A he was laboring
under an innocent mistake, as found by the trial court; second, because appellant was not ignorant of
the services actually rendered by appellee and the fees due to the latter under the original agreement,
Exhibit A; and third, because appellant did not rely on the data appearing in Exhibit 1-A, nor did he act
by reason thereof. Appellee further maintains that he cannot be bound by Exhibit l-A after it was
satisfactorily shown that there were services not included therein although actually rendered by him to
appellant, and that the fees were not correctly charged because of appellee's ignorance of the legal
implications of the terms of the agreement, Exhibit "A."
We find merit in the stand of appellee.
The statement of accounts (Exh. 1-A) could not estop appellee, because appellant did not rely thereon
as found by the Commissioner, from whose Report we read:
"While it is true that plaintiff vacillated in his claim, yet, defendant did not in anyway rely or believe in
the different claims asserted by the plaintiff and instead insisted on a claim that plaintiff was only
entitled to P10,861.08 as per a separate resume of fees he sent to the plaintiff on May 18, 1962 (See
Exhibit 6)." 4
The foregoing finding of the Commissioner, not disputed by appellant, was adopted by the trial court in
its decision. Under article 1431 of the Civil Code, in order that estoppel may apply the person, to whom

representations have been made and who claims the estoppel in his favor must have relied or acted on
such representations. Said article provides:
"Art. 1431.
Through estoppel an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying thereon."
An essential element of estoppel is that the person invoking it has been influenced and has relied on the
representations or conduct of the person sought to be estopped, and this element is wanting in the
instant case. In Cristobal vs. Gomez, 5 this Court held that no estoppel based on a document can be
invoked by one who has not been mislead by the false statements contained therein. And in Republic of
the Philippines vs. Garcia, et al., 6 this Court ruled that there is no estoppel when the statement or
action invoked as its basis did not mislead the adverse party. Estoppel has been characterized as harsh
or odious, and not favored in law. 7 When misapplied, estoppel becomes a most effective weapon to
accomplish an injustice, inasmuch as it shuts a man's mouth from speaking the truth and debars the
truth in a particular case. 8 Estoppel cannot be sustained by mere argument or doubtful inference; it
must be clearly proved in all its essential elements by clear, convincing and satisfactory evidence. 9 No
party should be precluded from making out his case according to its truth unless by force of some
positive principle of law, and, consequently, estoppel in pains must be applied strictly and should not be
enforced unless substantiated in every particular. 10
The essential elements of estoppel in pais may be considered In relation to the party sought to be
estopped, and in relation to the party invoking the estoppel in his favor. As related to the party to be
estopped, the essential elements are: (1) conduct amounting to false representation or concealment of
material facts or at least calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least
expectation that this conduct shall be acted upon by, or at least influence, the other party; and (3)
knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, the
essential elements are (1) lack of knowledge and of the means of knowledge of the truth as the facts in
question; (2), reliance, in good faith, upon the conduct or statements of the party to be estopped; (3)
action or inaction based thereon of such character as to change the position or status of the party
claiming the estoppel, to his injury, detriment or prejudice. 11
The first essential element in relation to the party sought to be estopped does not obtain in the instant
case, for, as appears in the Report of the Commissioner, appellee testified "that when he wrote Exhibit 1
and prepared Exhibit 1-A, he had not yet consulted the services of his counsel and it was only upon
advice of counsel that the terms of the contract were interpreted to him resulting in his subsequent
letters to the defendant demanding payments of his fees pursuant to the contract Exhibit A." 12 This
finding of the Commissioner was adopted by the trial court. 13 It is established, therefore, that Exhibit 1A was written by appellee through ignorance or mistake, Anent this matter, it has been held that if an
act, conduct or misrepresentation of the party sought to be estopped is due to ignorance founded on
innocent mistake, estoppel will not arise. 14 Regarding the essential elements of estoppel in relation to
the party claiming the estoppel, the first element does not obtain in the instant case, for it cannot be
said that appellant did not know, or at least did not have the means of knowing, the services rendered,

to him by appellee and the fees due thereon as provided in Exhibit A. The second element is also
wanting, for, as adverted to, appellant did not rely on Exhibit 1-A but consistently denied the accounts
stated therein. Neither does the third element obtain, for appellant did not act on the basis of the
representations in Exhibit 1-A, and there was no change in his position, to his own injury or prejudice.
Appellant, however, insists that if Exhibit 1-A did not put appellee in estoppel, it at least constituted an
admission binding upon the latter. In this connection, it cannot be gainsaid that Exhibit 1-A is not a
judicial admission. Statements which are not estoppels nor judicial admissions have no quality of
conclusiveness, and an opponent whose admissions have been offered against him may offer any
evidence which serves as an explanation for his former assertion of what he now denies as a fact. This
may involve the showing of a mistake. 15 Accordingly, in Oas vs. Roa, 16 it was held that when a party to
a suit has made an admission of any fact pertinent to the issue involved, the admission can be received
against him; but such an admission is not conclusive against him, and he is entitled to present evidence
to overcome the effect of the admission. Appellee did explain, and the trial court concluded, that Exhibit
1-A was based on either has ignorance or innocent mistake and he, therefore, is not bound by it.
Appellant further contends that Exhibit 1-A, being a statement of account, establishes prima facie the
accuracy and correctness of the items stated therein. If prima facie, as contended by appellant, then it is
not absolutely conclusive upon the parties. An account stated may be impeached for fraud, mistake or
error. In American Decisions, Vol. 62, p. 95, cited as authority by appellant himself we read thus:
"An account stated or settled is a mere admission that the account is correct. It is not an estoppel. The
account is still open to impeachment for mistakes or errors. Its effect is to establish. prima, facie, the
accuracy of the items without other proof; and the party seeking to impeach it is bound to show
affirmatively the mistake or error alleged. The force of the admission and the strength of the evidence
necessary to overcome it will depend upon the circumstances of the case."
In the instant case, it is Our view that the ignorance or mistake that attended the writing of Exhibit 1-A
by appellee was sufficient to overcome the prima facie evidence of correctness and accuracy of said
Exhibit 1-A.
Appellant also urges that Exhibit 1-A constitutes appellee's own interpretation of the contract, and is,
therefore, conclusive against him. Although the practical construction of the contract by one party,
evidenced by his words or acts, can be used against him in behalf of the other party, 17 yet, if one of the
parties carelessly makes a wrong interpretation of the words of his contract, or performs more than the
contract requires (as reasonably interpreted independently of his performance), as happened in the
instant case, he should be entitled to a restitutionary remedy, instead of being bound to continue to his
erroneous interpretation or his erroneous performance, and the other party should not be permitted to
profit by such mistake unless he can establish an estoppel by proving a material change of position
made in good faith. The rule as to practical construction does not nullify the equitable rules with respect
to performance by mistake." 18 In the instant case, it has been shown that Exhibit 1-A was written
through mistake by appellee and that the latter is not estopped by it. Hence, even if said Exhibit 1-A be
considered as practical construction of the contract by appellee, he cannot be bound by such erroneous

interpretation. It has been held that if by mistake the parties followed a practice in violation of the
terms of the agreement, the court should not perpetuate the error. 19
2.
In support of the second assignment of error, that the lower court erred in holding that the
balance from appellant on the IRRI project should be paid on the basis of the rate of exchange of the
U.S. dollar to the Philippine peso at the time of payment of the judgment, appellant contends: first, that
the official rate at the time appellant received his architect's fees for the IRRI project, and
correspondingly his obligation to appellee's fee on August 25, 1961, was P2.00 to $1.00, and cites in
support thereof Section 1612 of the Revised Administrative Code, Section 48 of Republic Act 265 and
Section 6 of Commonwealth Act No. 699; second, that the lower court's Conclusion that the rate of
exchange to be applied in the conversion of the $28,000.00 is the current rate of exchange at the time
the judgment shall be satisfied was based solely on a mere presumption of the trial court that the
defendant did not convert, there being no showing to that effect, the dollars into Philippine currency at
the official rate, when the legal presumption should be that the dollars were converted at the official
rate of $1.00 to P2.00 because on August 25, 1961, when the IRRI project became due and payable,
foreign exchange controls were in full force and effect, and partial decontrol was effected only
afterwards, during the Macapagal administration; third, that the other ground advanced by the lower
Court for its ruling, to wit, that appellant committed a breach of his obligation to turn over to the
appellee the engineering fees received in U.S. dollars for the IRRI project, cannot be upheld, because
there was no such breach, as proven by the fact that appellee never claimed in Exhibit 1-A that he
should be paid in dollars; and there was no provision in the basic contract (Exh. "A") that he should be
paid in dollars; and, finally, even if there were such provision, it would have no binding effect under the
provision of Republic Act 529; that, moreover, it cannot really be said that no payment was made on
that account., for appellant had already paid P57,000.00 to appellee, and under Article 125 of the Civil
Code, said payment could be said to have been applied to the fees due from the IRRI project, this project
being the biggest and this debt being the most onerous.
In refutation of appellant's argument in support of the second assignment of error, appellee argues that
notwithstanding Republic Act 529, appellant can be compelled to pay the appellee in dollars in view of
the fact that appellant received his fees in dollars, and appellee's fee is 20% of appellant's fees; and that
if said amount is to be converted into Philippine Currency, the rate of exchange should be that at the
time of the execution of the judgment. 20
We have taken note of the fact that on August 25, 1961, the date when appellant said his obligation to
pay appellee's fees became due, there was two rates of exchange, to wit: the preferred rate of P2.00 to
$1.00, and the free market rate. It was so provided in Circular No. 121 of the Central Bank of the
Philippines, dated March 2, 1961, amending an earlier Circular No. 117, and in force until January 21,
1962 when it was amended by Circular No. 133, thus:
"1.
All foreign exchange receipts shall be surrendered to the Central Bank of those authorized to
deal in foreign exchange as follows:
Percentage of Total to be surrendered at

(a)

Preferred

Rate

Rate

Free Market

Export Proceeds, U. S. Government Expenditures invisibles other than those specifically

mentioned below

(b)

25

75

Foreign Investments. Gold

Proceeds, Tourists and Inward
Remittances of Veterans and
Filipino Citizens; and Personal Expenses of Diplomatic
Personnel

100" 21

The amount of $140,000.00 received by appellant for the International Rice Research Institute project is
not within the scope of sub-paragraph (a) of paragraph No. 1 of Circular No. 121. Appellant has not
shown that 25% of said amount had to be surrendered to the Central Bank at the preferred rate because
it was either export proceeds, or U.S. Government expenditures, or invisibles not included in subparagraph (b). Hence, it cannot be said that the trial court erred in presuming that appellant converted
said amount at the free market rate. It is hard to believe that a person possessing dollars would
exchange his dollars at the preferred rate of P2.00 to $1.00 when he is not obligated to do so, rather
than at the free market rate which is much higher. A person is presumed to take ordinary care of his
concerns, and that the ordinary course of business has been followed. 22
Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or the amount of
$28,000.00. Appellee, however, cannot oblige the appellant to pay him in dollars, even if appellant
himself had received his fee for the IRRI project in dollars. This payment in dollars is prohibited by
Republic Act 529 which was enacted on June 16, 1950. Said act provides as follows:
"SECTION 1.
Every provision contained in, or made with respect to, any obligation which provision
purports to give the obligee the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines measured thereby,
be as it is hereby declared against public policy, and null, void and of no effect, and no such provision
shall be contained in, or made with respect to, any obligation hereafter incurred. Every obligation
heretofore or 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; Provided, That, (a) if the obligation was

incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency
other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing
rate of exchange at the time the obligation was incurred, (b) except in case of a loan made in a foreign
currency stipulated to be payable in the same currency in which case the rate of exchange prevailing at
the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank
notes, heretofore or hereafter issued and declared by the Government of the Philippines shall be legal
tender for all debts, public and private."
Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to the
enactment of the Act and require payment in a particular kind of coin or currency other than the
Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate
of exchange et the time the obligation was incurred. As We have adverted to, Republic Act 529 was
enacted on June 16, 1950. In the case now before Us the obligation of appellant to pay appellee the 20%
of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or after the enactment of
Republic Act 529. It follows that the provision of Republic Act 529 which requires payment at the
prevailing rate of exchange when the obligation was incurred cannot be applied. Republic Act 529 does
not provide for the rate of exchange for the payment of obligation incurred after the enactment of said
Act. The logical conclusion, therefore, is that the rate of exchange should be that prevailing at the time
of payment. This view finds support in the ruling of this Court in the case of Engel vs. Velasco & Co. 23
where this Court held that even if the obligation assumed by the defendant was to pay the plaintiff a
sum of money expressed in American currency, the indemnity to be allowed should be expressed in
Philippine currency at the rate of exchange at the time of judgment rather than at the rate of exchange
prevailing on the date of defendant's breach. This is also the ruling of American courts, as follows:
"The value in domestic money of a payment made in foreign money is fixed with respect to the rate of
exchange at the time of payment." (70 CJS. p. 228)
"According to the weight of authority the amount of recovery depends upon the current rate of
exchange, and not the par value of the particular money involved." (48 C.J. 605-606)
"The value in domestic money of a payment made in foreign money is fixed in reference to the rate of
exchange at the time of such payment." (48 C.J. 605)
It is Our considered view, therefore, that appellant should pay the appellee the equivalent in pesos of
the $28,000.00 at the free market rate of exchange at the time of payment. And so the trial court did
not err when it held that herein appellant should pay appellee $28,000.00 "to be converted into the
Philippine currency on the basis of the current rate of exchange at the time of payment of this
judgment, as certified to by the Central Bank of the Philippines, . . ." 24
Appellant also contends that the P57,000.00 that he had paid to appellee should have been applied to
the fees due to the latter on the IRRI project because such debt was the most onerous to appellant. This
contention is untenable. The Commissioner who was authorized by the trial court to receive evidence in
this case, however, reports that the appellee had not been paid for the account of the $,28,000.00
which represents the fees of appellee equivalent to 20% of the $140,000.00 that the appellant received

as fee for the IRRI project. This is a finding of fact by the Commissioner which was adopted by the trial
court. The parties in this case have agreed that they do not question the finding of fact of the
Commissioner. Thus, in the decision appealed from the lower court says:
"At the hearing on the Report of the Commissioner on February 15, 1966, the counsels for both parties
manifested to the court that they have no objection to the findings of facts of the Commissioner in his
report; and agreed that the said report only poses two (2) legal issues, namely: (1) whether under the
facts stated in the Report, the doctrine of estoppel will apply; and (2) whether the recommendation in
the Report that the payment of amount due to the plaintiff in dollars is permissible under the law, and,
if not at what rate of exchange should it be paid in pesos (Philippine currency) . . ." 25
In the Commissioner's report, it is specifically recommended that the appellant be ordered to pay the
plaintiff the sum of "$28,000.00 or its equivalent as the fee of the plaintiff under Exhibit A on the IRRI
project." It is clear from this report of the Commissioner that no payment for the account of this
$28,000.00 had been made. Indeed, It is not shown in the record that the peso equivalent of the
$28,000.00 had been fixed or agreed upon by the parties at the different times when the appellant had
made partial payments to the appellee.
3.
In his third assignment of error, appellant contends that the lower court erred in not declaring
that the aggregate amount due to him to appellee is only P15,792.05. Appellant questions the propriety
or correctness of most of the items of fees that were found by the Commissioner to be due to appellee
for services rendered. We believe that it is too late for the appellant to question the propriety or
correctness of those items in the present appeal. The records shows after the Commissioner had
submitted his report the lower court, on February 15, 1966, issued on the following order:
"When this case was called for hearing today on the report of the Commissioner, the counsels of the
parties manifested that they have no objection to the findings of facts in the report, However, the report
poses only legal issues, namely: (1) whether under the facts stated in the report, the doctrine of
estoppel will apply; and (2) whether the recommendation in the report that the alleged payment of the
defendant be made in dollars is permissible by law and, if not, in what rate it should be paid in pesos
(Philippine Currency). For the purpose of resolving these issues the parties prayed that they be allowed
to file their respective memoranda which will aid the court in the determination of said issues." 26
In consonance with the afore-quoted order of the trial court, the appellant submitted his memorandum
which opens with the following statements:
"As previously manifested, this Memorandum shall be confined to:
"(a)
the finding in the Commissioner's Report that defendant's defense of estoppel will not lie (pp.
17-18, Report); and
"(b)
the recommendation in the Commissioner's Report that defendant be ordered to pay plaintiff
the sum of '$28,000.00 (U.S.) or its equivalent as the fee of the plaintiff under Exhibit 'A' in the IRRI
project.'

"More specifically this Memorandum proposes to demonstrate the affirmative of three legal issues
posed, namely:
"First: Whether or not plaintiff's letter dated December 11, 1961 (Exhibit '1') and/or Statement of
Account (Exhibit '1-A') therein enclosed has the effect of placing plaintiff in estoppel from thereafter
modifying the representations made in said letter and Statement of Account or of making plaintiff
otherwise bound thereby; or of being decisive or great weight in determining the true intent of the
parties as to the amount of the engineering fees owing from defendant to plaintiff;
"Second:
Whether or not defendant can be compelled to pay whatever balance is owing to
plaintiff on the IRRI (International Rice and Research Institute) project in United States dollars; and
"Third: Whether or not in case the ruling of this Honorable Court be that defendant cannot be
compelled to pay plaintiff in United States dollars, the dollar-to-peso convertion rate for determining
the peso equivalent of whatever balance is owing to plaintiff in connection with the IRRI project should
be the 2 to 1 official rate and not any other rate." 27
It is clear, therefore, that what was submitted by appellant to the lower court for resolution did not
include the question of correctness or propriety of the amounts due to appellee in connection with the
different projects for which the appellee had rendered engineering services. Only legal questions, as
above enumerated, were submitted to the trial court for resolution. So much so, that the lower court in
another portion of its decision said, as follows:
"The objections to the Commissioner's Report embodied in defendant's memorandum of objections,
dated March 18, 1966, cannot likewise be entertained by the Court because at the hearing of the
Commissioner's Report the parties had expressly manifested that they had no objection to the findings
of facts embodied therein."
We, therefore, hold that the third assignment of error of the appellant has no merit.
4.
In his fourth assignment of error, appellant questions the award by the lower court of P8,000.00
for attorney's fees. Appellant argues that the Commissioner, in his report, fixed the sum of P5,000.00 as
"just and reasonable" attorney's fees, to which amount appellee did not interpose any objection, and by
not so objecting he is bound by said finding; and that, moreover, the lower court gave no reason in its
decision for increasing the amount to P8,000.00.
Appellee contends that while the parties had not objected to the findings of the Commissioner, the
assessment of attorney's fees is always subject to the court's appraisal, and in increasing the
recommended fees from P5,000.00 to P8,000.00 the trial court must have taken into consideration
certain circumstances which warrant the award of P8,000.00 for attorney's fees.
We believe that the trial court committed no error in this connection. Section 12 of Rule 33 of the Rules
of Court, on which the fourth assignment of error is presumably based, provides that when the parties
stipulate that a commissioner's findings of fact shall be final, only questions of law arising from the facts
mentioned in the report shall thereafter be considered. Consequently, an agreement by the parties to

abide by the findings of fact of the commissioner is equivalent to an agreement of facts binding upon
them which the court cannot disregard. The question, therefore, is whether or not the estimate of the
reasonable fees stated in the report of the Commissioner is a finding of fact.
The report of the Commissioner on this matter reads as follows:
"As regards attorney's fees, under the provisions of Art. 2208, par (II), the same may be awarded, and
considering the number of hearings held in this case, the nature of the case (taking into account the
technical nature of the case and the voluminous exhibits offered in evidence), as well as the way the
case was handled by counsel, it is believed, subject to the Court's appraisal of the matter, that the sum
of P5,000.00 is just and reasonable as attorney's fees." 28
It is thus seen that the estimate made by the Commissioner was an expression of belief, or an opinion.
An opinion is different from a fact. The generally recognized distinction between a statement of "fact"
and an expression of "opinion" is that whatever is susceptible of exact knowledge is a matter of fact,
while that not susceptible of exact knowledge is generally regarded as an expression of opinion. 29 It
has also been said that the word "fact," as employed in the legal sense, includes "those conclusions
reached by the trior from shifting testimony, weighing evidence, and passing on the credit of the
witnesses, and it does not denote those inferences drawn by the trial court from the facts ascertained
and settled by it. 30 In the case at bar, the estimate made by the Commissioner of the attorney's fees
was an inference from the facts ascertained by him, and is, therefore, not a finding of fact. The trial
court was, consequently, not bound by that estimate, in spite of the manifestation of the parties that
they had no objection to the findings of facts of the Commissioner in his report. Moreover, under
Section 11 of Rule 33 of the Rules of Court, the court may adopt, modify, or reject the report of the
commissioner, in whole or in part, and hence, it was within the trial court's authority to increase the
recommended attorney's fees of P5,000.00 to P8,000.00. It is a settled rule that the amount of
attorney's fees is addressed to the sound discretion of the court. 31
It is true, as appellant contends, that the trial court did not state in the decision the reasons for
increasing the attorney's fees. The trial court, however, had adopted the report of the Commissioner,
and in adopting the report the trial court is deemed to have adopted the reasons given by the
Commissioner in awarding attorney's fees, as stated in the above quoted portion of the report. Based on
the reasons stated in the report, the trial court must have considered that the reasonable attorney's
fees should be P8,000.00. Considering that the judgment against the appellant would amount to more
than P100,000.00, We believe that the award of P8,000.00 for attorney's fees is reasonable.
5.
In his fifth assignment of error appellant urges that he is entitled to relief on his counterclaim. In
view of what We have stated in connection with the preceding four assignments of error, We do not
consider it necessary to dwell any further on this assignment of error.
WHEREFORE, the decision appealed from is affirmed, with costs against the defendant-appellant. It is so
ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Fernando, Teehankee, Barredo and Villamor,
JJ., concur.
SECOND DIVISION
[G.R. No. 74451. May 25, 1988.]
EQUITABLE BANKING CORPORATION, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT
and THE EDWARD J. NELL CO., respondents.
William R. Veto for petitioner.
Pelaez, Adriano & Gregorio for respondents.
SYLLABUS
CIVIL LAW; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF CONTRACTS; AMBIGUITY IN THE
CONTRACT SHALL BE CONSTRUED AGAINST THE PARTY WHO CAUSED IT. The subject check was
equivocal and patently ambiguous. By making the check read; "Pay to the EQUITABLE BANKING
CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC." the payee ceased to be indicated with
reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. As worded, it
could be accepted as deposit to the account of the party named after the symbols "A/C," or payable to
the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate
beneficiary. That ambiguity is to be taken contra proferentem that is, construed against NELL who
caused the ambiguity and could have also avoided it by the exercise of a little more care. In the last
analysis, it was NELL's own acts, which put it into the power of Casals and Casville Enterprises to
perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, et al., vs. Nano, et al.,
61 Phil. 625 [1935], and other cases cited)
DECISION
MELENCIO-HERRERA, J p:
In this Petition for Review on Certiorari petitioner, Equitable Banking Corporation, prays that the
adverse judgment against it rendered by respondent Appellate Court, 1 dated 4 October 1985, and its
majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, 2 be
annulled and set aside.
The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference by
Respondent Appellate Court, emanated from the case entitled "Edward J. Nell Co. vs. Liberato V. Casals,
Casville Enterprises, Inc., and Equitable Banking Corporation" of the Court of First Instance of Rizal (Civil
Case No. 25112), and read:
"From the evidence submitted by the parties, the Court finds that sometime in 1975 defendant Liberato
Casals went to plaintiff Edward J. Nell Company and told its senior sales engineer, Amado Claustro that
he was interested in buying one of the plaintiff's garrett skidders. Plaintiff was a dealer of machineries,

equipment and supplies. Defendant Casals represented himself as the majority stockholder, president
and general manager of Casville Enterprises, Inc., a firm engaged in the large scale production,
procurement and processing of logs and lumber products, which had a plywood plant in Sta. Ana, Metro
Manila.
"After defendant Casals talked with plaintiff's sales engineer, he was referred to plaintiff's executive
vice-president, Apolonio Javier, for negotiation in connection with the manner of payment. When Javier
asked for cash payment for the skidders, defendant Casals informed him that his corporation, defendant
Casville Enterprises, Inc., had a credit line with defendant Equitable Banking Corporation. Apparently,
impressed with this assertion, Javier agreed to have the skidders paid by way of a domestic letter of
credit which defendant Casals promised to open in plaintiff's favor, in lieu of cash payment. Accordingly,
on December 22, 1975, defendant Casville, through its president, defendant Casville, ordered from
plaintiff two units of garrett skidders . . .

'The purchase order for the garrett skidders bearing No. 0051 and dated December 22, 1975 (Exhibit 'A')
contained the following terms and conditions:
"Two (2) units GARRETT Skidders Model 30A complete as basically described in the bulletin.
PRICE: F.O.B. dock
Manila P485,000.00/unit
For two (2) units P970,000.00
SHIPMENT:

We will inform you the date and name of the vessel as soon as arranged.

TERMS: By irrevocable domestic letter of credit to be issued in favor of THE EDWARD J. NELL CO. or
ORDER payable in thirty six (36) months and will be opened within ninety (90) days after date of
shipment. First installment will be due one hundred eighty (180) days after date of shipment. Interest
14% per annum' (Exhibit 'A')
xxx

xxx

xxx

". . . in a letter dated April 21, 1976, defendants Casals and Casville requested from plaintiff the delivery
of one (1) unit of the skidders, complete with tools and cables, to Cagayan de Oro, on or before
Saturday, April 24, 1976, on board a Lorenzo shipping vessel, with the information that an irrevocable
Domestic Letter of Credit would be opened in plaintiff's favor on or before June 30, 1976 under the
terms and conditions agreed upon (Exhibit 'B')
"On May 3, 1976, in compliance with defendant Casville's request, plaintiff shipped to Cagayan de Oro
City a Garrett skidder. Plaintiff paid the shipping cost in the amount of P10,640.00 because of the verbal
assurance of defendant Casville that it would be covered by the letter of credit soon to be opened.
xxx

xxx

xxx

"On July 16, 1976, defendant Casals handed to plaintiff a check in the amount of P300,000.00 postdated
August 4, 1976, which was followed by another check of same date. Plaintiff considered these checks
either as partial payment for the skidder that was already delivered to Cagayan de Oro or as
reimbursement for the marginal deposit that plaintiff was supposed to pay.
"In a letter dated August 3, 1976 (Exhibit 'C'), defendants Casals and Casville informed the plaintiff that
their application for a letter of credit for the payment of the Garrett skidders had been approved by the
Equitable Banking Corporation. However, the defendants said that they would need the sum of
P300,000.00 to stand as collateral or marginal deposit in favor of Equitable Banking Corporation and an
additional amount of P100,000.00, also in favor of Equitable Banking Corporation, to clear the title of
the Estrada property belonging to defendant Casals which had been approved as security for the trust
receipts to be issued by the bank, covering the above-mentioned equipment.
"Although the marginal deposit was supposed to be produced by defendant Casville Enterprises, plaintiff
agreed to advance the necessary amount in order to facilitate the transaction. Accordingly, on August 5,
1976, plaintiff issued a check in the amount of P400,000.00 (Exhibit '2') drawn against the First National
City Bank and made payable to the order of Equitable Banking Corporation and with the following
notation or memorandum:
'a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be
used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward J. Nell Co.'
Said check together with the cash disbursement voucher (Exhibit '2-A') containing the explanation:
'Payment for marginal deposit and other expenses re opening of L/C for account of Casville Ent.'
A covering letter (Exhibit '3') was also sent and when the three documents were presented to Severino
Santos, executive vice president of defendant bank, Santos did not accept them because the terms and
conditions required by the bank for the opening of the letter of credit had not yet been agreed on.
"On August 9, 1976, defendant Casville wrote the bank applying for two letters of credit to cover its
purchase from plaintiff of two Garrett skidders, under the following terms and conditions:
'a)
On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit for P606,000.00; c)
P300,000.00 CASH marginal deposit; d) Real Estate Collateral to secure the Trust Receipts; e) We shall
chattel mortgage the equipments purchased even after payment of the first L/C as additional security
for the balance of the second L/C and f) Other conditions you deem necessary to protect the interest of
the bank.'
"In a letter dated August 11, 1976 (Exhibit 'D-1'), defendant bank replied stating that it was ready to
open the letters of credit upon defendant's compliance of the following terms and conditions:
'c)
30% cash margin deposit; d) Acceptable Real Estate Collateral to secure the Trust Receipts; e)
Chattel Mortgage on the equipment; and f) Other terms and conditions that our bank may impose.'

"Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated checks.
In said letter, plaintiff was informed of the requirements imposed by the defendant bank pointing out
that the 'cash marginal required under paragraph (c) is 30% of P1,091,000.00 or P327,300.00 plus
another P100,000.00 to clean up the Estrada property or a total of P427,300.00' and that the check
covering said amount should be made payable 'to the Order of EQUITABLE BANKING CORPORATION for
the account of Casville Enterprises Inc.' Defendant Casville also stated that the three (3) enclosed
postdated checks were intended as replacement of the checks that were previously issued to plaintiff to
secure the sum of P427,300.00 that plaintiff would advance to defendant bank for the account of
defendant Casville. All the new checks were postdated November 19, 1976 and drawn in the sum of
P145,500.00 (Exhibit 'F'), P181,800.00 (Exhibit 'G') and P100,000.00 (Exhibit 'H').
"On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of the Register of Deeds of
Quezon City and TCT No. 50851 of the Register of Deeds of Rizal covering two pieces of real estate
properties.
"Subsequently, Cesar Umali, plaintiff's credit and collection manager, accompanied by a representative
of defendant Casville, went to see Severino Santos to find out the status of the credit line being sought
by defendant Casville. Santos assured Umali that the letters of credit would be opened as soon as the
requirements imposed by defendant bank in its letter dated August 11, 1976 had been complied with by
defendant Casville.
'On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the 'order of EQUITABLE
BANKING CORPORATION A/C CASVILLE ENTERPRISES, INC.' and drawn against the First National City
Bank (Exhibit 'E-1'). The check did not contain the notation found in the previous check issued by the
plaintiff (Exhibit '2') but the substance of said notation was reproduced in a covering letter dated August
16, 1976 that went with the check (Exhibit 'E'). Both the check and the covering letter were sent to
defendant bank through defendant Casals. Plaintiff entrusted the delivery of the check and the letter to
defendant Casals because it believed that no one, including defendant Casals, could encash the same as
it was made payable to the defendant bank alone. Besides, defendant Casals was known to the bank as
the one following up the application for the letters of credit.
"Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant Casals immediately
deposited it with the defendant bank and the bank teller accepted the same for deposit in defendant
Casville's checking account. After depositing said check, defendant Casville, acting through defendant
Casals, then withdrew all the amount deposited.
'Meanwhile, upon their presentation for encashment, plaintiff discovered that the three checks (Exhibits
'F', 'G' and 'H') in the total amount of P427,300.00, that were issued by defendant Casville as collateral
were all dishonored for having been drawn against a closed account.
"As defendant Casville failed to pay its obligation to defendant bank, the latter foreclosed the mortgage
executed by defendant Casville on the Estrada property which was sold in a public auction sale to a third
party.

'Plaintiff allowed some time before following up the application for the letters of credit knowing that it
took time to process the same. However, when the three checks issued to it by defendant Casville were
dishonored, plaintiff became apprehensive and sent Umali on November 29, 1976, to inquire about the
status of the application for the letters of credit. When plaintiff was informed that no letters of credit
were opened by the defendant bank in its favor and then discovered that defendant Casville had in the
meanwhile withdrawn the entire amount of P427,300.00, without paying its obligation to the bank
plaintiff filed the instant action.
"While the instant case was being tried, defendants Casals and Casville assigned the garrett skidder to
plaintiff which credited in favor of defendants the amount of P450,000.00, as partial satisfaction of
plaintiff's claim against them.
"Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only did they show lack of
interest in disputing plaintiff's claim by not appearing in most of the hearings, but they also assigned to
plaintiff the garrett skidder which is an action of clear recognition of their liability.
"What is left for the Court to determine, therefore, is only the liability of defendant bank to plaintiff.
xxx

xxx

xxx

Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto, the
pertinent portion of which reads:
xxx

xxx

xxx

"Defendants Casals and Casville Enterprises and Equitable Banking Corporation are ordered to pay
plaintiff, jointly and severally, the sum of P427,300.00, representing the amount of plaintiff's check
which defendant bank erroneously credited to the account of defendant Casville and which defendants
Casal and Casville misappropriated, with 12% interest thereon from April 5, 1977, until the said sum is
fully paid.
"Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's fees in the sum of
P25,000.00.
"Proportionate cost against all the defendants.
"SO ORDERED."
The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly, the
Bank) is liable to private respondent Edward J. Nell Co. (NELL, for short) for the value of the second
check issued by NELL, Exhibit "E-1," which was made payable
"to the order of EQUITABLE BANKING CORPORATION A/C OF CASVILLE ENTERPRISES INC."
and which the Bank teller credited to the account of Casville.

The Trial Court found that the amount of the second check had been erroneously credited to the Casville
account; held the Bank liable for the mistake of its employees; and ordered the Bank to pay NELL the
value of the check in the sum of P427,300.00, with legal interest. Explained the Trial Court:
"The Court finds that the check in question was payable only to the defendant bank and to no one else.
Although the words 'A/C OF CASVILLE ENTERPRISES INC.' appear on the face of the check after or under
the name of defendant bank, the payee was still the latter. The addition of said words did not in any way
make Casville Enterprises, Inc. the Payee of the instrument for the words merely indicated for whose
account or in connection with what account the check was issued by the plaintiff.
"Indeed, the bank teller who received it was fully aware that the check was not negotiable since he
stamped thereon the words 'NON-NEGOTIABLE For Payee's Account Only' and 'NON-NEGOTIABLE
TELLER NO. 4, August 17, 1976 EQUITABLE BANKING CORPORATION.'
"But said teller should have exercised more prudence in the handling of said check because it was not
made out in the usual manner. The addition of the words 'A/C OF CASVILLE ENTERPRISES INC.' should
have placed the teller on guard and he should have clarified the matter with his superiors. Instead of
doing so, however, the teller decided to rely on his own judgment and at the risk of making a wrong
decision, credited the entire amount in the name of defendant Casville although the latter was not the
payee named in the check. Such mistake was crucial and was, without doubt, the proximate cause of
plaintiff's defraudation.
xxx

xxx

xxx

Respondent Appellate Court upheld the above conclusions stating in addition: LLphil
"1)
The appellee made the subject check payable to appellant's order, for the account of Casville
Enterprises, Inc. In the light of the other facts, the directive was for the appellant bank to apply the
value of the check as payment for the letter of credit which Casville Enterprises, Inc. had previously
applied for in favor of the appellee (Exhibit D-1, p. 5). The issuance of the subject check was precisely to
meet the bank's prior requirement of payment before issuing the letter of credit previously applied for
by Casville Enterprises in favor of the appellee;
xxx

xxx

xxx

We disagree.
1)

The subject check was equivocal and patently ambiguous. By making the check read:

"Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC."
the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the
Negotiable Instruments Law. 3 As worded, it could be accepted as deposit to the account of the party
named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville
Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra

proferentem that is, construed against NELL who caused the ambiguity and could have also avoided it by
the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides:
"Art. 1377.
The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity."
2)
Contrary to the finding of respondent Appellate Court, the subject check was, initially, not nonnegotiable. Neither was it a crossed check. The rubber-stamping transversally on the face of the subject
check of the words "Non-negotiable for Payee's Account Only" between two (2) parallel lines, and "Nonnegotiable, Teller No. 4, August 17, 1986," separately boxed, was made only by the Bank teller in
accordance with customary bank practice, and not by NELL as the drawer of the check, and simply
meant that thereafter the same check could no longer be negotiated.
3)
NELL's own acts and omissions in connection with the drawing, issuance and delivery of the 16
August 1976 check, Exhibit "E-1," and its implicit trust in Casals, were the proximate cause of its own
defraudation: (a) The original check of 5 August 1976, Exhibit "2," was payable to the order solely of
"Equitable Banking Corporation." NELL changed the payee in the subject check, Exhibit "E-1," however,
to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.," upon Casals request. NELL also
eliminated both the cash disbursement voucher accompanying the check which read:
"Payment for marginal deposit and other expenses re opening of L/C for account of Casville Ent."
and the memorandum:
"a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be
used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward J. Nell Co."
Evidencing the real nature of the transaction was merely a separate covering letter, dated 16 August
1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller.
(b)
NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who, obviously,
had his own antagonistic interests to promote. Thus it was that Casals did not purposely present the
subject check to the Executive Vice-President of the Bank, who was aware of the negotiations regarding
the Letter of Credit, and who had rejected the previous check, Exhibit "2," including its three documents
because the terms and conditions required by the Bank for the opening of the Letter of Credit had not
yet been agreed on.
(c)
NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, NELL
even advanced the marginal deposit for the garrett skidder. It is, indeed, abnormal for the seller of
goods, the price of which is to be covered by a letter of credit, to advance the marginal deposit for the
same.
(d)
NELL had received three (3) postdated checks all dated 16 November, 1976 from Casville to
secure the subject check and had accepted the deposit with it of two (2) titles of real properties as
collateral for said postdated checks. Thus, NELL was erroneously confident that its interests were

sufficiently protected. Never had it suspected that those postdated checks would be dishonored, nor
that the subject check would be utilized by Casals for a purpose other than for opening the letter of
credit.
In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville Enterprises
to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, et al., vs. Nano, et
al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and Shanghai Banking Corporation, 89 Phil. 780 [1951];
Republic of the Philippines vs. Equitable Banking Corporation, L-15895, January 30, 1964, 10 SCRA 8).
". . . As between two innocent persons, one of whom must suffer the consequence of a breach of trust,
the one who made it possible by his act of confidence must bear the loss."
WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4 October
1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration,
are hereby SET ASIDE. The Decision of the then Court of First Instance of Rizal, Branch XI, is modified in
that petitioner Equitable Banking Corporation is absolved from any and all liabilities to the private
respondent, Edward J. Nell Company, and the Amended Complaint against petitioner bank is hereby
ordered dismissed. No costs.
SO ORDERED.
Yap, C.J., Paras and Sarmiento, JJ., concur.
Padilla, J., took no part in the deliberations. SECOND DIVISION
[G.R. No. 97753. August 10, 1992.]
CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.
SYLLABUS
1.
COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; REQUIREMENTS FOR NEGOTIABILITY;
CERTIFICATE OF TIME DEPOSIT AS NEGOTIABLE INSTRUMENT; CASE AT BAR. Section 1 of Act No.
2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument
to become negotiable, viz: "(a) It must be in writing and signed by the maker or drawer; (b) Must contain
an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at
a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the
instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty." The CTDs in question undoubtedly meet the requirements of the law for negotiability. The
parties' bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the depositor

referred to in the CTDs is no other than Mr. Angel de la Cruz. . . . Contrary to what respondent court
held, the CTDs are negotiable instruments. The documents provide that the amounts deposited shall be
repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer."
The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents
or, for that matter, whosoever may be the bearer at the time of presentment.
2.
ID.; ID.; DETERMINATION OF NEGOTIABILITY OR NON-NEGOTIABILITY OF INSTRUMENT; RULES.
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. In the construction of a bill
or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may
be read in the light of surrounding circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of
the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have
used. What the parties meant must be determined by what they said.
3.
ID.; ID.; NEGOTIATION, DEFINED; HOLDER, DEFINED; IN CASE AT BAR, DELIVERY OF INSTRUMENT
CONSTITUTED THE TRANSFEREE A MERE HOLDER FOR VALUE BY REASON OF HIS LIEN. Petitioner's
insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments
Law, an instrument is negotiated when it is transferred from one person to another in such a manner as
to constitute the transferee the holder thereof, and a holder may be the payee or indorsee of a bill or
note, who is in possession of it, or the bearer thereof, In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which
situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery
thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the
amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by
reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of
the instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in
the event of non-payment of the principal obligation, must be contractually provided for. The pertinent
law on this point is that where the holder has a lien on the instrument arising from contract, he is
deemed a holder for value to the extent of his lien.
4.
ID.; CODE OF COMMERCE; RULES TO BE FOLLOWED IN CASE OF LOST INSTRUMENT PAYABLE TO
BEARER; MERELY PERMISSIVE AND NOT MANDATORY. A close scrutiny of the provisions of the Code
of Commerce laying down the rules to be followed in case of lost instruments payable to bearer, which it
invokes, will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar,
are merely permissive and not mandatory. The very first article cited by petitioner speaks for itself: "Art.
548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of
competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be
not paid a third person, as well as in order to prevent the ownership of the instrument that a duplicate
be issued him." The use of the word "may" in said provision shows that it is not mandatory but

discretionary on the part of the "dispossessed owner" to apply to the judge or court of competent
jurisdiction for the issuance of a duplicate of the lost instrument. Where the provision reads "may," this
word shows that it is not mandatory but discretional. The word "may" is usually permissive, not
mandatory. It is an auxiliary verb indicating liberty, opportunity, permission and possibility.
5.
CIVIL LAW; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF OBSCURE WORDS OR
STIPULATIONS IN CONTRACT; SHALL NOT FAVOR THE PARTY WHO CAUSE THE OBSCURITY; CASE AT BAR.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts deposited are repayable to whoever may be
the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the bearer stated in the
CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the plain import
of what is written thereon to unravel the agreement of the parties thereto through facts aliunde. This
need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law
and calls for the application of the elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity.
6.
ID.; ID.; ESTOPPEL; EFFECTS; CASE AT BAR. Any doubt as to whether the CTDs were delivered
as payment for the fuel products or as a security has been dissipated and resolved in favor of the latter
by petitioner's own authorized and responsible representative himself. In a letter dated November 26,
1982 addressed to respondent Security Bank, J. Q. Aranas, Jr., Caltex Credit Manager, wrote: " . . . These
certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel
products" (Emphasis ours.) This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person relying thereon. A
party may not go back on his own acts and representations to the prejudice of the other party who
relied upon them.
7.
ID.; ID.; CHARACTER OF TRANSACTION DETERMINED BY INTENTION OF THE PARTIES. This
disquisition in Integrated Realty Corporation, et al. vs. Philippine National Bank, et al. is apropos: " . . .
Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom: 'The character of
the transaction between the parties is to be determined by their intention, regardless of what language
was used or what the form of the transfer was. If it was intended to secure the payment of money, it
must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even
though a transfer, if regarded by itself, appears to have been absolute, its object and character might
still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of property by the debtor to a creditor,
even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt
continues in existence and is not discharged by the transfer, and that accordingly the use of the terms
ordinarily importing conveyance of absolute ownership will not be given that effect in such a transaction

if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and unambiguous language or other
circumstances excluding an intent to pledge.'"
8.
ID.; PLEDGE OF INCORPOREAL RIGHTS; REQUISITES; REQUIREMENT FOR PLEDGE TO TAKE
EFFECT AGAINST THIRD PERSONS; NOT OBSERVED IN CASE AT BAR. As such holder of collateral
security, he would be a pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights, which inceptively provide: "Art. 2095. Incorporeal rights, evidenced by
negotiable instruments, . . . may also be pledged. The instrument proving the right pledged shall be
delivered to the creditor, and if negotiable, must be indorsed." "Art. 2096. A pledge shall not take effect
against third persons if a description of the thing pledged and the date of the pledge do not appear in a
public instrument." Aside from the fact that the CTDs were only delivered but not indorsed, the factual
findings of respondent court quoted at the start of this opinion show that petitioner failed to produce
any document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective
against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge
contract, but a rule of substantive law prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely.
9.
ID.; ASSIGNMENT OF INCORPOREAL RIGHTS; REQUIREMENT FOR ASSIGNMENT TO TAKE EFFECT
AGAINST THIRD PERSONS; OBSERVED IN CASE AT BAR. The assignment of the CTDs made by Angel de
la Cruz in favor of respondent bank was embodied in a public instrument. With regard to this other
mode of transfer, the Civil Code specifically declares: "Art. 1625. An assignment of credit, right or action
shall produce no effect as against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment involves real property."
Respondent bank duly complied with this statutory requirement Contrarily, petitioner, whether as
purchaser, assignee or lienholder of the CTDs, neither proved the amount of its credit or the extent of its
lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better
right over the CTDs in question.
10.
REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF AND PRESUMPTIONS; ESTOPPEL IN PAIS;
EFFECT. In the law of evidence, whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, and to act upon such belief,
he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.
11.
ID.; ID.; ID.; EVIDENCE WILLFULLY SUPPRESSED WOULD BE ADVERSE IF PRODUCED; CASE AT
BAR. When respondent bank, as defendant in the court below, moved for a bill of particulars therein
praying, among others, that petitioner, as plaintiff, be required to aver with sufficient definiteness or
particularity (a) the due date or dates of payment of the alleged indebtedness of Angel de la Cruz to
plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by De la

Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the motion. Had
it produced the receipt prayed for, it could have proved, if such truly was the fact, that the CTDs were
delivered as payment and not as security. Having opposed the motion, petitioner now labors under the
presumption that evidence willfully suppressed would be adverse if produced.
12.
ID.; CIVIL PROCEDURE; APPEALS; ISSUES NOT RAISED IN TRIAL COURT CANNOT BE RAISED FOR
THE FIRST TIME ON APPEAL; CASE AT BAR. Pre-trial is primarily intended to make certain that all
issues necessary to the disposition of a case are properly raised. Thus, to obviate the element of
surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact which they
intend to raise at the trial, except such as may involve privileged or impeaching matters. The
determination of issues at a pre-trial conference bars the consideration of other questions on appeal. To
accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be
tantamount to saying that petitioner could raise on appeal any issue. We agree with private respondent
that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates
can be premised on a multitude of other legal reasons and causes of action, of which respondent bank's
supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise.
DECISION
REGALADO, J p:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming, with modifications, the earlier
decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein
by herein petitioner against private respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent court,
appears of record:
"1.
On various dates, defendant, a commercial banking institution, through its Sucat Branch issued
280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein
defendant the aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and
Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1 to 280):
CTD

CTD

Dates Serial Nos.

Quantity

Amount

22 Feb. 82

90101 to 90120 20

P80,000

26 Feb. 82

74602 to 74691 90

360,000

2 Mar. 82

74701 to 74740 40

160,000

4 Mar. 82

90127 to 90146 20

80,000

5 Mar. 82

74797 to 94800 4

16,000

5 Mar. 82

89965 to 89986 22

88,000

5 Mar. 82

70147 to 90150 4

16,000

8 Mar. 82

90001 to 90020 20

80,000

9 Mar. 82

90023 to 90050 28

112,000

9 Mar. 82

89991 to 90000 10

40,000

9 Mar. 82

90251 to 90272 22

88,000

Total

280

===

=======

P1,120,000

"2.
Angel dela Cruz delivered the said certificates of time deposit (CTDs) to herein plaintiff in
connection with his purchase of fuel products from the latter (Original Record, p. 208).
"3.
Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch
Manager, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor
to execute and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he
desired replacement of said lost CTDs (TSN, February 9, 1987. pp. 48-50). LexLib
"4.
On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required
Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs
were issued in favor of said depositor (Defendant's Exhibits 282-561).
"5.
On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the
amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor
executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated, among others,
that he (dela Cruz) surrenders to defendant bank `full control of the indicated time deposits from and
after date of the assignment and further authorizes said bank to pre-terminate, set-off and 'apply the
said time deposits to the payment of whatever amount or amounts may be due' on the loan upon its
maturity (TSN, February 9, 1987, pp. 60-62).
"6.
Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc. went to
the defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela
Cruz alleging that the same were delivered to herein plaintiff `as security for purchases made with Caltex
Philippines, Inc.' by said depositor (TSN, February 9, 1987, pp. 54-68).

"7.
On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein
plaintiff formally informing it of its possession of the CTDs in question and of its decision to
preterminate the same.
"8.
On December 8, 1982, plaintiff was requested by herein defendant to furnish the former 'a copy
of the document evidencing the guarantee agreement with Mr. Angel dela Cruz' as well as 'the details of
Mr. Angel dela Cruz' obligations against which' plaintiff proposed to apply the time deposits
(Defendant's Exhibit 564).
"9.

No copy of the requested documents was furnished herein defendant.

"10.
Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value
of the CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).
"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. cdrep
A sample text of the certificates of time deposit is reproduced below to provide a better understanding
of the issues involved in this recourse.
"SECURITY BANK
AND TRUST COMPANY No. 90101
6778 Ayala Ave., Makati
Metro Manila, Philippines
SUCAT OFFICE P 4.000.00
CERTIFICATE OF DEPOSIT

Rate 16%
Date of Maturity

FEB 23, 1984

FEB 22 1982,

19___

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

(Sgd. Illegible)

_______________________

______________________

AUTHORIZED SIGNATURES" 5
__________________________
Respondent court ruled that the CTDs in question are non-negotiable instruments, rationalizing as
follows:
" . . . While it may be true that the word `bearer' appears rather boldly in the CTDs issued, it is important
to note that after the word `BEARER' stamped on the space provided supposedly for the name of the
depositor, the words `has deposited' a certain amount follows. The document further provides that the
amount deposited shall be `repayable to said depositor' on the period indicated. Therefore, the text of
the instrument(s) themselves manifest with clarity that they are payable, not to whoever purports to be
the `bearer' but only to the specified person indicated therein, the depositor. In effect, the appellee
bank acknowledges its depositor Angel dela Cruz as the person who made the deposit and further
engages itself to pay said depositor the amount indicated thereon at the stipulated date." 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 of Act No. 2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become negotiable, viz:
"(a)

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

(b)

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

(c)

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

(d)

Must be payable to order or to bearer; and

(e)
Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty."
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone
of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco,

Security Bank's Branch Manager way back in 1982, testified in open court that the depositor referred to
in the CTDs is no other than Mr. Angel de la Cruz. Cdpr
xxx

xxx

xxx

"Atty. Calida:
q
In other words Mr. Witness, you are saying that per books of the bank, the depositor referred
(sic) in these certificates states that it was Angel dela Cruz? witness:
a
Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause
(sic) the amount.
Atty. Calida:
q

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

witness:
a

None, your Honor." 7

xxx

xxx

xxx

"Atty. Calida:
q
Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as
the bank is concerned?
witness:
a
xxx

Angel dela Cruz is the depositor." 8

xxx

xxx

On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. 9 In the construction of a bill
or note, the intention of the parties is to control, if it can be legally ascertained. 10 While the writing
may be read in the light of surrounding circumstances in order to more perfectly understand the intent
and meaning of the parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of
the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have
used. What the parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide
that the amounts deposited shall be repayable to the depositor. And who, according to the document, is
the depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and

that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of
presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts deposited are repayable to whoever may be
the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the bearer stated in the
CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the plain import
of what is written thereon to unravel the agreement of the parties thereto through facts aliunde. This
need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law
and calls for the application of the elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the
negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for
reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing
respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz,
as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to
deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel
products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a
security has been dissipated and resolved in favor of the latter by petitioner's own authorized and
responsible representative himself. LexLib
In a letter dated November 26, 1982 addressed to respondent Security Bank, J. Q. Aranas, Jr., Caltex
Credit Manager, wrote: " . . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz
to guarantee his purchases of fuel products" (Underscoring ours.) 13 This admission is conclusive upon
petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon. 14 A party may not go back on his own acts and representations to
the prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a party has,
by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular
thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager
could have easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides,
when respondent bank, as defendant in the court below, moved for a bill of particulars therein 17
praying, among others, that petitioner, as plaintiff, be required to aver with sufficient definiteness or

particularity (a) the due date or dates of payment of the alleged indebtedness of Angel de la Cruz to
plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by De la
Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the motion. 18
Had it produced the receipt prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion, petitioner now labors
under the presumption that evidence willfully suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Integrated Realty Corporation, et al. vs.
Philippine National Bank, et al. 20 is apropos:
" . . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:
'The character of the transaction between the parties is to be determined by their intention, regardless
of what language was used or what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was some other intention, it is not a
pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object
and character might still be qualified and explained by contemporaneous writing declaring it to have
been a deposit of the property as collateral security. It has been said that a transfer of property by the
debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as
a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly
the use of the terms ordinarily importing conveyance of absolute ownership will not be given that effect
in such a transaction if they are also commonly used in pledges and mortgages and therefore do not
unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.'"
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in such
a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof, 22 In the present case,
however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed.
Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard
the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a
holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by
mere delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of
such security, in the event of non-payment of the principal obligation, must be contractually provided
for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral
security, he would be a pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights, 24 which inceptively provide:

"Art. 2095.
Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be
indorsed."
"Art. 2096.
A pledge shall not take effect against third persons if a description of the thing pledged
and the date of the pledge do not appear in a public instrument."
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz.25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective
against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge
contract, but a rule of substantive law prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank
was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code
specifically declares:
"Art. 1625.
An assignment of credit, right or action shall produce no effect as against third persons,
unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case
the assignment involves real property."
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lienholder of the CTDs, neither proved the amount of its credit or the extent of its
lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better
right over the CTDs in question. LibLex
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable instruments and
the issuance of replacement certificates therefor, on the ground that petitioner failed to raise that issue
in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted
by them to the trial court. 29 The issues agreed upon by them for resolution in this case are:
"1.

Whether or not the CTDs as worded are negotiable instruments.

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

3.
Whether or not there was legal compensation or set off involving the amount covered by the
CTDs and the depositor's outstanding account with defendant, if any.
4.
Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity
date provided therein.
5.

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

6.
Whether or not the parties can recover damages, attorney's fees and litigation expenses from
each other."
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank. An
issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. 30 Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are
properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial
conference all issues of law and fact which they intend to raise at the trial, except such as may involve
privileged or impeaching matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be
tantamount to saying that petitioner could raise on appeal any issue. We agree with private respondent
that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates
can be premised on a multitude of other legal reasons and causes of action, of which respondent bank's
supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still
cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying
down the rules to be followed in case of lost instruments payable to bearer, which it invokes, will reveal
that said provisions, even assuming their applicability to the CTDs in the case at bar, are merely
permissive and not mandatory. The very first article cited by petitioner speaks for itself:
"Art. 548.
The dispossessed owner, no matter for what cause it may be, may apply to the judge or
court of competent jurisdiction, asking that the principal, interest or dividends due or about to become
due, be not paid a third person, as well as in order to prevent the ownership of the instrument that a
duplicate be issued him." (Emphases ours.)
xxx

xxx

xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part
of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of
a duplicate of the lost instrument. Where the provision reads "may," this word shows that it is not
mandatory but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an auxiliary
verb indicating liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce,
on which petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the
one hand, a right of recourse in favor of a dispossessed owner or holder of a bearer instrument so that
he may obtain a duplicate of the same, and, on the other, an option in favor of the party liable thereon
who, for some valid ground, may elect to refuse to issue a replacement of the instrument, Significantly,
none of the provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate or
replacement instrument sans compliance with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor. LLjur
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed
decision is hereby AFFIRMED.
SO ORDERED.
Narvasa, C .J ., Padilla and Nocon, JJ ., concur.
EN BANC
[G.R. No. L-16968. July 31, 1962.]
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. CONCEPCION MINING COMPANY, INC., ET AL.,
defendant-appellants.
Ramon B. de los Reyes for plaintiff-appellee.
Demetrio Miraflor for defendants-appellants.
SYLLABUS
1.
BILLS, NOTES AND CHECKS; NEGOTIABLE INSTRUMENT; SIGNED BY TWO OR MORE PERSONS;
LIABILITY. Under Section 17 (g) of the Negotiable Instrument Law and Art. 1216 of the Civil Code,
where the promissory note was executed jointly and severally by two or more persons, the payee of the
promissory note had the right to hold any one or any two of the signers of the promissory note
responsible for the payment of the amount of the note.
DECISION
LABRADOR, J p:
Appeal from a judgment or decision of the Court of First Instance of Manila, Hon. Gustavo Victoriano,
presiding, sentencing defendants Concepcion Mining Company and Jose Sarte to pay jointly and

severally to the plaintiff the amount of P7,197.26 with interest up to September 29, 1959, plus a daily
interest of P1.3698 thereafter up to the time the amount is fully paid, plus 10% of the amount as
attorney's fees, and costs of this suit.
The present action was instituted by the plaintiff to recover from the defendants the face of a
promissory note the pertinent part of which reads as follows:
"Manila, March 12, 1954
"NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National
Bank . . .
"In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers
shall pay ten per cent (10%) of the amount due on the note as attorney's fees, which in no case shall be
less than P100.00 exclusive of all costs and fees allowed by law as stipulated in the contract of real
estate mortgage. Demand and Dishonor Waived. Holder may accept partial payment reserving his right
of recourse against each and all indorsers.
(Purpose mining industry)
CONCEPCION MINING COMPANY, INC.,
By:
(Sgd.) VICENTE LEGARDA
President
(Sgd.) VICENTE LEGARDA
(Sgd.) JOSE S. SARTE
"Please issue check to
Mr. Jose S. Sarte"
Upon the filing of the complaint the defendants presented their answer in which they allege that the comaker of the promissory note Don Vicente L. Legarda, died on February 24, 1946 and his estate is in the
process of judicial determination in Special Proceedings No. 29060 of the Court of First Instance of
Manila. On the basis of this allegation it is prayed, as a special defense, that the estate of said deceased
Vicente L. Legarda be included as party-defendant. The court in its decision ruled that the inclusion of
said defendant is unnecessary and immaterial, in accordance with the provisions of Article 1216 of the
new Civil Code and section 17(g) of the Negotiable Instruments Law.
A motion to reconsider this decision was denied and thereupon defendants presented a petition for
relief, asking that the effects of the judgment be suspended for the reason that the deceased Vicente L.
Legarda should have been included as a party-defendant and his liability should be determined in

pursuance of the provisions of the promissory note. This motion for relief was also denied, hence
defendant appealed to this Court.
Section 17(g) of the Negotiable Instruments Law provides as follows:
"SEC. 17.
Construction where instrument is ambiguous. Where the language of the instrument
is ambiguous or there are omission therein, the following rules of construction apply:
xxx

xxx

xxx

"(g)
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."
And Article 1216 of the Civil Code of the Philippines also provides as follows:
"ART. 1216.
The creditor may proceed against any one of the solidary debtors or some of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected."
In view of the above quoted provisions, and as the promissory note was executed jointly and severally
by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte,
the payee of the promissory note had the right to hold any one or any two of the signers of the
promissory note responsible for the payment of the amount of the note. This judgment of the lower
court should be affirmed.
Our attention has been attracted to the discrepancies in the printed record on appeal. We note, first,
that the names of the defendants, who are evidently the Concepcion Mining Co., Inc. and Jose S. Sarte,
do not appear in the printed record on appeal. The title of the complaint set forth in the record on
appeal does not contain the name of Jose Sarte, when it should, as two defendants are named in the
complaint and the only defense of the defendants is the non-inclusion of the deceased Vicente L.
Legarda as a defendant in the action. We also note that the copy of the promissory note which is set
forth in the record on appeal does not contain the name of the third maker Jose S. Sarte. Fortunately,
the brief of appellee on page 4 sets forth said name of Jose S. Sarte as one of the co-makers of the
promissory note. Evidently, there is an attempt to mislead the court into believing that Jose S. Sarte is
not one of the co-makers. The attorney for the defendants is Atty. Jose S. Sarte himself and he should be
held primarily responsible for the correctness of the record on appeal. We, therefore, order the said
Atty. Jose S. Sarte to explain why in his record on appeal his own name as one of the defendants does
not appear and neither does his name appear as one of the co-signers of the promissory note in
question. So ordered.
Bengzon, C. J., Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ.,
concur.
Reyes, J.B.L., J., took no part.

FIRST DIVISION
[G.R. No. 111190. June 27, 1995.]
LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity as garnishee,
petitioner, vs. HON. JOSE BURGOS, Presiding Judge, RTC, and RAUL H. SESBREO, respondents.
SYLLABUS
1.
REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; GARNISHMENT; DEFINED.
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. Emphasis is laid on the phrase "belonging to the
judgment debtor" since it is the focal point in resolving the issues raised.
2.
ID.; ID.; ID.; ID.; RULE IN CASE OF SALARY CHECK OF GOVERNMENT OFFICER OR EMPLOYEE.
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 petitioners City Fiscal of
Mandaue City and head of office. Under Sec. 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 drawer with intent to transfer title to the payee and recognize him as the
holder thereof. 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 Tiro v. Hontanosas (No. L-32312, 25 November 1983,
125 SCRA 697) we ruled that The salary check of a government officer or employee such as 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 (No. L-30098, 18 February 1970, 31 SCRA 616) 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.

3.
ID.; ID.; ID.; ID.; GENERALLY, GARNISHEE NEED NOT INQUIRE OR JUDGE FOR ITSELF WHETHER
OR NOT THE ORDER FOR THE ADVANCE EXECUTION OF A JUDGMENT IS VALID; EXCEPTION. 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. 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.
DAVIDE, JR., J., separate opinion:
REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; GARNISHMENT; FOR VALIDITY THEREOF IN
CASE OF SALARY CHECKS DUE TO GOVERNMENT EMPLOYEES, TIME AND NOTICE THEREOF MUST BE
CONSIDERED. Justice Davide, Jr. respectfully submits that if these salary and RATA checks
corresponded, respectively, to a payroll period and to a month which had already lapsed at the time the
notice of garnishment was served, the garnishment would be valid, as the checks would then cease to
be property of the Government and would become property of Mabanto. Upon the expiration of such
period and month, the sums indicated therein were deemed automatically segregated from the
budgetary allocations for the Department of Justice under the General Appropriations Act. Justice
Davide, Jr. therefore votes to grant the petition only if the salary and RATA checks garnished
corresponds to an unexpired payroll period and RATA month, respectively.
DECISION
BELLOSILLO, J p:
RAUL H. SESBREO 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.
On 4 February 1992 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. The Notice directed petitioner

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. 1 On 10
March 1992 private respondent 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
petitioner on 4 November 1992 to submit his report showing the amount of the garnished salaries of
Mabanto, Jr., within (15) days from receipt 2 taking into consideration the provisions of Sec. 12, pars. (f)
and (i), Rule 39 of the Rules of Court.
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.
On the other hand, on 19 January 1993 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. 3 It opined that the checks of Mabanto, Jr., had already been
released through petitioner by the Department of Justice duly signed by the officer concerned. Upon
service of the writ of garnishment, petitioner as custodian of the checks was under obligation to hold
them for the judgment creditor. Petitioner 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. Additionally there was no sufficient reason for petitioner to hold
the checks because they were no longer government funds and presumably delivered to the payee,
conformably with the last sentence of Sec. 16 of the Negotiable Instruments Law.
With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt. For,
while his explanation suffered from procedural infirmities nevertheless he took pains in enlightening the
court by sending a written explanation dated 22 July 1992 requesting for the lifting of the notice of
garnishment on the ground that the notice should have been sent to the Finance Officer of the
Department of Justice. Petitioner insists that he had no authority to segregate a portion of the salary of
Mabanto, Jr. The explanation however was not submitted to the trial court for action since the
stenographic reporter failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it was not the
duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution, writ
of execution and notice of garnishment was justified. His only duty was to turn over the garnished
checks to the trial court which issued the order of execution. 5
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.
Petitioner has well argued his case.
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. He receives his
compensation in the form of checks from the Department of Justice through petitioner as City Fiscal of
Mandaue City and head of office. Under Sec. 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. 7
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 Tiro v. Hontanosas 8 we ruled that
The salary check of a government officer or employee such as 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. 9 The rationale behind this doctrine is obvious consideration of public policy. The Court
succinctly stated in Commissioner of Public Highways v. San Diego 10 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.
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 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.
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the Regional
Trial Court of Cebu City, Br. 17, subject of the petition are SET ASIDE. The notice of garnishment served
on petitioner dated 3 February 1992 is ordered DISCHARGED.
SO ORDERED.
Quiason and Kapunan, JJ., concur.
Davide, Jr., J., see separate opinion.
Padilla, J., concurs with the separate opinion of J. Davide, Jr. SECOND DIVISION
[G.R. No. 85419. March 9, 1993.]
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner, vs. SIMA WEI and/or LEE KIAN HUAT, MARY CHENG
UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE
PHILIPPINES, defendants-respondents.
Yngson & Associates for petitioner.
Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
Rafael S. Santayana for Mary Cheng Uy.

SYLLABUS
1.
REMEDIAL LAW; CAUSE OF ACTION; DEFINITION AND ESSENTIAL ELEMENTS. A cause of action
is defined as an act or omission of one party in violation of the legal right or rights of another. The
essential elements are: (1) legal right of the plaintiff; (2) correlative obligation of the defendant; and (3)
an act or omission of the defendant in violation of said legal right.
2.
ID.; APPEAL; PARTY CANNOT CHANGE HIS THEORY ON APPEAL; REASON. In the original
complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory note, and the
alternative defendants, including Sima Wei, on the two checks. On appeal from the orders of dismissal
of the Regional Trial Court, petitioner Bank alleged that its cause of action was not based on collecting
the sum of money evidenced by the negotiable instruments stated but on quasi-delict a claim for
damages on the ground of fraudulent acts and evident bad faith of the alternative respondents. This was
clearly an attempt by the petitioner Bank to change not only the theory of its case but the basis of his
cause of action. It is well-settled that a party cannot change his theory on appeal, as this would in effect
deprive the other party of his day in court.
3.
NEGOTIABLE INSTRUMENTS LAW; CHECKS; MUST BE DELIVERED TO THE PAYEE TO GIVE EFFECT
THERETO. 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: "Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto. . . ." 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.
DECISION
CAMPOS, JR., J p:
On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a sum
of money against respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian
Industrial Plastic Corporation (Plastic Corporation for short) and the Producers Bank of the Philippines,
on two causes of action:
(1)
To enforce payment of the balance of P1,032,450.02 on a promissory note executed by
respondent Sima Wei on June 9, 1983; and
(2)
To enforce payment of two checks executed by Sima Wei, payable to petitioner, and drawn
against the China Banking Corporation, to pay the balance due on the promissory note.

Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a common ground
that the complaint states no cause of action. The trial court granted the defendants' Motions to Dismiss.
The Court of Appeals affirmed this decision, * to which the petitioner Bank, represented by its Legal
Liquidator, filed this Petition for Review by Certiorari, assigning the following as the alleged errors of the
Court of Appeals. 1
(1)
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-PETITIONER HAS NO CAUSE
OF ACTION AGAINST DEFENDANTS-RESPONDENTS HEREIN. LibLex
(2)
THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3 OF THE REVISED RULES
OF COURT ON ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and
delivered to the former a promissory note, engaging to pay the petitioner Bank or order the amount of
P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum. Sima Wei made partial
payments on the note, leaving a balance of P1,032,450.02. On November 18, 1983, Sima Wei issued two
crossed checks payable to petitioner Bank 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 the petitioner-payee or to any of its
authorized representatives. For reasons not shown, these checks came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement
(forged or otherwise) to the account of respondent 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 respondent 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 petitioner Bank and bore no indorsement of the latter. Hence, petitioner
filed the complaint as aforestated.
The main issue before Us is whether petitioner Bank has a cause of action against any or all of the
defendants, in the alternative or otherwise.
A cause of action is defined as an act or omission of one party in violation of the legal right or rights of
another. The essential elements are: (1) legal right of the plaintiff; (2) correlative obligation of the
defendant; and (3) an act or omission of the defendant in violation of said legal right. 2
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:
"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. 3 Delivery of an instrument means transfer of possession, actual or constructive, from one person
to another. 4 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. LexLib
The allegations of the petitioner in the original complaint show that the two (2) China Bank checks,
numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. Without the
delivery of said checks to petitioner-payee, 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.
In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory
note, and the alternative defendants, including Sima Wei, on the two checks. On appeal from the orders
of dismissal of the Regional Trial Court, petitioner Bank alleged that its cause of action was not based on
collecting the sum of money evidenced by the negotiable instruments stated but on quasi- delict a
claim for damages on the ground of fraudulent acts and evident bad faith of the alternative
respondents. This was clearly an attempt by the petitioner Bank to change not only the theory of its case
but the basis of his cause of action. It is well-settled that a party cannot change his theory on appeal, as
this would in effect deprive the other party of his day in court. 5
Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from
liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Her
allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank has
no merit for, as We have earlier explained, these checks were never delivered to petitioner Bank. And
even granting, without admitting, that there was delivery to petitioner Bank, the delivery of checks in
payment of an obligation does not constitute payment unless they are cashed or their value is impaired
through the fault of the creditor. 6 None of these exceptions were alleged by respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the
promissory note by some other cause, petitioner Bank has a right of action against her for the balance
due thereon.
However, insofar as the other respondents are concerned, petitioner Bank has no privity with them.
Since petitioner Bank 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 petitioner Bank. It
had no right or interest in the checks which could have been violated by said respondents. Petitioner
Bank 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.
With respect to the second assignment of error raised by petitioner Bank regarding the applicability of
Section 13, Rule 3 of the Rules of Court, We find it unnecessary to discuss the same in view of Our
finding that the petitioner Bank did not acquire any right or interest in the checks due to lack of delivery.
It therefore has no cause of action against the respondents, in the alternative or otherwise.
In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's complaint
is AFFIRMED insofar as the second cause of action is concerned. On the first cause of action, the case is
REMANDED to the trial court for a trial on the merits, consistent with this decision, in order to
determine whether respondent Sima Wei is liable to the Development Bank of Rizal for any amount
under the promissory note allegedly signed by her. cdphil
SO ORDERED.
Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur. FIRST DIVISION
[G.R. No. L-40796. July 31, 1975.]
REPUBLIC BANK, plaintiff-appellee, vs. MAURICIA T. EBRADA, defendant-appellant.
Sabino de Leon, Jr. for plaintiff-appellee.
Julio Baldonado for defendant-appellant.
SYNOPSIS
A check with a face value of P1,246.08 was issued to one Martin Lorenzo who turned out to have been
dead almost eleven years before it was issued. It was encashed by Mauricia Ebrada at the Republic
Bank's main office at the Escolta. Informing the Bank that the payee's (Lorenzo) indorsement on the
reverse side of the check was a forgery, the Bureau of Treasury requested the Bank to refund the
amount. The Bank sued Mauricia Ebrada before the city court when she refused to return the money.
The court ruled for the Bank, so the case was elevated to the Court of First Instance which likewise
rendered an adverse decision against Mauricia Ebrada. An appeal was filed.
The Supreme Court upheld the lower court. Although Mauricia Ebrada was not the author of the
forgery, as the last indorser of the check, she warranted good title to it. The negotiation from Martin
Lorenzo, the original payee, to Ramon Lorenzo is of no effect but the negotiation from Ramon Lorenzo
to Adelaida Dominguez and from her to Mauricia Ebrada who did not know of the forgery is valid and
enforceable. The bank can recover from her the money paid on the forged check.

Judgment affirmed.
SYLLABUS
1.
NEGOTIABLE INSTRUMENT; CHECK; FORGED INDORSEMENT; EFFECT. Where the signature on
a negotiable instrument is forged, the negotiation of the check is without force of effect. But the
existence of the forged signature therein will not render void all the other negotiations of the check with
respect to the other parties whose signatures are genuine. It is only the negotiation predicated on the
forged indorsement that should be declared inoperative.
2.
ID.; ID.; ID.; DRAWEE BANK SUFFERED THE LOSS BUT RECOVERY FROM THE ONE WHO
ENCASHED THE CHECK AVAILABLE. Where 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, the bank can still
recover from the one who encashed the check. In the case of Great Eastern Life Insurance Company vs.
Hongkong and Shanghai Banking Corporation, 43 Phil. 678, it was held "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."
3.
ID.; ID.; ID.; DRAWEE BANK NOT DUTY BOUND TO ASCERTAIN GENUINESS OF SIGNATURES OF
PAYEE OR INDORSERS. It is not supposed to be the duty of a drawee bank 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.
4.
ID.; ID.; ID.; PURCHASER OF CHECK OR DRAFT BOUND TO ASCERTAIN GENUINENESS OF
INSTRUMENT. 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
purchaser. 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.
5.
ID.; ID.; ID.; LIABILITY OF ACCOMMODATION PARTY. Although the one to whom the Bank paid
the check was not proven to be the author of the supposed forgery, 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 eleven years before the check was issued. The fact that immediately after
receiving the cash proceeds of the check in question from the drawee bank she immediately turned over
said amount to another party, who in turn handed the amount to somebody else 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 Instrument Law.

DECISION
MARTIN, J p:
Appeal on a question of law of the decision of the Court of First Instance of Manila, Branch XXIII in Civil
Case No. 69288, entitled "Republic Bank vs. Mauricia T. Ebrada."
On or about February 27, 1963 defendant Mauricia T. Ebrada, encashed Back Pay Check No. 508060
dated January 15, 1963 for P1,246.08 at the main office of the plaintiff Republic Bank at Escolta, Manila.
The check was issued by the Bureau of Treasury. 1 Plaintiff 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 2 since the latter had allegedly died as of July 14, 1952. 3 Plaintiff Bank was then
requested by the Bureau of Treasury to refund the amount of P1,246.08. 4 To recover what it had
refunded to the Bureau of Treasury, plaintiff Bank made verbal and formal demands upon defendant
Ebrada to account for the sum of P1,246.08, but said defendant refused to do so. So plaintiff Bank sued
defendant Ebrada before the City Court of Manila.
On July 11, 1966, defendant 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 plaintiff 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. 5
About the same day, July 11, 1966 defendant Ebrada filed a Third-Party complaint against Adelaida
Dominguez who, in turn, filed on September 14, 1966 a Fourth-Party complaint against Justina Tinio.
On March 21, 1967, the City Court of Manila rendered judgment for the plaintiff Bank against defendant
Ebrada; for Third-Party plaintiff against Third-Party defendant, Adelaida Dominguez, and for FourthParty plaintiff against Fourth-Party defendant, Justina Tinio.
From the judgment of the City Court, defendant Ebrada took an appeal to the Court of First Instance of
Manila where the parties submitted a partial stipulation of facts as follows:
"COME NOW the undersigned counsel for the plaintiff, defendant, Third-Party defendant and FourthParty plaintiff and unto this Honorable Court most respectfully submit the following:
PARTIAL STIPULATION OF FACTS
1.

That they admit their respective capacities to sue and be sued;

2.
That on January 15, 1963 the Treasury of the Philippines issued its Check No. BP-508060,
payable to the order of one MARTIN LORENZO, in the sum of P1,246.08, and drawn on the Republic
Bank, plaintiff herein, which check will be marked as Exhibit "A" for the plaintiff;
3.

That the back side of aforementioned check hears the following signatures, in this order:

1)

MARTIN LORENZO:

2)

RAMON R. LORENZO;

3)

DELIA DOMINGUEZ; and

4)

MAURICIA T. EBRADA;

4.
That the aforementioned check was delivered to the defendant MAURICIA T. EBRADA by the
Third-Party defendant and Fourth-Party plaintiff ADELAIDA DOMINGUEZ, for the purpose of
encashment;
5.
That the signature of defendant MAURICIA T. EBRADA was affixed on said check on February 27,
1963 when she encashed it with the plaintiff Bank;
6.
That immediately after defendant MAURICIA T. EBRADA received the cash proceeds of said
check in the sum of P1,246.08 from the plaintiff Bank, she immediately turned over the said amount to
the third-party defendant and fourth-party plaintiff ADELAIDA DOMINGUEZ, who in turn handed the
said amount to the fourth-party defendant JUSTINA TINIO on the same date, as evidenced by the receipt
signed by her which will be marked as Exhibit "1-Dominguez"; and
7.
That the parties hereto reserve the right to present evidence on any other fact not covered by
the foregoing stipulations.
Manila, Philippines, June 6, 1969."
Based on the foregoing stipulation of facts and the documentary evidence presented, the trial court
rendered a decision, the dispositive portion of which reads as follows:
"WHEREFORE, the Court renders judgment ordering the defendant Mauricia T. Ebrada to pay the
plaintiff the amount of ONE THOUSAND TWO FORTY-SIX 08/100 (P1,246.08), with interest as the legal
rate from the filing of the complaint on June 16, 1966, until fully paid, plus the costs in both instances
against Mauricia T. Ebrada.
The right of Mauricia T. Ebrada to file whatever claim she may have against Adelaida Dominguez in
connection with this case is hereby reserved. The right of the estate of Dominguez to file the fourthparty complaint against Justina Tinio is also reserved.

SO ORDERED."
In her appeal, defendant-appellant presses that the lower court erred:
"IN ORDERING THE APPELLANT TO PAY THE APPELLEE THE FACE VALUE OF THE SUBJECT CHECK AFTER
FINDING THAT THE DRAWER ISSUED THE SUBJECT CHECK TO A PERSON ALREADY DECEASED FOR 11-1/2
YEARS AND THAT THE APPELLANT DID NOT BENEFIT FROM ENCASHING SAID CHECK."

From the stipulation of facts it is admitted that the check in question was delivered to defendantappellant by Adelaida Dominguez for the purpose of encashment and that her signature was affixed on
said check when she cashed it with the plaintiff Bank. Likewise it is admitted that defendant-appellant
was the last indorser of the said check. As such indorser, she was supposed to have warranted that she
has good title to said check; for under Section 5 of the Negotiable Instruments Law: 6
"Every person negotiating an instrument by delivery or by qualified indorsement, warrants:
(a)

That the instrument is genuine and in all respects what it purports to be.

(b)

That she has good title to it."

xxx

xxx

xxx

and under Section 65 of the same Act:

"Every indorser who indorses without qualification warrants to all subsequent holders in due course:
(a)

The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding sections;

(b)

That the instrument is at the time of his indorsement valid and subsisting."

It turned out, however, that the signature of the original payee of the check, Martin Lorenzo was a
forgery because he was already dead 7 almost 11 years before the check in question was issued by the
Bureau of Treasury. Under Section 23 of the Negotiable Instruments Law (Act 2031):
"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 instruments, or to give a discharge 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 is clear from the provision that where the signature on a negotiable instrument if forged, the
negotiation of the check is without force or effect. But does this mean that the existence of one forged
signature therein will render void all the other negotiations of the check with respect to the other
parties whose signature are genuine?
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 before Us, 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 the
defendant-appellant who did not know of the forgery, should be considered valid and enforceable,
barring any claim of forgery.

What happens then, 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? Can the drawee bank recover from the one
who encashed the check?
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:
"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?" 8
Similarly, in the case before Us, the defendant-appellant, 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 plaintiff Bank for payment. Her failure to do so makes her liable for the loss and the
plaintiff Bank may recover from her the money she received for the check. As reasoned out above, 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.
In our jurisdiction We have a case of similar import. 9 The Great Eastern Life Insurance Company drew
its check for P2000.00 on the Hongkong and Shanghai Banking Corporation payable to the order of
Lazaro Melicor. A certain E. M. Maasin fraudulently obtained the check and forged the signature of
Melicor, as an indorser, and then personally indorsed and presented the check to the Philippine National
Bank where the amount of the check was placed to his (Maasin's) credit. On the next day, the Philippine
National Bank indorsed the check to the Hongkong and Shanghai Banking Corporation which paid it and
charged the amount of the check to the insurance company. The Court held that the Hongkong and
Shanghai Banking Corporation was liable to the insurance company for the amount of the check and
that the Philippine National Bank was in turn liable to the Hongkong and Shanghai Banking Corporation.
Said the Court:

"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."
With the foregoing doctrine We are to concede that the plaintiff Bank should suffer the loss when it paid
the amount of the check in question to defendant-appellant, but it has the remedy to recover from the
latter the amount it paid to her. Although the defendant-appellant to whom the plaintiff 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 10 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 plaintiff Bank,
defendant-appellant immediately turned over said amount to Adelaida Dominguez (Third-Party
defendant and the Fourth-Party plaintiff) who in turn handed the amount to Justina 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 (Act 231),
thus:
"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."
IN VIEW OF THE FOREGOING, the judgment appealed from is hereby affirmed in toto with costs against
defendant-appellant.
SO ORDERED.
Makalintal, C.J., Castro, Makasiar and Esguerra, JJ., concur.