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Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-56169 June 26, 1992
TRAVEL-ON, INC., petitioner,
vs.
COURT OF APPEALS and ARTURO S. MIRANDA, respondents.
R E S O L U T I O N
FELICIANO, J.:
Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on
commission basis for and in behalf of different airline companies. Private respondent
Arturo S. Miranda had a revolving credit line with petitioner. He procured tickets from
petitioner on behalf of airline passengers and derived commissions therefrom.
On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of
Manila to collect on six (6) checks issued by private respondent with a total face
amount of P115,000.00. The complaint, with a prayer for the issuance of a writ of
preliminary attachment and attorney's fees, averred that from 5 August 1969 to 16
January 1970, petitioner sold and delivered various airline tickets to respondent at a
total price of P278,201.57; that to settle said account, private respondent paid
various amounts in cash and in kind, and thereafter issued six (6) postdated checks
amounting to P115,000.00 which were all dishonored by the drawee banks. Travel-
On further alleged that in March 1972, private respondent made another payment of
P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was
granted by the court a quo.
In his answer, private respondent admitted having had transactions with Travel-On
during the period stipulated in the complaint. Private respondent, however, claimed
that he had already fully paid and even overpaid his obligations and that refunds
were in fact due to him. He argued that he had issued the postdated checks for
purposes of accommodation, as he had in the past accorded similar favors to
petitioner. During the proceedings, private respondent contested several tickets
alleged to have been erroneously debited to his account. He claimed reimbursement
of his alleged over payments, plus litigation expenses, and exemplary and moral
damages by reason of the allegedly improper attachment of his properties.
In support of his theory that the checks were issued for accommodation, private
respondent testified that he bad issued the checks in the name of Travel-On in order
that its General Manager, Elita Montilla, could show to Travel-On's Board of Directorsthat the accounts receivable of the company were still good. He further stated that
Elita Montilla tried to encash the same, but that these were dishonored and were
subsequently returned to him after the accommodation purpose had been attained.
Travel-On's witness, Elita Montilla, on the other hand explained that the
"accommodation" extended to Travel-On by private respondent related to situations
where one or more of its passengers needed money in Hongkong, and upon request
of Travel-On respondent would contact his friends in Hongkong to advance
Hongkong money to the passenger. The passenger then paid Travel-On upon his
return to Manila and which payment would be credited by Travel-On to respondent's
running account with it.
In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay
private respondent the amount of P8,894.91 representing net overpayments by
private respondent, moral damages of P10,000.00 for the wrongful issuance of the
writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and
the costs of the suit.
The trial court ruled that private respondent's indebtedness to petitioner was not
satisfactorily established and that the postdated checks were issued not for the
purpose of encashment to pay his indebtedness but to accommodate the General
Manager of Travel-On to enable her to show to the Board of Directors that Travel-On
was financially stable.
Petitioner filed a motion for reconsideration that was, however, denied by the trial
court, which in fact then increased the award of moral damages to P50,000.00.
On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced
the award of moral damages to P20,000.00, with interest at the legal rate from the
date of the filing of the Answer on 28 August 1972.
Petitioner moved for reconsideration of the Court of Appeal's' decision, without
success.
In the instant Petition for Review, it is urged that the postdated checks are per
se evidence of liability on the part of private respondent. Petitioner further argues
that even assuming that the checks were for accommodation, private respondent is
still liable thereunder considering that petitioner is a holder for value.
Both the trial and appellate courts had rejected the checks as evidence of
indebtedness on the ground that the various statements of account prepared by
petitioner did not show that Private respondent had an outstanding balance of
P115,000.00 which is the total amount of the checks he issued. It was pointed out
that while the various exhibits of petitioner showed various accountabilities of
private respondent, they did not satisfactorily establish the amount of the
outstanding indebtedness of private respondent. The appellate court made much of
the fact that the figures representing private respondent's unpaid accounts found in
the "Schedule of Outstanding Account" dated 31 January 1970 did not tally with the
figures found in the statement which showed private respondent's transactions with
petitioner for the years 1969 and 1970; that there was no satisfactory explanation
as to why the total outstanding amount of P278,432.74 was still used as basis in theaccounting of 7 April 1972 considering that according to the table of transactions for
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the year 1969 and 1970, the total unpaid account of private respondent amounted
to P239,794.57.
We have, however, examined the record and it shows that the 7 April 1972
Statement of Account had simply not been updated; that if we use as basis the
figure as of 31 January 1970 which is P278,432.74 and from it deduct P38,638.17
which represents some of the payments subsequently made by private respondent,
the figure — P239,794.57 will be obtained.
Also, the fact alone that the various statements of account had variances in figures,simply did not mean that private respondent had no more financial obligations to
petitioner. It must be stressed that private respondent's account with petitioner was
a running or open one, which explains the varying figures in each of the statements
rendered as of a given date.
The appellate court erred in considering only the statements of account in
determining whether private respondent was indebted to petitioner under the
checks. By doing so, it failed to give due importance to the most telling piece of
evidence of private respondent's indebtedness — the checks themselves which he
had issued.
Contrary to the view held by the Court of Appeals, this Court finds that the checks
are the all important evidence of petitioner's case; that these checks clearly
established private respondent's indebtedness to petitioner; that private respondent
was liable thereunder.
It is important to stress that a check which is regular on its face is deemed prima
facie to have been issued for a valuable consideration and every person whose
signature appears thereon is deemed to have become a party thereto for
value. 1 Thus, the mere introduction of the instrument sued on in evidence prima
facie entitles the plaintiff to recovery. Further, the rule is quite settled that a
negotiable instrument is presumed to have been given or indorsed for a sufficient
consideration unless otherwise contradicted and overcome by other competent
evidence. 2
In the case at bar, the Court of Appeals, contrary to these established rules, placed
the burden of proving the existence of valuable consideration upon petitioner. Thiscannot be countenanced; it was up to private respondent to show that he had
indeed issued the checks without sufficient consideration. The Court considers that
Private respondent was unable to rebut satisfactorily this legal presumption. It must
also be noted that those checks were issued immediately after a letter demanding
payment had been sent to private respondent by petitioner Travel-On.
The fact that all the checks issued by private respondent to petitioner were
presented for payment by the latter would lead to no other conclusion than that
these checks were intended for encashment. There is nothing in the checks
themselves (or in any other document for that matter) that states otherwise.
We are unable to accept the Court of Appeals' conclusion that the checks here
involved were issued for "accommodation" and that accordingly private respondentmaker of those checks was not liable thereon to petitioner payee of those checks.
In the first place, while the Negotiable Instruments Law does refer to
accommodation transactions, no such transaction was here shown. Section 29 of the
Negotiable Instruments Law provides as follows:
Sec. 29. Liability of accommodation party . — 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 beonly an accommodation party.
In accommodation transactions recognized by the Negotiable Instruments
Law, an accommodating party lends his credit to the accommodated party,
by issuing or indorsing a check which is held by a payee or indorsee as a
holder in due course, who gave full value therefor to the accommodated
party. The latter, in other words, receives or realizes full value which the
accommodated party then must repay to the accommodating party, unless
of course the accommodating party intended to make a donation to the
accommodated party. But the accommodating party is bound on the check
to the holder in due course who is necessarily a third party and is not the
accommodated party. Having issued or indorsed the check, the
accommodating party has warranted to the holder in due course that hewill pay the same according to its tenor. 3
In the case at bar, Travel-On was payee of all six (6) checks, it presented these
checks for payment at the drawee bank but the checks bounced. Travel-On
obviously was not an accommodated party; it realized no value on the checks which
bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was a
holder in due course, 4 that the checks were supported by valuable
consideration. 5 Private respondent maker of the checks did not successfully rebut
these presumptions. The only evidence aliunde that private respondent offered was
his own self-serving uncorroborated testimony. He claimed that he had issued the
checks to Travel-On as payee to "accommodate" its General Manager who allegedly
wished to show those checks to the Board of Directors of Travel-On to "prove" that
Travel-On's account receivables were somehow "still good." It will be seen that this
claim was in fact a claim that the checks were merely simulated, that private
respondent did not intend to bind himself thereon. Only evidence of the clearest and
most convincing kind will suffice for that purpose; 6 no such evidence was submitted
by private respondent. The latter's explanation was denied by Travel-On's General
Manager; that explanation, in any case, appears merely contrived and quite hollow
to us. Upon the other hand, the "accommodation" or assistance extended to Travel-
On's passengers abroad as testified by petitioner's General Manager involved, not
the accommodation transactions recognized by the NIL, but rather the
circumvention of then existing foreign exchange regulations by passengers booked
by Travel-On, which incidentally involved receipt of full consideration by private
respondent.
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Thus, we believe and so hold that private respondent must be held liable on the six
(6) checks here involved. Those checks in themselves constituted evidence of
indebtedness of private respondent, evidence not successfully overturned or
rebutted by private respondent.
Since the checks constitute the best evidence of private respondent's liability to
petitioner Travel-On, the amount of such liability is the face amount of the checks,
reduced only by the P10,000.00 which Travel-On admitted in its complaint to have
been paid by private respondent sometime in March 1992.
The award of moral damages to Private respondent must be set aside, for the reason
that Petitioner's application for the writ of attachment rested on sufficient basis and
no bad faith was shown on the part of Travel-On. If anyone was in bad faith, it was
private respondent who issued bad checks and then pretended to have
"accommodated" petitioner's General Manager by assisting her in a supposed
scheme to deceive petitioner's Board of Directors and to misrepresent Travel-On's
financial condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review
on Certiorari and to REVERSE and SET ASIDE the Decision dated 22 October 1980
and the Resolution of 23 January 1981 of the Court of Appeals, as well as the
Decision dated 31 January 1975 of the trial court, and to enter a new decision
requiring private respondent Arturo S. Miranda to pay to petitioner Travel-On the
amount of P105,000.00 with legal interest thereon from 14 June 1972, plus ten
percent (10%) of the total amount due as attorney's fees. Costs against Private
respondent.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
Footnotes
1 Section 24 of the Negotiable Instruments Law provides:
Section 24. Presumption of consideration. — Every negotiable
instrument is deemed prima facie to have been issued for avaluable consideration; and every person whose signature appears
thereon to have become a party thereto for value.
Section 5(s) of Rule 131 also establishes the presumption "[t]hat a
negotiable instrument was given or indorsed for a sufficient
consideration; . . ."
2 Pineda vs. dela Rama, 121 SCRA 671 (1983); Bank of Philippine
Islands vs. Laguna Coconut Oil Co., 48 Phil. 5 (1925).
3 Section 60 of the Negotiable Instruments Law provides:
Section 60. Liability of maker . — The maker of a negotiableinstrument, by making it, engages that he will pay it according to
its tenor, and admits the existence of the payee and his then
capacity to indorse.
Further, Section 61 provides:
Section 61. Liability of drawer . — The drawer by drawing the
instrument admits the existence of the payee and his then
capacity to indorse; and engages that, on due presentment, the
instrument will be accepted or paid, or both, according to its tenor,
and that if it be dishonored and the necessary proceedings ondishonor be duly taken, he will pay the amount thereof to the
holder or to any subsequent indorser who may be compelled to
pay it. . . .
Finally, Section 66 provides:
Section 66. Liability of general indorser . — Every indorser who
indorses without qualification, warrants to all subsequent holders
in due course:
xxx xxx xxx
And in addition, he engages that, on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to
pay it.
4 Section 59 of the Negotiable Instruments Law provides:
Section 59. — Who is deemed holder in due course. — Every
holder is deemed prima facie to be a holder in due course; . . .
See Also Fossum v. Fernandez Hermanos, 44 Phil. 713 (1923).
5 Section 24, Negotiable Instruments Law, supra; A similarprovision is found in Article 1354, Civil Code of the Philippines:
Art. 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary.
Also Penaco v. Ruaya, 110 SCRA 46 (1981).
6 See generally Cuyugan v. Santos, 34 Phil. 100 (1916); Tolentino
v. Gonzales, 50 Phil. 558 (1927).
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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 110782 September 25, 1998
IRMA IDOS, petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
QUISUMBING, J.:
Before this Court is the petition for review of the Decision of respondent Court of
Appeals 1 dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her
conviction as well as the sentence imposed on her by the Regional Trial Court of
Malolos, Bulacan, in Criminal Case No. 1395-M-88 2 as follows:
WHEREFORE . . . the (c)ourt finds the accused Irma Idos guiltybeyond reasonable doubt and is hereby sentenced to suffer the
penalty of imprisonment of six (6) months and to pay a fine of
P135,000.00 and to pay private complainant Eddie Alarilla the
amount of the check in question of P135,000.00 at 12% interest
from the time of the filing of the (i)nformation (August 10, 1988)
until said amount has been fully paid.
Elevated from the Third Division 3 of this Court, the case was accepted for
resolution en banc on the initial impression that here, a constitutional question
might be involved. 4 It was opined that petitioner's sentence, particularly six months'
imprisonment, might be in violation of the constitutional guarantee against
imprisonment for non-payment of a debt. 5
A careful consideration of the issues presented in the petition as well as the
comments thereon and the findings of fact by the courts below in the light of
applicable laws and precedents convinces us, however, that the constitutional
dimension need not be reached in order to resolve those issues adequately. For, as
herein discussed, the merits of the petition could be determined without delving into
aspects of the cited constitutional guarantee vis-a-vis provisions of the Bouncing
Checks Law (Batas Pambansa Blg. 22). There being no necessity therefor, we lay
aside discussions of the constitutional challenge to said law in deciding this petition.
The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning.
Her accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the
complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to
the accused-appellant Irma L. Idos for use in the latter's business
of manufacturing leather. In 1985, he joined the accused-
appellant's business and formed with her a partnership under the
style "Tagumpay Manufacturing," with offices in Bulacan and Cebu
City.
However, the partnership was short lived. In January, 1986 the
parties agreed to terminate their partnership. Upon liquidation of
the business the partnership had as of May 1986 receivables andstocks worth P1,800,000.00. The complainant's share of the assets
was P900,000.00 to pay for which the accused-appellant issued
the following postdated checks, all drawn against Metrobank
Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth
checks, but the third check (Exh. A) which is the subject of this
case, was dishonored on October 14, 1986 for insufficiency of
funds. The complainant demanded payment from the accused-
appellant but the latter failed to pay. Accordingly, on December
18, 1986, through counsel, he made a formal demand for
payment. (Exh. B) In a letter dated January 2, 1987, the accused-
appellant denied liability. She claimed that the check had been
given upon demand of complainant in May 1986 only as
"assurance" of his share in the assets of the partnership and that it
was not supposed to be deposited until the stocks had been sold.
Complainant then filed his complaint in the Office of the Provincial
Fiscal of Bulacan which on August 22, 1988 filed an information for
violation of BP Blg. 22 against accused-appellant.
Complainant danied that the checks issued to him by accused-
appellant were subject to the disposition of the stocks and the
collection of receivables of the business. But the accused-
appellant insisted that the complainant had known that the checks
were to be funded from the proceeds of the sale of the stocks and
the collection of receivables. She claimed that the complainant
himself asked for the checks because he did not want to continue
in the tannery business and had no use for a share of the stocks.
(TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12,16, 20, Feb. 14, 1990; id, p. 14, June 4, 1990).
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On February 15, 1992, the trial court rendered judgment finding
the accused-appellant guilty of the crime charged. The accused-
appellant's motion for annulment of the decision and for
reconsideration was denied by the trial court in its order dated
April 12, 1991. 6
Herein respondent court thereafter affirmed on appeal the decision of the trial court.
Petitioner timely moved for a reconsideration, but this was subsequently denied by
respondent court in its Resolution 7 dated June 11, 1993. Petitioner has now
appealed to us by way of a petition for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court by a resolutions 8 dated August 30,
1993, took note of the compromise agreement executed between the parties,
regarding the civil aspect of the case, as manifested by petitioner in a Motion to
Render Judgment based on Compromise Agreement9 filed on August 5, 1993. After
submission of the Comment 10 by the Solicitor General, and the Reply 11 by
petitioner, this case was deemed submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial court's
decision, petitioner cites the following reasons to justify the review of her case:
1. The Honorable Court of Appeals has decided
against the innocence of the accused based on
mere probabilities which, on the contrary, should
have warranted her acquittal on reasonable
doubt. Even then, the conclusion of the trial
court is contrary to the evidence on record,
including private complainant's judicial
admission that there was no consideration for
the check.
2 The Honorable Court of Appeals has confused
and merged into one the legal concepts of
dissolution, liquidation and termination of a
partnership and on the basis of such
misconception of the law, disregarded the fact of
absence of consideration of the check andconvicted the accused.
3 While this appeal was pending, the parties
submitted for the approval of the Honorable
Court a compromise agreement on the civil
liability. The accused humbly submits that this
supervening event, which by its terms puts to
rest any doubt the Court of Appeals had
entertained against the defense of lack of
consideration, should have a legal effect
favorable to the accused, considering that the
dishonored check constitutes a private
transaction between partners which does notinvolve the public interest, and considering
further that the offense is not one involving
moral turpitude.
4 The Honorable Court of Appeals failed to
appreciate the fact that the accused had warned
private complainant that the check was not
sufficiently funded, which should have
exonerated the accused pursuant to the ruling in
the recent case of Magno vs. Court of Appeals,
210 SCRA 471, which calls for a more flexibleand less rigid application of the Bouncing Checks
law. 12
For a thorough consideration of the merits of petitioner's appeal, we find pertinent
and decisive the following issues:
1. Whether respondent court erred in holding that the subject check was issued by
petitioner to apply on account or for value, that is, as part of the consideration of a
"buy-out" of said complainant's interest in the partnership, and not merely as a
commitment on petitioner's part to return the investment share of complainant,
along with any profit pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the
subject check knowing at the time of issue that she did not have sufficient funds in
or credit with the drawee bank and without communicating this fact of insufficiency
of funds to the complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in
affirming the trial court's judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally
in favor of the accused, it bears stressing that for an act to be punishable under the
B.P. 22, it "must come clearly within both the spirit and the letter of the
statue. 13 Otherwise, the act has to be declared outside the law's ambit and a plea of
innocence by the accused must be sustained.
The relevant provisions of B.P. 22 state that:
Sec. 1. Checks without sufficient funds. — Any person who makes
or draws and issues any check to apply on account or for
value, knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment
of such check in full upon its presentment , which check is
subsequently dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the
bank to stop payment, shall be punished by imprisonment of not
less than thirty days but not more than one (1) year or by a fine of
not less than but not more than double the amount of the check
which fine shall in no case exceed Two hundred thousand pesos, orboth such fine and imprisonment at the discretion of the court.
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The same penalty shall be imposed upon any person who having
sufficient funds in or credit with the drawee bank when he makes
or draws and issues a check, shall fail to keep sufficient funds or to
maintain a credit or to cover the full amount of the check if
presented within a period of ninety (90) days from the date
appearing thereon, for which reason it is dishonored by the drawee
bank.
Where the check is drawn by a corporation, company or entity, the
person or persons who actually signed the check in behalf of suchdrawer shall be liable under this Act.
Sec. 2. Evidence of knowledge of insufficient funds. — The making,
drawing and issuance of a check payment of which is refused by
the drawee because of insufficient funds in or credit with such
bank, when presented within ninety (90) days from the date of the
check, shall be prima facie evidence of knowledge of such
insufficiency of funds or credit unless such maker or drawer pays
the holder thereof the amount due thereon or makes
arrangements for payment in full by the drawee of such check
within five (5) banking days after receiving notice that such check
has not been paid by the drawee. (Emphasis supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as
follows: "(1) the making, drawing and issuance of any check to apply to account or
for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue
he does not have sufficient funds in or credit with the drawee bank for the payment
of such check in full upon its presentment; and (3) subsequent dishonor of the check
by the drawee bank for insufficiency of funds or credit or dishonor for the same
reason had not the drawer, without any valid cause, ordered the bank to stop
payment. 14
In the present case, with regard to the first issue, evidence on record would show
that the subject check was to be funded from receivables to be collected and goods
to be sold by the partnership, and only when such collection and sale were
realized. 15 Thus, there is sufficient basis for the assertion that the petitioner issued
the subject check (Metrobank Check No. 103115490 dated October 30, 1986, in the
amount of P135,828.87) to evidence only complainant's share or interest in the
partnership, or at best, to show her commitment that when receivables are collected
and goods are sold, she would give to private complainant the net amount due him
representing his interest in the partnership. It did not involve a debt of or any
account due and payable by the petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by
complainant; only one (the third) was not. But eventually even this one was
redeemed by petitioner. Secondly, even private complainant admitted that there
was no consideration whatsoever for the issuance of the check, whose funding was
dependent on future sales of goods and receipts of payment of account receivables.
Now, it could not be denied that though the parties — petitioner and complainant —had agreed to dissolve the partnership, such ageement did not automatically put an
end to the partnership, since they still had to sell the goods on hand and collect the
receivables from debtors. In short, they were still in the process of "winding up" the
affairs of the partnership, when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2)
winding-up; and (3) termination. These stages are distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in
the relation of the partners
caused by any partner ceasing
to be associated in the
carrying on of the business
(Art. 1828). It is that point of
time the time the partners
cease to carry on the business
tonether. (Citation omitted).
(2) Winding Up Defined
Winding up is the process of
settling business affairs of
dissolution.
(NOTE: Examples of winding
up: the paying of previous
obligations; the collecting of
assets previously demandable;
even new business if needed
to wind up, as the contracting
with a demolition company for
the demolition of the garage
used in a "used car"
partnership.)
(3) Termination Defined
Termination is the point in time after all the partnership affairs have been wound
up. 16 [Citation omitted] (Emphasis supplied).
These final stages in the life of a partnership are recognized under the Civil Code
that explicitly declares that upon dissolution, the partnership is not terminated, to
wit:
Art 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up
of the business.
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Art. 1829. On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is completed.
(Emphasis supplied.)
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since the partnership has not
been terminated, the petitioner and private complainant remained as co-partners.
The check was thus issued by the petitioner to complainant, as would a partner to
another, and not as payment from a debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued
merely to evidence the complainant's share in the partnership property, or to assure
the latter that he would receive in time his due share therein. The alternative view
that the check was in consideration of a "buy out" is but a theory, favorable to the
complainant, but lacking support in the record; and must necessarily be discarded.
For there is nothing on record which even slightly suggest that petitioner ever
became interested in acquiring, much less keeping, the shares of the complainant.
What is very clear therefrom is that the petitioner exerted her best efforts to sell the
remaining goods and to collect the receivables of the partnership, in order to come
up with the amount necessary to satisfy the value of complainant's interest in the
partnership at the dissolution thereof. To go by accepted custom of the trade, we are
more inclined to the view that the subject check was issued merely to evidence
complainant's interest in the partnership. Thus, we are persuaded that the check
was not intended to apply on account or for value; rather it should be deemed as
having been drawn without consideration at the time of issue.
Absent the first element of the offense penalized under B.P. 22, which is "the
making, drawing and issuance of any check to apply on account or for value",
petitioner's issuance of the subject check was not an act contemplated in nor made
punishable by said statute.
As to the second issue, the Solicitor General contends that under the Bouncing
Checks Law, the elements of deceit and damage are not essential or required to
constitute a violation thereof. In his view, the only essential element is the
knowledge on the part of the maker or drawer of the check of the insufficiency of his/her funds at the time of the issuance of said check.
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a
special offense punishable by law. "Malice or intent in issuing the worthless check is
immaterial, the offense being malum
prohibitum," 17 so goes the argument for the public respondents.
But of course this could not be an absolute proposition without descending to
absurdity. For if a check were issued by a kidnap victim to a kidnapper for ransom, it
would be absurd to hold the drawer liable under B.P. 22, if the check is dishonored
and unpaid. That would go against public policy and common sense.
Public respondents further contend that "since petitioner issued the check in favor of complainant. Alarilla and when notified that it was returned for insufficiency of
funds, failed to make good the check, then petitioner is liable for violation of B.P.
22.18 Again, this matter could not be all that simple. For while "the maker's
knowledge of the insufficiency of funds is legally presumed from the dishonor of his
checks for insufficiency of funds, 19 this presumption is rebuttable.
In the instant case, there is only a prima facie presumption which did not preclude
the presentation of contrary evidence. 20In fact, such contrary evidence on two
points could be gleaned from the record concerning (1) lack of actual knowledge of
insufficiency of funds; and (2) lack of adequate notice of dishonor.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the
drawee bank for the payment of a check upon its presentment is an essential
element of the offense. 21 It must be proved, particularly where the prima
facie presumption of the existence of this element has been rebutted. The prima
facie presumption arising from the fact of drawing, issuing or making a check, the
payment of which was subsequently refused for insufficiency of funds is, moreover,
not sufficient proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals, 22 it was held that the subsequent dishonor
of the subject check issued by accused merely engendered the prima
facie presumption that she knew of the insufficiency of funds, but did not render the
accused automatically guilty under B.P. 22. 23
The prosecution has a duty to prove all the elements of the crime,
including the acts that give rise to the prima facie presumption;
petitioner, on the other hand, has a right to rebut the prima
faciepresumption. Therefore, if such knowledge of insufficiency of
funds is proven to be actually absent or non-existent, the accused
should not be held liable for the offense defined under the first
paragraph of Section 1 of B.P. 22. Although the offense charged is
a malum prohibitum, the prosecution is not thereby excused from
its responsibility of proving beyond reasonable doubt all the
elements of the offense, one of which is knowledge of the
insufficiency of funds.
Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing
the check, be shown that he knows at the time of issue, that he does not havesufficient funds in or credit with the drawee bank for the payment of such check in
full upon its presentment.
In the case at bar, as earlier discussed, petitioner issued the check merely to
evidence the proportionate share of complainant in the partnership assets upon its
dissolution. Payment of that share in the partnership was conditioned on the
subsequent realization of profits from the unsold goods and collection of the
receivables of the firm. This condition must be satisfied or complied with before the
complainant can actually "encash" the check. The reason for the condition is that
petitioner has no independent means to satisfy or discharge the complainant's
share, other than by the future sale and collection of the partnership assets. Thus,
prior to the selling of the goods and collecting of the receivables, the complainant
could not, as of yet, demand his proportionate share in the business. This situationwould hold true until after the winding up, and subsequent termination of the
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partnership. For only then, when the goods were already sold and receivables paid
that cash money could be availed of by the erstwhile partners.
Complainant did not present any evidence that petitioner signed and issued four
checks actually knowing that funds therefor would be insufficient at the time
complainant would present them to the drawee bank. For it was uncertain at the
time of issuance of the checks whether the unsold goods would have been sold, or
whether the receivables would have been collected by the time the checks would be
encashed. As it turned out, three were fully funded when presented to the bank; the
remaining one was settled only later on.
Since petitioner issued these four checks without actual knowledge of the
insufficiency of funds, she could not be held liable under B.P. 22 when one was not
honored right away. For it is basic doctrine that penal statutes such as B.P. 22 "must
be construed with such strictness as to carefully safeguard the rights of the
defendant . . ." 24 The element of knowledge of insufficiency of funds has to be
proved by the prosecution; absent said proof, petitioner could not be held criminally
liable under that law. Moreover, the presumption of prima facie knowledge of such
insufficiency in this case was actually rebutted by petitioner's evidence.
Further, we find that the prosecution also failed to prove adequate notice of dishonor
of the subject check on petitioner's part, thus precluding any finding of prima
facie evidence of knowledge of insufficiency of funds. There is no proof that notice of
dishonor was actually sent by the complainant or by the drawee bank to the
petitioner. On this point, the record is bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made good by
petitioner. In addition, the terms of the parties' compromise agreement, entered into
during the pendency of this case, effectively invalidates the allegation of failure to
pay or to make arrangement for the payment of the check in full. Verily, said
compromise agreement constitutes an arrangement for the payment in full of the
subject check.
The absence of notice of dishonor is crucial in the present case. As held by this Court
in prior cases:
Because no notice of dishonor was actually sent to and receivedby the petitioner, the prima facie presumption that she knew
about the insufficiency of funds cannot apply. Section 2 of B.P. 22
clearly provides that this presumption arises not from the mere
fact of drawing, making and issuing a bum check; there must also
be a showing that, within five banking days from receipt of the
notice of dishonor, such maker or drawer failed to pay the holder
of the check the amount due thereon or to make arrangement for
its payment in full by the drawee of such check. 25 [Emphasis
supplied.]
The absence of a notice of dishonor necessarily deprives an
accused an opportunity to preclude a criminal prosecution.
Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to
demand — and the basic postulates of fairness require — that the
notice of dishonor be actually sent to and received by her to afford
her the opportunity to avert prosecution under
B.P. 26
Further, what militates strongly against public respondents' stand is the fact that
petitioner repeatedly notified the complainant of the insufficiency of funds.
Instructive is the following pronouncement of this Court in Magno v. Court of
Appeals:
Furthermore, the element of "knowing at the time of issue that he
does not have sufficient funds in or credit with the drawee bank
for the payment of such check in full upon its presentment, which
check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for
the same reason . . ." is inversely applied in this case. From the
very beginning. petitioner never hid the fact that he did not have
the funds with which to put up the warranty deposit and as a
matter of fact, he openly intimated this to the vital conduit of the
transaction, Joey Gomez, to whom petitioner was introduced by
Mrs. Teng. It would have been different if this predicament was not
communicated to all the parties he dealt with regarding the lease
agreement the financing or which was covered by L.S. Finance
Management. " 27
In the instant case, petitioner intimated to private complainant the possibility that
funds might be insufficient to cover the subject check, due to the fact that the
partnership's goods were yet to be sold and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the
interest of the banking system and the legitimate public checking
account user. It did not intend to shelter or favor nor encourage
users of the system to enrich themselves through manipulations
and circumvention of the noble purpose and objective of the law.
Least should it be used also as a means of jeopardizing honest-to-goodness transactions with some color of "get-rich" scheme to the
prejudice of well-meaning businessmen who are the pillars of
society.
xxx xxx xxx
Thus, it behooves upon a court of law that in applying the
punishment imposed upon the accused, the objective of
retribution of a wronged society, should be directed against the
"actual and potential wrongdoers". In the instant case, there is no
doubt that petitioner's four (4) checks were used to collateralize
an accommodation, and not to cover the receipt of an actual
"account or credit for value" as this was absent, and thereforepetitioner should not be punished for mere issuance of the checks
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in question. Following the aforecited theory, in petitioner's stead
the "potential wrongdoer," whose operation could be a menace to
society, should not be glorified by convicting the petitioner. 28
Under the circumstances obtaining in this case, we find the petitioner to have issued
the check in good faith, with every intention of abiding by her commitment to
return, as soon as able, the investments of complainant in the partnership.
Evidently, petitioner issued the check with benign considerations in mind, and not
for the purpose of committing fraud, deceit, or violating public policy.
To recapitulate, we find the petition impressed with merit. Petitioner may not be held
liable for violation of B.P. 22 for the following reasons: (1) the subject check was not
made, drawn and issued by petitioner in exchange for value received as to qualify it
as a check on account or for value; (2) there is no sufficient basis to conclude that
petitioner, at the time of issue of the check, had actual knowledge of the
insufficiency of funds; and (3) there was no notice of dishonor of said check actually
served on petitioner, thereby depriving her of the opportunity to pay or make
arrangements for the payment of the check, to avoid criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition meritorious,
we no longer need to pass upon the validity and legality or necessity of the
purported compromise agreement on civil liability between the petitioner and the
complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER
ACQUITTED. The Decision of the respondent Court of Appeals in CA-G.R. CR No.
11960 is hereby REVERSED and the Decision of Regional Trial Court in Criminal Case
No. 1395-M-88 is hereby SET ASIDE.
NO COSTS.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, J r., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan,
Panganiban, Martinez and Purisima, JJ ., concur.
Mendoza, J., took no part.
Footnotes
1 Rollo, pp. 44-53; Third Division, composed of J. Vicente V.
Mendoza, ponente; and JJ. Jorge S. Imperial and Quirino P. Abad
Santos, Jr.
2 Records, p. 161; Judge Candido R. Belmonte, ponente.
3 Composed of J. Hilario G. Davide, Jr., Chairman, JJ. Josue N.
Bellosillo, Santiago M. Katipunan, Jose C. Vitug and Regino C.
Hermosisima, Jr., ponente.
4 Resolution En Banc, February 10, 1998.
5 Constitution, Art. III, Sec. 20.
6 Rollo, pp. 44-46.
7 Rollo, p. 55-56.
8 Rollo, p.14.
9 Rollo, pp. 10-13.
10 Rollo, pp. 65-79. This was signed by Solicitor General Raul I.
Goco, Assistant Solicitor General Edgardo L. Kilayko, and Associate
Solicitor Maria Liza L. Young.
11 Rollo, pp. 85-92.
12 Rollo, pp. 19-20. All caps in the original. See G.R. No. 96132,
Magno v. CA, June 26, 1992.
13 Lina Lim Lao vs. Court of Appeals and the People of the
Philippines, G.R. No. 119178, p. 12, June 20, 1997, per
Panganiban, J., citing Agpalo, Ruben E., Statutory Constructionm p.
208, (1990).
14 Ibid., p. 131; citing Navarro vs. Court of Appeals, 234 SCRA
639, 643-644 (1994); citing People vs. Laggui, 171 SCRA 305
(1989). See also Reyes, Luis B., The Revised Penal Code, Criminal
Law, Book Two, p. 700 (1993).
Justice Luis B. Reyes, enumerates the elements of the said offense,
thus:
1. That a person makes or
draws and issues any check.
2 That the check is made or
drawn and issued to apply onaccount or for value.
3. That the person who makes
or draws and issues the check
knows at the time of issue that
he does not have sufficient
funds in or credit with the
drawee bank for the payment
of such check in full upon its
presentment.
4. That the check is
subsequently dishonored bythe drawee bank for
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insufficiency of funds or credit,
or would have been
dishonored for the same
reason had not the drawer,
without any valid reason,
ordered the bank to stop
payment.
15 TSN, February 14, 1990, pp. 30 and 35; TSN, June 4, 1990,
p.14.
16 Paras, Civil Code of the Philippines, Vol. V. 7th., p. 516.
17 Comment, pp. 6-7; rollo, pp. 70-71.
18 Ibid., p. 7; Rollo, p. 71.
19 Supra, footnote no. 13 at pp. 14-15; citing People v. Laggui, 171
SCRA 305 (1989); Meras v. Hon. Auxencio C. Dacuycuy, 181 SCRA
1 (1990).
20 Ibid., p. 25.
21 Ibid., p. 15; citing Reyes, Luis B. The Revised Penal Code,Criminal Law, Book Two p. 700 (1993).See also Nitafan G., Notes
and Comments on the Bouncing Checks Law (B.P. Bldg. 22), p. 62,
(1995); Antonio Nieva vs. Court of Appeals, G.R. Nos. 95796-97,
May 2, 1997.
22 G.R. Nos. 95796-97, May 2, 1997.
23 Ibid., p. 16.
24 Ibid., p. 22; citing Alfredo L. Azarcon vs. Sandiganbayan, et . al.,
G.R. No. 116033, p. 19, February 26, 1997.
25 Ibid., p. 27.
26 Ibid., p. 28.
27 210 SCRA 471, 482 (1992).
28 Ibid., pp. 478-479.
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Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 84220 March 25, 1992
BENJAMIN RODRIGUEZ, petitioner,
vs.
COURT OF APPEALS, and HADJI ESMAYATEN LUCMAN, respondents.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the decision of the Court of Appeals
affirming a decision of the trial court which allowed Hadji Esmayaten Lucman as
assignee to collect from Benjamin Uy Rodriguez, an indebtedness owed to the
assignor, a Hongkong corporation.
The antecedent facts of the case are as follows:
Petitioner Rodriguez alias Uy Tian Kiu is a businessman from Cebu City whose
business, includes the importation of various commodities from Hongkong which he
occasionally ordered from Allied Overseas Commercial Co., Ltd., a Hongkong
corporation. The Managing Director of Allied Overseas Commercial Co., Ltd. is Lin
Ping Huang, a close friend of private respondent Lucman.
Petitioner Rodriguez, as a result of business transactions with the Hongkong
Corporation, accumulated an indebtedness owed to Allied Overseas in the amount of
HK $418,729.60 which had at that time in 1968 an exchange value of P540,553.00.
Upon demand for payment by the Hongkong Corporation, the petitioner issued a
pay-to-cash check dated September 11, 1970 covering the indebtedness. The checkwas, however, dishonored for lack of funds, the account having been closed two
months earlier.
Subsequently, the Allied Overseas Commercial Co., Ltd., through its Managing
Director, Lin Ping Huang, assigned its credit to the private respondent. The contract
was evidenced by a Deed of Assignment (Exhs. "B-2" and "B-3") duly executed
before Philippine Consular officials in Hongkong. It reads:
That WE, the ALLIED OVERSEAS COMMERCIAL CO., LTD., a
commercial association duly organized and registered in the
company's registry of the Crown Colony of Hongkong with offices
at No. 5-7 Des Voeux Road, West, 1st Floor, Hongkong,
represented in this instance by its Managing Director dulyauthorized by a Board resolution, for and in consideration of HK$ 1
and other valuable considerations, have on this date assigned,
ceded, transferred and conveyed by way of irrevocable
assignment and transferred to Hadji Esmayaten Lucman, Esq., of
legal age, Filipino citizen, and a resident of No. 95-I, A. Lake St.,
San Juan, Province of Rizal, Republic of the Philippines, our
outstanding and collectible credit due and owing us by and from
Benjamin Uy Rodriguez alias Uy Tian Kiu of Cebu City, Republic of
the Philippines, in the total amount of HK$ 418,729.60 or its
equivalent in the Philippine Currency, for said Hadji Esmayaten
Lucman to collect and secure from the aforesaid debtor, BenjaminUy Rodriguez alias Uy Tian Kiu the aforesaid amount in any
manner, including court proceedings if necessary, in accordance
with the provisions of existing laws in the jurisdiction of the
Republic of the Philippines.
We, as creditors assignors of the aforesaid debt, have on this date
notified formally the debtor named herein of this full assignment
of the aforesaid credit. (Orig. record, p. 11)
The assignee filed an action to collect the indebtedness. On March 4, 1985, the trial
court rendered a decision in favor of the private respondent. The dispositive portion
of the Decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
and against defendant, sentencing the latter to pay the former the
following sums:
(a) P450,553.00 representing defendant's outstanding account to
plaintiff's assignor, with interest thereon at twelve per cent
(12%) per annum from the time of the filing of the complaint on
February 4, 1971 until fully paid:
(b) P500,000.00 as actual damages;
(c) P100,000.00 as moral damages;
(d) The further sum equivalent to ten (10%) per cent of all theforegoing sums as attorney's fees and costs of litigation.
Costs against the defendant.
SO ORDERED. (pp. 142-143, Orig. Rec.)
Benjamin Rodriguez appealed the decision to the Court of Appeals and assigned the
following as errors committed by the trial court:
1 Plaintiff is not the real party-in-interest and is therefore, without legal capacity to
sue;
2 The obligation does not exist or has not been sufficiently proven to exist;
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3 Venue is improperly laid.
After carefully evaluating the evidence presented by the parties, the Court of
Appeals rendered the questioned decision dismissing the appeal for lack of merit.
Benjamin Rodriguez filed a motion for reconsideration which was denied by the
appellate court which stated that the arguments submitted in support of the motion
were a mere rehash of the arguments in the Appellant's Brief.
The petitioner is now before us questioning the decision of the Court of Appeals. He
specifically relies on the following as bases for his petition:
I. That the judgment in the criminal case cannot be given in evidence in the civil
action.
II. That the decision of the Court of Appeals is not in accord with Article 1301 of the
New Civil Code which requires consent to subrogation; and
III. That the award of damages is excessive.
We find the petition devoid of merit.
The petitioner alleges that the only evidence presented by private respondent was
the decision of the Court of Appeals in the case of People v. Lucman (CA G.R. No.
21365-CR) for falsification of commercial document. The case was filed by thepetitioner before the Regional Trial Court of Cebu while the civil case filed by Lucman
in the Regional Trial Court of Pasig was in progress.
The Regional Trial Court of Cebu convicted Lucman but on appeal, the Court of
Appeals acquitted him on the basis of its finding that complainant Rodriguez had
indeed an unpaid balance which was sufficiently established by evidence.
The decision in the criminal case was only one of the pieces of evidence relied upon
by the respondent court. The petitioner is giving undue weight to this particular
item.
It is clear from the records, both testimonial and documentary that the obligation
exists. The documents, all testified to by private respondent Lucman as well as otherwitnesses had sufficiently proven that Rodriguez had an unpaid balance from
previous transaction with Allied Overseas Commercial Co., Ltd. which arose from the
importation of the 800 bales of Hessian sacks.
The unpaid balance was evidenced by a record of transactions between Allied
Overseas Co., Ltd. and Ben Rodriguez. The statement of account was sent to the
petitioner on September 30, 1968 and the receipt portion was duly signed by him
and returned. (Exh. "E-3" and "E-3A")
If the importation was made in the name of Madipo Mercantile this was pursuant to
the petitioner's request that his importations be carried out in the names of different
companies. This explains the shipment made to Madipo, a business firm owned by
Wilfredo Tiu, a brother-in-law of Rodriguez. However, the exchange of cables
regarding the importation clearly indicates that Rodriguez was the real importer
(Exh. "L", "M", "M-1", "M-2", and "M-3")
The authenticity of the above cable communications has not been impugned by the
petitioner.
Lucman also took the witness stand and identified numerous documents consisting
of Purchase Orders, Bills of Lading, Delivery Receipts, and other evidences of the
purchase of a barge and other goods by the petitioner from Allied Overseas
Commercial Co., Ltd. Hueng Huan Yuen Sabio, Assistant to the General Manager and
in-charge of shipping of Allied Overseas Commercial Co., Ltd., further testified to the
same transactions.
We have no doubt from the records that the obligation actually existed.
Anent petitioner's second point, we find no merit in his contention that there was
subrogation instead of an assignment of credit.
The basis of the complaint is not a deed of subrogation but an assignment of credit
whereby the private respondent became the owner, not the subrogee of the credit
since the assignment was supported by HK$ 1.00 and other valuable considerations.
The case is one of the assignment of credit and not subrogation. In subrogation, the
third party pays the obligation of the debtor to the creditor with the latter's consent.As a consequence, the paying third party steps into the shoes of the original creditor
as subrogee of the latter.
An assignment of credit, on the other hand, is the process of transferring the right of
the assignor to the assignee who would then have the right to proceed against the
debtor. The assignment may be done either gratuitously or onerously, in which case,
the assignment has an effect similar to that of a sale (p. 235, Civil Code of the
Philippines, Annotated, Vol. V, Paras, 1982 ed.; Nyco Sales Corp. vs. BA Finance
Corp., G.R. No. 71694, August 16, 1991).
The petitioner further contends that the consent of the debtor is essential to the
subrogation. Since there was no consent on his part, then he allegedly is not bound.
Again, we find for the respondent. The questioned deed of assignment is neither one
of the subrogation nor a power of attorney as the petitioner alleges. The deed of
assignment clearly states that the private respondent became an assignee and,
therefore, he became the only party entitled to collect the indebtedness. As a result
of the Deed of Assignment, the plaintiff acquired all rights of the assignor including
the right to sue in his own name as the legal assignee. Moreover, in assignment, the
debtor's consent is not essential for the validity of the assignment (Art. 1624 in
relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of
the payment he might make (Article 1626, Civil Code).
Article 1626 also shows that payment of an obligation which is already existing does
not depend on the consent of the debtor. It, in effect, mandates that such payment
of the existing obligation shall already be made to the new creditor from the timethe debtor acquires knowledge of the assignment of the obligation.
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The law is clear that the debtor had the obligation to pay and should have paid from
the date of notice whether or not he consented.
We have ruled in Sison & Sison v. Yap Tico and Avanceña, 37 Phil. 587 [1918] that
definitely, consent is not necessary in order that assignment may fully produce legal
effects. Hence, the duty to pay does not depend on the consent of the debtor.
Otherwise, all creditors would be prevented from assigning their credits because of
the possibility of the debtors' refusal to give consent.
What the law requires in an assignment of credit is not the consent of the debtor but
merely notice to him. A creditor may, therefore, validly assign his credit and its
accessories without the debtor's consent (National Investment and Development Co.
v. De los Angeles, 40 SCRA 489 [1971]). The purpose of the notice is only to inform
the debtor that from the date of the assignment, payment should be made to the
assignee and not to the original creditor.
The fact that the deed of assignment empowered the assignee to collect the credit
originally owing to the foreign corporation does not make the assignee a mere
attorney-in-fact.
The case of Ngo Tian Tian Tek and Ngo Hay v. Philippine Education Co., 78 Phil. 271
[1947] is in point:
When a chose, capable of legal assignment is assigned absolutelyto one, but the assignment is made for purpose of collection, the
legal title thereto vests, in the assignee, and it is no concern of the
debtor that the equitable title is in another and payment to the
assignee discharges the debtor.
The petitioner further assails the consideration given for the deed of assignment
which is stated as "HK$ 1.00 and other valuable considerations."
A valuable considerations, however small or nominal if given or stipulated in good
faith is, in the absence of fraud, sufficient. A stipulation in consideration of $1 is just
as effectual and valuable a consideration as a larger sum stipulated for or paid
(Penaco v. Ruaya, 110 SCRA 46 [1981]; Ascalon vs. Court of Appeals, 158 SCRA 542,
[1988]). It is not clear what considerations led to the assignment but they must havebeen sufficiently valuable to the assignor in view of the amount involved.
Hence, by virtue of the deed of assignment whose existence and legality remains
unrebutted, the respondent acquired all the rights of the assignor including the right
to sue in his own name as the legal assignee. The contract was not executed merely
to enable the foreign corporation to sue in the Philippines because even without the
assignment, the foreign corporation can also sue in the Philippines for isolated
transactions even if not licensed to engage in business in this country.
Lastly, the petitioner asserts that the award of damages was excessive there being
no finding to justify the amounts.
We find the amounts equitable except for the award of P500,000.00 as actualdamages in addition to the P450,553.00 indebtedness. The records do not contain
the factual basis for such an award. Thus, we agree with the petitioner that it is not
justifiable to award that amount.
All premises considered, we find for the private respondent. We should also add that
the case has dragged on 21 years since its filing with the then Court of First Instance
of Pasig, Rizal on February 4, 1971, due to the numerous dilatory tactics of the
petitioner. The delay has obviously created an injustice on the part of private
respondent not fully compensated by the payment of interests.
Furthermore, it is well-settled that the jurisdiction of the Supreme Court is confined
to a review of questions of law, except where the findings of facts of the appellate
court are not supported by the record or are so glaringly erroneous as to constitute a
serious abuse of discretion. (Cañete v. Court of Appeals, 171 SCRA 13 [1989]).
The findings of the fact of the trial court being adequately supported by
documentary as well as testimonial evidence and affirmed by the Court of Appeals,
are conclusive on the Supreme Court unless they fall within a few well-defined
exceptions. No such exception is shown in this case.
ACCORDINGLY, the petition is hereby DISMISSED. The decision of the Court of
Appeals dated October 22, 1987 and its resolution dated June 16, 1988 are
AFFIRMED with the modification that the award of additional actual damages in the
amount of P500,000.00 is deleted.
SO ORDERED.
Bidin and Romero, JJ., concur.
Davide, Jr., J., took no part.
Feliciano, J., is on leave.
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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-31831 April 28, 1983
JESUS PINEDA, petitioner,
vs.
JOSE V. DELA RAMA and COURT OF APPEALS, respondents.
Rosauro Alvarez for petitioner.
Arturo Zialcita for respondents.
GUTIERREZ, JR., J.:
This is a petition to review on certiorari a decision of the Court of Appeals which
declared petitioner Jesus Pineda liable on his promissory note for P9,300.00 and
directed him to pay attorney's fees of P400.00 to private respondent, Jose V. dela
Rama.
Dela Rama is a practising lawyer whose services were retained by Pineda for the
purpose of making representations with the chairman and general manager of the
National Rice and Corn Administration (NARIC) to stop or delay the institution of
criminal charges against Pineda who allegedly misappropriated 11,000 cavans of
palay deposited at his ricemill in Concepcion, Tarlac. The NARIC general manager
was allegedly an intimate friend of Dela Rama.
According to Dela Rama, petitioner Pineda has used up all his funds to buy a big
hacienda in Mindoro and, therefore, borrowed the P9,300.00 subject of his complaint
for collection. In addition to filling the suit to collect the loan evidenced by the
matured promissory note, Dela Rama also sued to collect P5,000.00 attorney's fees
for legal services rendered as Pineda's counsel in the case being investigated byNARIC.
The Court of First Instance of Manila decided Civil Case No. 45762 in favor of
petitioner Pineda. The court believed the evidence of Pineda that he signed the
promissory note for P9,300.00 only because Dela Rama had told him that this
amount had already been advanced to grease the palms of the 'Chairman and
General Manager of NARIC in order to save Pineda from criminal prosecution.
The court stated:
xxx xxx xxx
... The Court, after hearing the testimonies of the witness and
examining the exhibits in question, finds that Exhibit A proves that
the defendant himself did not receive the amount stated therein,
because according to said exhibit that amount was advanced by
the plaintiff in connection with the defendant's case, entirely
contradicting the testimony of the plaintiff himself, who stated in
open Court that he gave the amount in cash in two installments to
the defendant. The Court is more inclined to believe the contents
of Exhibit A, than the testimony of the plaintiff. On this particular
matter, the defendant has established that the plaintiff made him
believe that he was giving money to the authorities of the NARIC
to grease their palms to suspend the prosecution of the defendant,but the defendant, upon inquiry, found out that none of the
authorities has received that amount, and there was no case that
was ever contemplated to be filed against him. It clearly follows,
therefore, that the amount involved in this Exhibit A was
imaginary. It was given to the defendant, not to somebody else.
The purpose for which the amount was intended was illegal.
However, the Court believes that plaintiff was able to get from the
defendant the amount of P3,000.00 on October 7, as shown by the
check issued by the defendant, Exhibit 2, and the letter, Exhibit 7,
was antedated October 6, as per plaintiff's wishes to show that
defendant was indebted for P3,000.00 when, as a matter of fact,
such amount was produced in order to grease the palms of the
NARIC officials for withholding an imaginary criminal case. Such
amount was never given to such officials nor was there any
contemplated case against the defendant. The purpose for which
such amount was intended was indeed illegal.
The trial court rendered judgment as follows:
WHEREFORE, the Court finds by a preponderance of evidence that
the amount of P9,300.00 evidenced by Exhibit A was not received
by the defendant, nor given to any party for the defendant's
benefit.Consequently, the plaintiff has no right to recover said
amount. The amount of P3,000.00 was given by the defendant to
grease the palms of the NARIC officials. The purpose was illegal,
null and void. Besides, it was not given at all, nor was it true thatthere was a contemplated case against the defendant. Such
amount should be returned to the defendant. The services
rendered by the plaintiff to the defendant is worth only P400.00,
taking into consideration that the plaintiff received an air-
conditioner and six sacks of rice. The court orders that the plaintiff
should return to the defendant the amount of P3,000.00, minus
P400.00 plus costs.
The Court of Appeals reversed the decision of the trial court on a finding that Pineda,
being a person of more than average intelligence, astute in business, and wise in
the ways of men would not "sign any document or paper with his name unless he
was fully aware of the contents and important thereof, knowing as he must have
known that the language and practices of business and of trade and commerce callto account every careless or thoughtless word or deed."
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The appellate court stated:
No rule is more fundamental and by men of honor and goodwill
more dearly cherished, than that which declares that obligations
arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
Corollary to and in furtherance of this principle, Section 24 of the
Negotiable instruments Law (Act No. 2031) explicitly provides that
every negotiable instrument is deemed prima facie to have been
issued for a valuable consideration, and every person whose
signature appears thereon to have become a party thereto for
value.
We find this petition meritorious.
The Court of Appeals relied on the efficacy of the promissory note for its decision,
citing Section 24 of the Negotiable Instruments Law which reads:
SECTION 24. Presumption of consideration.—Every negotiable
instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears
thereon to have become a party thereto for value.
The Court of Appeals' reliance on the above provision is misplaced. The presumptionthat a negotiable instrument is issued for a valuable consideration is only puma
facie. It can be rebutted by proof to the contrary. (Bank of the Philippine Islands v.
Laguna Coconut Oil Co. et al., 48 Phil. 5).
According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on
two occasions five days apart - first loan for P5,000.00 and second loan for
P4,300.00, both given in cash. He also alleged that previously he loaned P3,000.00
but Pineda paid this other loan two days afterward.
These allegations of Dela Rama are belied by the promissory note itself. The second
sentence of the note reads - "This represents the cash advances made by him in
connection with my case for which he is my attorney-in- law."
The terms of the note sustain the version of Pineda that he signed the P9,300.00
promissory note because he believed Dela Rama's story that these amounts had
already been advanced by Dela Rama and given as gifts for NARIC officials.
Dela Rama himself admits that Pineda engaged his services to delay by one month
the filing of the NARIC case against Pineda while the latter was trying to work out an
amicable settlement. There is no question that Dela Rama was indeed a close friend
of then NARIC Administrator Jose Rodriquez having worked with him in the Philippine
consulate at Hongkong and that Dela Rama made what he calls "proper
representations" with Rodriguez and with other NARIC officials in connection with the
investigation of the criminal charges against Pineda.
We agree with the trial court which believed Pineda. It is indeed unusual for a lawyerto lend money to his client whom he had known for only three months, with no
security for the loan and on interest. Dela Rama testified that he did not even know
what Pineda was going to do with the money he borrowed from him. The petitioner
had just purchased a hacienda in Mindoro for P210,000.00, owned sugar and rice
lands in Tarlac of around 800 hectares, and had P60,000.00 deposits in three banks
when he executed the note. It is more logical to believe that Pineda would not
borrow P5,000.00 and P4,300.00 five days apart from a man whom he calls a "fixer"
and whom he had known for only three months.
There is no dispute that an air-conditioning unit valued at P1,250.00 was purchased
by Pineda's son and given to Dela Rama although the latter claims he paid
P1,250.00 for the unit when he received it. Pineda, however, alleged that he gave
the air-conditioning unit because Dela Rama told him that Dr. Rodriguez was asking
for one air-conditioning machine of 1.5 horsepower for the latter's NARIC office.
Pineda further testified that six cavans of first class rice also intended for the NARIC
Chairman and General Manager, together with the airconditioning unit, never
reached Dr. Rodriguez but were kept by the lawyer.
Considering the foregoing, we agree with the trial court that the promissory note
was executed for an illegal consideration. Articles 1409 and 1412 of the Civil Code in
part, provide:
Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order and public policy;
xxx xxx xxx
Art. 1412. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the following rules
shall be observed:
(1) When the fault is on the part of both contracting parties,
neither may recover what he has given by virtue of the contract,
or demand the performance of the other's undertaking.
xxx xxx xxx
Whether or not the supposed cash advances reached their destination is of no
moment. The consideration for the promissory note - to influence public officers in
the performance of their duties - is contrary to law and public policy. The promissory
note is void ab initio and no cause of action for the collection cases can arise from it.
WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The complaint and
the counterclaim in Civil Case No. 45762 are both DISMISSED.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur.
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Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 93048 March 3, 1994
BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC., respondents.
Teresita Gandiongco Oledan for petitioner.
Acaban & Sabado for private respondent.
NOCON, J.:
For our review is the decision of the Court of Appeals in the case entitled "State
Investment House, Inc. v. Bataan Cigar & Cigarette Factory Inc.,"1
affirming thedecision of the Regional Trial Court 2 in a complaint filed by the State Investment
House, Inc. (hereinafter referred to as SIHI) for collection on three unpaid checks
issued by Bataan Cigar & Cigarette Factory, Inc. (hereinafter referred to as BCCFI).
The foregoing decisions unanimously ruled in favor of SIHI, the private respondent in
this case.
Emanating from the records are the following facts. Petitioner, Bataan Cigar &
Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of
cigarettes, engaged one of its suppliers, King Tim Pua George (herein after referred
to as George King), to deliver 2,000 bales of tobacco leaf starting October 1978. In
consideration thereof, BCCFI, on July 13, 1978 issued crossed checks post dated
sometime in March 1979 in the total amount of P820,000.00. 3
Relying on the supplier's representation that he would complete delivery within
three months from December 5, 1978, petitioner agreed to purchase additional
2,500 bales of tobacco leaves, despite the supplier's failure to deliver in accordance
with their earlier agreement. Again petitioner issued post dated crossed checks in
the total amount of P1,100,000.00, payable sometime in September 1979. 4
During these times, George King was simultaneously dealing with private
respondent SIHI. On July 19, 1978, he sold at a discount check TCBT
551826 5 bearing an amount of P164,000.00, post dated March 31, 1979, drawn by
petitioner, naming George King as payee to SIHI. On December 19 and 26, 1978, he
again sold to respondent checks TCBT Nos. 608967 & 608968, 6 both in the amount
of P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by
petitioner in favor of George King.
In as much as George King failed to deliver the bales of tobacco leaf as agreed
despite petitioner's demand, BCCFI issued on March 30, 1979, a stop payment order
on all checks payable to George King, including check TCBT 551826. Subsequently,
stop payment was also ordered on checks TCBT Nos. 608967 & 608968 on
September 14 & 28, 1979, respectively, due to George King's failure to deliver the
tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it instituted the present case,
naming only BCCFI as party defendant. The trial court pronounced SIHI as having a
valid claim being a holder in due course. It further said that the non-inclusion of King
Tim Pua George as party defendant is immaterial in this case, since he, as payee, is
not an indispensable party.
The main issue then is whether SIHI, a second indorser, a holder of crossed checks,
is a holder in due course, to be able to collect from the drawer, BCCFI.
The Negotiable Instruments Law states what constitutes a holder in due course,
thus:
Sec. 52 — A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice that it had been previously dishonored, if such was
the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of
any infirmity in the instrument or defect in the title of the person
negotiating it.
Section 59 of the NIL further states that every holder is deemed prima facie a holder
in due course. However, when it is shown that the title of any person who has
negotiated the instrument was defective, the burden is on the holder to prove thathe or some person under whom he claims, acquired the title as holder in due course.
The facts in this present case are on all fours to the case of State Investment House,
Inc. (the very respondent in this case) v. Intermediate Appellate Court 7 wherein we
made a discourse on the effects of crossing of checks.
As preliminary, a check is defined by law as a bill of exchange drawn on a bank
payable on demand. 8 There are a variety of checks, the more popular of which are
the memorandum check, cashier's check, traveler's check and crossed check.
Crossed check is one where two parallel lines are drawn across its face or across a
corner thereof. It may be crossed generally or specially.
A check is crossed specially when the name of a particular banker or a company iswritten between the parallel lines drawn. It is crossed generally when only the words
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"and company" are written or nothing is written at all between the parallel lines. It
may be issued so that the presentment can be made only by a bank. Veritably the
Negotiable Instruments Law (NIL) does not mention "crossed checks," although
Article 541 9 of the Code of Commerce refers to such instruments.
According to commentators, the negotiability of a check is not affected by its being
crossed, whether specially or generally. It may legally be negotiated from one
person to another as long as the one who encashes the check with the drawee bank
is another bank, or if it is specially crossed, by the bank mentioned between the
parallel lines. 10 This is specially true in England where the Negotiable Instrument
Law originated.
In the Philippine business setting, however, we used to be beset with bouncing
checks, forging of checks, and so forth that banks have become quite guarded in
encashing checks, particularly those which name a specific payee. Unless one is a
valued client, a bank will not even accept second indorsements on checks.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced
that crossing of a check should have the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only
once — to one who has an account with a bank; (c) and the act of crossing the check
serves as warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course. 11
The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New
Sikatuna Wood Industries, Inc. also sold at a discount to SIHI three post dated
crossed checks, issued by Anita Peña Chua naming as payee New Sikatuna Wood
Industries, Inc. Ruling that SIHI was not a holder in due course, we then said:
The three checks in the case at bar had been crossed generally
and issued payable to New Sikatuna Wood Industries, Inc. which
could only mean that the drawer had intended the same for
deposit only by the rightful person, i.e. the payee named therein.
Apparently, it was not the payee who presented the same for
payment and therefore, there was no proper presentment, and the
liability did not attach to the drawer. Thus, in the absence of duepresentment, the drawer did not become liable. Consequently, no
right of recourse is available to petitioner (SIHI) against the drawer
of the subject checks, private respondent wife (Anita), considering
that petitioner is not the proper party authorized to make
presentment of the checks in question.
xxx xxx xxx
That the subject checks had been issued subject to the condition
that private respondents (Anita and her husband) on due date
would make the back up deposit for said checks but which
condition apparently was not made, thus resulting in the non-
consummation of the loan intended to be granted by privaterespondents to New Sikatuna Wood Industries, Inc., constitutes a
good defense against petitioner who is not a holder in due
course. 12
It is then settled that crossing of checks should put the holder on inquiry and upon
him devolves the duty to ascertain the indorser's title to the check or the nature of
his possession. Failing in this respect, the holder is declared guilty of gross
negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the
Negotiable Instruments Law, 13 and as such the consensus of authority is to the
effect that the holder of the check is not a holder in due course.
In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is
to George King. Because, really, the checks were issued with the intention that
George King would supply BCCFI with the bales of tobacco leaf. There being failure of
consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be
obliged to pay the checks.
The foregoing does not mean, however, that respondent could not recover from the
checks. The only disadvantage of a holder who is not a holder in due course is that
the instrument is subject to defenses as if it were
non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in
this case, George King.
WHEREFORE, finding that the court a quo erred in the application of law, the instant
petition is hereby GRANTED. The decision of the Regional Trial Court as affirmed bythe Court of Appeals is hereby REVERSED. Cost against private respondent.
SO ORDERED.
Narvasa, C.J., Regalado and Puno, JJ., concur.
Padilla, J., took no part.
#Footnotes
1 CA-G.R. CV No. 03032, Justice Jorge R. Coquia, ponente, Justices Josue N. Bellosillo and Venancio D. Aldecoa, Jr., concurring,
November 13, 1987.
2 Judge Agusto E. Villarin, presiding, Branch XL, National Capital
Region, Manila.
3 Exhibit "1", Folder of Exhibits, p. 11.
4 Exhibit "4", Folder of Exhibits, p. 14.
5 Annex "A", Folder of Exhibits, p. 3.
6 Annexes "B" and "C", Folder of Exhibits, pp. 4-5.
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7 G.R. No. 72764, 175 SCRA 310.
8 Sec. 185, Negotiable Instruments Law.
9 Article 541 -- The maker of any legal holder of a check shall be
entitled to indicate therein that it be paid to a certain banker or
institution, which he shall do by writing across the face the name
of said banker or institution, or only the words "and company".
10 CAMPOS AND LOPEZ-CAMPOS, Negotiable Instruments Law, p.
574-575; AGBAYANI, AGUEDO, Commercial Laws of the Philippines,Vol. 1, 1987 Ed., p. 446.
11 Ocampo v. Gatchalian, G.R. No. L-15126, 3 SCRA 603 (1961);
Associated Bank v. Court of Appeals, G.R. No. 89802, 208 SCRA
465; SIHI v. IAC, supra.
12 Id. at pp. 316-317.
13 quoted supra.
14 Chan Wan v. Tan Kim and Chen So, L-15380, 109 Phil., 706
(1960); SIHI v. IAC, supra.
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Republic of the Philippines
SUPREME COURT
Manila
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, Hofileña & Guingona for private.
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No.23615 1 affirming with modifications, the earlier decision of the Regional Trial Court
of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein
petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted
by respondent court, appears of record:
1. On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit
(CTDs) in favor of one Angel dela Cruz who deposited with herein
defendant the aggregate amount of P1,120,000.00, as follows:
(Joint Partial Stipulation of Facts and Statement of Issues, Original
Records, p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to
herein plaintiff in connection with his purchased of fuel products
from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo
Tiangco, the Sucat Branch Manger, that he lost all the certificates
of time deposit in dispute. Mr. Tiangco advised said depositor to
execute and submit a notarized Affidavit of Loss, as required by
defendant bank's procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to
defendant bank the required Affidavit of Loss (Defendant's Exhibit
281). On the basis of said affidavit of loss, 280 replacement CTDs
were issued in favor of said depositor (Defendant's Exhibits 282-
561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a
loan from defendant bank in the amount of Eight Hundred SeventyFive Thousand Pesos (P875,000.00). On the same date, said
depositor executed a notarized Deed of Assignment of Time
Deposit (Exhibit 562) which stated, among others, that he (de la
Cruz) surrenders to defendant bank "full control of the indicated
time deposits from and after date" of the assignment and further
authorizes said bank to pre-terminate, set-off and "apply the said
time deposits to the payment of whatever amount or amounts
may be due" on the loan upon its maturity (TSN, February 9, 1987,
pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of
plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat
branch and presented for verification the CTDs declared lost byAngel dela Cruz alleging that the same were delivered to herein
plaintiff "as security for purchases made with Caltex Philippines,
Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter
(Defendant's Exhibit 563) from herein plaintiff formally informing it
of its possession of the CTDs in question and of its decision to pre-
terminate the same.
8. On December 8, 1982, plaintiff was requested by herein
defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela Cruz" as
well as "the details of Mr. Angel dela Cruz" obligation against
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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 defendantbank matured and fell due and on August 5, 1983, the latter set-
off and applied the time deposits in question to the payment of
the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint,
praying that defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest therein at 16% per
annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the
instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of
the complaint, hence this petition wherein petitioner faults respondent court in
ruling (1) that the subject certificates of deposit are non-negotiable despite being
clearly negotiable instruments; (2) that petitioner did not become a holder in due
course of the said certificates of deposit; and (3) in disregarding the pertinent
provisions of the Code of Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a
better understanding of the issues involved in this recourse.
SECURITY BANK AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited
in this Bank the sum of PESOS: FOUR THOUSAND
ONLY, SECURITY BANK SUCAT OFFICE P4,000 &
00 CTS Pesos, Philippine Currency, repayable tosaid depositor 731 days. after date, upon
presentation and surrender of this certificate,
with interest at the rate of 16% per cent per
annum.
(Sgd. Illegible) (Sgd. Illegible)
—————————— ———————————
AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable instruments,nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather
boldly in the CTDs issued, it is important to note that after the
word "BEARER" stamped on the space provided supposedly for the
name of the depositor, the words "has deposited" a certain
amount follows. The document further provides that the amount
deposited shall be "repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s) themselves
manifest with clarity that they are payable, not to whoever
purports to be the "bearer" but only to the specified person
indicated therein, the depositor. In effect, the appellee bank
acknowledges its depositor Angel dela Cruz as the person whomade the deposit and further engages itself to pay said depositor
the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in
question are negotiable instruments. Section 1 Act No. 2031, otherwise known as
the Negotiable Instruments Law, enumerates the requisites for an instrument to
become negotiable, viz :
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties' bone of contention is with regard to requisite (d) set forth
above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way
back in 1982, testified in open court that the depositor reffered to in the CTDs is no
other than Mr. Angel de la Cruz.
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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 Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the instrument
itself. 9 In the construction of a bill or note, the intention of the parties is to control, if
it can be legally ascertained. 10 While the writing may be read in the light of
surrounding circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other words are to be added to
it or substituted in its stead. The duty of the court in such case is to ascertain, not
what the parties may have secretly intended as contradistinguished from what their
words express, but what is the meaning of the words they have used. What the
parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The
documents provide that the amounts deposited shall be repayable to the depositor.
And who, according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be the bearer at
the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la
Cruz only, it could have with facility so expressed that fact in clear and categorical
terms in the documents, instead of having the word "BEARER" stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to whoever may be the
bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la
Cruz is the depositor "insofar as the bank is concerned," but obviously other parties
not privy to the transaction between them would not be in a position to know that
the depositor is not the bearer stated in the CTDs. Hence, the situation would
require any party dealing with the CTDs to go behind the plain import of what is
written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be
avoided by the Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time,
the answer is in the negative. The records reveal that Angel de la Cruz, whom
petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs
amounting to P1,120,000.00 to petitioner without informing respondent bank thereof
at any time. Unfortunately for petitioner, although the CTDs are bearer instruments,
a valid negotiation thereof for the true purpose and agreement between it and De la
Cruz, as ultimately ascertained, requires both delivery and indorsement. For,
although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it
as a security for De la Cruz' purchases of its fuel products. Any doubt as to whether
the CTDs were delivered as payment for the fuel products or as a security has been
dissipated and resolved in favor of the latter by petitioner's own authorized and
responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q.
Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were
negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"
(Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon. 14 A party may not go back on his own acts
and representations to the prejudice of the other party who relied upon them. 15 In
the law of evidence, whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, and to
act upon such belief, he cannot, in any litigation arising out of such declaration, act,
or omission, be permitted to falsify it. 16
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If it were true that the CTDs were delivered as payment and not as security,
petitioner's credit manager could have easily said so, instead of using the words "to
guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant
in the court below, moved for a bill of particularity therein 17 praying, among others,
that petitioner, as plaintiff, be required to aver with sufficient definiteness or
particularity (a) the due date or dates of payment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter's alleged
indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the
receipt prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion,
petitioner now labors under the presumption that evidence willfully suppressed
would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty
Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez,
supra, we quote therefrom:
The character of the transaction between the
parties is to be determined by their intention,
regardless of what language was used or what
the form of the transfer was. If it was intended tosecure the payment of money, it must be
construed as a pledge; but if there was some
other intention, it is not a pledge. However, even
though a transfer, if regarded by itself, appears
to have been absolute, its object and character
might still be qualified and explained by
contemporaneous writing declaring it to have
been a deposit of the property as collateral
security. It has been said that a transfer of
property by the debtor to a creditor, even if
sufficient on its face to make an absolute
conveyance, should be treated as a pledge if the
debt continues in inexistence and is notdischarged 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 theholder 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 adescription of the thing pledged and the date of the pledge do not
appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual
findings of respondent court quoted at the start of this opinion show that petitioner
failed to produce any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of
the CTDs did not legally vest in petitioner any right effective against and binding
upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the
date of a pledge contract, but a rule of substantive law prescribing a condition
without which the execution of a pledge contract cannot affect third persons
adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument. 27 With regard to this other
mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no
effect as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily,
petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved
the amount of its credit or the extent of its lien nor the execution of any publicinstrument which could affect or bind private respondent. Necessarily, therefore, as
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between petitioner and respondent bank, the latter has definitely the better right
over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of
whether or not private respondent observed the requirements of the law in the case
of lost negotiable instruments and the issuance of replacement certificates therefor,
on the ground that petitioner failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged
negligence of private respondent was not included in the stipulation of the parties
and in the statement of issues submitted by them to the trial court.29 The issuesagreed 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 preterminatethe 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 forthe 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 issueof petitioner's entitlement to the proceeds of the questioned certificates can be
premised on a multitude of other legal reasons and causes of action, of which
respondent bank's supposed negligence is only one. Hence, petitioner's submission,
if accepted, would render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court
below, petitioner still cannot have the odds in its favor. A close scrutiny of the
provisions of the Code of Commerce laying down the rules to be followed in case of
lost instruments payable to bearer, which it invokes, will reveal that said provisions,
even assuming their applicability to the CTDs in the case at bar, are merely
permissive and not mandatory. The very first article cited by petitioner speaks for
itself.
Art 548. The dispossessed owner , no matter for what cause it may
be, may apply to the judge or court of competent jurisdiction,
asking that the principal, interest or dividends due or about to
become due, be not paid a third person, as well as in order to
prevent the ownership of the instrument that a duplicate be issued
him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but
discretionary on the part of the "dispossessed owner" to apply to the judge or court
of competent jurisdiction for the issuance of a duplicate of the lost instrument.Where the provision reads "may," this word shows that it is not mandatory but
discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an
auxiliary verb indicating liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the
Code of Commerce, on which petitioner seeks to anchor respondent bank's
supposed negligence, merely established, on the one hand, a right of recourse in
favor of a dispossessed owner or holder of a bearer instrument so that he may
obtain a duplicate of the same, and, on the other, an option in favor of the party
liable thereon who, for some valid ground, may elect to refuse to issue a
replacement of the instrument. Significantly, none of the provisions cited by
petitioner categorically restricts or prohibits the issuance a duplicate or replacement
instrument sans compliance with the procedure outlined therein, and noneestablishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and
the appealed decision is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Nocon, JJ., concur.
Footnotes
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1 Per Justice Segundino G. Chua, with the concurrence of Justices
Santiago M. Kapunan and Luis L. Victor.
2 Judge Ramon Mabutas, Jr., presiding; Rollo, 64-88.
3 Rollo, 24-26.
4 Ibid., 12.
5 Exhibit A, Documentary Evidence for the Plaintiff, 8.
6 Rollo, 28.
7 TSN, February 9, 1987, 46-47.
8 Ibid., id., 152-153.
9 11 Am. Jur. 2d, Bills and Notes, 79.
10 Ibid., 86.
11 Ibid., 87-88.
12 Art. 1377, Civil Code.
13 Exhibit 563, Documentary Evidence for the Defendant, 442;
Original Record, 211.
14 Panay Electric Co., Inc. vs. Court of Appeals, et al., 174 SCRA
500 (1989).
15 Philippine National Bank vs. Intermediate Appellate Court, et
al., 189 SCRA 680 (1990).
16 Section 2(a), Rule 131, Rules of Court.
17 Original Record, 152.
18 Ibid., 154.
19 Section 3(e), Rule 131, Rules of Court.
20 174 SCRA 295 (1989), jointly decided with Overseas Bank of
Manila vs. Court of Appeals, et al., G.R. No. 60907.
21 Sec. 30, Act No. 2031.
22 Sec. 191, id.
23 Sec. 27, id.; see also Art. 2118, Civil Code.
24 Commentaries and Jurisprudence on the Philippine Commercial
Laws, T.C. Martin, 1985 Rev. Ed., Vol. I, 134; Art. 18, Civil Code;
Sec. 196, Act No. 2031.
25 Rollo, 25.
26 Tec Bi & Co. vs. Chartered Bank of India, Australia and China,
41 Phil. 596 (1916); Ocejo, Perez & Co. vs. The International
Banking Corporation, 37 Phil. 631 (1918); Te Pate vs. Ingersoll, 43
Phil. 394 (1922).
27 Rollo, 25.
28 Ibid., 15.
29 Joint Partial Stipulation of Facts and Statement of Issues, dated
November 27, 1984; Original Record, 209.
30 Mejorada vs. Municipal Council of Dipolog, 52 SCRA 451 (1973).
31 Sec. 18, Rule 46, Rules of Court; Garcia, et al. vs. Court of
Appeals, et al., 102 SCRA 597 (1981); Matienzo vs. Servidad, 107
SCRA 276 (1981); Aguinaldo Industries Corporation, etc. vs.
Commissioner of Internal Revenue, et al., 112 SCRA 136 (1982);Dulos Realty & Development Corporation vs. Court of Appeals, et
al., 157 SCRA 425 (1988).
32 Bergado vs. Court of Appeals, et al., 173 SCRA 497 (1989).
33 Rollo, 58.
34 U.S. vs. Sanchez, 13 Phil. 336 (1909); Capati vs. Ocampo, 113
SCRA 794 (1982).
35 Luna vs. Abaya, 86 Phil. 472 (1950).
36 Philippine Law Dictionary, F.B. Moreno, Third Edition, 590.
37 Rollo, 59.
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Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 80599 September 15, 1989
ERNESTINA CRISOLOGO-JOSE, petitioner,vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as
Vice-President for Sales of Mover Enterprises, Inc., respondents.
Melquiades P. de Leon for petitioner.
Rogelio A. Ajes for private respondent.
REGALADO, J.:
Petitioner seeks the annulment of the decision1
of respondent Court of Appeals,promulgated on September 8, 1987, which reversed the decision of the trial
Court 2 dismissing the complaint for consignation filed by therein plaintiff Ricardo S.
Santos, Jr.
The parties are substantially agreed on the following facts as found by both lower
courts:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of
Mover Enterprises, Inc. in-charge of marketing and sales; and the
president of the said corporation was Atty. Oscar Z. Benares. On
April 30, 1980, Atty. Benares, in accommodation of his clients, the
spouses Jaime and Clarita Ong, issued Check No. 093553 drawn
against Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I') payable to defendant Ernestina Crisologo-
Jose. Since the check was under the account of Mover Enterprises,
Inc., the same was to be signed by its president, Atty. Oscar Z.
Benares, and the treasurer of the said corporation. However, since
at that time, the treasurer of Mover Enterprises was not available,
Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to
sign the aforesaid chEck as an alternate story. Plaintiff Ricardo S.
Santos, Jr. did sign the check.
It appears that the check (Exh. '1') was issued to defendant
Ernestina Crisologo-Jose in consideration of the waiver or quitclaim
by said defendant over a certain property which the Government
Service Insurance System (GSIS) agreed to sell to the clients of
Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the
understanding that upon approval by the GSIS of the compromise
agreement with the spouses Ong, the check will be encashed
accordingly. However, since the compromise agreement was not
approved within the expected period of time, the aforesaid check
for P45,000.00 (Exh. '1') was replaced by Atty. Benares with
another Traders Royal Bank cheek bearing No. 379299 dated
August 10, 1980, in the same amount of P45,000.00 (Exhs. 'A' and
'2'), also payable to the defendant Jose. This replacement check
was also signed by Atty. Oscar Z. Benares and by the plaintiff
Ricardo S. Santos, Jr. When defendant deposited this replacement
check (Exhs. 'A' and '2') with her account at Family Savings Bank,
Mayon Branch, it was dishonored for insufficiency of funds. A
subsequent redepositing of the said check was likewise dishonored
by the bank for the same reason. Hence, defendant through
counsel was constrained to file a criminal complaint for violation of
Batas Pambansa Blg. 22 with the Quezon City Fiscal's Office
against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr.
The investigating Assistant City Fiscal, Alfonso Llamas, accordingly
filed an amended information with the court charging both Oscar
Benares and Ricardo S. Santos, Jr., for violation of Batas Pambansa
Blg. 22 docketed as Criminal Case No. Q-14867 of then Court of
First Instance of Rizal, Quezon City.
Meanwhile, during the preliminary investigation of the criminalcharge against Benares and the plaintiff herein, before Assistant
City Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr.
tendered cashier's check No. CC 160152 for P45,000.00 dated
April 10, 1981 to the defendant Ernestina Crisologo-Jose, the
complainant in that criminal case. The defendant refused to
receive the cashier's check in payment of the dishonored check in
the amount of P45,000.00. Hence, plaintiff encashed the aforesaid
cashier's check and subsequently deposited said amount of
P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D'
and 'E'). Incidentally, the cashier's check adverted to above was
purchased by Atty. Oscar Z. Benares and given to the plaintiff
herein to be applied in payment of the dishonored check. 3
After trial, the court a quo, holding that it was "not persuaded to believe that
consignation referred to in Article 1256 of the Civil Code is applicable to this case,"
rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. 4
As earlier stated, respondent court reversed and set aside said judgment of
dismissal and revived the complaint for consignation, directing the trial court to give
due course thereto.
Hence, the instant petition, the assignment of errors wherein are prefatorily stated
and discussed seriatim.
1. Petitioner contends that respondent Court of Appeals erred in
holding that private respondent, one of the signatories of thecheck issued under the account of Mover Enterprises, Inc., is an
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accommodation party under the Negotiable Instruments Law and a
debtor of petitioner to the extent of the amount of said check.
Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc.
and not private respondent who merely signed the check in question in a
representative capacity, that is, as vice-president of said corporation, hence he is
not liable thereon under the Negotiable Instruments Law.
The pertinent provision of said law referred to provides:
Sec. 29. Liability of accommodation party an accommodationparty is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person
is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of taking the instrument, knew him to be
only an accommodation party.
Consequently, to be considered an accommodation party, a person must (1) be a
party to the instrument, signing as maker, drawer, acceptor, or indorser, (2) not
receive value therefor, and (3) sign for the purpose of lending his name for the
credit of some other person.
Based on the foregoing requisites, it is not a valid defense that the accommodationparty did not receive any valuable consideration when he executed the instrument.
From the standpoint of contract law, he differs from the ordinary concept of a debtor
therein in the sense that he has not received any valuable consideration for the
instrument he signs. Nevertheless, he is liable to a holder for value as if the contract
was not for accommodation 5in whatever capacity such accommodation party
signed the instrument, whether primarily or secondarily. Thus, it has been held that
in lending his name to the accommodated party, the accommodation party is in
effect a surety for the latter. 6
Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this
case, as petitioner suggests, the inevitable question is whether or not it may be held
liable on the accommodation instrument, that is, the check issued in favor of herein
petitioner.
We hold in the negative.
The aforequoted provision of the Negotiable Instruments Law which holds an
accommodation party liable on the instrument to a holder for value, although such
holder at the time of taking the instrument knew him to be only an accommodation
party, does not include nor apply to corporations which are accommodation
parties. 7 This is because the issue or indorsement of negotiable paper by a
corporation without consideration and for the accommodation of another is ultra
vires. 8 Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation where it is only
an accommodation party. If the form of the instrument, or the nature of the
transaction, is such as to charge the indorsee with knowledge that the issue or
indorsement of the instrument by the corporation is for the accommodation of
another, he cannot recover against the corporation thereon. 9
By way of exception, an officer or agent of a corporation shall have the power to
execute or indorse a negotiable paper in the name of the corporation for the
accommodation of a third person only if specifically authorized to do
so. 10 Corollarily, corporate officers, such as the president and vice-president, have
no power to execute for mere accommodation a negotiable instrument of the
corporation for their individual debts or transactions arising from or in relation to
matters in which the corporation has no legitimate concern. Since such
accommodation paper cannot thus be enforced against the corporation, especiallysince it is not involved in any aspect of the corporate business or operations, the
inescapable conclusion in law and in logic is that the signatories thereof shall be
personally liable therefor, as well as the consequences arising from their acts in
connection therewith.
The instant case falls squarely within the purview of the aforesaid decisional rules. If
we indulge petitioner in her aforesaid postulation, then she is effectively barred from
recovering from Mover Enterprises, Inc. the value of the check. Be that as it may,
petitioner is not without recourse.
The fact that for lack of capacity the corporation is not bound by an accommodation
paper does not thereby absolve, but should render personally liable, the signatories
of said instrument where the facts show that the accommodation involved was fortheir personal account, undertaking or purpose and the creditor was aware thereof.
Petitioner, as hereinbefore explained, was evidently charged with the knowledge
that the cheek was issued at the instance and for the personal account of Atty.
Benares who merely prevailed upon respondent Santos to act as co-signatory in
accordance with the arrangement of the corporation with its depository bank. That it
was a personal undertaking of said corporate officers was apparent to petitioner by
reason of her personal involvement in the financial arrangement and the fact that,
while it was the corporation's check which was issued to her for the amount
involved, she actually had no transaction directly with said corporation.
There should be no legal obstacle, therefore, to petitioner's claims being directed
personally against Atty. Oscar Z. Benares and respondent Ricardo S. Santos, Jr.,president and vice-president, respectively, of Mover Enterprises, Inc.
2. On her second assignment of error, petitioner argues that the
Court of Appeals erred in holding that the consignation of the sum
of P45,000.00, made by private respondent after his tender of
payment was refused by petitioner, was proper under Article 1256
of the Civil Code.
Petitioner's submission is that no creditor-debtor relationship exists between the
parties, hence consignation is not proper. Concomitantly, this argument was
premised on the assumption that private respondent Santos is not an
accommodation party.
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As previously discussed, however, respondent Santos is an accommodation party
and is, therefore, liable for the value of the check. The fact that he was only a co-
signatory does not detract from his personal liability. A co-maker or co-drawer under
the circumstances in this case is as much an accommodation party as the other co-
signatory or, for that matter, as a lone signatory in an accommodation instrument.
Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect
a co-surety for the accommodated party with whom he and his co-signatory, as the
other co-surety, assume solidary liability ex lege for the debt involved. With the
dishonor of the check, there was created a debtor-creditor relationship, as between
Atty. Benares and respondent Santos, on the one hand, and petitioner, on the other.
This circumstance enables respondent Santos to resort to an action of consignation
where his tender of payment had been refused by petitioner.
We interpose the caveat , however, that by holding that the remedy of consignation
is proper under the given circumstances, we do not thereby rule that all the
operative facts for consignation which would produce the effect of payment are
present in this case. Those are factual issues that are not clear in the records before
us and which are for the Regional Trial Court of Quezon City to ascertain in Civil Case
No. Q-33160, for which reason it has advisedly been directed by respondent court to
give due course to the complaint for consignation, and which would be subject to
such issues or claims as may be raised by defendant and the counterclaim filed
therein which is hereby ordered similarly revived.
3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the Regional Trial Court of Quezon City filed against
private respondent for violation of Batas Pambansa Blg. 22, by
holding that no criminal liability had yet attached to private
respondent when he deposited with the court the amount of
P45,000.00 is the final plaint of petitioner.
We sustain petitioner on this score.
Indeed, respondent court went beyond the ratiocination called for in the appeal to it
in CA-G.R. CV. No. 05464. In its own decision therein, it declared that " (t)he lone
issue dwells in the question of whether an accommodation party can validly consign
the amount of the debt due with the court after his tender of payment was refused
by the creditor." Yet, from the commercial and civil law aspects determinative of saidissue, it digressed into the merits of the aforesaid Criminal Case No. Q-14867, thus:
Section 2 of B.P. 22 establishes the prima facie evidence of
knowledge of such insufficiency of funds or credit. Thus, the
making, drawing and issuance of a check, payment of which is
refused by the drawee because of insufficient funds in or credit
with such bank is prima facie evidence of knowledge of
insufficiency of funds or credit, when the check is presented within
90 days from the date of the check.
It will be noted that the last part of Section 2 of B.P. 22 provides
that the element of knowledge of insufficiency of funds or credit is
not present and, therefore, the crime does not exist, when thedrawer pays the holder the amount due or makes arrangements
for payment in full by the drawee of such check within five (5)
banking days after receiving notice that such check has not been
paid by the drawee.
Based on the foregoing consideration, this Court finds that the
plaintiff-appellant acted within Ms legal rights when he consigned
the amount of P45,000.00 on August 14, 1981, between August 7,
1981, the date when plaintiff-appellant receive (sic) the notice of
non-payment, and August 14, 1981, the date when the debt due
was deposited with the Clerk of Court (a Saturday and a Sunday
which are not banking days) intervened. The fifth banking day fellon August 14, 1981. Hence, no criminal liability has yet attached
to plaintiff-appellant when he deposited the amount of P45,000.00
with the Court a quo on August 14, 1981. 11
That said observations made in the civil case at bar and the intrusion into the merits
of the criminal case pending in another court are improper do not have to be
belabored. In the latter case, the criminal trial court has to grapple with such factual
issues as, for instance, whether or not the period of five banking days had expired,
in the process determining whether notice of dishonor should be reckoned from any
prior notice if any has been given or from receipt by private respondents of the
subpoena therein with supporting affidavits, if any, or from the first day of actual
preliminary investigation; and whether there was a justification for not making the
requisite arrangements for payment in full of such check by the drawee bank withinthe said period. These are matters alien to the present controversy on tender and
consignation of payment, where no such period and its legal effects are involved.
These are aside from the considerations that the disputed period involved in the
criminal case is only a presumptive rule, juris tantum at that, to determine whether
or not there was knowledge of insufficiency of funds in or credit with the drawee
bank; that payment of civil liability is not a mode for extinguishment of criminal
liability; and that the requisite quantum of evidence in the two types of cases are
not the same.
To repeat, the foregoing matters are properly addressed to the trial court in Criminal
Case No. Q-14867, the resolution of which should not be interfered with by
respondent Court of Appeals at the present posture of said case, much lesspreempted by the inappropriate and unnecessary holdings in the aforequoted
portion of the decision of said respondent court. Consequently, we modify the
decision of respondent court in CA-G.R. CV No. 05464 by setting aside and declaring
without force and effect its pronouncements and findings insofar as the merits of
Criminal Case No. Q-14867 and the liability of the accused therein are concerned.
WHEREFORE, subject to the aforesaid modifications, the judgment of respondent
Court of Appeals is AFFIRMED.
SO ORDERED.
Paras, Padilla and Sarmiento, JJ ., concur.
Melencio-Herrera J., took no part.
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Footnotes
1 Penned by Justice Justo P. Torres, Jr. and concurred in by
Associate Justices Leonor Ines Luciano and Oscar M. Herrera; Rollo,
18.
2 Civil Case No. Q-33160, Regional Trial Court of Quezon City,
Branch XCVI.
3 Rollo, 19-20.
4 Rollo, 18.
5 Ang Tiong vs. Ting, et al., 22 SCRA 713 (1968).
6 Philipine Bank of Commerce vs. Aruego, 102 SCRA 530 (1981).
7 11 C.J.S. 309.
8 14A C.J. 732.
9 Oppenheim vs. Simon Reigel Cigar Co., 90 N.Y.S. 355, cited in 11C.J.S. 309.
10 In re Wrentham Mfg. Co., 2 Low. 119; Hall vs. Auburn Turnp. Co.,
27 Cal. 255, cited in 14A C.J. 461.
11 Rollo, 21-22.
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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146511 September 5, 2007
TOMAS ANG, petitioner,
vs.
ASSOCIATED BANK AND ANTONIO ANG ENG LIONG, respondents.
D E C I S I O N
AZCUNA, J.:
This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to
review the October 9, 2000 Decision1 and December 26, 2000 Resolution2 of the
Court of Appeals in CA-G.R. CV No. 53413 which reversed and set aside the January
5, 1996 Decision3 of the Regional Trial Court, Branch 16, Davao City, in Civil Case No.
20,299-90, dismissing the complaint filed by respondents for collection of a sum of
money.
On August 28, 1990, respondent Associated Bank (formerly Associated BankingCorporation and now known as United Overseas Bank Philippines) filed a collection
suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2)
promissory notes that they executed as principal debtor and co-maker, respectively.
In the Complaint,4 respondent Bank alleged that on October 3 and 9, 1978, the
defendants obtained a loan ofP50,000, evidenced by a promissory note bearing PN-
No. DVO-78-382, and P30,000, evidenced by a promissory note bearing PN-No. DVO-
78-390. As agreed, the loan would be payable, jointly and severally, on January 31,
1979 and December 8, 1978, respectively. In addition, subsequent amendments5 to
the promissory notes as well as the disclosure statements6 stipulated that the loan
would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty
charge per month from due date until fully paid, and attorney's fees equivalent to
20% of the outstanding obligation.
Despite repeated demands for payment, the latest of which were on September 13,
1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang,
respectively, respondent Bank claimed that the defendants failed and refused to
settle their obligation, resulting in a total indebtedness of P539,638.96 as of July 31,
1990, broken down as follows:
PN-No. DVO-78-382 PN-No. DVO-78-390
Outstanding Balance P50,000.00
Add Past due charges for 4,199 days (from
01-31-79 to 07-31-90)
Past due charges for 4,253 days (from
12-8-78 to 07-31-90)
14% Interest P203,538.98
2% Service Charge P11,663.89
12% Overdue Charge P 69,983.34
Total P285,186.21
Less: Charges paid P 500.00
Amount Due P334,686.21
In his Answer,7 Antonio Ang Eng Liong only admitted to have secured a loan
amounting to P80,000. He pleaded though that the bank "be ordered to submit a
more reasonable computation" considering that there had been "no correct and
reasonable statement of account" sent to him by the bank, which was allegedly
collecting excessive interest, penalty charges, and attorney's fees despite
knowledge that his business was destroyed by fire, hence, he had no source of
income for several years.
For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-
claim.8 He interposed the affirmative defenses that: the bank is not the real party in
interest as it is not the holder of the promissory notes, much less a holder for valueor a holder in due course; the bank knew that he did not receive any valuable
consideration for affixing his signatures on the notes but merely lent his name as an
accommodation party; he accepted the promissory notes in blank, with only the
printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it
was the bank which completed the notes upon the orders, instructions, or
representations of his co-defendant; PN-No. DVO-78-382 was completed in excess of
or contrary to the authority given by him to his co-defendant who represented that
he would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-390
was procured through fraudulent means when his co-defendant claimed that his first
loan did not push through; the promissory notes did not indicate in what capacity he
was intended to be bound; the bank granted his co-defendant successive extensions
of time within which to pay, without his (Tomas Ang) knowledge and consent; the
bank imposed new and additional stipulations on interest, penalties, servicescharges and attorney's fees more onerous than the terms of the notes, without his
knowledge and consent, in the absence of legal and factual basis and in violation of
the Usury Law; the bank caused the inclusion in the promissory notes of stipulations
such as waiver of presentment for payment and notice of dishonor which are against
public policy; and the notes had been impaired since they were never presented for
payment and demands were made only several years after they fell due when his
co-defendant could no longer pay them.
Regarding his counterclaim, Tomas Ang argued that by reason of the bank's acts or
omissions, it should be held liable for the amount of P50,000 for attorney's fees and
expenses of litigation. Furthermore, on his cross-claim against Antonio Ang Eng
Liong, he averred that he should be reimbursed by his co-defendant any and all
sums that he may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 formoral and exemplary damages, and attorney's fees, respectively.
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In its Reply,9 respondent Bank countered that it is the real party in interest and is the
holder of the notes since the Associated Banking Corporation and Associated
Citizens Bank are its predecessors-in-interest. The fact that Tomas Ang never
received any moneys in consideration of the two (2) loans and that such was known
to the bank are immaterial because, as an accommodation maker, he is considered
as a solidary debtor who is primarily liable for the payment of the promissory notes.
Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that
absence or failure of consideration is not a matter of defense; neither is the fact that
the holder knew him to be only an accommodation party.
Respondent Bank likewise retorted that the promissory notes were completely filledup at the time of their delivery. Assuming that such was not the case, Sec. 14 of the
NIL provides that the bank has the prima facie authority to complete the blank form.
Moreover, it is presumed that one who has signed as a maker acted with care and
had signed the document with full knowledge of its content. The bank noted that
Tomas Ang is a prominent businessman in Davao City who has been engaged in the
auto parts business for several years, hence, certainly he is not so naïve as to sign
the notes without knowing or bothering to verify the amounts of the loans covered
by them. Further, he is already in estoppel since despite receipt of several demand
letters there was not a single protest raised by him that he signed for only one note
in the amount of P30,000.
It was denied by the bank that there were extensions of time for payment accorded
to Antonio Ang Eng Liong. Granting that such were the case, it said that the samewould not relieve Tomas Ang from liability as he would still be liable for the whole
obligation less the share of his co-debtor who received the extended term.
The bank also asserted that there were no additional or new stipulations imposed
other than those agreed upon. The penalty charge, service charge, and attorney's
fees were reflected in the amendments to the promissory notes and disclosure
statements. Reference to the Usury Law was misplaced as usury is legally non-
existent; at present, interest can be charged depending on the agreement of the
lender and the borrower.
Lastly, the bank contended that the provisions on presentment for payment and
notice of dishonor were expressly waived by Tomas Ang and that such waiver is not
against public policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there iseven no necessity therefor since being a solidary debtor he is absolutely required to
pay and primarily liable on both promissory notes.
On October 19, 1990, the trial court issued a preliminary pre-trial order directing the
parties to submit their respective pre-trial guide.10 When Antonio Ang Eng Liong
failed to submit his brief, the bank filed an ex-partemotion to declare him in
default.11 Per Order of November 23, 1990, the court granted the motion and set
the ex-parte hearing for the presentation of the bank's evidence.12 Despite Tomas
Ang's motion13 to modify the Order so as to exclude or cancel the ex-parte hearing
based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of the
Revised Rules on Civil Procedure), the hearing nonetheless proceeded.14
Eventually, a decision15
was rendered by the trial court on February 21, 1991. For hissupposed bad faith and obstinate refusal despite several demands from the bank,
Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14%
interest per annum and 2% service charge per annum. The overdue penalty charge
and attorney's fees were, however, reduced for being excessive, thus:
WHEREFORE, judgment is rendered against defendant Antonio Ang Eng
Liong and in favor of plaintiff, ordering the former to pay the latter:
On the first cause of action:
1) the amount of P50,000.00 representing the principal obligation
with 14% interest per annum from June 27, 1983 with 2% servicecharge and 6% overdue penalty charges per annum until fully
paid;
2) P11,663.89 as accrued service charge; and
3) P34,991.67 as accrued overdue penalty charge.
On the second cause of action:
1) the amount of P50,000.00 (sic) representing the principal
account with 14% interest from June 27, 1983 with 2% service
charge and 6% overdue penalty charges per annum until fully
paid;
2) P7,088.34 representing accrued service charge;
3) P21,265.00 as accrued overdue penalty charge;
4) the amount of P10,000.00 as attorney's fees; and
5) the amount of P620.00 as litigation expenses and to pay the
costs.
SO ORDERED.16
The decision became final and executory as no appeal was taken therefrom. Upon
the bank's ex-parte motion, the court accordingly issued a writ of execution on April
5, 1991.17
Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank
and Tomas Ang,18 who, in turn, filed a Motion to Dismiss19 on the ground of lack of
jurisdiction over the case in view of the alleged finality of the February 21, 1991
Decision. He contended that Sec. 4, Rule 18 of the old Rules sanctions only one
judgment in case of several defendants, one of whom is declared in default.
Moreover, in his Supplemental Motion to Dismiss,20 Tomas Ang maintained that he is
released from his obligation as a solidary guarantor and accommodation party
because, by the bank's actions, he is now precluded from asserting his cross-claim
against Antonio Ang Eng Liong, upon whom a final and executory judgment had
already been issued.
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The court denied the motion as well as the motion for reconsideration
thereon.21 Tomas Ang subsequently filed a petition for certiorari and prohibition
before this Court, which, however, resolved to refer the same to the Court of
Appeals.22 In accordance with the prayer of Tomas Ang, the appellate court
promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which
annulled and set aside the portion of the Order dated November 23, 1990 setting
the ex-parte presentation of the bank's evidence against Antonio Ang Eng Liong, the
Decision dated February 21, 1991 rendered against him based on such evidence,
and the Writ of Execution issued on April 5, 1991.23
Trial then ensued between the bank and Tomas Ang. Upon the latter's motion duringthe pre-trial conference, Antonio Ang Eng Liong was again declared in default for his
failure to answer the cross-claim within the reglementary period.24
When Tomas Ang was about to present evidence in his behalf, he filed a Motion for
Production of Documents,25reasoning:
x x x
2. That corroborative to, and/or preparatory or incident to his testimony[,]
there is [a] need for him to examine original records in the custody and
possession of plaintiff, viz:
a. original Promissory Note (PN for brevity) # DVO-78-382 datedOctober 3, 1978[;]
b. original of Disclosure Statement in reference to PN # DVO-78-
382;
c. original of PN # DVO-78-390 dated October 9, 1978;
d. original of Disclosure Statement in reference to PN # DVO-78-
390;
e. Statement or Record of Account with the Associated Banking
Corporation or its successor, of Antonio Ang in CA No. 470 (cf. Exh.
O) including bank records, withdrawal slips, notices, other papersand relevant dates relative to the overdraft of Antonio Eng Liong in
CA No. 470;
f. Loan Applications of Antonio Ang Eng Liong or borrower relative
to PN Nos. DVO-78-382 and DVO-78-390 (supra);
g. Other supporting papers and documents submitted by Antonio
Ang Eng Liong relative to his loan application vis-à-vis PN. Nos.
DVO-78-382 and DVO-78-390 such as financial statements, income
tax returns, etc. as required by the Central Bank or bank rules and
regulations.
3. That the above matters are very material to the defenses of defendant
Tomas Ang, viz:
- the bank is not a holder in due course when it accepted the [PNs]
in blank.
- The real borrower is Antonio Ang Eng Liong which fact is known
to the bank.
- That the PAYEE not being a holder in due course and knowing
that defendant Tomas Ang is merely an accommodation party, the
latter may raise against such payee or holder or successor-in-
interest (of the notes) PERSONAL and EQUITABLE DEFENSES such
as FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application of [Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in
delaying collection despite Eng Liong's OVERDRAFT in C.A. No.
470, etc.26
In its Order dated May 16, 1994,27 the court denied the motion stating that the
promissory notes and the disclosure statements have already been shown to and
inspected by Tomas Ang during the trial, as in fact he has already copies of the
same; the Statements or Records of Account of Antonio Ang Eng Liong in CA No.
470, relative to his overdraft, are immaterial since, pursuant to the previous ruling of
the court, he is being sued for the notes and not for the overdraft which is personal
to Antonio Ang Eng Liong; and besides its non-existence in the bank's records, there
would be legal obstacle for the production and inspection of the income tax return of
Antonio Ang Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang
filed a petition for certiorariand prohibition with application for preliminary injunction
and restraining order before the Court of Appeals docketed as CA G.R. SP No.
34840.28 On August 17, 1994, however, the Court of Appeals denied the issuance of
a Temporary Restraining Order.29
Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have
waived his right to present evidence for failure to appear during the pendency of his
petition before the Court of Appeals, the trial court decided to continue with the
hearing of the case.30
After the trial, Tomas Ang offered in evidence several documents, which included acopy of the Trust Agreement between the Republic of the Philippines and the Asset
Privatization Trust, as certified by the notary public, and news clippings from the
Manila Bulletin dated May 18, 1994 and May 30, 1994.31 All the documentary
exhibits were admitted for failure of the bank to submit its comment to the formal
offer.32 Thereafter, Tomas Ang elected to withdraw his petition in CA G.R. SP No.
34840 before the Court of Appeals, which was then granted.33
On January 5, 1996, the trial court rendered judgment against the bank, dismissing
the complaint for lack of cause of action.34 It held that:
Exh. "9" and its [sub-markings], the Trust Agreement dated 27 February
1987 for the defense shows that: the Associated Bank as of June 30, 1986
is one of DBP's or Development Bank of the [Philippines'] non-performingaccounts for transfer; on February 27, 1987 through Deeds of Transfer
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executed by and between the Philippine National Bank and Development
Bank of the Philippines and the National Government, both financial
institutions assigned, transferred and conveyed their non-performing assets
to the National Government; the National Government in turn and as
TRUSTOR, transferred, conveyed and assigned by way of trust unto the
Asset Privatization Trust said non-performing assets, [which] took title to
and possession of, [to] conserve, provisionally manage and dispose[,] of
said assets identified for privatization or disposition; one of the powers and
duties of the APT with respect to trust properties consisting of receivables is
to handle the administration, collection and enforcement of the receivables;
to bring suit to enforce payment of the obligations or any installmentthereof or to settle or compromise any of such obligations, or any other
claim or demand which the government may have against any person or
persons[.]
The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994,
Exh. "9-A", "9-B", "9-C", and "9-D", show that the Monetary Board of the
Bangko Sentral ng Pilipinas approved the rehabilitation plan of the
Associated Bank. One main feature of the rehabilitation plan included the
financial assistance for the bank by the Philippine Deposit Insurance
Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945
billion subject to a buy-back arrangement over a 10 year period. The PDIC
had approved of the rehab scheme, which included the purchase of AB's
bad loans worth P1.86 at 25% discount. This will then be paid by AB withina 10-year period plus a yield comparable to the prevailing market rates x x
x.
Based then on the evidence presented by the defendant Tomas Ang, it
would readily appear that at the time this suit for Sum of Money was filed
which was on August [28], 1990, the notes were held by the Asset
Privatization Trust by virtue of the Deeds of Transfer and Trust Agreement,
which was empowered to bring suit to enforce payment of the obligations.
Consequently, defendant Tomas Ang has sufficiently established that
plaintiff at the time this suit was filed was not the holder of the notes to
warrant the dismissal of the complaint.35
Respondent Bank then elevated the case to the Court of Appeals. In the appellant'sbrief captioned,"ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG
LIONG and TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee," the
following errors were alleged:
I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG
ENG LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-
APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTER'S
DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS.
II.
THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANT'S
COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE
COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR JUDICIAL
NOTICE.36
The bank stressed that it has established the causes of action outlined in its
Complaint by a preponderance of evidence. As regards the Deed of Transfer and
Trust Agreement, it contended that the same were never authenticated by any
witness in the course of the trial; the Agreement, which was not even legible, did not
mention the promissory notes subject of the Complaint; the bank is not a party to
the Agreement, which showed that it was between the Government of thePhilippines, acting through the Committee on Privatization represented by the
Secretary of Finance as trustor and the Asset Privatization Trust, which was created
by virtue of Proclamation No. 50; and the Agreement did not reflect the signatures of
the contracting parties. Lastly, the bank averred that the news items appearing in
the Manila Bulletin could not be the subject of judicial notice since they were
completely hearsay in character.37
On October 9, 2000, the Court of Appeals reversed and set aside the trial court's
ruling. The dispositive portion of the Decision38 reads:
WHEREFORE, premises considered, the Decision of the Regional Trial Court
of Davao City, Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED
AND SET ASIDE and another one entered ordering defendant-appellee Tomas Ang to pay plaintiff-appellant Associated Bank the following:
1. P50,000.00 representing the principal amount of the loan under PN-No.
DVO-78-382 plus 14% interest thereon per annum computed from January
31, 1979 until the full amount thereof is paid;
2. P30,000.00 representing the principal amount of the loan under PN-No.
DVO-78-390 plus 14% interest thereon per annum computed from
December 8, 1978 until the full amount thereof is paid;
All other claims of the plaintiff-appellant are DISMISSED for lack of legal
basis. Defendant-appellee's counterclaim is likewise DISMISSED for lack of
legal and factual bases.
No pronouncement as to costs.
SO ORDERED.39
The appellate court disregarded the bank's first assigned error for being "irrelevant
in the final determination of the case" and found its second assigned error as "not
meritorious." Instead, it posed for resolution the issue of whether the trial court
erred in dismissing the complaint for collection of sum of money for lack of cause of
action as the bank was said to be not the "holder" of the notes at the time the
collection case was filed.
In answering the lone issue, the Court of Appeals held that the bank is a "holder"
under Sec. 191 of the NIL. It concluded that despite the execution of the Deeds of
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Transfer and Trust Agreement, the Asset Privatization Trust cannot be declared as
the "holder" of the subject promissory notes for the reason that it is neither the
payee or indorsee of the notes in possession thereof nor is it the bearer of said
notes. The Court of Appeals observed that the bank, as the payee, did not indorse
the notes to the Asset Privatization Trust despite the execution of the Deeds of
Transfer and Trust Agreement and that the notes continued to remain with the bank
until the institution of the collection suit.
With the bank as the "holder" of the promissory notes, the Court of Appeals held
that Tomas Ang is accountable therefor in his capacity as an accommodation party.
Citing Sec. 29 of the NIL, he is liable to the bank in spite of the latter's knowledge, atthe time of taking the notes, that he is only an accommodation party. Moreover, as a
co-maker who agreed to be jointly and severally liable on the promissory notes,
Tomas Ang cannot validly set up the defense that he did not receive any
consideration therefor as the fact that the loan was granted to the principal debtor
already constitutes a sufficient consideration.
Further, the Court of Appeals agreed with the bank that the experience of Tomas
Ang in business rendered it implausible that he would just sign the promissory notes
as a co-maker without even checking the real amount of the debt to be incurred, or
that he merely acted on the belief that the first loan application was cancelled.
According to the appellate court, it is apparent that he was negligent in falling for
the alibi of Antonio Ang Eng Liong and such fact would not serve to exonerate him
from his responsibility under the notes.
Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty
and overdue charges as well as attorney's fees on the ground that the promissory
notes made no mention of such charges/fees.
In his motion for reconsideration,40 Tomas Ang raised for the first time the assigned
errors as follows:
x x x
2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang
has recently discovered that upon the filing of the complaint on August 28,
1990, under the jurisdictional rule laid down in BP Blg. 129, appellant bankfraudulently failed to specify the amount of compounded interest at 14%
per annum, service charges at 2% per annum and overdue penalty charges
at 12% per annum in the prayer of the complaint as of the time of its filing,
paying a total of only P640.00(!!!) as filing and court docket fees although
the total sum involved as of that time was P647,566.75 including 20%
attorney's fees. In fact, the stated interest in the body of the complaint
alone amount to P328,373.39 (which is
actually compounded and capitalized) in both causes of action and the total
service and overdue penalties and charges and attorney's fees further
amount to P239,193.36 in both causes of action, as of July 31, 1990, the
time of filing of the complaint. Significantly, appellant fraudulently misled
the Court, describing the 14% imposition as interest , when in fact the
same was capitalized as principal by appellant bank every month to earnmore interest, as stated in the notes. In view thereof, the trial court never
acquired jurisdiction over the case and the same may not be now corrected
by the filing of deficiency fees because the causes of action had already
prescribed and more importantly, the jurisdiction of the Municipal Trial
Court had been increased to P100,000.00 in principal claims last March 20,
1999, pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and
section 31, Book I of the 1987 Administrative Code. In other words, as of
today, jurisdiction over the subject falls within the exclusive jurisdiction of
the MTC, particularly if the bank foregoes capitalization of the stipulated
interest.
3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TOAPPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT
WHICH LEFT OUT TOMAS ANG'S CROSS-CLAIM AGAINST ENG LIONG
(BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL AND
EXECUTORY, AS AGAINST ENG LIONG. Accordingly, Tomas Ang's right of
subrogation against Ang Eng Liong, expressed in his cross-claim, is now
SEVERAL TIMES foreclosed because of the fault or negligence of appellant
bank since 1979 up to its insistence of an ex-parte trial, and now when it
failed to serve notice of appeal and appellant's brief upon him. Accordingly,
appellee Tomas Ang should be released from his suretyship obligation
pursuant to Art. 2080 of the Civil Code. The above is related to the issues
above-stated.
4) This Court may have erred in ADDING or ASSIGNING its own bill of errorfor the benefit of appellant bank which defrauded the judiciary by the
payment of deficient docket fees.41
Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals
denied the motion in its Resolution dated December 26, 2000.42
Petitioner now submits the following issues for resolution:
1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner
Tomas Ang as accommodation maker or surety because of the failure of
[private] respondent bank to serve its notice of appeal upon the principal
debtor, respondent Eng Liong?
2. Did the trial court have jurisdiction over the case at all?
3. Did the Court of Appeals [commit] error in assigning its own error and
raising its own issue?
4. Are petitioner's other real and personal defenses such as successive
extensions coupled with fraudulent collusion to hide Eng Liong's default,
the payee's grant of additional burdens, coupled with the insolvency of the
principal debtor, and the defense of incomplete but delivered instrument,
meritorious?43
Petitioner allegedly learned after the promulgation of the Court of Appeals' decision
that, pursuant to the parties' agreement on the compounding of interest with the
principal amount (per month in case of default), the interest on the promissory notes
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as of July 31, 1990 should have been only P81,647.22 for PN No. DVO-78-382
(instead ofP203,538.98) and P49,618.33 for PN No. DVO-78-390 (instead
of P125,334.41) while the principal debt as of said date should increase
to P647,566.75 (instead of P539,638.96). He submits that the bank carefully and
shrewdly hid the fact by describing the amounts as interest instead of being part of
either the principal or penalty in order to pay a lesser amount of docket fees.
According to him, the total fees that should have been paid at the time of the filing
of the complaint on August 28, 1990 was P2,216.30 and not P614.00 or a shortage
of 71%. Petitioner contends that the bank may not now pay the deficiency because
the last demand letter sent to him was dated September 9, 1986, or more than
twenty years have elapsed such that prescription had already set in. Consequently,the bank's claim must be dismissed as the trial court loses jurisdiction over the case.
Petitioner also argues that the Court of Appeals should not have assigned its own
error and raised it as an issue of the case, contending that no question should be
entertained on appeal unless it has been advanced in the court below or is within
the issues made by the parties in the pleadings. At any rate, he opines that the
appellate court's decision that the bank is the real party in interest because it is the
payee named in the note or the holder thereof is too simplistic since: (1) the power
and control of Asset Privatization Trust over the bank are clear from the explicit
terms of the duly certified trust documents and deeds of transfer and are confirmed
by the newspaper clippings; (2) even under P.D. No. 902-A or the General Banking
Act, where a corporation or a bank is under receivership, conservation or
rehabilitation, it is only the representative (liquidator, receiver, trustee orconservator) who may properly act for said entity, and, in this case, the bank was
held by Asset Privatization Trust as trustee; and (3) it is not entirely accurate to say
that the payee who has not indorsed the notes in all cases is the real party in
interest because the rights of the payee may be subject of an assignment of
incorporeal rights under Articles 1624 and 1625 of the Civil Code.
Lastly, petitioner maintains that when respondent Bank served its notice of appeal
and appellant's brief only on him, it rendered the judgment of the trial court final
and executory with respect to Antonio Ang Eng Liong, which, in effect, released him
(Antonio Ang Eng Liong) from any and all liability under the promissory notes and,
thereby, foreclosed petitioner's cross-claims. By such act, the bank, even if it be the
"holder" of the promissory notes, allegedly discharged a simple contract for the
payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented asurety like petitioner from being subrogated in the shoes of his principal (Article
2080, Civil Code), and impaired the notes, producing the effect of payment (Article
1249, Civil Code).
The petition is unmeritorious.
Procedurally, it is well within the authority of the Court of Appeals to raise, if it
deems proper under the circumstances obtaining, error/s not assigned on an
appealed case. In Mendoza v. Bautista,44 this Court recognized the broad
discretionary power of an appellate court to waive the lack of proper assignment of
errors and to consider errors not assigned, thus:
As a rule, no issue may be raised on appeal unless it has been broughtbefore the lower tribunal for its consideration. Higher courts are precluded
from entertaining matters neither alleged in the pleadings nor raised during
the proceedings below, but ventilated for the first time only in a motion for
reconsideration or on appeal.
However, as with most procedural rules, this maxim is subject to
exceptions. Indeed, our rules recognize the broad discretionary power of an
appellate court to waive the lack of proper assignment of errors and to
consider errors not assigned. Section 8 of Rule 51 of the Rules of Court
provides:
SEC. 8. Questions that may be decided. — No error which does not affectthe jurisdiction over the subject matter or the validity of the judgment
appealed from or the proceedings therein will be considered, unless stated
in the assignment of errors, or closely related to or dependent on an
assigned error and properly argued in the brief, save as the court may pass
upon plain errors and clerical errors.
Thus, an appellate court is clothed with ample authority to review rulings
even if they are not assigned as errors in the appeal in these instances: (a)
grounds not assigned as errors but affecting jurisdiction over the subject
matter; (b) matters not assigned as errors on appeal but are evidently plain
or clerical errors within contemplation of law; (c) matters not assigned as
errors on appeal but consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters not specifically
assigned as errors on appeal but raised in the trial court and are matters of
record having some bearing on the issue submitted which the parties failed
to raise or which the lower court ignored; (e) matters not assigned as errors
on appeal but closely related to an error assigned; and (f) matters not
assigned as errors on appeal but upon which the determination of a
question properly assigned is dependent. (Citations omitted)45
To the Court's mind, even if the Court of Appeals regarded petitioner's two assigned
errors as "irrelevant" and "not meritorious," the issue of whether the trial court erred
in dismissing the complaint for collection of sum of money for lack of cause of action
(on the ground that the bank was not the "holder" of the notes at the time of the
filing of the action) is in reality closely related to and determinant of the resolutionof whether the lower court correctly ruled in not holding Antonio Ang Eng Liong and
petitioner Tomas Ang liable to the bank on their unpaid loans despite documentary
exhibits allegedly proving their obligations and in dismissing the complaint based on
newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on
this point.
Now, the more relevant question is: who is the real party in interest at the time of
the institution of the complaint, is it the bank or the Asset Privatization Trust?
To answer the query, a brief history on the creation of the Asset Privatization Trust is
proper.
Taking into account the imperative need of formally launching a program for therationalization of the government corporate sector, then President Corazon C.
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Aquino issued Proclamation No. 5046 on December 8, 1986. As one of the twin
cornerstones of the program was to establish the privatization of a good number of
government corporations, the proclamation created the Asset Privatization Trust,
which would, for the benefit of the National Government, take title to and possession
of, conserve, provisionally manage and dispose of transferred assets that were
identified for privatization or disposition.47
In accordance with the provisions of Section 2348 of the proclamation, then President
Aquino subsequently issued Administrative Order No. 14 on February 3, 1987, which
approved the identification of and transfer to the National Government of certain
assets (consisting of loans, equity investments, accrued interest receivables,acquired assets and other assets) and liabilities (consisting of deposits, borrowings,
other liabilities and contingent guarantees) of the Development Bank of the
Philippines (DBP) and the Philippine National Bank (PNB). The transfer of assets was
implemented through a Deed of Transfer executed on February 27, 1987 between
the National Government, on one hand, and the DBP and PNB, on the other. In turn,
the National Government designated the Asset Privatization Trust to act as its
trustee through a Trust Agreement, whereby the non-performing accounts of DBP
and PNB, including, among others, the DBP's equity with respondent Bank, were
entrusted to the Asset Privatization Trust.49 As provided for in the Agreement, among
the powers and duties of the Asset Privatization Trust with respect to the trust
properties consisting of receivables was to handle their administration and collection
by bringing suit to enforce payment of the obligations or any installment thereof or
settling or compromising any of such obligations or any other claim or demandwhich the Government may have against any person or persons, and to do all acts,
institute all proceedings, and to exercise all other rights, powers, and privileges of
ownership that an absolute owner of the properties would otherwise have the right
to do.50
Incidentally, the existence of the Asset Privatization Trust would have expired five
(5) years from the date of issuance of Proclamation No. 50.51 However, its original
term was extended from December 8, 1991 up to August 31, 1992,52 and again from
December 31, 1993 until June 30, 1995,53 and then from July 1, 1995 up to
December 31, 1999,54 and further from January 1, 2000 until December 31,
2000.55 Thenceforth, the Privatization and Management Office was established and
took over, among others, the powers, duties and functions of the Asset Privatization
Trust under the proclamation.56
Based on the above backdrop, respondent Bank does not appear to be the real party
in interest when it instituted the collection suit on August 28, 1990 against Antonio
Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was filed in the
trial court, it was the Asset Privatization Trust which had the authority to enforce its
claims against both debtors. In fact, during the pre-trial conference, Atty. Roderick
Orallo, counsel for the bank, openly admitted that it was under the trusteeship of
the Asset Privatization Trust.57 The Asset Privatization Trust, which should have been
represented by the Office of the Government Corporate Counsel, had the authority
to file and prosecute the case.
The foregoing notwithstanding, this Court can not, at present, readily subscribe to
petitioner's insistence that the case must be dismissed. Significantly, it standswithout refute, both in the pleadings as well as in the evidence presented during the
trial and up to the time this case reached the Court, that the issue had been
rendered moot with the occurrence of a supervening event – the "buy-back" of the
bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-
acquisition from the Asset Privatization Trust when the case was still pending in the
lower court, the bank reclaimed its real and actual interest over the unpaid
promissory notes; hence, it could rightfully qualify as a "holder"58 thereof under the
NIL.
Notably, Section 29 of the NIL defines an accommodation party as a person "who
has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person." Asgleaned from the text, an accommodation party is one who meets all the three
requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign
for the purpose of lending his name or credit to some other person.59An
accommodation party lends his name to enable the accommodated party to obtain
credit or to raise money; he receives no part of the consideration for the instrument
but assumes liability to the other party/ies thereto.60 The accommodation party is
liable on the instrument to a holder for value even though the holder, at the time of
taking the instrument, knew him or her to be merely an accommodation party, as if
the contract was not for accommodation.61
As petitioner acknowledged it to be, the relation between an accommodation party
and the accommodated party is one of principal and surety – the accommodationparty being the surety.62 As such, he is deemed an original promisor and debtor from
the beginning;63 he is considered in law as the same party as the debtor in relation
to whatever is adjudged touching the obligation of the latter since their liabilities are
interwoven as to be inseparable.64 Although a contract of suretyship is in essence
accessory or collateral to a valid principal obligation, the surety's liability to the
creditor is immediate, primary and absolute; he is directly and equally bound with
the principal.65 As an equivalent of a regular party to the undertaking, a surety
becomes liable to the debt and duty of the principal obligor even without possessing
a direct or personal interest in the obligations nor does he receive any benefit
therefrom.66
Contrary to petitioner's adamant stand, however, Article 208067 of the Civil Code
does not apply in a contract of suretyship.68
Art. 2047 of the Civil Code states that if a person binds himself solidarily with the principal debtor, the provisions of Section
4, Chapter 3, Title I, Book IV of the Civil Code must be observed. Accordingly,
Articles 1207 up to 1222 of the Code (on joint and solidary obligations) shall govern
the relationship of petitioner with the bank.
The case of Inciong, Jr. v. CA69 is illuminating:
Petitioner also argues that the dismissal of the complaint against Naybe,
the principal debtor, and against Pantanosas, his co-maker, constituted a
release of his obligation, especially because the dismissal of the case
against Pantanosas was upon the motion of private respondent itself. He
cites as basis for his argument, Article 2080 of the Civil Code which
provides that:
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"The guarantors, even though they be solidary, are released from their
obligation whenever by come act of the creditor, they cannot be
subrogated to the rights, mortgages, and preferences of the latter."
It is to be noted, however, that petitioner signed the promissory note as a
solidary co-maker and not as a guarantor. This is patent even from the first
sentence of the promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY and
SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at
its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with
interest x x x at the rate of SIXTEEN (16) per cent per annum until fully
paid."
A solidary or joint and several obligation is one in which each debtor is
liable for the entire obligation, and each creditor is entitled to demand the
whole obligation. On the other hand, Article 2047 of the Civil Code states:
"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 provisionsof Section 4, Chapter 3, Title I of this Book shall be observed. In such a case
the contract is called a suretyship." (Italics supplied.)
While a guarantor may bind himself solidarily with the principal debtor, the
liability of a guarantor is different from that of a solidary debtor. Thus,
Tolentino explains:
"A guarantor who binds himself in solidum with the principal debtor under
the provisions of the second paragraph does not become a solidary co-
debtor to all intents and purposes. There is a difference between a solidary
co-debtor, and a fiador in solidum (surety). The later, outside of the liability
he assumes to pay the debt before the property of the principal debtor has
been exhausted, retains all the other rights, actions and benefits whichpertain to him by reason of rights of the fiansa; while a solidary co-debtor
has no other rights than those bestowed upon him in Section 4, Chapter 3,
title I, Book IV of the Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint
and several obligations. Under Art. 1207 thereof, when there are two or
more debtors in one and the same obligation, the presumption is that
obligation is joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidarily liability only when the
obligation expressly so states, when the law so provides or when the nature
of the obligation so requires.
Because the promissory note involved in this case expressly states that the
three signatories therein are jointly and severally liable, any one, some or all
of them may be proceeded against for the entire obligation. The choice is
left to the solidary creditor to determine against whom he will enforce
collection. (Citations omitted)70
In the instant case, petitioner agreed to be "jointly and severally" liable under the
two promissory notes that he co-signed with Antonio Ang Eng Liong as the principal
debtor. This being so, it is completely immaterial if the bank would opt to proceed
only against petitioner or Antonio Ang Eng Liong or both of them since the law
confers upon the creditor the prerogative to choose whether to enforce the entire
obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an
accommodation party, may seek reimbursement from Antonio Ang Eng Liong, beingthe party accommodated.71
It is plainly mistaken for petitioner to say that just because the bank failed to serve
the notice of appeal and appellant's brief to Antonio Ang Eng Liong, the trial court's
judgment, in effect, became final and executory as against the latter and, thereby,
bars his (petitioner's) cross-claims against him: First , although no notice of appeal
and appellant's brief were served to Antonio Ang Eng Liong, he was nonetheless
impleaded in the case since his name appeared in the caption of both the notice and
the brief as one of the defendants-appellees;72 Second, despite including in the
caption of the appellee's brief his co-debtor as one of the defendants-appellees,
petitioner did not also serve him a copy thereof;73 Third, in the caption of the Court
of Appeals' decision, Antonio Ang Eng Liong was expressly named as one of the
defendants-appellees;74 and Fourth, it was only in his motion for reconsiderationfrom the adverse judgment of the Court of Appeals that petitioner belatedly chose to
serve notice to the counsel of his co-defendant-appellee.75
Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his "special
appearance" through counsel, that the Court of Appeals, much less this Court,
already lacked jurisdiction over his person or over the subject matter relating to him
because he was not a party in CA-G.R. CV No. 53413. Stress must be laid of the fact
that he had twice put himself in default – one, in not filing a pre-trial brief and
another, in not filing his answer to petitioner's cross-claims. As a matter of course,
Antonio Ang Eng Liong, being a party declared in default, already waived his right to
take part in the trial proceedings and had to contend with the judgment rendered by
the court based on the evidence presented by the bank and petitioner. Moreover,
even without considering these default judgments, Antonio Ang Eng Liong evencategorically admitted having secured a loan totaling P80,000. In his Answer to the
complaint, he did not deny such liability but merely pleaded that the bank "be
ordered to submit a more reasonable computation" instead of collecting excessive
interest, penalty charges, and attorney's fees. For failing to tender an i ssue and in
not denying the material allegations stated in the complaint, a judgment on the
pleadings76 would have also been proper since not a single issue was generated by
the Answer he filed.
As the promissory notes were not discharged or impaired through any act or
omission of the bank, Sections 119 (d)77 and 12278 of the NIL as well as Art. 124979 of
the Civil Code would necessarily find no application. Again, neither was petitioner's
right of reimbursement barred nor was the bank's right to proceed against Antonio
Ang Eng Liong expressly renounced by the omission to serve notice of appeal andappellant's brief to a party already declared in default.
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Consequently, in issuing the two promissory notes, petitioner as accommodating
party warranted to the holder in due course that he would pay the same according
to its tenor.80 It is no defense to state on his part that he did not receive any value
therefor81 because the phrase "without receiving value therefor" used in Sec. 29 of
the NIL means "without receiving value by virtue of the instrument" and not as it is
apparently supposed to mean, "without receiving payment for lending his
name."82 Stated differently, when a third person advances the face value of the note
to the accommodated party at the time of its creation, the consideration for the note
as regards its maker is the money advanced to the accommodated party. It is
enough that value was given for the note at the time of its creation.83 As in the
instant case, a sum of money was received by virtue of the notes, hence, it isimmaterial so far as the bank is concerned whether one of the signers, particularly
petitioner, has or has not received anything in payment of the use of his name.84
Under the law, upon the maturity of the note, a surety may pay the debt, demand
the collateral security, if there be any, and dispose of it to his benefit, or, if
applicable, subrogate himself in the place of the creditor with the right to enforce
the guaranty against the other signers of the note for the reimbursement of what he
is entitled to recover from them.85 Regrettably, none of these were prudently done
by petitioner. When he was first notified by the bank sometime in 1982 regarding his
accountabilities under the promissory notes, he lackadaisically relied on Antonio Ang
Eng Liong, who represented that he would take care of the matter, instead of
directly communicating with the bank for its settlement.86 Thus, petitioner cannot
now claim that he was prejudiced by the supposed "extension of time" given by thebank to his co-debtor.
Furthermore, since the liability of an accommodation party remains not
only primary but also unconditional to a holder for value, even if the accommodated
party receives an extension of the period for payment without the consent of the
accommodation party, the latter is still liable for the whole obligation and such
extension does not release him because as far as a holder for value is concerned, he
is a solidary co-debtor.87 In Clark v. Sellner ,88this Court held:
x x x The mere delay of the creditor in enforcing the guaranty has not by
any means impaired his action against the defendant. It should not be lost
sight of that the defendant's signature on the note is an assurance to the
creditor that the collateral guaranty will remain good, and that otherwise,he, the defendant, will be personally responsible for the payment.
True, that if the creditor had done any act whereby the guaranty was
impaired in its value, or discharged, such an act would have wholly or
partially released the surety; but it must be born in mind that it is a
recognized doctrine in the matter of suretyship that with respect to the
surety, the creditor is under no obligation to display any diligence in the
enforcement of his rights as a creditor. His mere inaction indulgence,
passiveness, or delay in proceeding against the principal debtor, or the fact
that he did not enforce the guaranty or apply on the payment of such funds
as were available, constitute no defense at all for the surety, unless the
contract expressly requires diligence and promptness on the part of the
creditor, which is not the case in the present action. There is in somedecisions a tendency toward holding that the creditor's laches may
discharge the surety, meaning by laches a negligent forbearance. This
theory, however, is not generally accepted and the courts almost
universally consider it essentially inconsistent with the relation of the
parties to the note. (21 R.C.L., 1032-1034)89
Neither can petitioner benefit from the alleged "insolvency" of Antonio Ang Eng
Liong for want of clear and convincing evidence proving the same. Assuming it to be
true, he also did not exercise diligence in demanding security to protect himself from
the danger thereof in the event that he (petitioner) would eventually be sued by the
bank. Further, whether petitioner may or may not obtain security from Antonio Ang
Eng Liong cannot in any manner affect his liability to the bank; the said remedy is amatter of concern exclusively between themselves as accommodation party and
accommodated party. The fact that petitioner stands only as a surety in relation to
Antonio Ang Eng Liong is immaterial to the claim of the bank and does not a whit
diminish nor defeat the rights of the latter as a holder for value. To sanction his
theory is to give unwarranted legal recognition to the patent absurdity of a situation
where a co-maker, when sued on an instrument by a holder in due course and for
value, can escape liability by the convenient expedient of interposing the defense
that he is a merely an accommodation party.90
In sum, as regards the other issues and errors alleged in this petition, the Court
notes that these were the very same questions of fact raised on appeal before the
Court of Appeals, although at times couched in different terms and explained more
lengthily in the petition. Suffice it to say that the same, being factual, have beensatisfactorily passed upon and considered both by the trial and appellate courts. It is
doctrinal that only errors of law and not of fact are reviewable by this Court in
petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the
most cogent and compelling reason, it is not our function under the rule to examine,
evaluate or weigh the probative value of the evidence presented by the parties all
over again.91
WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of
the Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition
is DENIED for lack of merit.
No costs.
SO ORDERED.
Puno, C.J., Chairperson, Sandoval-Gutierrez, Corona, Garcia, JJ., concur.
Footnotes
1 Penned by Associate Justice Martin S. Villarama, Jr., with Associate Justices
Romeo J. Callejo, Sr. (now retired Supreme Court Associate Justice) and Juan
Q. Enriquez, Jr. concurring.
2 CA Rollo, p. 137.
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3 Penned by Judge Romeo D. Marasigan.
4 Records, pp. 1-5.
5 Id. at 500, 563.
6 Id. at 501, 564.
7 Id. at 14-16.
8
Id. at 20-26.
9 Id. at 32-46.
10 Id. at 27-28.
11 Id. at 59-60.
12 Id. at 62.
13 Id. at 64-66.
14 Id. at 72-73.
15 Id. at 84-86.
16 Id. at 86.
17 Id. at 88-90, 144.
18 Id. at 91.
19 Id. at 92-94.
20 Id. at 95-96.
21 Id. at 119-120, 123-127, 140.
22 Id. at 152.
23 Id. at 164-170.
24 TSN, January 18, 1993, p. 2
25 Records, pp. 223-226.
26 Id. at 223-224.
27 Id. at 234-235.
28 Id. at 236-240, 247, 250-275.
29 Id. at 350.
30 Id. at 358, 395, 401-402.
31 Id. at 450, 529-542, 560-561; Exhibit "9" and its sub-markings.
32 Id. at 487.
33 Rollo, p. 182.
34
Records, pp. 490-493.
35 Id. at 492-493.
36 CA Rollo, p. 23.
37 Id. at 27-30.
38 Id. at 79-84.
39 Id. at 83.
40 Id. at 89-133.
41 Id. at 90-91.
42 Id. at 137.
43 Rollo, pp. 33-34.
44 G.R. No. 143666, March 18, 2005, 453 SCRA 691.
45 Id. at 702-703.
46 PROCLAIMING AND LAUNCHING A PROGRAM FOR THE EXPEDITIOUS
DISPOSITION AND PRIVATIZATION OF CERTAIN GOVERNMENT
CORPORATIONS AND/OR THE ASSETS THEREOF AND CREATING THE
COMMITTEE ON PRIVATIZATION AND THE ASSET PRIVATIZATION TRUST.
47 Sec. 3, Art. II and Sec. 9, Art. III of Proclamation No. 50. In addition, the
term "assets" is defined under Sec. 2 (1) of the Proclamation as:
1) Assets shall include (i) receivables and other obligations due to
government institutions under credit, lease, indemnity and other
agreements together with all collateral security and other rights
(including but not limited to rights in relation to shares of stock in
corporations such as voting rights as well as rights to appoint
directors of corporations or otherwise engage in the management
thereof) granted to such institutions by contract or operation of
law to secure or enforce the right of payment of such obligations;
(ii) real and personal property of any kind owned or held by the
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government institutions, including shares of stock in corporations,
obtained by such government institutions, whether directly or
indirectly, through foreclosure or other means, in settlement of
such obligations; (iii) shares of stock and other investments held
by government institutions; and (iv) the government institutions
themselves, whether as parent or subsidiary corporations.
48 Sec. 23 of the Proclamation reads:
SEC. 23. Mechanics of Transfer of Assets. – As soon as practicable,
but not later than six months from the date of the issuance of thisProclamation, the President, acting through the Committee on
Privatization, shall identify such assets of government institutions
as appropriate for privatization and divestment in an appropriate
instrument describing such assets or identifying the loan or other
transactions giving rise to the receivables, obligations and other
property constituting assets to be transferred.
The Committee shall, from the list of assets deemed appropriate
for divestment, identify assets to be transferred to the Trust or to
be referred to the government institutions in an appropriate
instrument, which upon execution by the Committee shall
constitute as the operative act of transfer or referral of the assets
described therein, and the Trust or the government institution maythereupon proceed with the divestment in accordance with the
provisions of this Proclamation and guidelines issued by the
Committee.
Nothing in this Proclamation shall:
(1) Affect the rights of the National Government to pursue
the enforcement of any claim of a government institution
in respect of or in relation to any asset transferred
hereunder;
(2) In relation to any debt hereby assigned and
transferred to the National Government of which agovernment institution is the original creditor, give rise to
any novation or requirement to obtain the consent of the
debtor; and
(3) In relation to any share of stock or any interest
therein, give rise to any claim by any other stockholder
for enforcement of rights of pre-emption or of first refusal
or other similar rights, the provision of any law to the
contrary notwithstanding.
Where the contractual rights of creditors of any of the government
institutions involved may be affected by the exercise of the
Committee or the Trust of the powers granted herein, the
Committee or the Trust shall see to it that such rights are not
impaired.
49 Records, pp. 529-533, 543.
50 Id. at 530.
51 Sec. 9, Art. III of Proclamation No. 50.
52 Sec. 1 of Republic Act (R.A.) No. 7181.
53 Sec. 1 of R.A. No. 7661.
54 Sec. 1 of R.A. No. 7886.
55 Sec. 1 of R.A. No. 8758.
56 Sec. 2, Art. III of Executive Order No. 323, Series of 2000.
57 TSN, January 18, 1993, p. 7.
58 A "Holder" is defined under Sec. 191 of the NIL, as:
"Holder" means the payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof.
59 Lim v. Saban, G.R. No. 163720, December 16, 2004, 447 SCRA 232, 244
and Crisologo-Jose v. Court of Appeals, G.R. No. 80599, September 15,
1989, 177 SCRA 594, 598.
60 Spouses Gardose v. Tarroza, 352 Phil. 797, 807 (1998) citing Philippine
Bank of Commerce v. Aruego, G.R. Nos. L-25836-37, January 31, 1981, 102
SCRA 530, 539-540.
61 Lim v. Saban, supra at 244; Garcia v. Llamas, G.R. No. 154127, December
8, 2003, 417 SCRA 292, 304-305; Spouses Gardose v. Tarroza, supra at
807; Travel-On, Inc. v. Court of Appeals, G.R. No. 56169, June 26, 1992, 210
SCRA 351, 357; and Ang Tiong v. Ting, 130 Phil. 741, 744 (1968).
62 Garcia v. Llamas, supra at 305; Agro Conglomerates, Inc. v. Court of
Appeals, 401 Phil. 644, 654- 655 (2000); Spouses Gardose v. Tarroza, supra
at 807; Caneda, Jr. v. Court of Appeals, G.R. No. 81322, February 5, 1990,
181 SCRA 762, 772; Crisologo-Jose v. Court of Appeals, supra at 598;
Prudencio v. Court of Appeals, 227 Phil. 7, 12 (1986); and Philippine Bank of
Commerce v. Aruego, supra at 539.
63 Garcia v. Llamas, supra at 305.
64 Trade & Investment Development Corp. v. Roblett Industrial Construction
Corp. , G.R. No. 139290, November 11, 2005, 474 SCRA 510, 531.
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65 International Finance Corporation v. Imperial Textile Mills, Inc. , G.R. No.
160324, November 15, 2005, 475 SCRA 149, 160; Trade & Investment
Development Corp. v. Roblett Industrial Construction Corp., id. at 531;
Garcia v. Llamas, supra at 305; Agro Conglomerates, Inc. v. Court of
Appeals, supra at 655; and Philippine Bank of Commerce v. Aruego, supra
at 540.
66 International Finance Corporation v. Imperial Textile Mills, Inc., id. at 160-
161 and Trade & Investment Development Corp. v. Roblett Industrial
Construction Corp., id. at 531.
67 Art. 2080 of the Civil Code provides:
Art. 2080. 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.
68 E. Zobel, Inc. v. Court of Appeals, 352 Phil. 608, 618 (1998); Inciong, Jr. v.
Court of Appeals, 327 Phil. 364, 372-373 (1996); and Bicol Savings & Loan
Association v. Guinhawa, G.R. No. 62415, August 20, 1990,188 SCRA 642,
647.
69 327 Phil. 364 (1996).
70 Id. at 372-374.
71 Lim v. Saban, supra at 244; Agro Conglomerates, Inc. v. Court of Appeals,
supra at 654; and Caneda, Jr. v. Court of Appeals, supra at 772.
72 CA Rollo, p. 21.
73 Id. at 40, 75.
74 Id. at 79.
75 Id. at 133.
76 Sec. 1, Rule 34 of the 1997 Revised Rules on Civil Procedure states:
Section 1. Judgment on the pleadings. – Where an answer fails to
tender an issue, or otherwise admits the material allegations of
the adverse party's pleading, the court may, on motion of that
party, direct judgment on such pleading. However, in actions for
declaration of nullity or annulment of marriage or for legal
separation, the material facts alleged in the complaint shall always
be proved.
77 Sec. 119 of the NIL provides:
SECTION 119. Instrument; how discharged. – A negotiable
instrument is discharged:
(a.) By payment in due course by or on behalf of the principal
debtor;
(b.) By payment in due course by the party accommodated, where
the instrument is made or accepted for his accommodation;
(c.) By the intentional cancellation thereof by the holder;
(d.) By any other act which will discharge a simple contract
for the payment of money;
(e.) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right. (Emphasis ours)
78 Sec. 122 of the NIL states:
SECTION 122. Renunciation by holder. – The holder may expressly
renounce his rights against any party to the instrument before, at,
or after its maturity. An absolute and unconditional renunciation of
his rights against the principal debtor made at or after the
maturity of the instrument discharges the instrument. But a
renunciation does not affect the rights of a holder in due course
without notice. A renunciation must be in writing unless the
instrument is delivered up to the person primarily liable thereon.
79 Art. 1249 of the Civil Code provides:
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 . (Emphasis
ours)
80 Travel-On, Inc. v. Court of Appeals, supra at 357.
81 Caneda, Jr. v. Court of Appeals, supra at 772; Crisologo-Jose v. Court of
Appeals, supra at 598; and Ang Tiong v. Ting, supra at 744.
82 Clark v. Sellner, 42 Phil. 384, 386 (1921).
83 Caneda, Jr. v. Court of Appeals, supra at 772.
84 Clark v. Sellner, supra at 386.
85 Id. at 386-387.
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86 TSN, February 21, 1995, p. 27 and TSN, April 4, 1995, p. 15.
87 Prudencio v. Court of Appeals, supra at 12-13.
88 42 Phil. 384 (1921).
89 Id. at 387-388.
90 Ang Tiong v. Ting, supra at 744.
91
Batangas State University v. Bonifacio, G.R. No. 167762, December 15,2005, 478 SCRA 142, 147-148 and Local Superior of the Servants of Charity
(Guanellians), Inc. v. Jody King Construction & Development
Corporation, G.R. No. 141715, October 12, 2005, 472 SCRA 445, 451.
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