NIL 2ND EXAM LJ CANADA NOTES

NIL 2ND EXAM LJ CANADA NOTES1

Negotiable Instruments Law 2nd Exam

CASES:

RIGHTS OF A HOLDER

1.) Vicente R. De Ocampo & Co vs. Gatchalian 3 SCRA 596 (1961)2.) Chan Wan vs. Tan Kim, September 30, 19603.) Travel-On Inc. vs. CA 210 SCRA 352 (1992)4.) BPI vs. CA 326 SCRA 641 (2000)5.) Associated Bank vs. CA 208 SCRA 465 (1992)

Vicente R. De Ocampo & Co vs. Gatchalian

Facts:

Anita Gatchalian was interested in buying a car when she was offered by Manuel Gonzales to a car owned by the Ocampo Clinic. Gonzales claim that he was duly authorized to look for a buyer, negotiate and accomplish the sale by the Ocampo Clinic. Anita accepted the offer and insisted to deliver the car with the certificate of registration the next day but Gonzales advised that the owners would only comply only upon showing of interest on the part of the buyer. Gonzales recommended issuing a check (P600 / payable-to-bearer /cross-checked) as evidence of the buyers good faith. Gonzales added that it will only be for safekeeping and will be returned to her the following day.

The next day, Gonzales never appeared. The failure of Gonzales to appeal resulted in Gatchalian to issue a STOP PAYMENT ORDER on the check. It was later found out that Gonzales used the check as payment to the Vicente de Ocampo (Ocampo Clinic) for the hospitalization fees of his wife (the fees were only P441.75, so he got a refund of P158.25). De Ocampo now demands payment for the check, which Gatchalian refused, arguing that de Ocampo is not a holder in due course and that there is no negotiation of the check.

The Court of First Instance ordered Gatchalian to pay the amount of the check to De Ocampo. Hence this case.

Issue: Whether or not De Ocampo is a holder in due course.

Held: NO.

De Ocampo is not a holder in due course. De Ocampo was negligent in his acquisition of the check. There were many instances that arouse suspicion: the drawer in the check (Gatchalian) has no liability with de Ocampo ; it was cross-checked(only for deposit) but was used a payment by Gonzales; it was not the exact amount of the medical fees. The circumstances should have led him to inquire on the validity of the check. However, he failed to exercise reasonable prudence and caution.

In showing a person had knowledge of facts that hisaction in taking the instrument amounted to bad faith need not prove that he knows the exact fraud. It is sufficient to show that the person had NOTICE that there was something wrong. The bad faith here means bad faith in the commercial sense obtaining an instrument with no questions asked or no further inquiry upon suspicion.

The presumption of good faith did not apply to de Ocampo because the defect was apparent on the instruments face it was not payable to Gonzales or bearer. Hence, the holders title is defective or suspicious. Being the case, de Ocampo had the burden of proving he was a holder in due course, but failed.

CHAN WANvs. TAN KIM and CHEN SOG.R. No.L-15380 September 30, 1960Facts: Eleven checks payable to cash or bearer and drawn by defendant Tan upon the Equitable Banking Corporation, were all presented for payment by Chan Wan to the drawee bank, but they were all dishonored and returned to him unpaid due to insufficient funds and/or causes attributable to the drawer.The drawer in drawing the check engaged that on due presentment, the check would be paid, and that if it be dishonored . . . he will pay the amount thereof to the holder.On the backs of the checks, endorsements which apparently show they had been deposited with the China Banking Corporation and were, by the latter, presented to the drawee bank for collection.The court declined to order payment for two principal reasons: (a) plaintiff failed to prove he was a holder in due course, and (b) the checks being crossed checks should not have been deposited instead with the bank mentioned in the crossing.Issue: WON a holder who is not a holder in due course may recover on the checks?Held: YES. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course, may not in any case, recover on the instrument. If B purchases an overdue negotiable promissory note signed by A, he is not a holder in due course; but he may recover from A, if the latter has no valid excuse for refusing payment. The only disadvantage of holder who is not a holder in due course is that the negotiable instrument is subject to defense as if it were non- negotiable.

Travel On vs. CA

Facts: Travel-On (petitioner) is a travel agency, selling airline tickets on commission basis for and in behalf of different air-line companies. Arturo Miranda (respondent) had a running credit line with said agency. He procured tickets from Travel-On on behalf of airline passengers and derived commissions therefrom. Travel-On filed a suit to collect six (6) checks issued by the respondent totalling 115,000 pesos. Respondent avers that he has no obligations to petitioner and argues that the checks that the petitioner is seeking to collect from him were for purposes of accommodation. The respondents story is that the General Manager of Travel-On asked respondent to write the checks because she used them as evidence to show the Board of Directors that the financial condition of the company was sound. Petitioner denies this accusation.

Issue: Whether or not the checks are evidence of the liability of the respondent to the petitioner even assuming that they were for purposes of accommodation.

Held: The checks themselves are proof of the indebtedness of the respondent to petitioner. Even if the checks were for purposes of accommodation, as described in Sec. 29 of the Negotiable Instruments Law, the respondent would still be liable considering that the petitioner is a holder for value. 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. The rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted by other competent evidence. The facts that all checks issued by the respondent to petitioner were presented for payment by the latter would lead to no other conclusion than that these checks were intended for enchasment.

There is nothing in the checks themselves or in any

other document that states otherwise. The argument of the respondent that the checks were merely simulated cannot stand without the clearest and most convincing kinds of evidence. No such evidence was submitted by the respondent.

BPI vs. CA (2000)

Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a dollar check owned by Henry Chan in which he affixed his signature at the dorsal side thereof. For this purpose, Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of the withdrawal slip and used it to withdraw the proceeds of the dollar check, even before the check was cleared and without the presentation of the bank passbook.

Issues:(1) Whether or not petitioner can hold private respondent liable for the proceeds of the check for having affixed his signature at the dorsal side as indorser; and

(2) Whether or not the bank was negligent as the proximate cause of the loss and should be held liable.

Held:(1) No. Ordinarily, private respondent may be held liable as an indorser of the check or even as an accommodation party. However, to hold him liable would result in an injustice. The interest of justice thus demands looking into the events that led to the encashment of the check.

Under the rules appearing in the passbook that BPI issued to private respondent, to be able to withdraw under the Philippine foreign currency deposit system, two requisites must be presented to petitioner BPI by the person withdrawing an amount:

1) A duly filled-up withdrawal slip; and

2) The depositors passbook.

Petitioner bank alleged that had private respondent indicated therein the person authorized to receive the money, then Gayon could not have withdrawn any amount. However, the withdrawal slip itself indicates a special instruction that the amount is payable to Ramon de Guzman and/or Agnes de Guzman. Such being the case, petitioners personnel should have been duly warned that Gayon was not the proper payee of the proceeds of the check. Moreover, the fact that private respondents passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made was when he deposited the subject check.

(2) Yes. A bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. Petitioner failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioners personnel negligently handled private respondents account to petitioners detriment.

The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioners part was its personnels negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage. G.R. No. 89802 May 7, 1992ASSOCIATED BANK and CONRADO CRUZ,petitioners,vs.HON. COURT OF APPEALS, and MERLE V. REYES, doing business under the name and style "Melissa's RTW,"respondents.Soluta, Leonidas, Marifosque, Javier, Liboon & aguila Law Offices for petitioners.Roberto B. Lugue for private respondent.CRUZ,J.:The sole issue raised in this case is whether or not the private respondent has a cause of action against the petitioners for their encashment and payment to another person of certain crossed checks issued in her favor.The private respondent is engaged in the business of ready-to-wear garments under the firm name "Melissa's RTW." She deals with, among other customers, Robinson's Department Store, Payless Department Store, Rempson Department Store, and the Corona Bazaar.These companies issued in payment of their respective accounts crossed checks payable to Melissa's RTW in the amounts and on the dates indicated below:PAYOR BANK AMOUNT DATEPayless Solid Bank P3,960.00 January 19, 1982Robinson's FEBTC 4,140.00 December 18, 1981Robinson's FEBTC 1,650.00 December 24, 1981Robinson's FEBTC 1,980.00 January 12, 1982Rempson TRB 1,575.00 January 9, 1982Corona RCBC 2,500.00 December 22, 1981When she went to these companies to collect on what she thought were still unpaid accounts, she was informed of the issuance of the above-listed crossed checks. Further inquiry revealed that the said checks had been deposited with the Associated Bank (hereinafter, "the Bank") and subsequently paid by it to one Rafael Sayson, one of its "trusted depositors," in the words of its branch manager and co-petitioner, Conrado Cruz, Sayson had not been authorized by the private respondent to deposit and encash the said checks.The private respondent sued the petitioners in the Regional Trial Court of Quezon City for recovery of the total value of the checks plus damages. After trial, judgment was rendered requiring them to pay the private respondent the total value of the subject checks in the amount of P15,805.00 plus 12% interest, P50,000.00 actual damages, P25,000.00 exemplary damages, P5,000.00 attorney's fees, and the costs of the suit.1The petitioners appealed to the respondent court, reiterating their argument that the private respondent had no cause of action against them and should have proceeded instead against the companies that issued the checks. In disposing of this contention, the Court of Appeals2said:The cause of action of the appellee in the case at bar arose from the illegal, anomalous and irregular acts of the appellants in violating common banking practices to the damage and prejudice of the appellees, in allowing to be deposited and encashed as well as paying to improper parties without the knowledge, consent, authority or endorsement of the appellee which totalled P15,805.00, the six (6) checks in dispute which were "crossed checks" or "for payee's account only," the appellee being the payee.The three (3) elements of a cause of action are present in the case at bar, namely: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach thereof. (Republic Planters Bank vs. Intermediate Appellate Court, 131 SCRA 631).And such cause of action has been proved by evidence of great weight. The contents of the said checks issued by the customers of the appellee had not been questioned. There is no dispute that the same are crossed checks or for payee's account only, which is Melissa's RTW. The appellee had clearly shown that she had never authorized anyone to deposit the said checks nor to encash the same; that the appellants had allowed all said checks to be deposited, cleared and paid to one Rafael Sayson in violation of the instructions in the said crossed checks that the same were for payee's account only; and that the appellee maintained a savings account with the Prudential Bank, Cubao Branch, Quezon City which never cleared the said checks and the appellee had been damaged by such encashment of the same.We affirm.Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top portion of the checks. The crossing is special where the name of a bank or a business institution is written between the two parallel lines, which means that the drawee should pay only with the intervention of that company.3The crossing is general where the words written between the two parallel lines are "and Co." or "for payee's account only," as in the case at bar. This means that the drawee bank should not encash the check but merely accept it for deposit.4InState Investment House vs.IAC,5this Court declared that "the effects of crossing a check are: (1) that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose."The effects therefore of crossing a check relate to the mode of its presentment for payment. Under Sec. 72 of the Negotiable Instruments Law, presentment for payment, to be sufficient, must be made by the holder or by some person authorized to receive payment on his behalf. Who the holder or authorized person is depends on the instruction stated on the face of the check.The six checks in the case at bar had been crossed and issued "for payee's account only." This could only signify that the drawers had intended the same for deposit only by the person indicated, to wit, Melissa's RTW.The petitioners argue that the cause of action for violation of the common instruction found on the face of the checks exclusively belongs to the issuers thereof and not to the payee. Moreover, having acted in good faith as they merely facilitated the encashment of the checks, they cannot be made liable to the private respondent.The subject checks were accepted for deposit by the Bank for the account of Rafael Sayson although they were crossed checks and the payee was not Sayson but Melissa's RTW. The Bank stamped thereon its guarantee that "all prior endorsements and/or lack of endorsements (were) guaranteed." By such deliberate and positive act, the Bank had for all legal intents and purposes treated the said checks as negotiable instruments and, accordingly, assumed the warranty of the endorser.The weight of authority is to the effect that "the possession of check on a forged or unauthorized indorsement is wrongful, and when the money is collected on the check, the bank can be held 'for moneys had and received."6The proceeds are held for the rightful owner of the payment and may be recovered by him. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected without indorsement at all. The act of the bank amounts to conversion of the check.7It is not disputed that the proceeds of the subject checks belonged to the private respondent. As she had not at any time authorized Rafael Sayson to endorse or encash them, there was conversion of the funds by the Bank.When the Bank paid the checks so endorsed notwithstanding that title had not passed to the endorser, it did so at its peril and became liable to the payee for the value of the checks. This liability attached whether or not the Bank was aware of the unauthorized endorsement.8The petitioners were negligent when they permitted the encashment of the checks by Sayson. The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to the private respondent's account. Its failure to inquire into Sayson's authority was a breach of a duty it owed to the private respondent.As the Court stressed inBanco de Oro Savings and Mortgage Bank vs.Equitable Banking Corp.,9"the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct."The petitioners insist that the private respondent has no cause of action against them because they have no privity of contract with her. They also argue that it was Eddie Reyes, the private respondent's own husband, who endorsed the checks.Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be liable to the private respondent because he was not authorized to make the endorsements. And even if the endorsements were forged, as alleged, the Bank would still be liable to the private respondent for not verifying the endorser's authority. There is no substantial difference between an actual forging of a name to a check as an endorsement by a person not authorized to make the signature and the affixing of a name to a check as an endorsement by a person not authorized to endorse it.10The Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire as to the authority of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a prior endorsement by Eddie Reyes. The failure of the Bank to make this inquiry was a breach of duty that made it liable to the private respondent for the amount of the checks.There being no evidence that the crossed checks were actually received by the private respondent, she would have a right of action against the drawer companies, which in turn could go against their respective drawee banks, which in turn could sue the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify proceedings, the payee of the illegally encashed checks should be allowed to recover directly from the bank responsible for such encashment regardless of whether or not the checks were actually delivered to the payee.11We approve such direct action in the case at bar.It is worth repeating that before presenting the checks for clearing and for payment, the Bank had stamped on the back thereof the words: "All prior endorsements and/or lack of endorsements guaranteed," and thus made the assurance that it had ascertained the genuineness of all prior endorsements.We find that the respondent court committed no reversible error in holding that the private respondent had a valid cause of action against the petitioners and that the latter are indeed liable to her for their unauthorized encashment of the subject checks. We also agree with the reduction of the award of the exemplary damages for lack of sufficient evidence to support them.WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.Narvasa, C.J., Grio-Aquino, Medialdea and Bellosillo, JJ., concur.

NOTICE OF DISHONOR1.) Great Asian Sales Center Corp vs. CA , 381 SCRA 557 (2002)2.) Associated Bank vs. Tan 446 SCRA 282 (2004)3.) Rigor vs. People 442 Scra 450 (2004)4.) Nyco Sales Corp vs. BA Finance Corporation (200 SCRA 637) 1991

[G.R. No. 105774.April 25, 2002]GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN,petitioners, vs.THE COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT CORPORATION,respondents.D E C I S I O NCARPIO, J.:The CaseBefore us is a Petition for Review onCertiorariunder Rule 45 of the Revised Rules on Civil Procedure assailing the June 9, 1992 Decision[1]of the Court of Appeals[2]in CA-G.R. CVNo. 20167.The Court of Appeals affirmed the January 26, 1988 Decision[3]of the Regional Trial Court of Manila, Branch 52,[4]ordering petitioners Great Asian Sales Center Corporation (Great Asian for brevity) and Tan Chong Lin to pay, solidarily, respondent Bancasia Finance and Investment Corporation (Bancasia for brevity) the amount ofP1,042,005.00.The Court of Appeals affirmed the trial courts award of interest and costs of suit but deleted the award of attorneys fees.The FactsGreat Asian is engaged in the business of buying and selling general merchandise, in particular household appliances.On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. (Arsenio for brevity) to secure a loan from Bancasia in an amount not to exceedP1.0 million.The board resolution also authorized Arsenio to sign all papers, documents or promissory notes necessary to secure the loan.On February 10, 1982, the board of directors of Great Asian approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceedingP2.0 million.The second board resolution also designated Arsenio as the authorized signatory to sign all instruments, documents and checks necessary to secure the discounting line.On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia.On January 29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia.Thus, Tan Chong Lin signed two surety agreements (Surety Agreements for brevity) in favor of Bancasia.Great Asian, through its Treasurer and General Manager Arsenio, signedfour (4) Deeds of Assignment of Receivables (Deeds of Assignment for brevity), assigning to Bancasia fifteen (15) postdated checks.Nine of the checks were payable to Great Asian, three were payable to New Asian Emp., and the last three were payable to cash.Various customers of Great Asian issued these postdated checks in payment for appliances and other merchandise.Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four postdated checks with a total face value ofP244,225.82, with maturity dates not later than March 17, 1982.Of these four postdated checks, two were dishonored.Great Asian and Bancasia signed the second Deed of Assignment also on January 12, 1982 covering four postdated checks with a total face value ofP312,819.00, with maturity dates not later than April 1, 1982.All these four checks were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on February 11, 1982 covering eight postdated checks with a total face value ofP344,475.00, withmaturity dates not later than April 30, 1982.All these eight checks were dishonored.Great Asian and Bancasia signed the fourth Deed of Assignment on March 5, 1982 covering one postdated check with a face value ofP200,000.00, withmaturity date on March 18, 1982.This last check was also dishonored.Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face value of the checks.Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks.Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of Great Asian Sales Center, while the rest of the dishonored checks just bore the signature of Arsenio.The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia, with any of the following as reason for the dishonor: account closed, payment stopped, account under garnishment, and insufficiency of funds.The total amount of the fifteen dishonored checks is P1,042,005.00.Below is a table of the fifteen dishonored checks:Drawee BankCheck No.AmountMaturity Date1stDeedSolid BankC-A097480P137,500.00March 16, 1982Pacific Banking Corp.23950P47,211.00March 17, 19822ndDeedMetrobank030925P68,722.00March 19, 1982030926P45,230.00March 19, 1982SolidbankC-A097478P140,000.00March 23, 1982Pacific Banking Corp.CC 769910P58,867.00April 1, 19823rdDeedPhil. Trust Company060835P21,228.00April 21, 1982060836P22,187.00April 28, 1982Allied Banking Corp.11251624P41,773.00April 22, 198211251625P38,592.00April 29, 1982Pacific Banking Corp.237984P37,886.00April 23, 1982237988P47,385.00April 28, 1982237985P46,748.00April 30, 1982Security Bank & Trust Co.22061P88,676.00April 30, 19824thDeedPacific Banking Corp.860178P200,000.00March 18, 1982After the drawee bank dishonored Check No. 097480 dated March 16, 1982,Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the dishonor and demanding payment from him.Subsequently, Bancasia sent by personal delivery aletter dated June 16, 1982 to Tan Chong Lin, notifying him of the dishonor of the fifteen checks and demanding payment from him.Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for insolvency, verified under oath by its Corporate Secretary, Mario Tan.Attached to the verified petition was a Schedule and Inventory of Liabilities and Creditors of Great Asian Sales Center Corporation, listing Bancasia as one of the creditors of Great Asian in the amount ofP1,243,632.00.On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin.Bancasia impleaded Tan ChongLin because of the Surety Agreements he signed in favor of Bancasia.In its answer, Great Asian denied the material allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already a pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary insolvency.Great Asian further raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin.Ruling of the Trial CourtThe trial court rendered its decision on January 26, 1988 with the following findings and conclusions:From the foregoing facts and circumstances, the Court finds that the plaintiff has established its causes of action against the defendants.The Board Resolution (Exh. T), dated March 17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and treasurer of the defendant Great Asian to apply and negotiate for a loan accommodation or credit line with the plaintiff Bancasia in an amount not exceeding One Million Pesos (P1,000,000.00), and the other Board Resolution approved on February 10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for defendant Asian Center a discounting line with Bancasia at prevailing discounting rates in an amount not to exceed Two Million Pesos (P2,000,000.00), both of which were intended to secure money from the plaintiff financing firm to finance the business operations of defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was able to have the aforementioned fifteen (15) checks totalingP1,042,005.00 discounted with the plaintiff, which transactions were obviously known by the beneficiary thereof, defendant Great Asian, as in fact, in its aforementioned Schedule and Inventory of Liabilities and Creditors (Exh. DD, DD-1) attached to its Verified Petition for Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian admitted an existing liability to the plaintiff, in the amount ofP1,243,632.00, secured by it, by way of financing accommodation, from the said financing institution Bancasia Finance and Investment Corporation, plaintiff herein, sufficiently establish the liability of the defendant Great Asian to the plaintiff for the amount ofP1,042,005.00 sought to be recovered by the latter in this case.[5]xxxWHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the two (2) defendants ordering the latter, jointly and severally, to pay the former:(a)The amount ofP1,042,005.00, plus interest thereon at the legal rate from the filing of the complaint until the same is fully paid;(b)Attorneys fees equivalent to twenty per cent (20%) of the total amount due; and(c)The costs of suit.SO ORDERED.[6]Ruling of the Court of AppealsOn appeal, the Court of Appeals sustained the decision of the lower court, deleting only the award of attorneys fees, as follows:As against appellants bare denial of it, the Court is more inclined to accept the appellees version, to the effect that the subject deeds of assignment arebut individual transactionswhich -- being collectively evidentiary of the loan accommodation and/or credit line it granted the appellant corporation -- should not be taken singly and distinct therefrom.In addition to its plausibility, the proposition is, more importantly, adequately backed by the documentary evidence on record.Aside from the aforesaid Deeds of Assignment (Exhs. A, D, I, and R) and the Board Resolutions of the appellant corporations Board of Directors (Exhs. T, U and V), the appellee -- consistent with its theory -- interposed the Surety Agreements the appellant Tan Chong Lin executed (Exhs. W and X), as well as the demand letters it served upon the latter as surety (Exhs. Y and Z).It bears emphasis that the second Resolution of the appellant corporations Board of Directors (Exh. V) even closely coincides with the execution of the February 11, 1982 and March 5, 1982 Deeds of Assignment (Exhs. I and R).Were the appellants posturings true, it seems rather strange that the appellant Tan Chong Lin did not even protest or, at least, make known to the appellee what he -- together with the appellant corporation -- represented to be a corporate larceny to which all of them supposedly fell prey.In the petition for voluntary insolvency it filed, the appellant corporation, instead, indirectly acknowledged its indebtedness in terms of financing accommodations to the appellee, in an amount which, while not exactly matching the sum herein sought to be collected, approximates the same (Exhs. CC, DD and DD-1).[7]xxxThe appellants contend that the foregoing warranties enlarged or increased the suretys risk, such that appellant Tan Chong Lin should be released from his liabilities (pp. 37-44, Appellants Brief). Without saying more, the appellants position is, however, soundly debunked by the undertaking expressed in the Comprehensive and Continuing Surety Agreements (Exhs. W and X), to the effect that the xxx surety/ies, jointly and severally among themselves and likewise with the principal, hereby agree/s and bind/s himself to pay at maturity all the notes, drafts, bills of exchange, overdrafts and other obligations which the principal may now or may hereafter owe the creditor xxx. With the possible exception of the fixed ceiling for the amount of loan obtainable, the surety undertaking in the case at bar is so comprehensive as to contemplate each and every condition, term or warranty which the principal parties may have or may be minded to agree on.Having affixed his signature thereto, the appellant Tan Chong Lin is expected to have, at least, read and understood the same.xxxWith the foregoing disquisition, the Court sees little or no reason to go into the appellants remaining assignments of error, save the matter of attorneys fees.For want of a statement of the rationale therefore in the body of the challenged decision, the trial courts award of attorneys fees should be deleted and disallowed (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57).WHEREFORE, the decision appealed from is MODIFIED, to delete the trial courts award of attorneys fees.The rest is AFFIRMEDintoto.SO ORDERED.[8]The IssuesThe petition is anchored on the following assigned errors:1.The respondent Court erred in not holding that the proper parties against whom this action for collection should be brought are the drawers and indorser of the checks in question, being the real parties in interest, and not the herein petitioners.2.The respondent Court erred in not holding that the petitioner-corporation is discharged from liability for failure of the private respondent to comply with the provisions of the Negotiable Instruments Law on the dishonor of the checks.3.The respondent Court erred in its appreciation and interpretation of the effect and legal consequences of the signing of the deeds of assignment and the subsequent indorsement of the checks by Arsenio Lim Piat, Jr. in his individual and personal capacity and without stating or indicating the name of his supposed principal.4.The respondent Court erred in holding that the assignment of the checks is a loan accommodation or credit line accorded by the private respondent to petitioner-corporation, and not a purchase and sale thereof.5.The respondent Court erred in not holding that there was a material alteration of the risk assumed by the petitioner-surety under his surety agreement by the terms, conditions, warranties and obligations assumed by the assignor Arsenio Lim Piat, Jr. under the deeds of assignment or receivables.6.The respondent Court erred in holding that the petitioner-corporation impliedly admitted its liability to private respondent when the former included the latter as one of its creditors in its petition for voluntary insolvency, although no claim was filed and proved by the private respondent in the insolvency court.7.The respondent Court erred in holding the petitioners liable to private respondent on the transactions in question.[9]The issues to be resolved in this petition can be summarized into three:1.WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT AND THUS BIND GREAT ASIAN;2.WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL CODE, INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;3.WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY AGREEMENTS.The Courts RulingThe petition is bereft of merit.First Issue: Authority of Arsenio to Sign the Deeds of AssignmentGreat Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the checks in his personal capacity.The primordial question that must be resolved is whether Great Asian authorized Arsenio to sign the Deeds of Assignment.If Great Asian so authorized Arsenio, then Great Asian is bound by the Deeds of Assignment and must honor its terms.The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate powers of the corporation, save in those instances where the Code requires stockholders approval for certain specific acts.Section 23 of the Code provides:SEC. 23.The Board of Directors or Trustees.Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x.In the ordinary course of business, a corporation can borrow funds or dispose of assets of the corporation only on authority of the board of directors.The board of directors normally designates one or more corporate officers to sign loan documents or deeds of assignment for the corporation.To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted two board resolutions on different dates, the first on March 17, 1981, and the second on February 10, 1982.These two board resolutions, as certified under oath by Great Asians Corporate Secretary Mario K. Tan, state:First Board ResolutionRESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be authorized as he is authorized to apply for and negotiate for aloan accommodation or credit linein the amount not to exceed ONE MILLION PESOS (P1,000,000.00), with Bancasia Finance and Investment Corporation, and likewise to sign any and all papers, documents, and/or promissory notes in connection with said loan accommodation or credit line, including the power to mortgage such properties of the corporation as may be needed to effectuate the same.[10](Emphasis supplied)Second Board ResolutionRESOLVED that Great Asian Sales Center Corp. obtain adiscounting linewith BANCASIAFINANCE & INVESTMENT CORPORATION, at prevailing discounting rates, in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000),** Philippine Currency.RESOLVED FURTHER, that the corporation secure such other forms of credit lines with BANCASIA FINANCE & INVESTMENT CORPORATION in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000.00),** PESOS, under such terms and conditions as the signatories may deem fit and proper.RESOLVED FURTHER, that the following persons be authorized individually, jointly or collectively to sign, execute and deliver any and all instruments, documents, checks, sureties, etc. necessary or incidental to secure any of the foregoing obligation:(signed)Specimen Signature1.ARSENIO LIM PIAT, JR._2. _______________________3. _______________________4. _______________________PROVIDED FINALLY that this authority shall be valid, binding and effective until revoked by the Board of Directors in the manner prescribed by law, and that BANCASIA FINANCE & INVESTMENT CORPORATION shall not be bound by any such revocation until such time as it is noticed in writing of such revocation.[11](Emphasis supplied)The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for aloan accommodation or credit linewith Bancasia for not more than P1.0 million.Also, the first resolution explicitly authorizes Arsenio to sign any document, paper or promissory note, including mortgage deeds over properties of Great Asian, to secure the loan or credit line from Bancasia.The second board resolution expressly authorizes Great Asian to secure a discounting linefrom Bancasia for not more thanP2.0 million.The second board resolution also expressly empowers Arsenio, as the authorized signatory of Great Asian, to sign, execute and deliver any and all documents,checksx x x necessary or incidental to secure the discounting line.The second board resolution specifically authorizes Arsenio to secure the discounting line under such terms and conditions as (he) x x x may deem fit and proper.As plain as daylight, the two board resolutions clearly authorize Great Asian to secure aloan ordiscounting linefrom Bancasia.The two board resolutions also categorically designate Arsenio as the authorized signatory to sign and deliver all the implementing documents, including checks, for Great Asian.There is no iota of doubt whatsoever about the purpose of the two board resolutions, and about the authority of Arsenio to act and sign for Great Asian.The second board resolution even gave Arseniofull authorityto agree with Bancasia on the terms and conditions of the discounting line.Great Asian adopted the correct and proper board resolutions to secure a loan or discounting line from Bancasia, and Bancasia had a right to rely on the two board resolutions of Great Asian.Significantly, the two board resolutions specifically refer to Bancasia as the financing institution from whom Great Asian will secure the loan accommodation or discounting line.Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and endorsing, the fifteen checks of Great Asian to Bancasia.On the face of the Deeds of Assignment, the contracting parties are indisputably Great Asian and Bancasia as the names of these entities are expressly mentioned therein as the assignor and assignee, respectively.Great Asian claims that Arsenio signed the Deeds of Assignment in his personal capacity because Arsenio signed above his printed name, below which was the word Assignor, thereby making Arsenio the assignor.Great Asian conveniently omits to state that the first paragraph of the Deeds expressly contains the following words:the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein represented by its Treasurer Arsenio Lim Piat, Jr. The assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio.The only issue to determine is whether the Deeds of Assignment are indeed the transactions the board of directors of Great Asian authorized Arsenio to sign under the two board resolutions.Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over three months, to Bancasia.The Deeds of Assignment uniformly state that Great Asian, x x x for valuable consideration received, does hereby SELL, TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE, BANCASIA FINANCE & INVESTMENT CORP., a domestic corporation x x x, the following ACCOUNTS RECEIVABLES due and payable to it, having an aggregate face value of x x x.The Deeds of Assignment enabled Great Asian to generate instant cash from its fifteen checks, which were still not due and demandable then.In short, instead of waiting for the maturity dates of the fifteen postdated checks, Great Asian sold the checks to Bancasia at less than the total face value of the checks.In exchange for receiving an amount less than the face value of the checks, Great Asian obtained immediately much needed cash.Over three months, Great Asian entered into four transactions of this nature with Bancasia, showing that Great Asian availed of a discounting line with Bancasia.In the financing industry, the term discounting line means a credit facility with a financing company or bank, which allows a business entity to sell, on a continuing basis, its accounts receivable at a discount.[12]The term discount means the sale of a receivable at less than its face value.The purpose of a discounting line is to enable a business entity to generate instant cash out of its receivables which are still to mature at future dates.The financing company or bank which buys the receivables makes its profit out of the difference between the face value of the receivable and the discounted price.Thus, Section 3 (a) of the Financing Company Act of 1998 provides:Financing companies are corporations x x x primarily organized for the purpose ofextending creditfacilities to consumers and to industrial, commercial or agricultural enterprisesby discountingor factoring commercial papers oraccounts receivable,orby buying and sellingcontracts, leases, chattel mortgages, or otherevidences of indebtedness,or by financial leasing of movable as well as immovable property. (Emphasis supplied)This definition of financing companies is substantially the same definition as in the old Financing Company Act (R.A. No. 5980).[13]Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities and Exchange Commission to implement the Financing Company Act of 1998 states:Discountingis a type of receivables financingwhereby evidences of indebtedness of a third party, such as installment contracts, promissory notes and similar instruments, are purchased by, orassigned to, a financing company in an amount or for a consideration less than their face value. (Emphasis supplied)Likewise, this definition of discounting is an exact reproduction of the definition of discounting in the implementing rules of the old Finance Company Act.Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were the very transactions envisioned in the two board resolutions of Great Asian to raise funds for its business.Arsenio acted completely within the limits of his authority under the two board resolutions.Arsenio did exactly what the board of directors of Great Asian directed and authorized him to do.Arsenio had all the proper and necessary authority from the board of directors of Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated checks.Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian under an authority expressly granted by its board of directors.The signature of Arsenio on the Deeds of Assignment is effectively also the signature of the board of directors of Great Asian, binding on the board of directors and on Great Asian itself.Evidently, Great Asian shows its bad faith in disowning the Deeds of Assignment signed by its own Treasurer, after receiving valuable consideration for the checks assigned under the Deeds.Second Issue:Breach of Contract by Great AsianBancasias complaint against Great Asian is founded on the latters breach of contract under the Deeds of Assignment.The Deeds of Assignment uniformly stipulate[14]as follows:If for any reason the receivables or any part thereof cannot be paid by the obligor/s, the ASSIGNOR unconditionally and irrevocably agrees to pay the same, assuming the liability to pay, by way of penalty three per cent (3%) of the total amount unpaid, for the period of delay until the same is fully paid.In case of any litigation which the ASSIGNEE may institute to enforce the terms of this agreement, the ASSIGNOR shall be liable for all the costs, plus attorneys fees equivalent to twenty-five (25%) per cent of the total amount due.Further thereto, the ASSIGNOR agrees that any and all actions which may be instituted relative hereto shall be filed before the proper courts of the City of Manila, all other appropriate venues being hereby waived.The last Deed of Assignment[15]contains the following added stipulation:xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR hereby made are deemed part of the consideration for this transaction, such that any violation of any one, some, or all of said warranties shall be deemed as deliberate misrepresentation on the part of the ASSIGNOR.In such event, the monetary obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to make good said obligation, and making the ASSIGNOR liable to pay the penalty stipulated hereinabove as if the original obligor/s of the receivables actually defaulted. xxxObviously, there is one vital suspensive condition in the Deeds of Assignment.That is, in case the drawers fail to pay the checks on maturity, Great Asian obligated itself to pay Bancasia the full face value of the dishonored checks, including penalty and attorneys fees.The failure of the drawers to pay the checks is a suspensive condition,[16]the happening of which gives rise to Bancasias right to demand payment from Great Asian.This conditional obligation of Great Asian arises from its written contracts with Bancasia as embodied in the Deeds of Assignment.Article 1157 of the Civil Code provides that -Obligations arise from:(1) Law;(2) Contracts;(3) Quasi-contracts;(4) Acts or omissions punished by law; and(5) Quasi-delicts.By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to pay Bancasia the full value of the dishonored checks.In short, Great Asian sold the postdated checks onwith recoursebasis against itself.This is an obligation that Great Asian is bound to faithfully comply because it has the force of law as between Great Asian and Bancasia.Article 1159 of the Civil Code further provides that -Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.Great Asian and Bancasia agreed on this specificwith recoursestipulation, despite the fact that the receivables were negotiable instruments with the endorsement of Arsenio.The contracting parties had the right to adopt thewith recoursestipulation which is separate and distinct from the warranties of an endorser under the Negotiable Instruments Law.Article 1306 of the Civil Code provides that The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.The explicitwith recoursestipulation against Great Asian effectively enlarges, by agreement of the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable instrument.Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter remains liable to Bancasia because of thewith recoursestipulation which is independent of the warranties of an endorser under the Negotiable Instruments Law.There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new), that prohibits Great Asian and Bancasia parties from adopting thewith recoursestipulation uniformly found in the Deeds of Assignment.Instead of being negotiated, a negotiable instrument may be assigned.[17]Assignment of a negotiable instrument is actually the principal mode of conveying accounts receivable under the Financing Company Act.Since in discounting of receivables the assignee is subrogated as creditor of the receivable, the endorsement of the negotiable instrument becomes necessary to enable the assignee to collect from the drawer.This is particularly true with checks because collecting banks will not accept checks unless endorsed by the payee.The purpose of the endorsement is merely to facilitate collection of the proceeds of the checks.The purpose of the endorsement is not to make the assignee finance company a holder in due course because policy considerations militate against according finance companies the rights of a holder in due course.[18]Otherwise, consumers who purchase appliances on installment, giving their promissory notes or checks to the seller, will have no defense against the finance company should the appliances later turn out to be defective.Thus, the endorsement does not operate to make the finance company a holder in due course.For its own protection, therefore, the finance company usually requires the assignor, in a separate and distinct contract, to pay the finance company in the event of dishonor of the notes or checks.As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the Negotiable Instruments Law.Had it so proceeded, the Negotiable Instruments Law would have governed Bancasias cause of action.Bancasia, however, did not choose this route.Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that Bancasia had under the expresswith recoursestipulation in the Deeds of Assignment.The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an empty bag.Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables.Great Asian can then proceed against the drawers who issued the checks.Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to Great Asian.Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded payment.[19]In the instant case, all the checks were dishonored for any of the following reasons: account closed, account under garnishment, insufficiency of funds, or payment stopped.In the first three instances, the drawers had no right to expect or require the bank to honor the checks, and in the last instance, the drawers had countermanded payment.Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the extent of the loss caused by the delay.[20]This rule finds application in this jurisdiction pursuant to Section 196 of the Negotiable Instruments Law which states, Any case not provided for in this Act shall be governed by the provisions of existing legislation, or in default thereof, by the rules of the Law Merchant. Under Section 186 of the Negotiable Instruments Law, delay in the presentment of checks discharges the drawer.However, Section 186 refers only to delay in presentment of checks but is silent on delay in giving notice of dishonor.Consequently, the common law or Law Merchant can supply this gap in accordance with Section 196 of the Negotiable Instruments Law.One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment, is completely unsubstantiated.The Deeds of Assignment uniformly provide that the fifteen postdated checks were assigned to Bancasia for valuable consideration.Moreover, Article 1354 of the Civil Code states that, Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. The record is devoid of any showing on the part of Great Asian rebutting this presumption.On the other hand, Bancasias Loan Section Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a consideration at the discount rate of less than 24% of the face value of the postdated checks.[21]Moreover, in its verified petition for voluntary insolvency, Great Asian admitted its debt to Bancasia when it listed Bancasia as one of its creditors, an extra-judicial admission that Bancasia proved when it formally offered in evidence the verified petition for insolvency.[22]The Insolvency Law requires the petitioner to submit a schedule of debts that must contain a full and true statement of all his debts and liabilities.[23]The Insolvency Law even requires the petitioner to state in his verification that the schedule of debts contains a full, correct and true discovery of all my debts and liabilities x x x.[24]Great Asian cannot now claim that the listing of Bancasia as a creditor was not an admission of its debt to Bancasia but merely an acknowledgment that Bancasia had sent a demand letter to Great Asian.Great Asian, moreover, claims that the assignment of the checks is not a loan accommodation but a sale of the checks.With the sale, ownership of the checks passed to Bancasia, which must now, according to Great Asian, sue the drawers and indorser of the check who are the parties primarily liable on the checks.Great Asian forgets that under the Deeds of Assignment, Great Asian expressly undertook to pay the full value of the checks in case of dishonor.Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as indorser under the Negotiable Instruments Law.Great Asian is, however, correct in saying that the assignment of the checks is a sale, or more properly a discounting, of the checks and not a loan accommodation.However, it is precisely because the transaction is a sale or a discounting of receivables, embodied in separate Deeds of Assignment, that the relevant provisions of the Civil Code are applicable and not the Negotiable Instruments Law.At any rate, there is indeed a fine distinction between a discounting line and a loan accommodation.If the accounts receivable, like postdated checks, are sold for a consideration less than their face value, the transaction is one of discounting, and is subject to the provisions of the Financing Company Act.The assignee is immediately subrogated as creditor of the accounts receivable.However, if the accounts receivable are merely used as collateral for the loan, the transaction is only a simple loan, and the lender is not subrogated as creditor until there is a default and the collateral is foreclosed.In summary, Great Asians four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay Bancasia.Since the common condition in the contracts had transpired, an obligation on the part of Great Asian arose from the four contracts, and that obligation is to pay Bancasia the full value of the checks, including the stipulated penalty and attorneys fees..SO ORDERED.ASSOCIATED BANK (Now WESTMONT BANK),petitioner, vs.VICENTE HENRY TAN,respondent.D E C I S I O NPANGANIBAN,J.:While banks are granted by law the right to debit the value of a dishonored check from a depositors account, they must do so with the highest degree of care, so as not to prejudice the depositor unduly.The CaseBefore us is a Petition for Review[1]under Rule 45 of the Rules of Court, assailing the January 27, 2003 Decision[2]of the Court of Appeals (CA) in CA-GR CV No. 56292.The CA disposed as follows:WHEREFORE, premises considered, the Decision datedDecember 3, 1996, of theRegionalTrialCourtofCabanatuanCity, Third Judicial Region, Branch 26, in Civil Case No. 892-AF is herebyAFFIRMED.Costs against the [petitioner].[3]The FactsThe CA narrated the antecedents as follows:Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the Associated Bank (hereinafter referred to as the BANK).Sometime in September 1990, he deposited a postdated UCPB check with the said BANK in the amount ofP101,000.00 issued to him by a certain Willy Cheng from Tarlac.The check was duly entered in his bank record thereby making his balance in the amount ofP297,000.00, as ofOctober 1, 1990, from his original deposit ofP196,000.00.Allegedly,upon advice and instruction of the BANK that theP101,000.00 check was already cleared and backed up by sufficient funds, TAN, on the same date, withdrew the sum ofP240,000.00, leaving a balance ofP57,793.45.A day after, TAN deposited the amount ofP50,000.00 making his existing balance in the amount ofP107,793.45, because he has issued several checks to his business partners, to wit:CHECK NUMBERSDATEAMOUNTa.138814Sept. 29, 1990P9,000.00b.138804Oct. 8, 19909,350.00c.138787Sept. 30, 19906,360.00d.138847Sept. 29, 199021,850.00e.167054Sept. 29, 19904,093.40f.138792`Sept. 29, 19903,546.00g.138774Oct. 2, 19906,600.00h.167072Oct. 10, 19909,908.00i.168802Oct. 10, 19903,650.00However, his suppliers and business partners went back to him alleging that the checks he issued bounced for insufficiency of funds.Thereafter, TAN, thru his lawyer, informed the BANK to take positive steps regarding the matter for he has adequate and sufficient funds to pay the amount of the subject checks.Nonetheless, the BANK did not bother nor offer any apology regarding the incident.Consequently, TAN, as plaintiff, filed a Complaint for Damages on December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third Judicial Region, docketed as Civil Case No. 892-AF, against the BANK, as defendant.In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject checks and alleged that his suppliers decreased in number for lack of trust.As he has been in the business community for quite a time and has established a good record of reputation and probity, plaintiff claimed that he suffered embarrassment, humiliation, besmirched reputation, mental anxieties and sleepless nights because of the said unfortunate incident.[Respondent] further averred that he continuously lost profits in the amount ofP250,000.00.[Respondent] therefore prayed for exemplary damages and that [petitioner] be ordered to pay him the sum ofP1,000,000.00 by way of moral damages,P250,000.00 as lost profits,P50,000.00 as attorneys fees plus 25% of the amount claimed includingP1,000.00 per court appearance.Meanwhile, [petitioner] filed a Motion to Dismiss onFebruary 7, 1991, but the same was denied for lack of merit in an Order datedMarch 7, 1991.Thereafter, [petitioner] BANK on March 20, 1991 filed its Answer denying, among others, the allegations of [respondent] and alleged that no banking institution would give an assurance to any of its client/depositor that the check deposited by him had already been cleared and backed up by sufficient funds but it could only presume that the same has been honored by the drawee bank in view of the lapse of time that ordinarily takes for a check to be cleared.For its part, [petitioner] alleged that onOctober 2, 1990, it gave notice to the [respondent] as to the return of his UCPB check deposit in the amount ofP101,000.00, hence, on even date, [respondent] deposited the amount ofP50,000.00 to cover the returned check.By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action against it and argued that it has all the right to debit the account of the [respondent] by reason of the dishonor of the check deposited by the [respondent] which was withdrawn by him prior to its clearing.[Petitioner] further averred that it has no liability with respect to the clearing of deposited checks as the clearing is being undertaken by the Central Bank and in accepting [the] check deposit, it merely obligates itself as depositors collecting agent subject to actual payment by the drawee bank.[Petitioner] therefore prayed that [respondent] be ordered to pay it the amount ofP1,000,000.00 by way of loss of goodwill,P7,000.00 as acceptance fee plusP500.00 per appearance and by way of attorneys fees.Considering that Westmont Bank has taken over the management of the affairs/properties of the BANK, [respondent] on October 10, 1996, filed an Amended Complaint reiterating substantially his allegations in the original complaint, except that the name of the previous defendant ASSOCIATED BANK is now WESTMONT BANK.Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of the [respondent] and against the [petitioner], ordering the latter to pay the [respondent] the sum ofP100,000.00 by way of moral damages,P75,000.00 as exemplary damages,P25,000.00 as attorneys fees, plus the costs of this suit.In making said ruling, it was shown that [respondent] was not officially informed about the debiting of theP101,000.00 [from] his existing balance and that the BANK merely allowed the [respondent] to use the fund prior to clearing merely for accommodation because the BANK considered him as one of its valued clients.The trial court ruled that the bank manager was negligent in handling the particular checking account of the [respondent] stating that such lapses caused all the inconveniences to the [respondent].The trial court also took into consideration that [respondents] mother was originally maintaining with the x x x BANK [a] current account as well as [a] time deposit, but [o]n one occasion, although his mother made a deposit, the same was not credited in her favor but in the name of another.[4]Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting bank, to debit the account of its client for a dishonored check; and whether it had informed respondent about the dishonor prior to debiting his account.Ruling of the Court of AppealsAffirming the trial court, the CA ruled that the bank should not have authorized the withdrawal of the value of the deposited check prior to its clearing.Having done so, contrary to its obligation to treat respondents account with meticulous care, the bank violated its own policy.It thereby took upon itself the obligation to officially inform respondent of the status of his account before unilaterally debiting the amount ofP101,000.Without such notice, it is estopped from blaming him for failing to fund his account.The CA opined that, had theP101,000 not been debited, respondent would have had sufficient funds for the postdated checks he had issued.Thus, the supposed accommodation accorded by petitioner to him is the proximate cause of his business woes and shame, for which it is liable for damages.Because of the banks negligence, the CA awarded respondent moral damages ofP100,000.It also granted him exemplary damages ofP75,000 and attorneys fees ofP25,000.Hence this Petition.[5]IssueIn its Memorandum, petitioner raises the sole issue of whether or not the petitioner, which is acting as a collecting bank, has the right to debit the account of its client for a check deposit which was dishonored by the drawee bank.[6]The Courts RulingThe Petition has no merit.Sole Issue:Debit of Depositors AccountPetitioner-bank contends that its rights and obligations under the present set of facts were misappreciated by the CA.It insists that its right to debit the amount of the dishonored check from the account of respondent is clear and unmistakable.Even assuming that it did not give him notice that the check had been dishonored, such right remains immediately enforceable.In particular, petitioner argues that the check deposit slip accomplished by respondent onSeptember 17, 1990, expressly stipulated that the bank was obligating itself merely as the depositors collecting agent and -- until such time as actual payment would be made to it -- it was reserving the right to charge against the depositors account any amount previously credited.Respondent was allowed to withdraw the amount of the check prior to clearing, merely as an act of accommodation, it added.At the outset, we stress that the trial courts factual findings that were affirmed by the CA are not subject to review by this Court.[7]As petitioner itself takes no issue with those findings, we need only to determine the legal consequence, based on the established facts.Right of SetoffA bank generally has a right of setoff over the deposits therein for the payment of any withdrawals on the part of a depositor.[8]The right of a collecting bank to debit a clients account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence.To begin with, Article 1980 of the Civil Code provides that [f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.Hence, the relationship between banks and depositors has been held to be that of creditor and debtor.[9]Thus, legal compensation under Article 1278[10]of the Civil Code may take place when all the requisites mentioned in Article 1279 are present,[11]as follows:(1)That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;(2)That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;(3)That the two debts be due;(4)That they be liquidated and demandable;(5)That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.[12]Nonetheless, the real issue here is not so much the right of petitioner to debit respondents account but, rather, the manner in which it exercised such right.The Court has held that even while the right of setoff is conceded, separate is the question of whether that remedy has properly been exercised.[13]The liability of petitioner in this case ultimately revolves around the issue of whether it properly exercised its right of setoff.The determination thereof hinges, in turn, on the banks role and obligations,first, as respondents depositary bank; andsecond, as collecting agent for the check in question.Obligation asDepositary BankInBPI v. Casa Montessori,[14]the Court has emphasized that the banking business is impressed with public interest.Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it.By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care.[15]Also affirming this long standing doctrine,Philippine Bank of Commerce v. Court of Appeals[16]has held that the degree of diligence required of banks is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned.[17]Indeed, the banking business is vested with the trust and confidence of the public; hence the appropriate standard of diligence must be very high, if not the highest, degree of diligence.[18]The standard applies, regardless of whether the account consists of only a few hundred pesos or of millions.[19]The fiduciary nature of banking, previously imposed by case law,[20]is now enshrined in Republic Act No. 8791 or the General Banking Law of 2000.Section 2 of the law specifically says that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance.Did petitioner treat respondents account with the highest degree of care?From all indications, it did not.It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued client, petitioner allowed the withdrawal of the face value of the deposited check prior to its clearing.That act certainly disregarded the clearance requirement of the banking system.Such a practice is unusual, because a check is not legal tender or money;[21]and its value can properly be transferred to a depositors account only after the check has been cleared by the drawee bank.[22]Under ordinary banking practice, after receiving a check deposit, a bankeitherimmediately credit the amount to a depositors account;orinfuse value to that account only after the drawee bank shall have paid such amount.[23]Before thecheck shall have been cleared for deposit, the collecting bank can only assume at its own risk -- as herein petitioner did -- that the check would be cleared and paid out.Reasonable business practice and prudence, moreover, dictated that petitioner should not have authorized the withdrawal by respondent ofP240,000 onOctober 1, 1990, as this amount was over and above his outstanding cleared balance ofP196,793.45.[24]Hence, the lower courts correctly appreciated the evidence in his favor.Obligation asCollecting AgentIndeed, the bank deposit slip expressed this reservation:In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting agent, assuming no responsibility beyond carefulness in selecting correspondents, and until such time as actual payments shall have come to its possession, this Bank reserves the right to charge back to the Depositors account any amounts previously credited whether or not the deposited item is returned. x x x."[25]However, this reservation is not enough to insulate the bank from any liability.In the past, we have expressed doubt about the binding force of such conditions unilaterally imposed by a bank without the consent of the depositor.[26]It is indeed arguable that in signing the deposit slip, the depositor does so only to identify himself and not to agree to the conditions set forth at the back of the deposit slip.[27]Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as respondents agent, consonant with the well-settled rule that the relationship between the payee or holder of a commercial paper and the collecting bank is that of principal and agent.[28]Under Article 1909[29]of the Civil Code, such bank could be held liable not only for fraud, but also for negligence.As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment.[30]Due to the very nature of their business, banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.[31]Jurisprudence has established that the lack of diligence of a servant is imputed to the negligence of the employer, when the negligent or wrongful act of the former proximately results in an injury to a third person;[32]in this case, the depositor.The manager of the banksCabanatuanbranch, Consorcia Santiago, categorically admitted that she and the employees under her control had breached bank policies.They admittedly breached those policies when, without clearance from the drawee bank inBaguio, they allowed respondent to withdraw onOctober 1, 1990, the amount of the check deposited.Santiagotestified that respondent was not officially informed about the debiting of theP101,000 from his existing balance ofP170,000 onOctober 2, 1990x x x.[33]Being the branch manager,Santiagoclearly acted within the scope of her authority in authorizing the withdrawal and the subsequent debiting without notice.Accordingly, what remains to be determined is whether her actions proximately caused respondents injury.Proximate cause is that which -- in a natural and continuous sequence, unbroken by any efficient intervening cause --produces the injury, and without which the result would not have occurred.[34]Let us go back to the facts as they unfolded.It is undeniable that the banks premature authorization of the withdrawal by respondent on October 1, 1990, triggered -- in rapid succession and in a natural sequence -- the debiting of his account, the fall of his account balance to insufficient levels, and the subsequent dishonor of his own checks for lack of funds.The CA correctly noted thus:x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money was already cleared.Without such advice, [respondent] would not have withdrawn the sum ofP240,000.00.Therefore, it cannot be denied that it was [petitioners] fault which allowed [respondent] to withdraw a huge sum which he believed was already his.To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check.Had theP101,000.00 not [been] debited, the subject checks would not have been dishonored.Hence, we can say that [respondents] injury arose from the dishonor of his well-funded checks.x x x.[35]Aggravating matters, petitioner failed to show that it had immediately and duly informed respondent of the debiting of his account.Nonetheless, it argues that the giving of notice was discernible from his act of depositingP50,000 onOctober 2, 1990, to augment his account and allow the debiting.This argument deserves short shrift.First, notice was proper and ought to be expected.By the bank managers account, respondent was considered a valued client whose checks had always been sufficiently funded from 1987 to 1990,[36]until the October imbroglio.Thus, he deserved nothing less than an official notice of the precarious condition of his account.Second, under the provisions of the Negotiable Instruments Law regarding the liability of a general indorser[37]and the procedure for a notice of dishonor,[38]it was incumbent on the bank to give proper notice to respondent.InGullas v. National Bank,[39]the Court emphasized:x x x [A] general indorser of a negotiable instrument engages that if the instrument the check in this case is dishonored and the necessary proceedings for its dishonor are duly taken, he will pay the amount thereof to the holder (Sec. 66)It has been held by a long line of authorities that notice of dishonor is necessary to charge an indorser and that the right of action against him does not accrue until the notice is given.x x x.The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant.At this point recall that Gullas was merely an indorser and had issued checks in good faith.As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been held that he has a right of action against the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against him.(Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.)However this may be, as to an indorser the situation is different, and notice should actually have been given him in order that he might protect his interests.[40]Third,regarding the deposit ofP50,000 made by respondent on October 2, 1990, we fully subscribe to the CAs observations that it was not unusual for a well-reputed businessman like him, who ordinarily takes note of the amount of money he takes and releases, to immediately deposit money in his current account to answer for the postdated checks he had issued.[41]DamagesInasmuch as petitioner does not contest the basis for the award of damages and attorneys fees, we will no longer address these matters.WHEREFORE, the Petition isDENIEDand the assailed DecisionAFFIRMED.Costs against petitioner.SO ORDERED.

ALFREDO RIGOR,petitioner, vs. PEOPLE OF THE PHILIPPINES,respondent.D E C I S I O NAZCUNA,J.:This is a petition for review oncertiorariof the decision of the Court of Appeals, in CA-G.R. CR No. 18855, which affirmed the decision of the Regional Trial Court of Pasig, Branch 163, in Criminal Case No. 86025, convicting petitioner Alfredo Rigor of violation ofBatas Pambansa Blg. 22(the Bouncing Checks Law), and imposing upon him the penalty of imprisonment for six (6) months and ordering him to restitute to the Rural Bank of San Juan the sum ofP500,000 and to pay the costs.The Information[1]against petitioner reads:That on or about the 16thday of November 1989 in the Municipality of San Juan, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, did then and there willfully, unlawfully and feloniously make or draw and issue to Rural Bank of San Juan, Inc. thru its loan officer Carlos N. Garcia, a postdated check to apply on account or for value the check described below:Check No. : 165476Drawn against : Associated Bank, Tarlac BranchIn the Amount of :P500,000.00Dated : February 16, 1990Payable to : Rural Bank of San Juansaid accused well knowing that at the time of issue on 16 November 1989, he has already insufficient funds or credit with the drawee bank for the payment in full of the face amount of such check and that as of 2 February 1990 his bank accounts were already closed and that check when presented for payment from and after the date thereof, was subsequently dishonored for the reason Account Closed and despite receipt of notice of such dishonor, the accused failed to pay said payee the face amount of said check or to make arrangement for full payment thereof during the period of not less than five (5) banking days after receiving notice.When arraigned, petitioner pleaded not guilty. Thereafter, trial on the merits ensued.The facts, as narrated by the Court of Appeals, are as follows:The prosecution evidence was furnished by witnesses Edmarcos Basangan of Rural Bank of San Juan (RBSJ) and Esteban Pasion, employee of the Associated Bank. It was shown that on November 16, 1989, appellant (petitioner herein) applied for a commercial loan from the Rural Bank of San Juan, Inc., at N. Domingo St., San Juan, Metro Manila in the sum ofP500,000.00 (Exh. A). He signed a promissory note stating that an interest of 24% per annum from its date will be charged on the loan (Exh. B). The loan was approved by RBSJs Bank Manager Melquecedes de Guzman and Controller Agustin Uy. A cashiers check with RBSJ No. 2023424 in the amount ofP487,000.00, net proceeds of the loan, was issued to appellant (Exh. C). Appellant endorsed, then encashed the check with RBSJ Teller Eleneth Cruz, who stamped thereon the word paid (Exh. C-4). After appellant received the proceeds, heissuedanundatedcheck,Associated BankCheck No. 165476,Tarlac Branch, in the amount ofP500,000, payable to RBSJ (Exh. D).It was not the bank policy for a borrower to apply for a loan, obtain its approval and its proceeds on the same day. Appellants case was a special one considering that he is the kumpare of the President of RBSJ and he is well-known to all the banks directors since he, like them, comes from Tarlac.Appellant failed to pay his loan upon its maturity onDecember 16, 1989. He personally asked de Guzman for atwo-monthextension and advised RBSJto datetoFebruary 16, 1990his Associated Bank check no. 165476. Failing anew to pay, he asked for another two-month extension or up to April 16, 1990. Both requests de Guzman granted. On April 16, 1990, appellant still failed to pay his loan. Basangan and his co-employee, Carlos Garcia, went to Tarlac to collect from appellant the amount of the loan. Appellants written request for another 30-day extension was denied by de Guzman who instead, sent him a formal demand letter dated April 25, 1990.OnMay 25, 1990, Associated Bank check no. 165476 wasdepositedwith PS Bank, San Juan Branch. The check was later returned with the wordsclosed accountstamped on its face. Associated Bank employee PASION declared that appellants Current Account No. 1022-001197-9 with Associated Bank had beenclosedsinceFebruary 2, 1990. Appellants balance under the banks statement of account as of November 16, 1989 was onlyP859. The most appellant had on his account wasP40,000recorded on November 19, 1989 (Exh. K).Basangan and Garcia, in Tarlac, advised appellant of the dishonor of his check. Appellant wrote Atty. Joselito Lim, RBSJ Chairman of the Board, about the loan and arrangements as to the schedule of his payment. His letter was referred to de Guzman, who, in turn, sent to him another demand letter dated September 17, 1990. The letter informed him of the dishonor of his check. De Guzman required him to take the necessary step for the early settlement of his obligation. He still refused to pay.Appellant denied the charge. He claimed that on November 16, 1989, Agapito Uy and his sister Agnes Angeles proposed to him that he secure a loan from the RBSJ forP500,000.P200,000 of it will be for him and theP300,000 will go to Uy and to his sister to pay unpaid loans of borrowers in their side banking activities. For the approval of his loan, Uy told him that appellant can put up his four-door Mercedes Benz as collateral for theP200,000 loan. TheP300,000 will have no collateral. Uy also told him the he (Uy) has complete control of the bank and his Mercedes Benz will be enough collateral for theP500,000.Appellant agreed to the proposal. He signed a blank loan application form and a promissory note plus a chattel mortgage for his Mercedes Benz. Thereafter, he was told to come back in two days. Uy gave him two Premiere Bank checks worthP100,000 each. He gave one check to his brother Efren Rigor and the other to his sister-in-law for encashment in Tarlac. He issued to Uy a personal check forP500,000 undated. This check was deposited in the bank for encashment in the later part of May, 1990 but it bounced. When demand was made for him to pay his loan, he told Uy to get his Mercedes Benz as payment forP200,000 but Uy refused. Uy wanted him to pay the whole amount ofP500,000.[2]On July 8, 1994, the trial court rendered judgment against petitioner, the dispositive portion of which reads:WHEREFORE, foregoing premises considered, this Court finds accused Alfredo Rigor guilty beyond reasonable doubt of the crime of Violation of Section 1 of Batas Pambansa Blg. 22 and there being no mitigating or aggravating circumstance on record, imposes upon him the penalty of imprisonment for six (6) months and to restitute to the Rural Bank of San Juan the sum ofP500,000.00 and to pay the costs.[3]The trial court stated the reasons for petitioners conviction, thus:In the case at bar, accused admitted having issued Associated Bank Check No. 165476 in the amount ofP500,000.00. the check was undated when issued. Records, however, show that it was issued on 16 November 1989 but as it appear[s] now it is dated 16 February 1990. The probable reason must be because upon the maturity of his loan on 16 December 1989, accused asked for extension of two (2) months to pay the same. And the expiration of that two (2) months period is 16 February 1990. Nevertheless, Exhibit K for the prosecution including its submarkings show that the highest outstanding amount in the current account of accused with the Associated Bank, Tarlac Branch for the month of November 1989, the month Rigor issued aforesaid check, is only aboutP40,000.00. Hence, Rigor has no sufficient deposit in the bank to cover the amount ofP500,000.00 when he issued Check No. 165476. Therefore, Rigor knowingly issued the same he having no sufficient funds in or credit with the drawee bank in violation of section 1 of [B.P.] Blg. 22.The defense of the accused that the amount of loan he secured from the Rural Bank of San Juan is onlyP200,000.00 is of no moment. The fact is he admitted having issued Associated Bank Check No. 165476 in the amount ofP500,000.00 and upon its deposit for encashment, the same was dishonored for reason account closed.[4]Petitioner appealed his conviction to the Court of Appeals, which affirmed the trial courts decision. The dispositive portion of the appellate courts decision reads:WHEREFORE, the appealed decision isAFFIRMEDwith the modification that the reference to lack of mitigating or aggravating circumstances should be deleted and disregarded.[5]Hence, this petition for review on certiorari.Petitioner raises the following:1) Absent the element of knowingly issuing a worthless check entitles the petitioner to acquittal;2) Without proof that accused actually received a notice of dishonor, a prosecution for violation of the Bouncing Checks Law cannot prosper;3) The Pasig Court below had no jurisdiction to try and decide the case for violation ofBatas Pambansa Bilang 22.[6]Petitioner contends that he did not violateBatas PambansaBilang 22because he told the officers of the complainant bank from the very beginning that he did not have sufficient funds in the bank; he was merely enticed by Agustin Uy, the banks managing director and comptroller, to obtain the instant loan where he received onlyP200,000, while Uy tookP300,000; and his check was partly used to collateralize an accommodation in favor of Uy in the amount ofP300,000.The contention is without merit.Petitioner is charged with violation of Section 1 ofBatas Pambansa Bilang 22,thus:SECTION 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, or both such fine and imprisonment at the discretion of the court.The elements of the offense are: (1) Making, drawing, and issuance of any check to apply on account or for value; (2) 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 the 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 of the check for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.[7]As found by the Regional Trial Court and the Court of Appeals, all the aforementioned elements are present in this case.The evidence shows that on November 16, 1989, petitioner applied[8]for a loan in the amount ofP500,000 with the Rural Bank of San Juan and on the same day, he issued an undated Associated Bank Check No. 165476[9]worthP500,000 payable to Rural Bank of San Juan in connection with the loan, which check was later dated February 16, 1990.[10]The check was thus issued to apply for value.[11]This shows the presence of the first element of the offense.The presence of the second element of the offense is shown by petitioners admission[12]that he knew of the insufficiency of his funds in the drawee bank when he issued the check and he allegedly did not hide the fact from the officials of the Rural Bank of San Juan.The Court of Appeals correctly ruled, thus:x x xKnowledge involves a state of mind difficult to establish. We hold that appellants admission of the insufficiency of his fund at the time he issued the check constitutes the very element of knowledge contemplated in Sec. 1