EN BANC

G.R. No. L-10221 February 28, 1958

Intestate of Luther Young and Pacita Young, spouses. PACIFICA JIMENEZ, petitioner-appellee,

vs.

DR. JOSE BUCOY, administrator-appellant.

Frank W. Brady and Pablo C. de Guia, Jr. for appellee.E. A. Beltran for appellant.

BENGZON, J.:

In this intestate of Luther Young and Pacita Young who died in 1954 and 1952 respectively, Pacifica Jimenez presented for payment four promissory notes signed by Pacita for different amounts totalling twenty-one thousand pesos (P21,000).

Acknowledging receipt by Pacita during the Japanese occupation, in the currency then prevailing, the administrator manifested willingness to pay provided adjustment of the sums be made in line with the Ballantyne schedule.

The claimant objected to the adjustment insisting on full payment in accordance with the notes.

Applying doctrines of this Court on the matter, the Hon. Primitive L. Gonzales, Judge, held that the notes should be paid in the currency prevailing after the war, and that consequently plaintiff was entitled to recover P21,000 plus attorneys fees for the sum of P2,000.

Hence this appeal.

Executed in the month of August 1944, the first promissory note read as follows:

Received from Miss Pacifica Jimenez the total amount of P10,000) ten thousand pesos payable six months after the war, without interest.

The other three notes were couched in the same terms, except as to amounts and dates.

There can be no serious question that the notes were promises to pay "six months after the war," the amounts mentioned.

But the important question, which obviously compelled the administrator to appeal, is whether the amounts should be paid, peso for peso, or whether a reduction should be made in accordance with the well-known Ballantyne schedule.

This matter of payment of loans contracted during the Japanese occupation has received our attention in many litigations after the liberation. The gist of our adjudications, in so far as material here, is that if the loan should be paid during the

Japanese occupation, the Ballantyne schedule should apply with corresponding reduction of the amount.1 However, if the loan was expressly agreed to be payable only after the war or after liberation, or became payable after those dates, nor education could be effected, and peso-for-peso payment shall be ordered in Philippine currency.2

The Ballantyne Conversion Table does not apply where the monetary obligation, under the contract, was not payable during the Japanese occupation but until after one year counted for the date of ratification of the Treaty of Peace concluding the Greater East Asia War. (Arellano vs. De Domingo, 101 Phil., 902.)

When a monetary obligation is contracted during the Japanese occupation, to be discharged after the war, the payment should be made in Philippine Currency. (Kare et al. vs. Imperial et al., 102 Phil., 173.)

Now then, as in the case before us, the debtor undertook to pay "six months after the war," peso for peso payment is indicated.

The Ang Lam3 case cited by appellant is not controlling, because the loan therein given could have been repaid during the Japanese occupation. Dated December 26, 1944, it was payable within one year. Payment could therefore have been made during January 1945. The notes here in question were payable only after the war.

The appellant administrator calls attention to the fact that the notes contained no express promise to pay a specified amount. We declare the point to be without merit. In accordance with doctrines on the matter, the note herein-above quoted amounted in effect to "a promise to pay ten thousand pesos six months after the war, without interest." And so of the other notes.

"An acknowledgment may become a promise by the addition of words by which a promise of payment is naturally implied, such as, "payable," "payable" on a given day, "payable on demand,""paid . . . when called for," . . . (10 Corpus Juris Secundum p. 523.)"

To constitute a good promissory note, no precise words of contract are necessary, provided they amount, in legal effect, to a promise to pay. In other words, if over and above the mere acknowledgment of the debt there may be collected from the words used a promise to pay it, the instrument may be regarded as a promissory note. 1 Daniel, Neg. Inst. sec. 36 et seq.; Byles, Bills,10, 11, and cases cited . . . "Due A. B. $325, payable on demand," or, "I acknowledge myself to be indebted to A in $109, to be paid on demand, for value received," or, "I O. U. $85 to be paid on May5th," are held to be promissory notes, significance being given to words of payment as indicating a promise to pay." 1 Daniel Neg. Inst. see. 39, and cases cited. (Cowan vs. Hallack, (Colo.) 13 Pacific Reporter 700, 703.)

Another argument of appellant is that as the deceased Luther Young did not sign these notes, his estate is not liable for the same. This defense, however, was not interposed in the lower court. There the only issue related to the amount to be amount, considering that the money had been received in Japanese money. It is now unfair to put up this new defense, because had it been raised in the court below, appellees could have proved, what they now alleged that Pacita contracted the

1

obligation to support and maintain herself, her son and her husband (then concentrated at Santo Tomas University) during the hard days of the occupation.

It is now settled practice that on appeal a change of theory is not permitted.

In order that a question may be raised on appeal, it is essential that it be within the issues made by the parties in their pleadings. Consequently, when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair to the adverse party. (Rules of Court by Moran-1957 Ed. Vol. I p. 715 citing Agoncillo vs. Javier, 38 Phil., 424; American Express Company vs. Natividad, 46 Phil., 207;San Agustin vs. Barrios, 68 Phil., 475, 480; Toribio vs. Dacasa, 55 Phil., 461.)

Appellant's last assignment of error concerns attorneys fees. He says there was no reason for making this and exception to the general rule that attorney's fees are not recoverable in the absence of stipulation.

Under the new Civil Code, attorney's fees and expenses of litigation new be awarded in this case if defendant acted in gross and evident bad faith in refusing to satisfy plaintiff's plainly valid, just and demandable claim" or "where the court deems it just and equitable that attorney's fees be recovered"(Article 2208 Civil Code). These are — if applicable — some of the exceptions to the general rule that in the absence of stipulation no attorney's fees shall be awarded.

The trial court did not explain why it ordered payment of counsel fees. Needless to say, it is desirable that the decision should state the reason why such award is made bearing in mind that it must necessarily rest on an exceptional situation. Unless of course the text of the decision plainly shows the case to fall into one of the exceptions, for instance "in actions for legal support," when exemplary damages are awarded," etc. In the case at bar, defendant could not obviously be held to have acted in gross and evident bad faith." He did not deny the debt, and merely pleaded for adjustment, invoking decisions he thought to be controlling. If the trial judge considered it "just and equitable" to require payment of attorney's fees because the defense — adjustment under Ballantyne schedule — proved to be untenable in view of this Court's applicable rulings, it would be error to uphold his view. Otherwise, every time a defendant loses, attorney's fees would follow as a matter of course. Under the article above cited, even a clearly untenable defense would be no ground for awarding attorney's fees unless it amounted to "gross and evident bad faith."

Plaintiff's attorneys attempt to sustain the award on the ground of defendant's refusal to accept her offer, before the suit, to take P5,000 in full settlement of her claim. We do not think this is tenable, defendant's attitude being merely a consequence of his line of defense, which though erroneous does not amount to "gross and evident bad faith." For one thing, there is a point raised by defendant, which so far as we are informed, has not been directly passed upon in this jurisdiction: the notes contained no express promise to pay a definite amount.

There being no circumstance making it reasonable and just to require defendant to pay attorney's fees, the last assignment of error must be upheld.

Wherefore, in view of the foregoing considerations, the appealed decision is affirmed, except as to the attorney's fees which are hereby disapproved.

So ordered.

Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. Endencia and Felix, JJ., concur.

2

FIRST DIVISION

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, Petitioner,

vs.

COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO,

Respondents.

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of thewarrants. 3 The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the

proceeds of the apparently cleared warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and conditions on the deposit slips allowing Metrobank to charge back any amount erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which cannot be held liable for its failure to collect on the warrants.

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2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings would not have allowed the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that to all appearances belonged to the depositor, who could therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were subject to clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's identity or of the genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling - more than one and a half million pesos (and this was 1979). There was no reason why it should not have waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such clearance - and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses - it allowed Golden Savings to withdraw - not once, not twice, but thrice - from the uncleared treasury warrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the lapse of one week." 8 For a bank with its long experience, this explanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the deposit slips through which the treasury warrants were deposited by Golden Savings with its Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent, assuming no responsibility beyond care in selecting correspondents, and until such time as actual payment shall have come into possession of this bank, the right is reserved to charge back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks drawn on local banks and bankers and their branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason. (Emphasis supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden Savings and give it the right to "charge back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of contractual stipulations and became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the depositor, in signing the deposit slip, does so only to identify himself and not to agree to the conditions set forth in the given permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light of the circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code clearly provides that -

Art. 1909. - The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or less rigor by the courts, according to whether the agency was or was not for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may have been no express clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing Golden Savings to withdraw from its account not only once or even twice but three times. The total withdrawal was in excess of its original balance before the treasury warrants were deposited, which only added to its belief that the treasury warrants had indeed been cleared.

4

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There would have been no need for it to wait until the warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the supposed dishonor of the warrants was not communicated to Golden Savings before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager and the auditor of the drawer corporation, has not been established. 9 This was the finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court of Appeals: 10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive and convincing evidence. This was not done in the present case.

A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:

Sec. 1. - Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements:

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

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

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

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

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

xxx xxx xxx

Sec. 3. When promise is unconditional. - An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with -

(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury warrant is not within the scope of the negotiable instrument law. For one thing, the document bearing on its face the words "payable from the appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not unconditional and does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel this case is inapplicable to the present controversy. That case involved checks whereas this case involves treasury warrants. Golden Savings never represented that the warrants were negotiable but signed them only for the purpose of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent in accepting the checks without question from one Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his

5

deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon, if any, after the debit.

SO ORDERED.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Endnotes:

1 Rollo, pp. 12-13.

2 Ibid., p. 52.

3 Id., p. 14.

4 Id.

5 Through Judge Marciano T. Virola.

6 Penned by Ejercito, J., with Pe and Victor, JJ., concurring.

7 Rollo, p. 84.

8 TSN, July 29, 1983, p. 20.

9 Rollo, p. 61.

10 143 SCRA 20.

11 81 Phil. 359.

12 66 SCRA 29.F

6

EN BANC

G.R. No. L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,vs.

MAURICIO A. SORIANO, ET AL., defendant-appellees.

Marcial Esposo for plaintiff-appellant. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

DECISION

DIZON, J.:

An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders of P200.00 each payable to E.P. Montinola with address at Lucena, Quezon. After the postal teller had made out money orders numbered 124685, 124687-124695, Montinola offered to pay for them with a private checks were not generally accepted in payment of money orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola managed to leave building with his own check and the ten(10) money orders without the knowledge of the teller.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders, an urgent message was sent to all postmasters, and the following day notice was likewise served upon all banks, instructing them not to pay anyone of the money orders aforesaid if presented for payment. The Bank of America received a copy of said notice three days later.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by appellant as part of its sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter cleared it with the Bureau of Posts and received from the latter its face value of P200.00.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting for and in behalf of his co-appellee, Postmaster Enrico Palomar, notified the Bank of America that money order No. 124688 attached to his letter had been found to have been irregularly issued and that, in view thereof, the amount it represented had been deducted from the bank's clearing account. For its part, on August 2 of the same year, the Bank of America debited appellant's account with the same amount and gave it advice thereof by means of a debit memo.

On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by his office deducting the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was appellant's subsequent request that the matter be referred to the Secretary of Justice for advice. Thereafter, appellant elevated the matter to the Secretary of Public Works and Communications, but the latter sustained the actions taken by the postal officers.

In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground of reasonable doubt.

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila praying for judgment as follows:

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting from the said Bank's clearing account the sum of P200.00 represented by postal money order No. 124688, or in the alternative indemnify the plaintiff in the same amount with interest at 8-?% per annum from September 27, 1961, which is the rate of interest being paid by plaintiff on its overdraft account;

(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral damages in the amount of P1,000.00 or in such amount as will be proved and/or determined by this Honorable Court: exemplary damages in the amount of P1,000.00, attorney's fees of P1,000.00, and the costs of action.

Plaintiff also prays for such other and further relief as may be deemed just and equitable.

On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages 12 to 15 of the Record on Appeal, the above-named court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice given to the Bank of America on September 27, 1961, deducting from said Bank's clearing account the sum of P200.00 representing the amount of postal money order No. 124688, or in the alternative, to indemnify the plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-?% per annum from September 27, 1961 until fully paid; without any pronouncement as to cost and attorney's fees.

The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same stipulation of facts, the appealed decision dismissing the complaint, with costs, was rendered.

The first, second and fifth assignments of error discussed in appellant's brief are related to the other and will therefore be discussed jointly. They raise this main issue: that the postal money order in question is a negotiable instrument; that its nature as such is not in anyway affected by the letter dated October 26, 1948 signed by the Director of Posts and addressed to all banks with a clearing account with the Post Office, and that money orders, once issued, create a contractual relationship of

7

debtor and creditor, respectively, between the government, on the one hand, and the remitters payees or endorses, on the other.

It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this reason, ours are generally construed in accordance with the construction given in the United States to their own postal statutes, in the absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United States is that postal money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances (49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid down in the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the redemption of postal money orders received by it from its depositors. Among others, the condition is imposed that "in cases of adverse claim, the money order or money orders involved will be returned to you (the bank) and the, corresponding amount will have to be refunded to the Postmaster, Manila, who reserves the right to deduct the value thereof from any amount due you if such step is deemed necessary." The conditions thus imposed in order to enable the bank to continue enjoying the facilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The latter is therefore bound by them. That it is so is clearly referred from the fact that, upon receiving advice that the amount represented by the money order in question had been deducted from its clearing account with the Manila Post Office, it did not file any protest against such action.

Moreover, not being a party to the understanding existing between the postal officers, on the one hand, and the Bank of America, on the other, appellant has no right to assail the terms and conditions thereof on the ground that the letter setting forth the terms and conditions aforesaid is void because it was not issued by a Department Head in accordance with Sec. 79 (B) of the Revised Administrative Code. In reality, however, said legal provision does not apply to the letter in question because it does not provide for a department regulation but merely sets down certain conditions upon the privilege granted to the Bank of America to accept and pay postal money orders presented for payment at the Manila Post Office. Such being the case, it is clear that the Director of Posts had ample authority to issue it pursuant to Sec. 1190 of the Revised Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth assignments of error.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed with costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor, JJ., concur.

Castro and Makasiar, JJ., took no part. .

8

SECOND DIVISION

G.R. No. 74451 May 25, 1988

EQUITABLE BANKING CORPORATION, Petitioner,

vs.

THE HONORABLE INTERMEDIATE APPELLATE COURT and THE EDWARD J. NELL CO., Respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review on certiorari petitioner, Equitable Banking Corporation, prays that the adverse judgment against it rendered by respondent Appellate Court, 1

dated 4 October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, 2be annulled and set aside.

The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference by Respondent Appellate Court, emanated from the case entitled "Edward J. Nell Co. vs. Liberato V. Casals, Casville Enterprises, Inc., and Equitable Banking Corporation" of the Court of First Instance of Rizal (Civil Case No. 25112), and read:

From the evidence submitted by the parties, the Court finds that sometime in 1975 defendant Liberato Casals went to plaintiff Edward J. Nell Company and told its senior sales engineer, Amado Claustro that he was interested in buying one of the plaintiff's garrett skidders. Plaintiff was a dealer of machineries, equipment and supplies. Defendant Casals represented himself as the majority stockholder, president and general manager of Casville Enterprises, Inc., a firm engaged in the large scale production, procurement and processing of logs and lumber products, which had a plywood plant in Sta. Ana, Metro Manila.

After defendant Casals talked with plaintiff's sales engineer, he was referred to plaintiffs executive vice-president, Apolonio Javier, for negotiation in connection with the manner of payment. When Javier asked for cash payment for the skidders, defendant Casals informed him that his corporation, defendant Casville Enterprises, Inc., had a credit line with defendant Equitable Banking Corporation. Apparently, impressed with this assertion, Javier agreed to have the skidders paid by way of a domestic letter of credit which defendant Casals promised to open in plaintiffs favor, in lieu of cash payment. Accordingly, on December 22, 1975, defendant Casville, through its president, defendant Casals, ordered from plaintiff two units of garrett skidders ...

The purchase order for the garrett skidders bearing No. 0051 and dated December 22, 1975 (Exhibit "A") contained the following terms and conditions:

Two (2) units GARRETT Skidders Model 30A complete as basically described in the bulletin

PRICE: F.O.B. dock

Manila P485,000.00/unit

For two (2) units P970,000.00

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

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

xxx xxx xxx

... in a letter dated April 21, 1976, defendants Casals and Casville requested from plaintiff the delivery of one (1) unit of the bidders, complete with tools and cables, to Cagayan de Oro, on or before Saturday, April 24,1976, on board a Lorenzo shipping vessel, with the information that an irrevocable Domestic Letter of Credit would be opened in plaintiff's favor on or before June 30, 1976 under the terms and conditions agreed upon (Exhibit "B")

On May 3, 1976, in compliance with defendant Casvile's recognition request, plaintiff shipped to Cagayan de Oro City a Garrett skidder. Plaintiff paid the shipping cost in the amount of P10,640.00 because of the verbal assurance of defendant Casville that it would be covered by the letter of credit soon to be opened.

xxx xxx xxx

On July 15, 1976, defendant Casals handed to plaintiff a check in the amount of P300,000.00 postdated August 4, 1976, which was followed by another check of same date. Plaintiff considered these checks either as partial payment for the skidder that was already delivered to Cagayan de Oro or as reimbursement for the marginal deposit that plaintiff was supposed to pay.

In a letter dated August 3, 1976 (Exhibit "C"), defendants Casville informed the plaintiff that their application for a letter of credit for the payment of the Garrett skidders had been approved by the Equitable Banking Corporation. However, the defendants said that they would need the sum of P300,000.00 to stand as collateral or marginal deposit in favor of Equitable Banking Corporation and an additional amount of P100,000.00, also in favor of Equitable Banking Corporation, to clear the title of the Estrada property belonging to defendant Casals which had been approved as security for the trust receipts to be issued by the bank, covering the above-mentioned equipment.

Although the marginal deposit was supposed to be produced by defendant Casville Enterprises, plaintiff agreed to advance the necessary amount in order to facilitate the transaction. Accordingly, on August 5,1976, plaintiff issued a check in the amount of P400,000.00 (Exhibit "2") drawn against the First National City Bank and made payable to the order of Equitable Banking Corporation and with the following notation or memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be used as security for trust receipt for opening L/C of Garrett

9

Skidders in favor of the Edward J. Nell Co." Said check together with the cash disbursement voucher (Exhibit "2-A") containing the explanation:

Payment for marginal deposit and other expenses re opening of L/C for account of Casville Ent..

A covering letter (Exhibit "3") was also sent and when the three documents were presented to Severino Santos, executive vice president of defendant bank, Santos did not accept them because the terms and conditions required by the bank for the opening of the letter of credit had not yet been agreed on.

On August 9, 1976, defendant Casville wrote the bank applying for two letters of credit to cover its purchase from plaintiff of two Garrett skidders, under the following terms and conditions:

a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit for P606,000.00; c) P300,000.00 CASH marginal deposit1 d) Real Estate Collateral to secure the Trust Receipts; e) We shall chattel mortgage the equipments purchased even after payment of the first L/C as additional security for the balance of the second L/C and f) Other conditions you deem necessary to protect the interest of the bank."

In a letter dated August 11, 1976 (Exhibit "D-l"), defendant bank replied stating that it was ready to open the letters of credit upon defendant's compliance of the following terms and conditions:

c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure the Trust Receipts; e) Chattel Mortgage on the equipment; and Ashville f) Other terms and conditions that our bank may impose.

Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated checks. In said letter, plaintiff was informed of the requirements imposed by the defendant bank pointing out that the "cash marginal required under paragraph (c) is 30% of Pl,091,000.00 or P327,300.00 plus another P100,000.00 to clean up the Estrada property or a total of P427,300.00" and that the check covering said amount should be made payable "to the Order of EQUITABLE BANKING CORPORATION for the account of Casville Enterprises Inc." Defendant Casville also stated that the three (3) enclosed postdated checks were intended as replacement of the checks that were previously issued to plaintiff to secure the sum of P427,300.00 that plaintiff would advance to defendant bank for the account of defendant Casville. All the new checks were postdated November 19, 1976 and drawn in the sum of Pl45,500.00 (Exhibit "F"), P181,800.00 (Exhibit "G") and P100,000.00 (Exhibit "H").

On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of the Register of Deeds of Quezon City and TCT No. 50851 of the Register of Deeds of Rizal covering two pieces of real estate properties.

Subsequently, Cesar Umali, plaintiffs credit and collection manager, accompanied by a representative of defendant Casville, went to see Severino Santos to find out the status of the credit line being sought by defendant Casville. Santos assured Umali that the letters of credit would be opened as soon as the requirements imposed by

defendant bank in its letter dated August 11, 1976 had been complied with by defendant Casville.

On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the "order of EQUITABLE BANKING CORPORATION A/C CASVILLE ENTERPRISES, INC." and drawn against the first National City Bank (Exhibit "E-l"). The check did not contain the notation found in the previous check issued by the plaintiff (Exhibit "2") but the substance of said notation was reproduced in a covering letter dated August 16,1976 that went with the check (Exhibit "E"). Both the check and the covering letter were sent to defendant bank through defendant Casals. Plaintiff entrusted the delivery of the check and the latter to defendant Casals because it believed that no one, including defendant Casals, could encash the same as it was made payable to the defendant bank alone. Besides, defendant Casals was known to the bank as the one following up the application for the letters of credit.

Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant Casals immediately deposited it with the defendant bank and the bank teller accepted the same for deposit in defendant Casville's checking account. After depositing said check, defendant Casville, acting through defendant Casals, then withdrew all the amount deposited.

Meanwhile, upon their presentation for encashment, plaintiff discovered that the three checks (Exhibits "F, "G" and "H") in the total amount of P427,300.00, that were issued by defendant Casville as collateral were all dishonored for having been drawn against a closed account.

As defendant Casville failed to pay its obligation to defendant bank, the latter foreclosed the mortgage executed by defendant Casville on the Estrada property which was sold in a public auction sale to a third party.

Plaintiff allowed some time before following up the application for the letters of credit knowing that it took time to process the same. However, when the three checks issued to it by defendant Casville were dishonored, plaintiff became apprehensive and sent Umali on November 29, 1976, to inquire about the status of the application for the letters of credit. When plaintiff was informed that no letters of credit were opened by the defendant bank in its favor and then discovered that defendant Casville had in the meanwhile withdrawn the entire amount of P427,300.00, without paying its obligation to the bank plaintiff filed the instant action.

While the the instant case was being tried, defendants Casals and Casville assigned the garrett skidder to plaintiff which credited in favor of defendants the amount of P450,000.00, as partial satisfaction of plaintiff's claim against them.

Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only did they show lack of interest in disputing plaintiff's claim by not appearing in most of the hearings, but they also assigned to plaintiff the garrett skidder which is an action of clear recognition of their liability.

What is left for the Court to determine, therefore, is only the liability of defendant bank to plaintiff.

xxx xxx xxx

10

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

xxx xxx xxx

Defendants Casals and Casville Enterprises and Equitable Banking Corporation are ordered to pay plaintiff, jointly and severally, the sum of P427,300.00, representing the amount of plaintiff's check which defendant bank erroneously credited to the account of defendant Casville and which defendants Casal and Casville misappropriated, with 12% interest thereon from April 5, 1977, until the said sum is fully paid.

Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's fees in the sum of P25,000.00.

Proportionate cost against all the defendants.

SO ORDERED.

The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly, the Bank) is liable to private respondent Edward J. Nell Co. (NELL, for short) for the value of the second check issued by NELL, Exhibit "E-l," which was made payable to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF CASVILLE ENTERPRISES INC. and which the Bank teller credited to the account of Casville.

The Trial Court found that the amount of the second check had been erroneously credited to the Casville account; held the Bank liable for the mistake of its employees; and ordered the Bank to pay NELL the value of the check in the sum of P427,300.00, with legal interest. Explained the Trial Court:

The Court finds that the check in question was payable only to the defendant bank and to no one else. Although the words "A/C OF CASVILLE ENTERPRISES INC. "appear on the face of the check after or under the name of defendant bank, the payee was still the latter. The addition of said words did not in any way make Casville Enterprises, Inc. the Payee of the instrument for the words merely indicated for whose account or in connection with what account the check was issued by the plaintiff.

Indeed, the bank teller who received it was fully aware that the check was not negotiable since he stamped thereon the words "NON-NEGOTIABLE For Payee's Account Only" and "NON-NEGOTIABLE TELLER NO. 4, August 17,1976 EQUITABLE BANKING CORPORATION.

But said teller should have exercised more prudence in the handling of Id check because it was not made out in the usual manner. The addition of the words A/C OF CASVILLE ENTERPRISES INC." should have placed the teller on guard and he should have clarified the matter with his superiors. Instead of doing so, however, the teller decided to rely on his own judgment and at the risk of making a wrong decision, credited the entire amount in the name of defendant Casville although the latter was not the payee named in the check. Such mistake was crucial and was, without doubt, the proximate cause of plaintiffs defraudation.

xxx xxx xxx

Respondent Appellate Court upheld the above conclusions stating in addition:

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

xxx xxx xxx

We disagree.

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

Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC.

the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. 3 As worded, it could be accepted as deposit to the account of the party named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against NELL who caused the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides:

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-negotiable. Neither was it a crossed check. The rubber-stamping transversall on the face of the subject check of the words "Non-negotiable for Payee's Account Only" between two (2) parallel lines, and "Non-negotiable, Teller- No. 4, August 17, 1976," separately boxed, was made only by the Bank teller in accordance with customary bank practice, and not by NELL as the drawer of the check, and simply meant that thereafter the same check could no longer be negotiated.

3) NELL's own acts and omissions in connection with the drawing, issuance and delivery of the 16 August 1976 check, Exhibit "E-l," and its implicit trust in Casals, were the proximate cause of its own defraudation: (a) The original check of 5 August 1976, Exhibit "2," was payable to the order solely of "Equitable Banking Corporation." NELL changed the payee in the subject check, Exhibit "E", however, to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.," upon Casals request. NELL also eliminated both the cash disbursement voucher accompanying the check which read:

Payment for marginal deposit and other expense re opening of L/C for account of Casville Enterprises.

and the memorandum:

11

a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward Ashville J Nell Co.

Evidencing the real nature of the transaction was merely a separate covering letter, dated 16 August 1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller.

(b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who, obviously, had his own antagonistic interests to promote. Thus it was that Casals did not purposely present the subject check to the Executive Vice-President of the Bank, who was aware of the negotiations regarding the Letter of Credit, and who had rejected the previous check, Exhibit "2," including its three documents because the terms and conditions required by the Bank for the opening of the Letter of Credit had not yet been agreed on.

(c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, NELL even advanced the marginal deposit for the garrett skidder. It is, indeed, abnormal for the seller of goods, the price of which is to be covered by a letter of credit, to advance the marginal deposit for the same.

(d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to secure the subject check and had accepted the deposit with it of two (2) titles of real properties as collateral for said postdated checks. Thus, NELL was erroneously confident that its interests were sufficiently protected. Never had it suspected that those postdated checks would be dishonored, nor that the subject check would be utilized by Casals for a purpose other than for opening the letter of credit.

In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, et al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and Shanghai Banking Corporation, 89 Phil. 780 [1951]; Republic of the Philippines vs. Equitable Banking Corporation, L-15895, January 30,1964, 10 SCRA 8).

... As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss.

WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4 October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, are hereby SET ASIDE. The Decision of the then Court of First Instance of Rizal, Branch XI. is modified in that petitioner Equitable Banking Corporation is absolved from any and all liabilities to the private respondent, Edward J. Nell Company, and the Amended Complaint against petitioner bank is hereby ordered dismissed. No costs.

SO ORDERED.

Yap, C.J., Paras and Sarmiento, J.J., concur.

Padilla, J., took no part.

Endnotes:

1 Penned by, Justice Crisolito Pascual and concurred in by Justices Jose C. Campos, Jr., Serafin Ashville E Camilon, and Desiderio P. Jurado.

2 With Justice Desiderio P. Jurado, dissenting

3 Section 8. ...

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.

12

SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., Petitioner,

vs.

COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, Respondents.

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 1affirming with modifications, the earlier decision of the Regional Trial Court of Manila, Branch XLII, 2which 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 Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,00026 Feb. 82 74602 to 74691 90 360,0002 Mar. 82 74701 to 74740 40 160,0004 Mar. 82 90127 to 90146 20 80,0005 Mar. 82 74797 to 94800 4 16,0005 Mar. 82 89965 to 89986 22 88,0005 Mar. 82 70147 to 90150 4 16,0008 Mar. 82 90001 to 90020 20 80,0009 Mar. 82 90023 to 90050 28 112,0009 Mar. 82 89991 to 90000 10 40,0009 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 Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (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 by Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff formally informing it of its possession of the CTDs in question and of its decision to 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 which plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566).

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

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

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

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not become a holder in due course of

13

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 BANKAND TRUST COMPANY6778 Ayala Ave., Makati No. 90101Metro Manila, PhilippinesSUCAT OFFICEP 4,000.00CERTIFICATE OF DEPOSITRate 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 to said depositor 731 days. after date, upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

---------- -----------

AUTHORIZED SIGNATURES 5

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

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

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

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

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

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

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

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

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

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. 9In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. 10While 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

14

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.) 13This 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. 15In the law of evidence, whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill of particularity therein 17praying, 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. 18Had 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. 20is apropos:

. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:

The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in inexistence and is not discharged by the transfer, and that accordingly the use of the terms ordinarily importing conveyance of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. 22In 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. 23As 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

15

Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights, 24which inceptively provide:

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

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

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract of pledge or guarantee agreement between it and Angel de la Cruz. 25Consequently, 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. 27With 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 public instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over the CTDs in question.

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. 29The issues agreed upon by them for resolution in this case are:

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

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

3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs and the depositor's outstanding account with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date provided therein.

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

6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from each other.

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

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as may involve privileged or impeaching matters. The determination of issues at a pre-trial conference bars the consideration of other questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that petitioner could raise on appeal any issue. We agree with private respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates can be premised on a multitude of other legal reasons and causes of action, of which respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case of lost instruments payable to bearer, which it invokes, will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar, are merely permissive and not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be not paid a third person, as well as in order to prevent the ownership of the instrument that a duplicate be issued him. (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. 35It is an auxiliary verb indicating liberty, opportunity, permission and possibility. 36

16

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

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

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

Endnotes:

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.

17

THIRD DIVISION

G.R. No. 170325 September 26, 2008

PHILIPPINE NATIONAL BANK, Petitioner, vs.

ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.

D E C I S I O N

REYES, R.T., J.:

WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it payable to order or bearer? What is the fictitious-payee rule and who is liable under it? Is there any exception?

These questions seek answers in this petition for review on certiorari of the Amended Decision1 of the Court of Appeals (CA) which affirmed with modification that of the Regional Trial Court (RTC).2

The Facts

The facts as borne by the records are as follows:

Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the account name Erlando T. Rodriguez).

The spouses were engaged in the informal lending business. In line with their business, they had a discounting3 arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. The association maintained current and savings accounts with petitioner bank.

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members.

It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in the checks.

In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual practice for the parties.

For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount of P2,345,804.00. These were payable to forty seven (47) individual payees who were all members of PEMSLA.4

Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason "Account Closed." The corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.

RTC Disposition

Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They sought to recover the value of their checks that were deposited to the PEMSLA savings account amounting to P2,345,804.00. The spouses contended that because PNB credited the checks to the PEMSLA account even without indorsements, PNB violated its contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear the loss.

PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim for damages should come from the payees of the checks, and not from spouses Rodriguez. Since there was no demand from the said payees, the obligation should be considered as discharged.

In an Order dated January 12, 2000, the RTC denied PNB’s motion to dismiss.

In its Answer,5 PNB claimed it is not liable for the checks which it paid to the PEMSLA account without any indorsement from the payees. The bank contended that spouses Rodriguez, the makers, actually did not intend for the named payees to receive the proceeds of the checks. Consequently, the payees were considered as "fictitious payees" as defined under the Negotiable Instruments Law (NIL). Being checks made to fictitious payees which are bearer instruments, the checks were negotiable by mere delivery. PNB’s Answer included its cross-claim against its co-defendants PEMSLA and the MCP, praying that in the event that judgment is rendered against the bank, the cross-defendants should be ordered to reimburse PNB the amount it shall pay.

After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is liable to return the value of the checks. All

18

counterclaims and cross-claims were dismissed. The dispositive portion of the RTC decision reads:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:

1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or restore the amount of P775,337.00 in the PNBig Demand Deposit Checking/Current Account No. 810480-4 of Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig Demand Deposit, Checking/Current Account No. 810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of interest thereon to be computed from the filing of this complaint until fully paid;

2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages suffered by them taking into consideration the standing of the plaintiffs being sugarcane planters, realtors, residential subdivision owners, and other businesses:

(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of their having incurred great dificulty (sic) especially in the residential subdivision business, which was not pushed through and the contractor even threatened to file a case against the plaintiffs;

(b) Moral damages in the amount of P1,000,000.00;

(c) Exemplary damages in the amount of P500,000.00;

(d) Attorney’s fees in the amount of P150,000.00 considering that this case does not involve very complicated issues; and for the

(e) Costs of suit.

3. Other claims and counterclaims are hereby dismissed.6

CA Disposition

PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks should be considered as payable to bearer and not to order.

In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA. The court a quo declared:

We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA despite the checks being payable to order. Rather, we are more convinced by the strong and credible evidence for the defendant-appellant with regard to the plaintiffs-appellees’ and PEMSLA’s business arrangement – that the value of the rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLA’s account for payment of the loans it has approved in exchange for PEMSLA’s checks with the full value of the said loans. This is the only obvious explanation as to why all the disputed sixty-nine (69) checks were in the possession of PEMSLA’s errand boy for presentment to the defendant-appellant that led to this present controversy. It also appears that the teller

who accepted the said checks was PEMSLA’s officer, and that such was a regular practice by the parties until the defendant-appellant discovered the scam. The logical conclusion, therefore, is that the checks were never meant to be paid to order, but instead, to PEMSLA. We thus find no breach of contract on the part of the defendant-appellant.

According to plaintiff-appellee Erlando Rodriguez’ testimony, PEMSLA allegedly issued post-dated checks to its qualified members who had applied for loans. However, because of PEMSLA’s insufficiency of funds, PEMSLA approached the plaintiffs-appellees for the latter to issue rediscounted checks in favor of said applicant members. Based on the investigation of the defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-appellees to make a profit by issuing rediscounted checks, while the officers of PEMSLA and other members would be able to claim their loans, despite the fact that they were disqualified for one reason or another. They were able to achieve this conspiracy by using other members who had loaned lesser amounts of money or had not applied at all. x x x. 8

(Emphasis added)

The CA found that the checks were bearer instruments, thus they do not require indorsement for negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to accomplish this money-making scheme. The payees in the checks were "fictitious payees" because they were not the intended payees at all.

The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces were unquestionably payable to order; and that PNB committed a breach of contract when it paid the value of the checks to PEMSLA without indorsement from the payees. They also argued that their cause of action is not only against PEMSLA but also against PNB to recover the value of the checks.

On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of which read:

In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for the following:

1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May 1999 until fully paid;

2. Moral damages in the amount of P200,000;

3. Attorney’s fees in the amount of P100,000; and

4. Costs of suit.

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING WITH MODIFICATION the assailed decision rendered in Civil Case No. 99-10892, as set forth in the immediately next preceding paragraph hereof, and SETTING ASIDE Our original decision promulgated in this case on 22 July 2004.

SO ORDERED.9

The CA ruled that the checks were payable to order. According to the appellate court, PNB failed to present sufficient proof to defeat the claim of the spouses

19

Rodriguez that they really intended the checks to be received by the specified payees. Thus, PNB is liable for the value of the checks which it paid to PEMSLA without indorsements from the named payees. The award for damages was deemed appropriate in view of the failure of PNB to treat the Rodriguez account with the highest degree of care considering the fiduciary nature of their relationship, which constrained respondents to seek legal action.

Hence, the present recourse under Rule 45.

Issues

The issues may be compressed to whether the subject checks are payable to order or to bearer and who bears the loss?

PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend for the named payees to receive the proceeds. Thus, they are bearer instruments that could be validly negotiated by mere delivery. Further, testimonial and documentary evidence presented during trial amply proved that spouses Rodriguez and the officers of PEMSLA conspired with each other to defraud the bank.

Our Ruling

Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to the prejudice of innocent parties. A court discovering an erroneous judgment before it becomes final may, motu proprio or upon motion of the parties, correct its judgment with the singular objective of achieving justice for the litigants.10

However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court does not sanction careless disposition of cases by courts of justice. The highest degree of diligence must go into the study of every controversy submitted for decision by litigants. Every issue and factual detail must be closely scrutinized and analyzed, and all the applicable laws judiciously studied, before the promulgation of every judgment by the court. Only in this manner will errors in judgments be avoided.

Now to the core of the petition.

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument. A check is "a bill of exchange drawn on a bank payable on demand."11 It is either an order or a bearer instrument. Sections 8 and 9 of the NIL states:

SEC. 8. When payable to order. – The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of –

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or

(c) The drawee; or

(d) Two or more payees jointly; or

(e) One or some of several payees; or

(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.

SEC. 9. When payable to bearer. – The instrument is payable to bearer –

(a) When it is expressed to be so payable; or

(b) When it is payable to a person named therein or bearer; or

(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable; or

(d) When the name of the payee does not purport to be the name of any person; or

(e) Where the only or last indorsement is an indorsement in blank.12

(Underscoring supplied)

The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer instrument, on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by mere delivery. The provision reads:

SEC. 30. What constitutes negotiation. – An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed by delivery.

A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si Malakas at si Maganda," who are well-known characters in Philippine mythology, are bearer instruments because the named payees are fictitious and non-existent.

We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for this reason that We look elsewhere for guidance. Court rulings in the United States are a logical starting point since our law on negotiable instruments was directly lifted from the Uniform Negotiable Instruments Law of the United States.13

A review of US jurisprudence yields that an actual, existing, and living payee may also be "fictitious" if the maker of the check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing payee on the check for convenience or to cover up an illegal activity.14 Thus, a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is a bearer instrument.

20

In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear the loss. This rule is justified for otherwise, it will be most convenient for the maker who desires to escape payment of the check to always deny the validity of the indorsement. This despite the fact that the fictitious payee was purposely named without any intention that the payee should receive the proceeds of the check.15

The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.16 In the said case, the corporation Mueller & Martin was defrauded by George L. Martin, one of its authorized signatories. Martin drew seven checks payable to the German Savings Fund Company Building Association (GSFCBA) amounting to $2,972.50 against the account of the corporation without authority from the latter. Martin was also an officer of the GSFCBA but did not have signing authority. At the back of the checks, Martin placed the rubber stamp of the GSFCBA and signed his own name as indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own personal profit. When the corporation filed an action against the bank to recover the amount of the checks, the claim was denied.

The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified payee to have any part in the transactions, the payee is considered as a fictitious payee. The check is then considered as a bearer instrument to be validly negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee, was authorized to make payment to the bearer of the check, regardless of whether prior indorsements were genuine or not.17

The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc.18 upheld the fictitious-payee rule. The rule protects the depositary bank and assigns the loss to the drawer of the check who was in a better position to prevent the loss in the first place. Due care is not even required from the drawee or depositary bank in accepting and paying the checks. The effect is that a showing of negligence on the part of the depositary bank will not defeat the protection that is derived from this rule.

However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. Said the US Supreme Court in Getty:

Consequently, a transferee’s lapse of wary vigilance, disregard of suspicious circumstances which might have well induced a prudent banker to investigate and other permutations of negligence are not relevant considerations under Section 3-405 x x x. Rather, there is a "commercial bad faith" exception to UCC 3-405, applicable when the transferee "acts dishonestly – where it has actual knowledge of

facts and circumstances that amount to bad faith, thus itself becoming a participant in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits a standard of care requirement from UCC 3-405 but imposes on all parties an obligation to act with "honesty in fact." x x x19 (Emphasis added)

Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.

In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were payable to specific persons. Likewise, it is uncontroverted that the payees were actual, existing, and living persons who were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez.

What remains to be determined is if the payees, though existing persons, were "fictitious" in its broader context.

For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named payees to be part of the transaction involving the checks. At most, the bank’s thesis shows that the payees did not have knowledge of the existence of the checks. This lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks’ proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the individual payees, it is understandable that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks.

Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks’ proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation – that the maker of the check intended for the payee to have no interest in the transaction.

Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss.20

PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the named payees. It bears stressing that order instruments can only be negotiated with a valid indorsement.

A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is apparently grossly negligent in its operations.21 This Court has recognized the unique public interest possessed by the banking industry and the need for the people to have full trust and confidence in their banks.22 For this reason, banks are minded to treat their customer’s accounts with utmost care, confidence, and honesty.23

In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the check strictly in accordance with the drawer’s instructions, i.e., to the named payee in the check. It should charge to the

21

drawer’s accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the amount charged to the drawer’s account.24

In the case at bar, respondents-spouses were the bank’s depositors. The checks were drawn against respondents-spouses’ accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements, and the genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the instructions of the drawers. Petitioner miserably failed to discharge this burden.

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the drawers, respondents-spouses. Instead, it paid the values of the checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between the drawers and the payees.alf-ITC

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank employees is indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of their employees. In Bank of the Philippine Islands v. Court of Appeals,25 this Court cautioned thus:

Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.26

PNB’s tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the PEMSLA account. Indeed, when it is the gross negligence of the bank employees that caused the loss, the bank should be held liable.27

PNB’s argument that there is no loss to compensate since no demand for payment has been made by the payees must also fail. Damage was caused to respondents-spouses when the PEMSLA checks they deposited were returned for the reason "Account Closed." These PEMSLA checks were the corresponding payments to the Rodriguez checks. Since they could not encash the PEMSLA checks, respondents-spouses were unable to collect payments for the amounts they had advanced.

A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to named payees, PNB was duty-bound by law and by banking rules and procedure to require that the checks be properly indorsed before accepting them for deposit and payment. In fine, PNB should be held liable for the amounts of the checks.

One Last Note

We note that the RTC failed to thresh out the merits of PNB’s cross-claim against its co-defendants PEMSLA and MPC. The records are bereft of any pleading filed by these two defendants in answer to the complaint of respondents-spouses and cross-

claim of PNB. The Rules expressly provide that failure to file an answer is a ground for a declaration that defendant is in default.28 Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive pleadings. Verily, the RTC dismissal of PNB’s cross-claim has no basis. Thus, this judgment shall be without prejudice to whatever action the bank might take against its co-defendants in the trial court.

To PNB’s credit, it became involved in the controversial transaction not of its own volition but due to the actions of some of its employees. Considering that moral damages must be understood to be in concept of grants, not punitive or corrective in nature, We resolve to reduce the award of moral damages to P50,000.00.29

WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the award for moral damages is reduced to P50,000.00, and that this is without prejudice to whatever civil, criminal, or administrative action PNB might take against PEMSLA, MPC, and the employees involved.

SO ORDERED.

Footnotes1 CA-G.R. CV No. 76645 dated October 11, 2005. Penned by Associate Justice Isaias P. Dicdican, with Associate Justices Pampio A. Abarintos and Ramon M. Bato, Jr., concurring; rollo, pp. 29-42.

2 Civil Case No. 99-10892, Regional Trial Court in Negros Occidental, Branch 51, Bacolod City, dated May 10, 2002; CA rollo, pp. 63-72.

3 A financing scheme where a postdated check is exchanged for a current check with a discounted face value.

4 Current Account No. 810480-4 in the name of Erlando T. Rodriguez

Name of Payees Check No. Date Issued Amount

01. Simon Carmelo B. Libo-on 0001110 11.27.98 40,934.00

02. Simon Carmelo Libo-on 0000011589 02.01.99 29,877.00

03. Simon Libo-on 0000011567 01.25.99 50,350.00

04. Pacifico Castillo 0000011565 01.22.99 39,995.00

05. Jose Bago-od 0000011587 02.01.99 38,000.00

06. Dioleto Delcano 0000011594 02.02.99 28,500.00

07. Antonio Maravilla 0000011593 02.02.99 37,715.00

08. Josel Juguan 0000011595 02.02.99 45,002.00

09. Domingo Roa, Jr. 0000011591 02.01.99 35,373.00

10. Antonio Maravilla 0001657 02.05.99 39,900.00

22

11. Christy Mae Berden 0001655 02.05.99 28,595.00

12. Nelson Guadalupe 0000011588 02.01.99 34,819.00

13. Antonio Londres 0000011596 02.05.99 32,851.00

14. Arnel Navarosa 0000011597 02.05.99 28,785.00

15. Estrella Alunan 0000011600 02.05.99 32,509.00

16. Dennis Montemayor 0000011598 02.05.99 43,691.00

17. Mickle Argusar 0000011599 02.05.99 31,498.00

18. Perlita Gallego 0000011564 01.21.99 38,000.00

19. Sheila Arcobillas 0000011563 01.19.99 38,000.00

20. Danilo Villarosa 0001656 02.05.99 32,006.00

21. Almie Borce 0000011583 02.01.99 20,093.00

22. Ronie Aragon 0000011566 01.20.99 28,844.00

Total: 775,337.00

Current Account No. 810624-6 in the name of Erlando and/or Norma Rodriguez

Name of Payees Check No. Date Issued Amount

01. Elma Bacarro 0001944 01.15.99 37,449.00

02. Delfin Recarder 0001927 01.14.99 30,020.00

03. Elma Bacarro 0001926 01.14.99 34,884.00

04. Perlita Gallego 0001924 01.14.99 35,502.00

05. Jose Weber 0001932 01.14.99 38,323.00

06. Rogelio Alfonso 0001922 01.14.99 43,852.00

07. Gianni Amantillo 0001928 01.14.99 32,414.00

08. Eddie Bago-od 0001929 01.14.99 38,361.00

09. Manuel Longero 0001933 01.14.99 38,285.00

10. Anavic Lorenzo 0001923 01.14.99 29,982.00

11. Corazon Salva 0001945 01.15.99 37,449.00

12. Arlene Diamante 0001951 01.18.99 39,995.00

13. Joselin Laurilla 0001955 01.18.99 37,221.00

14. Andy Javellana 0001960 01.22.99 30,923.00

15. Erdelinda Porras 0001958 01.22.99 40,679.00

16. Nelson Guadalupe 0001956 01.18.99 24,700.00

17. Barnard Escano 0001969 01/22/99 38,304.00

18. Buena Coscolluela 0001968 01/22/99 37,706.00

19. Erdelinda Porras 0002021 02/01/99 36,727.00

20. Neda Algara 0002023 02/01/99 38,000.00

21. Eddie Bago-od 0002030 02/02/99 26,600.00

22. Gianni Amantillo 0002032 02/02/99 19,000.00

23. Alfredo Llena 0002020 02/01/99 32,282.00

24. Emmanuel Fermo 0001972 01/22/99 36,376.00

25. Yvonne Ano-os 0001967 01/22/99 36,566.00

26. Joel Abibuag 0002022 02/01/99 37,981.00

27. Ma. Corazon Salva 0002029 02/02/99 25,270.00

28. Jose Bago-od 0001957 01/18/99 34,656.00

29. Avelino Brion 0001965 01/22/99 31,882.00

30. Mickle Algusar 0001962 01/22/99 25,004.00

31. Jose Weber 0001959 01/22/99 37,001.00

32. Joel Velasco 0002028 02/02/99 9,500.00

23

33. Elma Bacarro 0002031 02/02/99 23,750.00

34. Grace Tambis 0001952 01/18/99 39,995.00

35. Proceso Mailim 0001980 01/21/99 37,193.00

36. Ronnie Aragon 0001983 01/22/99 30,324.00

37. Danilo Villarosa 0001931 01/14/99 31,008.00

38. Joel Abibuag 0001954 01/18/99 26,600.00

39. Danilo Villarosa 0001984 01/22/99 26,790.00

40. Reynard Guia 0001985 01/22/99 42,959.00

41. Estrella Alunan 0001925 01/14/99 39,596.00

42. Eddie Bago-od 0001982 01/22/99 31,018.00

43. Jose Bago-od 0001982 01/22/99 37,240.00

44. Nicandro Aguilar 0001964 01/22/99 52,250.00

45. Guandencia Banaston 0001963 01/22/99 38,000.00

46. Dennis Montemayor 0001961 01/22/99 26,600.00

47. Eduardo Buglosa 0002027 01/02/99 14,250.00

Total ……………… 1,570,467.00

Grand Total ………. 2,345,804.00

5 Rollo, pp. 64-69.

6 CA rollo, pp. 71-72.

7 Rollo, pp. 44-49. Penned by Associate Justice Isaias P. Dicdican, with Associate Justices Elvi John S. Asuncion and Ramon M. Bato, Jr., concurring.

8 Id. at 47.

9 Id. at 41.

10 Veluz v. Justice of the Peace of Sariaga, 42 Phil. 557 (1921).

11 Negotiable Instruments Law, Sec. 185. Check defined. – A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.

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

12 Id.

13 Campos, J.C., Jr. and Lopez-Campos, M.C., Notes and Selected Cases on Negotiable Instruments Law (1994), 5th ed., pp. 8-9.

14 Bourne v. Maryland Casualty, 192 SE 605 (1937); Norton v. City Bank & Trust Co., 294 F. 839 (1923); United States v. Chase Nat. Bank, 250 F. 105 (1918).

15 Mueller & Martin v. Liberty Insurance Bank, 187 Ky. 44, 218 SW 465 (1920).

16 Id.

17 Mueller & Martin v. Liberty Insurance Bank, id.

18 90 NY 2d 322 (1997), citing the Uniform Commercial Code, Sec. 3-405.

19 Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc., id., citing Peck v. Chase Manhattan Bank, 190 AD 2d 547, 548-549 (1993); Touro Coll. v. Bank Leumi Trust Co., 186 AD 2d 425, 427 (1992); Prudential-Bache Sec. v. Citibank, N.A., 73 NY 2d 276 (1989); Merrill Lynch, Pierce, Fenner & Smith v. Chemical Bank, 57 NY 2d 447 (1982).

20 See Traders Royal Bank v. Radio Philippines Network, Inc., G.R. No. 138510, October 10, 2002, 390 SCRA 608.

21 Id.

22 Metropolitan Bank and Trust Company v. Cabilzo, G.R. No. 154469, December 6, 2006, 510 SCRA 259.

23 Citytrust Banking Corporation v. Intermediate Appellate Court, G.R. No. 84281, May 27, 1994, 232 SCRA 559; Bank of the Philippine Islands v. Intermediate Appellate Court, G.R. No. 69162, February 21, 1992, 206 SCRA 408.

24 Associated Bank v. Court of Appeals, G.R. Nos. 107382 & 107612, January 31, 1996, 252 SCRA 620, 631.

25 G.R. No. 102383, November 26, 1992, 216 SCRA 51.

26 Bank of the Philippine Islands v. Court of Appeals, id. at 71.

27 Id. at 77.

28 Rules of Civil Procedure, Rule 9, Sec. 3. Default: declaration of. – If the defending party fails to answer within the time allowed therefor, the court shall, upon motion of the claiming party with notice to the defending party, and proof of such failure, declare the defending party in default. Thereupon, the court shall proceed to render judgment granting the claimant such relief as his pleading may warrant, unless the court in its discretion requires the claimant to submit evidence. Such reception of evidence may be delegated to the clerk of court.

29 Morales v. Court of Appeals, G.R. No. 117228, June 19, 1997, 274 SCRA 282.

24

THIRD DIVISION

G.R. No. 141181 April 27, 2007

SAMSON CHING, Petitioner, vs.

CLARITA NICDAO and HON. COURT OF APPEALS, Respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari filed by Samson Ching of the Decision1 dated November 22, 1999 of the Court of Appeals (CA) in CA-G.R. CR No. 23055. The assailed decision acquitted respondent Clarita Nicdao of eleven (11) counts of violation of Batas Pambansa Bilang (BP) 22, otherwise known as "The Bouncing Checks Law." The instant petition pertains and is limited to the civil aspect of the case as it submits that notwithstanding respondent Nicdao’s acquittal, she should be held liable to pay petitioner Ching the amounts of the dishonored checks in the aggregate sum of P20,950,000.00.

Factual and Procedural Antecedents

On October 21, 1997, petitioner Ching, a Chinese national, instituted criminal complaints for eleven (11) counts of violation of BP 22 against respondent Nicdao. Consequently, eleven (11) Informations were filed with the First Municipal Circuit Trial Court (MCTC) of Dinalupihan-Hermosa, Province of Bataan, which, except as to the amounts and check numbers, uniformly read as follows:

The undersigned accuses Clarita S. Nicdao of a VIOLATION OF BATAS PAMBANSA BILANG 22, committed as follows:

That on or about October 06, 1997, at Dinalupihan, Bataan, Philippines, and within the jurisdiction of this Honorable Court, the said accused did then and there willfully and unlawfully make or draw and issue Hermosa Savings & Loan Bank, Inc. Check No. [002524] dated October 06, 1997 in the amount of [P20,000,000.00] in payment of her obligation with complainant Samson T.Y. Ching, the said accused knowing fully well that at the time she issued the said check she did not have sufficient funds in or credit with the drawee bank for the payment in full of the said check upon presentment, which check when presented for payment within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason that it was drawn against insufficient funds and notwithstanding receipt of notice of such dishonor the said accused failed and refused and still fails and refuses to pay the value of the said check in the amount of [P20,000,000.00] or to make arrangement with the drawee bank for the payment in full of the same within five (5) banking days after receiving the said notice, to the damage and prejudice of the said Samson T.Y. Ching in the aforementioned amount of [P20,000,000.00], Philippine Currency.

CONTRARY TO LAW.

Dinalupihan, Bataan, October 21, 1997.

(Sgd.) SAMSON T.Y. CHING

Complainant

The cases were docketed as Criminal Cases Nos. 9433 up to 9443 involving the following details:

Check No. Amount Date Private ComplainantReason for the Dishonor

0025242 P 20,000,000 Oct. 6, 1997 Samson T.Y. Ching DAIF*

0088563 150,000 Oct. 6, 1997 " "

0121424 100,000 Oct. 6, 1997 " "

0045315 50,000 Oct. 6, 1997 " "

0022546 100,000 Oct. 6, 1997 " "

0088757 100,000 Oct. 6, 1997 " "

0089368 50,000 Oct. 6, 1997 " "

0022739 50,000 Oct. 6, 1997 " "

00894810 150,000 Oct. 6, 1997 " "

00893511 100,000 Oct. 6, 1997 " "

01037712 100,000 Oct. 6, 1997 " "

At about the same time, fourteen (14) other criminal complaints, also for violation of BP 22, were filed against respondent Nicdao by Emma Nuguid, said to be the common law spouse of petitioner Ching. Allegedly fourteen (14) checks, amounting to P1,150,000.00, were issued by respondent Nicdao to Nuguid but were dishonored for lack of sufficient funds. The Informations were filed with the same MCTC and docketed as Criminal Cases Nos. 9458 up to 9471.

25

At her arraignment, respondent Nicdao entered the plea of "not guilty" to all the charges. A joint trial was then conducted for Criminal Cases Nos. 9433-9443 and 9458-9471.

For the prosecution in Criminal Cases Nos. 9433-9443, petitioner Ching and Imelda Yandoc, an employee of the Hermosa Savings & Loan Bank, Inc., were presented to prove the charges against respondent Nicdao. On direct-examination,13 petitioner Ching preliminarily identified each of the eleven (11) Hermosa Savings & Loan Bank (HSLB) checks that were allegedly issued to him by respondent Nicdao amounting to P20,950,000.00. He identified the signatures appearing on the checks as those of respondent Nicdao. He recognized her signatures because respondent Nicdao allegedly signed the checks in his presence. When petitioner Ching presented these checks for payment, they were dishonored by the bank, HSLB, for being "DAIF" or "drawn against insufficient funds."

Petitioner Ching averred that the checks were issued to him by respondent Nicdao as security for the loans that she obtained from him. Their transaction began sometime in October 1995 when respondent Nicdao, proprietor/manager of Vignette Superstore, together with her husband, approached him to borrow money in order for them to settle their financial obligations. They agreed that respondent Nicdao would leave the checks undated and that she would pay the loans within one year. However, when petitioner Ching went to see her after the lapse of one year to ask for payment, respondent Nicdao allegedly said that she had no cash.

Petitioner Ching claimed that he went back to respondent Nicdao several times more but every time, she would tell him that she had no money. Then in September 1997, respondent Nicdao allegedly got mad at him for being insistent and challenged him about seeing each other in court. Because of respondent Nicdao's alleged refusal to pay her obligations, on October 6, 1997, petitioner Ching deposited the checks that she issued to him. As he earlier stated, the checks were dishonored by the bank for being "DAIF." Shortly thereafter, petitioner Ching, together with Emma Nuguid, wrote a demand letter to respondent Nicdao which, however, went unheeded. Accordingly, they separately filed the criminal complaints against the latter.

On cross-examination,14 petitioner Ching claimed that he had been a salesman of the La Suerte Cigar and Cigarette Manufacturing for almost ten (10) years already. As such, he delivered the goods and had a warehouse. He received salary and commissions. He could not, however, state his exact gross income. According to him, it increased every year because of his business. He asserted that aside from being a salesman, he was also in the business of extending loans to other people at an interest, which varied depending on the person he was dealing with.

Petitioner Ching confirmed the truthfulness of the allegations contained in the eleven (11) Informations that he filed against respondent Nicdao. He reiterated that, upon their agreement, the checks were all signed by respondent Nicdao but she left them undated. Petitioner Ching admitted that he was the one who wrote the date, October 6, 1997, on those checks when respondent Nicdao refused to pay him.

With respect to the P20,000,000.00 check (Check No. 002524), petitioner Ching explained that he wrote the date and amount thereon when, upon his estimation, the money that he regularly lent to respondent Nicdao beginning October 1995 reached the said sum. He likewise intimated that prior to 1995, they had another transaction

amounting to P1,200,000.00 and, as security therefor, respondent Nicdao similarly issued in his favor checks in varying amounts of P100,000.00 and P50,000.00. When the said amount was fully paid, petitioner Ching returned the checks to respondent Nicdao.

Petitioner Ching maintained that the eleven (11) checks subject of Criminal Cases Nos. 9433-9443 pertained to respondent Nicdao’s loan transactions with him beginning October 1995. He also mentioned an instance when respondent Nicdao’s husband and daughter approached him at a casino to borrow money from him. He lent them P300,000.00. According to petitioner Ching, since this amount was also unpaid, he included it in the other amounts that respondent Nicdao owed to him which totaled P20,000,000.00 and wrote the said amount on one of respondent Nicdao’s blank checks that she delivered to him.

Petitioner Ching explained that from October 1995 up to 1997, he regularly delivered money to respondent Nicdao, in the amount of P1,000,000.00 until the total amount reached P20,000,000.00. He did not ask respondent Nicdao to acknowledge receiving these amounts. Petitioner Ching claimed that he was confident that he would be paid by respondent Nicdao because he had in his possession her blank checks. On the other hand, the latter allegedly had no cause to fear that he would fill up the checks with just any amount because they had trust and confidence in each other. When asked to produce the piece of paper on which he allegedly wrote the amounts that he lent to respondent Nicdao, petitioner Ching could not present it; he reasoned that it was not with him at that time.

It was also averred by petitioner Ching that respondent Nicdao confided to him that she told her daughter Janette, who was married to a foreigner, that her debt to him was only between P3,000,000.00 and P5,000,000.00. Petitioner Ching claimed that he offered to accompany respondent Nicdao to her daughter in order that they could apprise her of the amount that she owed him. Respondent Nicdao refused for fear that it would cause disharmony in the family. She assured petitioner Ching, however, that he would be paid by her daughter.

Petitioner Ching reiterated that after the lapse of one (1) year from the time respondent Nicdao issued the checks to him, he went to her several times to collect payment. In all these instances, she said that she had no cash. Finally, in September 1997, respondent Nicdao allegedly went to his house and told him that Janette was only willing to pay him between P3,000,000.00 and P5,000,000.00 because, as far as her daughter was concerned, that was the only amount borrowed from petitioner Ching. On hearing this, petitioner Ching angrily told respondent Nicdao that she should not have allowed her debt to reach P20,000,000.00 knowing that she would not be able to pay the full amount.

Petitioner Ching identified the demand letter that he and Nuguid sent to respondent Nicdao. He explained that he no longer informed her about depositing her checks on his account because she already made that statement about seeing him in court. Again, he admitted writing the date, October 6, 1997, on all these checks.

Another witness presented by the prosecution was Imelda Yandoc, an employee of HSLB. On direct-examination,15 she testified that she worked as a checking account bookkeeper/teller of the bank. As such, she received the checks that were drawn against the bank and verified if they were funded. On October 6, 1997, she received

26

several checks issued by respondent Nicdao. She knew respondent Nicdao because the latter maintained a savings and checking account with them. Yandoc identified the checks subject of Criminal Cases Nos. 9433-9443 and affirmed that stamped at the back of each was the annotation "DAIF". Further, per the bank’s records, as of October 8, 1997, only a balance of P300.00 was left in respondent Nicdao’s checking account and P645.83 in her savings account. On even date, her account with the bank was considered inactive.

On cross-examination,16 Yandoc stated anew that respondent Nicdao’s checks bounced on October 7, 1997 for being "DAIF" and her account was closed the following day, on October 8, 1997. She informed the trial court that there were actually twenty-five (25) checks of respondent Nicdao that were dishonored at about the same time. The eleven (11) checks were purportedly issued in favor of petitioner Ching while the other fourteen (14) were purportedly issued in favor of Nuguid. Yandoc explained that respondent Nicdao or her employee would usually call the bank to inquire if there was an incoming check to be funded.

For its part, the defense proffered the testimonies of respondent Nicdao, Melanie Tolentino and Jocelyn Nicdao. On direct-examination,17 respondent Nicdao stated that she only dealt with Nuguid. She vehemently denied the allegation that she had borrowed money from both petitioner Ching and Nuguid in the total amount of P22,950,000.00. Respondent Nicdao admitted, however, that she had obtained a loan from Nuguid but only for P2,100,000.00 and the same was already fully paid. As proof of such payment, she presented a Planters Bank demand draft dated August 13, 1996 in the amount of P1,200,000.00. The annotation at the back of the said demand draft showed that it was endorsed and negotiated to the account of petitioner Ching.

In addition, respondent Nicdao also presented and identified several cigarette wrappers18 at the back of which appeared computations. She explained that Nuguid went to the grocery store everyday to collect interest payments. The principal loan was P2,100,000.00 with 12% interest per day. Nuguid allegedly wrote the payments for the daily interests at the back of the cigarette wrappers that she gave to respondent Nicdao.

The principal loan amount of P2,100,000.00 was allegedly delivered by Nuguid to respondent Nicdao in varying amounts of P100,000.00 and P150,000.00. Respondent Nicdao refuted the averment of petitioner Ching that prior to 1995, they had another transaction.

With respect to the P20,000,000.00 check, respondent Nicdao admitted that the signature thereon was hers but denied that she issued the same to petitioner Ching. Anent the other ten (10) checks, she likewise admitted that the signatures thereon were hers while the amounts and payee thereon were written by either Jocelyn Nicdao or Melanie Tolentino, who were employees of Vignette Superstore and authorized by her to do so.

Respondent Nicdao clarified that, except for the P20,000,000.00 check, the other ten (10) checks were handed to Nuguid on different occasions. Nuguid came to the grocery store everyday to collect the interest payments. Respondent Nicdao said that she purposely left the checks undated because she would still have to notify Nuguid if she already had the money to fund the checks.

Respondent Nicdao denied ever confiding to petitioner Ching that she was afraid that her daughter would get mad if she found out about the amount that she owed him. What allegedly transpired was that when she already had the money to pay them (presumably referring to petitioner Ching and Nuguid), she went to them to retrieve her checks. However, petitioner Ching and Nuguid refused to return the checks claiming that she (respondent Nicdao) still owed them money. She demanded that they show her the checks in order that she would know the exact amount of her debt, but they refused. It was at this point that she got angry and dared them to go to court.

After the said incident, respondent Nicdao was surprised to be notified by HSLB that her check in the amount of P20,000,000.00 was just presented to the bank for payment. She claimed that it was only then that she remembered that sometime in 1995, she was informed by her employee that one of her checks was missing. At that time, she did not let it bother her thinking that it would eventually surface when presented to the bank.

Respondent Nicdao could not explain how the said check came into petitioner Ching’s possession. She explained that she kept her checks in an ordinary cash box together with a stapler and the cigarette wrappers that contained Nuguid’s computations. Her saleslady had access to this box. Respondent Nicdao averred that it was Nuguid who offered to give her a loan as she would allegedly need money to manage Vignette Superstore. Nuguid used to run the said store before respondent Nicdao’s daughter bought it from Nuguid’s family, its previous owner. According to respondent Nicdao, it was Nuguid who regularly delivered the cash to respondent Nicdao or, if she was not at the grocery store, to her saleslady. Respondent Nicdao denied any knowledge that the money loaned to her by Nuguid belonged to petitioner Ching.

At the continuation of her direct-examination,19 respondent Nicdao said that she never dealt with petitioner Ching because it was Nuguid who went to the grocery store everyday to collect the interest payments. When shown the P20,000,000.00 check, respondent Nicdao admitted that the signature thereon was hers but she denied issuing it as a blank check to petitioner Ching. On the other hand, with respect to the other ten (10) checks, she also admitted that the signatures thereon were hers and that the amounts thereon were written by either Josie Nicdao or Melanie Tolentino, her employees whom she authorized to do so. With respect to the payee, it was purposely left blank allegedly upon instruction of Nuguid who said that she would use the checks to pay someone else.

On cross-examination,20 respondent Nicdao explained that Josie Nicdao and Melanie Tolentino were caretakers of the grocery store and that they manned it when she was not there. She likewise confirmed that she authorized them to write the amounts on the checks after she had affixed her signature thereon. She stressed, however, that the P20,000,000.00 check was the one that was reported to her as lost or missing by her saleslady sometime in 1995. She never reported the matter to the bank because she was confident that it would just surface when it would be presented for payment.

Again, respondent Nicdao identified the cigarette wrappers which indicated the daily payments she had made to Nuguid. The latter allegedly went to the grocery store everyday to collect the interest payments. Further, the figures at the back of the

27

cigarette wrappers were written by Nuguid. Respondent Nicdao asserted that she recognized her handwriting because Nuguid sometimes wrote them in her presence. Respondent Nicdao maintained that she had already paid Nuguid the amount of P1,200,000.00 as evidenced by the Planters Bank demand draft which she gave to the latter and which was subsequently negotiated and deposited in petitioner Ching’s account. In connection thereto, respondent Nicdao refuted the prosecution’s allegation that the demand draft was payment for a previous transaction that she had with petitioner Ching. She clarified that the payments that Nuguid collected from her everyday were only for the interests due. She did not ask Nuguid to make written acknowledgements of her payments.

Melanie Tolentino was presented to corroborate the testimony of respondent Nicdao. On direct-examination,21 Tolentino stated that she worked at the Vignette Superstore and she knew Nuguid because her employer, respondent Nicdao, used to borrow money from her. She knew petitioner Ching only by name and that he was the "husband" of Nuguid.

As an employee of the grocery store, Tolentino stated that she acted as its caretaker and was entrusted with the custody of respondent Nicdao’s personal checks. Tolentino identified her own handwriting on some of the checks especially with respect to the amounts and figures written thereon. She said that Nuguid instructed her to leave the space for the payee blank as she would use the checks to pay someone else. Tolentino added that she could not recall respondent Nicdao issuing a check to petitioner Ching in the amount of P20,000,000.00. She confirmed that they lost a check sometime in 1995. When informed about it, respondent Nicdao told her that the check could have been issued to someone else, and that it would just surface when presented to the bank.

Tolentino recounted that Nuguid came to the grocery store everyday to collect the interest payments of the loan. In some instances, upon respondent Nicdao’s instruction, Tolentino handed to Nuguid checks that were already signed by respondent Nicdao. Sometimes, Tolentino would be the one to write the amount on the checks. Nuguid, in turn, wrote the amounts on pieces of paper which were kept by respondent Nicdao.

On cross-examination,22 Tolentino confirmed that she was authorized by respondent Nicdao to fill up the checks and hand them to Nuguid. The latter came to the grocery store everyday to collect the interest payments. Tolentino claimed that in 1995, in the course of chronologically arranging respondent Nicdao’s check booklets, she noticed that a check was missing. Respondent Nicdao told her that perhaps she issued it to someone and that it would just turn up in the bank. Tolentino was certain that the missing check was the same one that petitioner Ching presented to the bank for payment in the amount of P20,000,000.00.

Tolentino stated that she left the employ of respondent Nicdao sometime in 1996. After the checks were dishonored in October 1997, Tolentino got a call from respondent Nicdao. After she was shown a fax copy thereof, Tolentino confirmed that the P20,000,000.00 check was the same one that she reported as missing in 1995.

Jocelyn Nicdao also took the witness stand to corroborate the testimony of the other defense witnesses. On direct-examination,23 she averred that she was a saleslady at

the Vignette Superstore from August 1994 up to April 1998. She knew Nuguid as well as petitioner Ching.

Jocelyn Nicdao further testified that respondent Nicdao was indebted to Nuguid. Jocelyn Nicdao used to fill up the checks of respondent Nicdao that had already been signed by her and give them to Nuguid. The latter came to the grocery store everyday to pick up the interest payments. Jocelyn Nicdao identified the checks on which she wrote the amounts and, in some instances, the name of Nuguid as payee. However, most of the time, Nuguid allegedly instructed her to leave as blank the space for the payee.

Jocelyn Nicdao identified the cigarette wrappers as the documents on which Nuguid acknowledged receipt of the interest payments. She explained that she was the one who wrote the minus entries and they represented the daily interest payments received by Nuguid.

On cross-examination,24 Jocelyn Nicdao stated that she was a distant cousin of respondent Nicdao. She stopped working for her in 1998 because she wanted to take a rest. Jocelyn Nicdao reiterated that she handed the checks to Nuguid at the grocery store.

After due trial, on December 8, 1998, the MCTC rendered judgment in Criminal Cases Nos. 9433-9443 convicting respondent Nicdao of eleven (11) counts of violation of BP 22. The MCTC gave credence to petitioner Ching’s testimony that respondent Nicdao borrowed money from him in the total amount of P20,950,000.00. Petitioner Ching delivered P1,000,000.00 every month to respondent Nicdao from 1995 up to 1997 until the sum reached P20,000,000.00. The MCTC also found that subsequent thereto, respondent Nicdao still borrowed money from petitioner Ching. As security for these loans, respondent Nicdao issued checks to petitioner Ching. When the latter deposited the checks (eleven in all) on October 6, 1997, they were dishonored by the bank for being "DAIF."

The MCTC explained that the crime of violation of BP 22 has the following elements: (a) the making, drawing and issuance of any check to apply to account or for value; (b) the knowledge of the maker, drawer or issuer that at the time of 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 (c) 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.25

According to the MCTC, all the foregoing elements are present in the case of respondent Nicdao’s issuance of the checks subject of Criminal Cases Nos. 9433-9443. On the first element, respondent Nicdao was found by the MCTC to have made, drawn and issued the checks. The fact that she did not personally write the payee and date on the checks was not material considering that under Section 14 of the Negotiable Instruments Law, "where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any

28

amount x x x." Respondent Nicdao admitted that she authorized her employees to provide the details on the checks after she had signed them.

The MCTC disbelieved respondent Nicdao’s claim that the P20,000,000.00 check was the same one that she lost in 1995. It observed that ordinary prudence would dictate that a lost check would at least be immediately reported to the bank to prevent its unauthorized endorsement or negotiation. Respondent Nicdao made no such report to the bank. Even if the said check was indeed lost, the MCTC faulted respondent Nicdao for being negligent in keeping the checks that she had already signed in an unsecured box.

The MCTC further ruled that there was no evidence to show that petitioner Ching was not a holder in due course as to cause it (the MCTC) to believe that the said check was not issued to him. Respondent Nicdao’s admission of indebtedness was sufficient to prove that there was consideration for the issuance of the checks.

The second element was also found by the MCTC to be present as it held that respondent Nicdao, as maker, drawer or issuer, had knowledge that at the time of issue she did not have sufficient funds in or credit with the drawee bank for the payment in full of the checks upon their presentment.

As to the third element, the MCTC established that the checks were subsequently dishonored by the drawee bank for being "DAIF" or drawn against insufficient funds. Stamped at the back of each check was the annotation "DAIF." The bank representative likewise testified to the fact of dishonor.

Under the foregoing circumstances, the MCTC declared that the conviction of respondent Nicdao was warranted. It stressed that the mere act of issuing a worthless check was malum prohibitum; hence, even if the checks were issued in the form of deposit or guarantee, once dishonored, the same gave rise to the prosecution for and conviction of BP 22.26 The decretal portion of the MCTC decision reads:

WHEREFORE, in view of the foregoing, the accused is found guilty of violating Batas Pambansa Blg. 22 in 11 counts, and is hereby ordered to pay the private complainant the amount of P20,950,000.00 plus 12% interest per annum from date of filing of the complaint until the total amount had been paid. The prayer for moral damages is denied for lack of evidence to prove the same. She is likewise ordered to suffer imprisonment equivalent to 1 year for every check issued and which penalty shall be served successively.

SO ORDERED.27

Incidentally, on January 11, 1999, the MCTC likewise rendered its judgment in Criminal Cases Nos. 9458-9471 and convicted respondent Nicdao of the fourteen (14) counts of violation of BP 22 filed against her by Nuguid.

On appeal, the Regional Trial Court (RTC) of Dinalupihan, Bataan, Branch 5, in separate Decisions both dated May 10, 1999, affirmed in toto the decisions of the MCTC convicting respondent Nicdao of eleven (11) and fourteen (14) counts of violation of BP 22 in Criminal Cases Nos. 9433-9443 and 9458-9471, respectively.

Respondent Nicdao forthwith filed with the CA separate petitions for review of the two decisions of the RTC. The petition involving the eleven (11) checks purportedly

issued to petitioner Ching was docketed as CA-G.R. CR No. 23055 (assigned to the 13th Division). On the other hand, the petition involving the fourteen (14) checks purportedly issued to Nuguid was docketed as CA-G.R. CR No. 23054 (originally assigned to the 7th Division but transferred to the 6th Division). The Office of the Solicitor General (OSG) filed its respective comments on the said petitions. Subsequently, the OSG filed in CA-G.R. CR No. 23055 a motion for its consolidation with CA-G.R. CR No. 23054. The OSG prayed that CA-G.R. CR No. 23055 pending before the 13th Division be transferred and consolidated with CA-G.R. CR No. 23054 in accordance with the Revised Internal Rules of the Court of Appeals (RIRCA).

Acting on the motion for consolidation, the CA in CA-G.R. CR No. 23055 issued a Resolution dated October 19, 1999 advising the OSG to file the motion in CA-G.R. CR No. 23054 as it bore the lowest number. Respondent Nicdao opposed the consolidation of the two cases. She likewise filed her reply to the comment of the OSG in CA-G.R. CR No. 23055.

On November 22, 1999, the CA (13th Division) rendered the assailed Decision in CA-G.R. CR No. 23055 acquitting respondent Nicdao of the eleven (11) counts of violation of BP 22 filed against her by petitioner Ching. The decretal portion of the assailed CA Decision reads:

WHEREFORE, being meritorious, the petition for review is hereby GRANTED. Accordingly, the decision dated May 10, 1999, of the Regional Trial Court, 3rd Judicial Region, Branch 5, Bataan, affirming the decision dated December 8, 1998, of the First Municipal Circuit Trial Court of Dinalupihan-Hermosa, Bataan, convicting petitioner Clarita S. Nicdao in Criminal Cases No. 9433 to 9443 of violation of B.P. Blg. 22 is REVERSED and SET ASIDE and another judgment rendered ACQUITTING her in all these cases, with costs de oficio.

SO ORDERED.28

On even date, the CA issued an Entry of Judgment declaring that the above decision has become final and executory and is recorded in the Book of Judgments.

In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the CA made the following factual findings:

Petitioner [respondent herein] Clarita S. Nicdao, a middle-aged mother and housekeeper who only finished high school, has a daughter, Janette Boyd, who is married to a wealthy expatriate.

Complainant [petitioner herein] Samson Ching is a Chinese national, who claimed he is a salesman of La Suerte Cigar and Cigarette Factory.

Emma Nuguid, complainant’s live-in partner, is a CPA and formerly connected with Sycip, Gorres and Velayo. Nuguid used to own a grocery store now known as the Vignette Superstore. She sold this grocery store, which was about to be foreclosed, to petitioner’s daughter, Janette Boyd. Since then, petitioner began managing said store. However, since petitioner could not always be at the Vignette Superstore to keep shop, she entrusted to her salesladies, Melanie Tolentino and Jocelyn Nicdao, pre-signed checks, which were left blank as to amount and the payee, to cover for any delivery of merchandise sold at the store. The blank and personal checks were

29

placed in a cash box at Vignette Superstore and were filled up by said salesladies upon instruction of petitioner as to amount, payee and date.

Soon thereafter, Emma Nuguid befriended petitioner and offered to lend money to the latter which could be used in running her newly acquired store. Nuguid represented to petitioner that as former manager of the Vignette Superstore, she knew that petitioner would be in need of credit to meet the daily expenses of running the business, particularly in the daily purchases of merchandise to be sold at the store. After Emma Nuguid succeeded in befriending petitioner, Nuguid was able to gain access to the Vignette Superstore where petitioner’s blank and pre-signed checks were kept.29

In addition, the CA also made the finding that respondent Nicdao borrowed money from Nuguid in the total amount of P2,100,000.00 secured by twenty-four (24) checks drawn against respondent Nicdao’s account with HSLB. Upon Nuguid’s instruction, the checks given by respondent Nicdao as security for the loans were left blank as to the payee and the date. The loans consisted of (a) P950,000.00 covered by ten (10) checks subject of the criminal complaints filed by petitioner Ching (CA-G.R. CR No. 23055); and (b) P1,150,000.00 covered by fourteen (14) checks subject of the criminal complaints filed by Nuguid (CA-G.R. CR No. 23054). The loans totaled P2,100,000.00 and they were transacted between respondent Nicdao and Nuguid only. Respondent Nicdao never dealt with petitioner Ching.

Against the foregoing factual findings, the CA declared that, based on the evidence, respondent Nicdao had already fully paid the loans. In particular, the CA referred to the Planters Bank demand draft in the amount of P1,200,000.00 which, by his own admission, petitioner Ching had received. The appellate court debunked petitioner Ching’s allegation that the said demand draft was payment for a previous transaction. According to the CA, petitioner Ching failed to adduce evidence to prove the existence of a previous transaction between him and respondent Nicdao.

Apart from the demand draft, the CA also stated that respondent Nicdao made interest payments on a daily basis to Nuguid as evidenced by the computations written at the back of the cigarette wrappers. Based on these computations, as of July 21, 1997, respondent Nicdao had made a total of P5,780,000.00 payments to Nuguid for the interests alone. Adding up this amount and that of the Planters Bank demand draft, the CA placed the payments made by respondent Nicdao to Nuguid as already amounting to P6,980,000.00 for the principal loan amount of only P2,100,000.00.

The CA negated petitioner Ching’s contention that the payments as reflected at the back of the cigarette wrappers could be applied only to the interests due. Since the transactions were not evidenced by any document or writing, the CA ratiocinated that no interests could be collected because, under Article 1956 of the Civil Code, "no interest shall be due unless it has been expressly stipulated in writing."

The CA gave credence to the testimony of respondent Nicdao that when she had fully paid her loans to Nuguid, she tried to retrieve her checks. Nuguid, however, refused to return the checks to respondent Nicdao. Instead, Nuguid and petitioner Ching filled up the said checks to make it appear that: (a) petitioner Ching was the payee in five checks; (b) the six checks were payable to cash; (c) Nuguid was the payee in fourteen (14) checks. Petitioner Ching and Nuguid then put the date

October 6, 1997 on all these checks and deposited them the following day. On October 8, 1997, through a joint demand letter, they informed respondent Nicdao that her checks were dishonored by HSLB and gave her three days to settle her indebtedness or else face prosecution for violation of BP 22.

With the finding that respondent Nicdao had fully paid her loan obligations to Nuguid, the CA declared that she could no longer be held liable for violation of BP 22. It was explained that to be held liable under BP 22, it must be established, inter alia, that the check was made or drawn and issued to apply on account or for value. According to the CA, the word "account" refers to a pre-existing obligation, while "for value" means an obligation incurred simultaneously with the issuance of the check. In the case of respondent Nicdao’s checks, the pre-existing obligations secured by them were already extinguished after full payment had been made by respondent Nicdao to Nuguid. Obligations are extinguished by, among others, payment.30 The CA believed that when petitioner Ching and Nuguid refused to return respondent Nicdao’s checks despite her total payment of P6,980,000.00 for the loans secured by the checks, petitioner Ching and Nuguid were using BP 22 to coerce respondent Nicdao to pay a debt which she no longer owed them.

With respect to the P20,000,000.00 check, the CA was not convinced by petitioner Ching’s claim that he delivered P1,000,000.00 every month to respondent Nicdao until the amount reached P20,000,000.00 and, when she refused to pay the same, he filled up the check, which she earlier delivered to him as security for the loans, by writing thereon the said amount. In disbelieving petitioner Ching, the CA pointed out that, contrary to his assertion, he was never employed by the La Suerte Cigar and Cigarette Manufacturing per the letter of Susan Resurreccion, Vice-President and Legal Counsel of the said company. Moreover, as admitted by petitioner Ching, he did not own the house where he and Nuguid lived.

Moreover, the CA characterized as incredible and contrary to human experience that petitioner Ching would, as he claimed, deliver a total sum of P20,000,000.00 to respondent Nicdao without any documentary proof thereof, e.g., written acknowledgment that she received the same. On the other hand, it found plausible respondent Nicdao’s version of the story that the P20,000,000.00 check was the same one that was missing way back in 1995. The CA opined that this missing check surfaced in the hands of petitioner Ching who, in cahoots with Nuguid, wrote the amount P20,000,000.00 thereon and deposited it in his account. To the mind of the CA, the inference that the check was stolen was anchored on competent circumstantial evidence. Specifically, Nuguid, as previous manager/owner of the grocery store, had access thereto. Likewise applicable, according to the CA, was the presumption that the person in possession of the stolen article was presumed to be guilty of taking the stolen article.31

The CA emphasized that the P20,000,000.00 check was never delivered by respondent Nicdao to petitioner Ching. As such, the said check without the details as to the date, amount and payee, was an incomplete and undelivered instrument when it was stolen and ended up in petitioner Ching’s hands. On this point, the CA applied Sections 15 and 16 of the Negotiable Instruments Law:

SEC. 15. Incomplete instrument not delivered. – Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be

30

a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.

SEC. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved.

The CA held that the P20,000,000.00 check was filled up by petitioner Ching without respondent Nicdao’s authority. Further, it was incomplete and undelivered. Hence, petitioner Ching did not acquire any right or interest therein and could not assert any cause of action founded on the

stolen checks.32 Under these circumstances, the CA concluded that respondent could not be held liable for violation of BP 22.

The Petitioner’s Case

As mentioned earlier, the instant petition pertains and is limited solely to the civil aspect of the case as petitioner Ching argues that notwithstanding respondent Nicdao’s acquittal of the eleven (11) counts of violation of BP 22, she should be held liable to pay petitioner Ching the amounts of the dishonored checks in the aggregate sum of P20,950,000.00.

He urges the Court to review the findings of facts made by the CA as they are allegedly based on a misapprehension of facts and manifestly erroneous and contradicted by the evidence. Further, the CA’s factual findings are in conflict with those of the RTC and MCTC.

Petitioner Ching vigorously argues that notwithstanding respondent Nicdao’s acquittal by the CA, the Supreme Court has the jurisdiction and authority to resolve and rule on her civil liability. He invokes Section 1, Rule 111 of the Revised Rules of Court which, prior to its amendment, provided, in part:

SEC. 1. Institution of criminal and civil actions. – When a criminal action is instituted, the civil action for the recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action.

Such civil action includes the recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused. x x x

Supreme Court Circular No. 57-9733 dated September 16, 1997 is also cited as it provides in part:

1. The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to necessarily include the corresponding civil action, and no reservation to file such civil action separately shall be allowed or recognized. x x x

Petitioner Ching theorizes that, under Section 1, Rule 111 of the Revised Rules of Court, the civil action for the recovery of damages under Articles 32, 33, 34, and 2176 arising from the same act or omission of the accused is impliedly instituted with the criminal action. Moreover, under the above-quoted Circular, the criminal action for violation of BP 22 necessarily includes the corresponding civil action, which is the recovery of the amount of the dishonored check representing the civil obligation of the drawer to the payee.

In seeking to enforce the alleged civil liability of respondent Nicdao, petitioner Ching maintains that she had loan obligations to him totaling P20,950,000.00. The existence of the same is allegedly established by his testimony before the MCTC. Also, he asks the Court to take judicial notice that for a monetary loan secured by a check, the check itself is the evidence of indebtedness.

He insists that, contrary to her protestation, respondent Nicdao also transacted with him, not only with Nuguid. Petitioner Ching pointed out that during respondent Nicdao’s testimony, she referred to her creditors in plural form, e.g. "[I] told them, most checks that I issued I will inform them if I have money." Even respondent Nicdao’s employees allegedly knew him; they testified that Nuguid instructed them at times to leave as blank the payee on the checks as they would be paid to someone else, who turned out to be petitioner Ching.

It was allegedly erroneous for the CA to hold that he had no capacity to lend P20,950,000.00 to respondent Nicdao. Petitioner Ching clarified that what he meant when he testified before the MCTC was that he was engaged in dealership with La Suerte Cigar and Cigarette Manufacturing, and not merely its sales agent. He stresses that he owns a warehouse and is also in the business of lending money. Further, the CA’s reasoning that he could not possibly have lent P20,950,000.00 to respondent Nicdao since petitioner Ching and Nuguid did not own the house where they live, is allegedly non sequitur.

Petitioner Ching maintains that, contrary to the CA’s finding, the Planters Bank demand draft for P1,200,000.00 was in payment for respondent Nicdao’s previous loan transaction with him. Apart from the P20,000,000.00 check, the other ten (10) checks (totaling P950,000.00) were allegedly issued by respondent Nicdao to petitioner Ching as security for the loans that she obtained from him from 1995 to 1997. The existence of another loan obligation prior to the said period was allegedly established by the testimony of respondent Nicdao’s own witness, Jocelyn Nicdao, who testified that when she started working in Vignette Superstore in 1994, she noticed that respondent Nicdao was already indebted to Nuguid.

Petitioner Ching also takes exception to the CA’s ruling that the payments made by respondent Nicdao as reflected on the computations at the back of the cigarette wrappers were for both the principal loan and interests. He insists that they were for the interests alone. Even respondent Nicdao’s testimony allegedly showed that they

31

were daily interest payments. Petitioner Ching further avers that the interest payments totaling P5,780,000.00 can only mean that, contrary to respondent Nicdao’s claim, her loan obligations amounted to much more than P2,100,000.00. Further, she is allegedly estopped from questioning the interests because she willingly paid the same.

Petitioner Ching also harps on respondent Nicdao’s silence when she received his and Nuguid’s demand letter to her. Through the said letter, they notified her that the twenty-five (25) checks valued at P22,100,000.00 were dishonored by the HSLB, and that she had three days to settle her ndebtedness with them, otherwise, face prosecution. Respondent Nicdao’s silence, i.e., her failure to deny or protest the same by way of reply, vis-à-vis the demand letter, allegedly constitutes an admission of the statements contained therein.

On the other hand, the MCTC’s decision, as affirmed by the RTC, is allegedly based on the evidence on record; it has been established that the checks were respondent Nicdao’s personal checks, that the signatures thereon were hers and that she had issued them to petitioner Ching. With respect to the P20,000,000.00 check, petitioner Ching assails the CA’s ruling that it was stolen and was never delivered or issued by respondent Nicdao to him. The issue of the said check being stolen was allegedly not raised during trial. Further, her failure to report the alleged theft to the bank to stop payment of the said lost or missing check is allegedly contrary to human experience. Petitioner Ching describes respondent Nicdao’s defense of stolen or lost check as incredible and, therefore, false.

Aside from the foregoing substantive issues that he raised, petitioner Ching also faults the CA for not acting and ordering the consolidation of CA-G.R. CR No. 23055 with CA-G.R. CR No. 23054. He informs the Court that latter case is still pending with the CA.

In fine, it is petitioner Ching’s view that the CA gravely erred in disregarding the findings of the MCTC, as affirmed by the RTC, and submits that there is more than sufficient preponderant evidence to hold respondent Nicdao civilly liable to him in the amount of P20,950,000.00. He thus prays that the Court direct respondent Nicdao to pay him the said amount plus 12% interest per annum computed from the date of written demand until the total amount is fully paid.

The Respondent’s Counter-Arguments

Respondent Nicdao urges the Court to deny the petition. She posits preliminarily that it is barred under Section 2(b), Rule 111 of the Revised Rules of Court which states:

SEC. 2. Institution of separate of civil action. - Except in the cases provided for in Section 3 hereof, after the criminal action has been commenced, the civil action which has been reserved cannot be instituted until final judgment in the criminal action.

x x x x

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist.

According to respondent Nicdao, the assailed CA decision has already made a finding to the effect that the fact upon which her civil liability might arise did not exist. She refers to the ruling of the CA that the P20,000,000.00 check was stolen; hence, petitioner Ching did not acquire any right or interest over the said check and could not assert any cause of action founded on the said check. Consequently, the CA held that respondent Nicdao had no obligation to make good the stolen check and cannot be held liable for violation of BP 22. She also refers to the CA’s pronouncement relative to the ten (10) other checks that they were not issued to apply on account or for value, considering that the loan obligations secured by these checks had already been extinguished by her full payment thereof.

To respondent Nicdao’s mind, these pronouncements are equivalent to a finding that the facts upon which her civil liability may arise do not exist. The instant petition, which seeks to enforce her civil liability based on the eleven (11) checks, is thus allegedly already barred by the final and executory decision acquitting her.

In any case, respondent Nicdao contends that the CA did not commit serious misapprehension of facts when it found that the P20,000,000.00 check was a stolen check and that she never made any transaction with petitioner Ching. Moreover, the other ten (10) checks were not issued to apply on account or for value. These findings are allegedly supported by the evidence on record which consisted of the respective testimonies of the defense witnesses to the effect that: respondent Nicdao had the practice of leaving pre-signed checks placed inside an unsecured cash box in the Vignette Superstore; the salesladies were given the authority to fill up the said checks as to the amount, payee and date; Nuguid beguiled respondent Nicdao to obtain loans from her; as security for the loans, respondent Nicdao issued checks to Nuguid; when the salesladies gave the checks to Nuguid, she instructed them to leave blank the payee and date; Nuguid had access to the grocery store; in 1995, one of the salesladies reported that a check was missing; in 1997, when she had fully paid her loans to Nuguid, respondent Nicdao tried to retrieve her checks but Nuguid and petitioner Ching falsely told her that she still owed them money; they then maliciously filled up the checks making it appear that petitioner Ching was the payee in the five checks and the six others were payable to "cash"; and knowing fully well that these checks were not funded because respondent Nicdao already fully paid her loans, petitioner Ching and Nuguid deposited the checks and caused them to be dishonored by HSLB.

It is pointed out by respondent Nicdao that her testimony (that the P20,000,000.00 check was the same one that she lost sometime in 1995) was corroborated by the respective testimonies of her employees. Another indication that it was stolen was the fact that among all the checks which ended up in the hands of petitioner Ching and Nuguid, only the P20,000,000.00 check was fully typewritten; the rest were invariably handwritten as to the amounts, payee and date.

Respondent Nicdao defends the CA’s conclusion that the P20,000,000.00 check was stolen on the ground that an appeal in a criminal case throws open the whole case to the appellate court’s scrutiny. In any event, she maintains that she had been consistent in her theory of defense and merely relied on the disputable presumption that the person in possession of a stolen article is presumed to be the author of the theft.

32

Considering that it was stolen, respondent Nicdao argues, the P20,000,000.00 check was an incomplete and undelivered instrument in the hands of petitioner Ching and he did not acquire any right or interest therein. Further, he cannot assert any cause of action founded on the said stolen check. Accordingly, petitioner Ching’s attempt to collect payment on the said check through the instant petition must fail.

Respondent Nicdao describes as downright incredible petitioner Ching’s testimony that she owed him a total sum of P20,950,000.00 without any documentary proof of the loan transactions. She submits that it is contrary to human experience for loan transactions involving such huge amounts of money to be devoid of any documentary proof. In relation thereto, respondent Nicdao underscores that petitioner Ching lied about being employed as a salesman of La Suerte Cigar and Cigarette Manufacturing. It is underscored that he has not adequately shown that he possessed the financial capacity to lend such a huge amount to respondent Nicdao as he so claimed.

Neither could she be held liable for the ten (10) other checks (in the total amount of P950,000,000.00) because as respondent Nicdao asseverates, she merely issued them to Nuguid as security for her loans obtained from the latter beginning October 1995 up to 1997. As evidenced by the Planters Bank demand draft in the amount of P1,200,000.00, she already made payment in 1996. The said demand draft was negotiated to petitioner Ching’s account and he admitted receipt thereof. Respondent Nicdao belies his claim that the demand draft was payment for a prior existing obligation. She asserts that petitioner Ching was unable to present evidence of such a previous transaction.

In addition to the Planters Bank demand draft, respondent Nicdao insists that petitioner Ching received, through Nuguid, cash payments as evidenced by the computations written at the back of the cigarette wrappers. Nuguid went to the Vignette Superstore everyday to collect these payments. The other defense witnesses corroborated this fact. Petitioner Ching allegedly never disputed the accuracy of the accounts appearing on these cigarette wrappers; nor did he dispute their authenticity and accuracy.

Based on the foregoing evidence, the CA allegedly correctly held that, computing the amount of the Planters Bank demand draft (P1,200,000.00) and those reflected at the back of the cigarette wrappers (P5,780,000.00), respondent Nicdao had already paid petitioner Ching and Nuguid a total sum of P6,980,000.00 for her loan obligations totaling only P950,000.00, as secured by the ten (10) HSLB checks excluding the stolen P20,000,000.00 check.

Respondent Nicdao rebuts petitioner Ching’s argument (that the daily payments were applied to the interests), and claims that this is illegal. Petitioner Ching cannot insist that the daily payments she made applied only to the interests on the loan obligations, considering that there is admittedly no document evidencing these loans, hence, no written stipulation for the payment of interests thereon. On this point, she invokes Article 1956 of the Civil Code, which proscribes the collection of interest payments unless expressly stipulated in writing.

Respondent Nicdao emphasizes that the ten (10) other checks that she issued to Nuguid as security for her loans had already been discharged upon her full payment

thereof. It is her belief that these checks can no longer be used to coerce her to pay a debt that she does not owe.

On the CA’s failure to consolidate CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054, respondent Nicdao proffers the explanation that under the RIRCA, consolidation of the cases is not mandatory. In fine, respondent Nicdao urges the Court to deny the petition as it failed to discharge the burden of proving her civil liability with the required preponderance of evidence. Moreover, the CA’s acquittal of respondent Nicdao is premised on the finding that, apart from the stolen check, the ten (10) other checks were not made to apply to a valid, due and demandable obligation. This, in effect, is a categorical ruling that the fact from which the civil liability of respondent Nicdao may arise does not exist.

The Court’s Rulings

The petition is denied for lack of merit.

Notwithstanding respondent Nicdao’s acquittal, petitioner Ching is entitled to appeal the civil aspect of the case within the reglementary period

It is axiomatic that "every person criminally liable for a felony is also civilly liable."34 Under the pertinent provision of the Revised Rules of Court, the civil action is generally impliedly instituted with the criminal action. At the time of petitioner Ching’s filing of the Informations against respondent Nicdao, Section 1, 35

Rule 111 of the Revised Rules of Court, quoted earlier, provided in part:

SEC. 1. Institution of criminal and civil actions. – When a criminal action is instituted, the civil action for the recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action.

Such civil action includes the recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused.

x x x x

As a corollary to the above rule, an acquittal does not necessarily carry with it the extinguishment of the civil liability of the accused. Section 2(b)36 of the same Rule, also quoted earlier, provided in part:

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist.

It is also relevant to mention that judgments of acquittal are required to state "whether the evidence of the prosecution absolutely failed to prove the guilt of the accused or merely failed to prove his guilt beyond reasonable doubt. In either case, the judgment shall determine if the act or omission from which the civil liability might arise did not exist."37

In Sapiera v. Court of Appeals,38 the Court enunciated that the civil liability is not extinguished by acquittal: (a) where the acquittal is based on reasonable doubt; (b)

33

where the court expressly declares that the liability of the accused is not criminal but only civil in nature; and (c) where the civil liability is not derived from or based on the criminal act of which the accused is acquitted. Thus, under Article 29 of the Civil Code –

ART. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a preponderance of evidence. Upon motion of the defendant, the court may require the plaintiff to file a bond to answer for damages in case the complaint should be found to be malicious.

If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground.

The Court likewise expounded in Salazar v. People39 the consequences of an acquittal on the civil aspect in this wise:

The acquittal of the accused does not prevent a judgment against him on the civil aspect of the criminal case where: (a) the acquittal is based on reasonable doubt as only preponderance of evidence is required; (b) the court declared that the liability of the accused is only civil; (c) the civil liability of the accused does not arise from or is not based upon the crime of which the accused is acquitted. Moreover, the civil action based on the delict is extinguished if there is a finding in the final judgment in the criminal action that the act or omission from which the civil liability may arise did not exist or where the accused did not commit the act or omission imputed to him.

If the accused is acquitted on reasonable doubt but the court renders judgment on the civil aspect of the criminal case, the prosecution cannot appeal from the judgment of acquittal as it would place the accused in double jeopardy. However, the aggrieved party, the offended party or the accused or both may appeal from the judgment on the civil aspect of the case within the period therefor.

From the foregoing, petitioner Ching correctly argued that he, as the offended party, may appeal the civil aspect of the case notwithstanding respondent Nicdao’s acquittal by the CA. The civil action was impliedly instituted with the criminal action since he did not reserve his right to institute it separately nor did he institute the civil action prior to the criminal action.

Following the long recognized rule that "the appeal period accorded to the accused should also be available to the offended party who seeks redress of the civil aspect of the decision," the period to appeal granted to petitioner Ching is the same as that granted to the accused.40 With petitioner Ching’s timely filing of the instant petition for review of the civil aspect of the CA’s decision, the Court thus has the jurisdiction and authority to determine the civil liability of respondent Nicdao notwithstanding her acquittal.

In order for the petition to prosper, however, it must establish that the judgment of the CA acquitting respondent Nicdao falls under any of the three categories enumerated in Salazar and Sapiera, to wit:

(a) where the acquittal is based on reasonable doubt as only preponderance of evidence is required;

(b) where the court declared that the liability of the accused is only civil; and

(c) where the civil liability of the accused does not arise from or is not based upon the crime of which the accused is acquitted.

Salazar also enunciated that the civil action based on the delict is extinguished if there is a finding in the final judgment in the criminal action that the act or omission from which the civil liability may arise did not exist or where the accused did not commit the act or omission imputed to him.

For reasons that will be discussed shortly, the Court holds that respondent Nicdao cannot be held civilly liable to petitioner Ching.

The acquittal of respondent Nicdao likewise effectively extinguished her civil liability

A painstaking review of the case leads to the conclusion that respondent Nicdao’s acquittal likewise carried with it the extinction of the action to enforce her civil liability. There is simply no basis to hold respondent Nicdao civilly liable to petitioner Ching.

First, the CA’s acquittal of respondent Nicdao is not merely based on reasonable doubt. Rather, it is based on the finding that she did not commit the act penalized under BP 22. In particular, the CA found that the P20,000,000.00 check was a stolen check which was never issued nor delivered by respondent Nicdao to petitioner Ching. As such, according to the CA, petitioner Ching "did not acquire any right or interest over Check No. 002524 and cannot assert any cause of action founded on said check,"41 and that respondent Nicdao "has no obligation to make good the stolen check and cannot, therefore, be held liable for violation of B.P. Blg. 22."42

With respect to the ten (10) other checks, the CA established that the loans secured by these checks had already been extinguished after full payment had been made by respondent Nicdao. In this connection, the second element for the crime under BP 22, i.e., "that the check is made or drawn and issued to apply on account or for value," is not present.

Second, in acquitting respondent Nicdao, the CA did not adjudge her to be civilly liable to petitioner Ching. In fact, the CA explicitly stated that she had already fully paid her obligations. The CA computed the payments made by respondent Nicdao vis-à-vis her loan obligations in this manner:

Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in her own handwriting totaling P5,780,000.00 and the P1,200,000.00 demand draft received by Emma Nuguid, it would appear that petitioner [respondent herein] had already made payments in the total amount of P6,980,000.00 for her loan obligation of only P2,100,000.00 (P950,000.00 in the case at bar and P1,150,000.00 in CA-G.R. CR No. 23054).43

On the other hand, its finding relative to the P20,000,000.00 check that it was a stolen check necessarily absolved respondent Nicdao of any civil liability thereon as well.

34

Third, while petitioner Ching attempts to show that respondent Nicdao’s liability did not arise from or was not based upon the criminal act of which she was acquitted (ex delicto) but from her loan obligations to him (ex contractu), however, petitioner Ching miserably failed to prove by preponderant evidence the existence of these unpaid loan obligations. Significantly, it can be inferred from the following findings of the CA in its decision acquitting respondent Nicdao that the act or omission from which her civil liability may arise did not exist. On the P20,000,000.00 check, the CA found as follows:

True, indeed, the missing pre-signed and undated check no. 002524 surfaced in the possession of complainant Ching who, in cahoots with his paramour Emma Nuguid, filled up the blank check with his name as payee and in the fantastic amount of P20,000,000.00, dated it October 6, 1997, and presented it to the bank on October 7, 1997, along with the other checks, for payment. Therefore, the inference that the check was stolen is anchored on competent circumstantial evidence. The fact already established is that Emma Nuguid , previous owner of the store, had access to said store. Moreover, the possession of a thing that was stolen , absent a credible reason, as in this case, gives rise to the presumption that the person in possession of the stolen article is presumed to be guilty of taking the stolen article (People v. Zafra, 237 SCRA 664).

As previously shown, at the time check no. 002524 was stolen, the said check was blank in its material aspect (as to the name of payee, the amount of the check, and the date of the check), but was already pre-signed by petitioner. In fact, complainant Ching himself admitted that check no. 002524 in his possession was a blank check (TSN, Jan. 7, 1998, pp. 24-27, Annex J, Petition).

Moreover, since it has been established that check no. 002524 had been missing since 1995 (TSN, Sept. 9, 1998, pp. 14-15, Annex DD, Petition; TSN, Sept. 10, 1998, pp. 43-46, Annex EE, Petition), it is abundantly clear that said check was never delivered to complainant Ching. Check no. 002524 was an incomplete and undelivered instrument when it was stolen and ended up in the hands of complainant Ching. Sections 15 and 16 of the Negotiable Instruments Law provide:

x x x x

In the case of check no. 002524, it is admitted by complainant Ching that said check in his possession was a blank check and was subsequently completed by him alone without authority from petitioner. Inasmuch as check no. 002524 was incomplete and undelivered in the hands of complainant Ching, he did not acquire any right or interest therein and cannot, therefore, assert any cause of action founded on said stolen check (Development Bank of the Philippines v. Sima We, 219 SCRA 736, 740).

It goes without saying that since complainant Ching did not acquire any right or interest over check no. 002524 and cannot assert any cause of action founded on said check, petitioner has no obligation to make good the stolen check and cannot, therefore, be held liable for violation of B.P. Blg. 22.44

Anent the other ten (10) checks, the CA made the following findings:

Evidence sufficiently shows that the loans secured by the ten (10) checks involved in the cases subject of this petition had already been paid. It is not controverted that

petitioner gave Emma Nuguid a demand draft valued at P1,200,000 to pay for the loans guaranteed by said checks and other checks issued to her. Samson Ching admitted having received the demand draft which he deposited in his bank account. However, complainant Samson Ching claimed that the said demand draft represents payment for a previous obligation incurred by petitioner. However, complainant Ching failed to adduce any evidence to prove the existence of the alleged obligation of the petitioner prior to those secured by the subject checks.

Apart from the payment to Emma Nuguid through said demand draft, it is also not disputed that petitioner made cash payments to Emma Nuguid who collected the payments almost daily at the Vignette Superstore. As of July 21, 1997, Emma Nuguid collected cash payments amounting to approximately P5,780,000.00. All of these cash payments were recorded at the back of cigarette cartons by Emma Nuguid in her own handwriting, the authenticity and accuracy of which were never denied by either complainant Ching or Emma Nuguid.

Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in her own handwriting totaling P5,780,000.00 and the P1,200,000.00 demand draft received by Emma Nuguid, it would appear that petitioner had already made payments in the total amount of P6,980,000.00 for her loan in the total amount of P6,980,000.00 for her loan obligation of only P2,100,000.00 (P950,000.00 in the case at bar and P1,150,000.00 in CA-G.R. CR No. 23054).45

Generally checks may constitute evidence of indebtedness.46 However, in view of the CA’s findings relating to the eleven (11) checks - that the P20,000,000.00 was a stolen check and the obligations secured by the other ten (10) checks had already been fully paid by respondent Nicdao – they can no longer be given credence to establish respondent Nicdao’s civil liability to petitioner Ching. Such civil liability, therefore, must be established by preponderant evidence other than the discredited checks.

After a careful examination of the records of the case,47 the Court holds that the existence of respondent Nicdao’s civil liability to petitioner Ching in the amount of P20,950,000.00 representing her unpaid obligations to the latter has not been sufficiently established by preponderant evidence. Petitioner Ching mainly relies on his testimony before the MCTC to establish the existence of these unpaid obligations. In gist, he testified that from October 1995 up to 1997, respondent Nicdao obtained loans from him in the total amount of P20,950,000.00. As security for her obligations, she issued eleven (11) checks which were invariably blank as to the date, amounts and payee. When respondent Nicdao allegedly refused to pay her obligations despite his due demand, petitioner filled up the checks in his possession with the corresponding amounts and date and deposited them in his account. They were subsequently dishonored by the HSLB for being "DAIF" and petitioner Ching accordingly filed the criminal complaints against respondent Nicdao for violation of BP 22.

It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations – Et incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum negantis probatio nulla sit (The proof lies upon him who affirms, not upon him who denies; since, by the nature of things, he who denies a fact cannot produce any proof).48 In civil cases, the party having the burden of proof must establish his

35

case by a preponderance of evidence. Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater weight of evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto. 49

Section 1, Rule 133 of the Revised Rules of Court offers the guidelines in determining preponderance of evidence:

SEC. 1. Preponderance of evidence, how determined. – In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. In determining where the preponderance or superior weight of evidence on the issues involved lies, the court may consider all the facts and circumstances of the case, the witnesses’ manner of testifying, their intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify, the probability or improbability of their testimony, their interest or want of interest, and also their personal credibility so far as the same may legitimately appear upon the trial. The court may also consider the number of witnesses, though the preponderance is not necessarily with the greater number.

Unfortunately, petitioner Ching’s testimony alone does not constitute preponderant evidence to establish respondent Nicdao’s civil liability to him amounting to P20,950,000.00. Apart from the discredited checks, he failed to adduce any other documentary evidence to prove that respondent Nicdao still has unpaid obligations to him in the said amount. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under our Rules.50

In contrast, respondent Nicdao’s defense consisted in, among others, her allegation that she had already paid her obligations to petitioner Ching through Nuguid. In support thereof, she presented the Planters Bank demand draft for P1,200,000.00. The said demand draft was negotiated to petitioner Ching’s account and he admitted receipt of the value thereof. Petitioner Ching tried to controvert this by claiming that it was payment for a previous transaction between him and respondent Nicdao. However, other than his self-serving claim, petitioner Ching did not proffer any documentary evidence to prove the existence of the said previous transaction. Considering that the Planters Bank demand draft was dated August 13, 1996, it is logical to conclude that, absent any evidence to the contrary, it formed part of respondent Nicdao’s payment to petitioner Ching on account of the loan obligations that she obtained from him since October 1995.

Additionally, respondent Nicdao submitted as evidence the cigarette wrappers at the back of which were written the computations of the daily payments that she had made to Nuguid. The fact of the daily payments was corroborated by the other witnesses for the defense, namely, Jocelyn Nicdao and Tolentino. As found by the CA, based on these computations, respondent Nicdao had made a total payment of P5,780,000.00 to Nuguid as of July 21, 1997.51 Again, the payments made, as reflected at the back of these cigarette wrappers, were not disputed by petitioner Ching. Hence, these payments as well as the amount of the Planters Bank demand draft establish that respondent Nicdao already paid the total amount of P6,980,000.00 to Nuguid and petitioner Ching.

The Court agrees with the CA that the daily payments made by respondent Nicdao amounting to P5,780,000.00 cannot be considered as interest payments only. Even respondent Nicdao testified that the daily payments that she made to Nuguid were for the interests due. However, as correctly ruled by the CA, no interests could be properly collected in the loan transactions between petitioner Ching and respondent Nicdao because there was no stipulation therefor in writing. To reiterate, under Article 1956 of the Civil Code, "no interest shall be due unless it has been expressly stipulated in writing."

Neither could respondent Nicdao be considered to be estopped from denying the validity of these interests. Estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.52 Clearly, the collection of interests without any stipulation therefor in writing is prohibited by law. Consequently, the daily payments made by respondent Nicdao amounting to P5,780,000.00 were properly considered by the CA as applying to the principal amount of her loan obligations.

With respect to the P20,000,000.00 check, the defense of respondent Nicdao that it was stolen and that she never issued or delivered the same to petitioner Ching was corroborated by the other defense witnesses, namely, Tolentino and Jocelyn Nicdao.

All told, as between petitioner Ching and respondent Nicdao, the requisite quantum of evidence - preponderance of evidence - indubitably lies with respondent Nicdao. As earlier intimated, she cannot be held civilly liable to petitioner Ching for her acquittal; under the circumstances which have just been discussed lengthily, such acquittal carried with it the extinction of her civil liability as well.

The CA committed no reversible error in not consolidating CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054

During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054 in the CA, the pertinent provision of the RIRCA on consolidation of cases provided:

SEC. 7. Consolidation of Cases. – Whenever two or more allied cases are assigned to different Justices, they may be consolidated for study and report to a single Justice.

(a) At the instance of any party or Justice to whom the case is assigned for study and report, and with the conformity of all the Justices concerned, the consolidation may be allowed when the cases to be consolidated involve the same parties and/or related questions of fact and/or law.53

The use of the word "may" denotes the permissive, not mandatory, nature of the above provision, Thus, no grave error could be imputed to the CA when it proceeded to render its decision in CA-G.R. CR No. 23055, without consolidating it with CA-G.R. CR No. 23054.

WHEREFORE, premises considered, the Petition is DENIED for lack of merit.

SO ORDERED.

Footnotes

36

1 Penned by Associate Justice Artemio G. Tuquero, with Associate Justices Eubulo G. Verzola and Elvi John S. Asuncion concurring; rollo, pp. 58-67.

2 Criminal Case No. 9433.

3 Criminal Case No. 9434.

4 Criminal Case No. 9435.

5 Criminal Case No. 9436.

6 Criminal Case No. 9437.

7 Criminal Case No. 9438.

8 Criminal Case No. 9439.

9 Criminal Case No. 9440.

10 Criminal Case No. 9441.

11 Criminal Case No. 9442.

12 Criminal Case No. 9443.

13 TSN, December 10, 1997, pp. 9-36.

14 TSN, January 7, 1998, pp. 5-39.

15 TSN, January 28, 1998, pp. 7-15.

16 Id. at 16-20.

17 TSN, August 5, 1998, pp. 10-36.

18 Exhibits "7" to "14". Also referred to as "cigarette cartons".

19 TSN, August 19, 1998, pp. 8-14.

20 TSN, September 9, 1998, pp. 10-32.

21 TSN, September 30, 1998, pp. 14-35.

22 Id. at 37-53.

23 TSN, October 21, 1998, pp. 4-16.

24 Id. at 17-21.

25 Citing Navarro v. Court of Appeals, G.R. Nos. 112389-90, August 1, 1994, 234 SCRA 639, 643-644.

26 Citing Cruz v. Court of Appeals, G.R. No. 108738, June 17, 1994, 233 SCRA 301, 308.

27 Rollo (Vol. I), p. 80.

28 Id. at 66-67.

29 Id. at 60-61.

30 Citing Civil Code, Art. 1231, par. 1.

31 Citing People v. Zafra, G.R. No. 110079, October 19, 1994, 237 SCRA 664, 667.

32 Citing Development Bank of the Philippines v. Sima Wei, G.R. No. 85419, March 9, 1993, 219 SCRA 736, 741.

33 Rules and Guidelines in the Filing and Prosecution of Criminal Cases under Batas Pambansa Bilang 22.

34 Revised Penal Code, Article 100.

35 In 2000, the Supreme Court amended the Rules on Criminal Procedure. Section 1, Rule 111 now reads in full:

SEC. 1. Institution of criminal and civil actions. – (a) When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action.

The reservation of the right to institute separately the civil action shall be made before the prosecution starts presenting its evidence and under circumstances affording the offended party a reasonable opportunity to make such a reservation.

When the offended party seeks to enforce civil liability against the accused by way of moral, nominal, temperate, or exemplary damages without specifying the amount thereof in the complaint or information, the filing fees therefor shall constitute a first lien on the judgment awarding such damages.

Where the amount of damages, other than actual, is specified in the complaint or information, the corresponding filing fees shall be paid by the offended party upon the filing thereof in court.

Except as otherwise provided in these Rules, no filing fees shall be required for actual damages.

No counterclaim, cross-claim or third-party complaint may be filed by the accused in the criminal case, but any cause of action which could have been the subject thereof may be litigated in a separate civil action.

(b) The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include the corresponding civil action. No reservation to file such civil action separately shall be allowed.

Upon filing of the aforesaid joint criminal and civil actions, the offended party shall pay in full the filing fees based on the amount of the check involved, which shall be considered as the actual damages claimed. Where the complaint or information also seeks to recover liquidated, moral, nominal, temperate or exemplary damages, the offended party shall pay additional filing fees based on the amounts alleged therein. If the amounts are not so alleged but any of these damages are subsequently awarded by the court, the filing fees based on the amount awarded shall constitute a first lien on the judgment.

Where the civil action has been filed separately and trial thereof has not yet commenced, it may be consolidated with the criminal action upon application with the court trying the latter case. If the application is granted, the trial of both actions shall proceed in accordance with section 2 of this Rule governing consolidation of the civil and criminal actions.

36 As amended, Section 2, Rule 111 now reads:

SEC. 2. When separate civil action is suspended. – After the criminal action has been commenced, the separate civil action arising therefrom cannot be instituted until final judgment has been entered in the criminal action.

If the criminal action is filed after the said civil action has already been instituted, the latter shall be suspended in whatever stage it may be found before judgment on the merits. The suspension shall last until final judgment is rendered in the criminal action. Nevertheless, before judgment on the merits is rendered in the civil action, the same may, upon motion of the offended party, be consolidated with the criminal action in the court trying the criminal action. In case of consolidation, the evidence already adduced in the civil action shall be deemed automatically reproduced in the criminal action without prejudice to the right of the prosecution to cross-examine the witnesses presented by the offended party in the criminal case and of the parties to present additional evidence. The consolidated criminal and civil actions shall be tried and decided jointly.

During the pendency of the criminal action, the running of the period of prescription of the civil action which cannot be instituted separately or whose proceeding has been suspended shall be tolled.

The extinction of the penal action does not carry with it extinction of the civil action. However, the civil action based on delict shall be deemed extinguished if there is a finding in a final judgment in the criminal action that the act or omission from which the civil liability may arise did not exist.

37

37 Revised Rules of Court, Rule 120, Sec. 2, last paragraph.

38 373 Phil. 150, 153 (1999).

39 458 Phil. 504, 515 (2003).

40 Sanchez v. Far East Bank and Trust Company, G.R. No. 115308, November 15, 2005, 475 SCRA 97, 109 citing, among others, People v. Ursua, 60 Phil. 252 (1934); People v. Rodriguez, 97 Phil. 349 (1955).

41 CA Decision, p. 9; rollo (Vol. I), p. 66.

42 Id.; id.

43 Id. at 5; id. at 62.

44 CA Decision, pp. 8-9; rollo, pp. 65-66.

45 Id. at 4-5; id. at 61-62.

46 Go v. Bacaron, G.R. No. 159048, October 11, 2005, 472 SCRA 339, 349.

47 Ordinarily, questions of facts are not taken up in a petition for review in certiorari under Rule 45 of the Rules of Court. However, the Court has been constrained to review the factual issues in this case, as they fall under one of the recognized exceptions to this rule, in particular, the findings of the CA in this case are contrary to those of the MCTC and RTC. See, for example, Menchavez v. Teves, Jr., G.R. No. 153201, January 26, 2005, 449 SCRA 380, 395.

48 Acabal v. Acabal, G.R. No. 148376, March 31, 2005, 454 SCRA 555, 569.

49 Republic v. Orfinada, Sr., G.R No. 141145, November 12, 2004, 442 SCRA 342, 351-352.

50 Manzano v. Perez, Sr., 414 Phil. 728, 738 (2001).

51 CA Decision, p. 5; rollo (vol. I), p. 62.

52 Ouano v. Court of Appeals, 446 Phil. 690, 708 (2003).

53 Rule 3 of the 1994 Revised IRCA. In the 2002 RIRCA, the pertinent provision (Section 3, Rule 3) on consolidation now reads:

SEC. 3. Consolidation of Cases. – When related cases are assigned to different Justices, they may be consolidated and assigned to one Justice.

(a) At the instance of a party with notice to the other party; or at the instance of the Justice to whom the case is assigned, and with the conformity of the Justice to whom the cases shall be consolidated, upon notice to the parties, consolidation may be allowed when the cases involve the same parties and/or related questions of facts or law.

38

SECOND DIVISION

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-Petitioner,

vs.

SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK

OF THE PHILIPPINES, defendants-respondents.

CAMPOS, JR., J.:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation (Plastic Corporation for short) and the Producers Bank of the Philippines, on two causes of action:

(1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed by respondent Sima Wei on June 9, 1983; and

(2) To enforce payment of two checks executed by Sima Wei, payable to petitioner, and drawn against the China Banking Corporation, to pay the balance due on the promissory note.

Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a common ground that the complaint states no cause of action. The trial court granted the defendants' Motions to Dismiss. The Court of Appeals affirmed this decision, * to which the petitioner Bank, represented by its Legal Liquidator, filed this Petition for Review by Certiorari, assigning the following as the alleged errors of the Court of Appeals: 1

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-PETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTS-RESPONDENTS HEREIN.

(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-RESPONDENTS.

The antecedent facts of this case are as follows:

In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and delivered to the former a promissory note, engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking

Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the promissory note. These two checks were not delivered to the petitioner-payee or to any of its authorized representatives. For reasons not shown, these checks came into the possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of Producers Bank, relying on the assurance of respondent Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter. Hence, petitioner filed the complaint as aforestated.

The main issue before Us is whether petitioner Bank has a cause of action against any or all of the defendants, in the alternative or otherwise.

A cause of action is defined as an act or omission of one party in violation of the legal right or rights of another. The essential elements are: (1) legal right of the plaintiff; (2) correlative obligation of the defendant; and (3) an act or omission of the defendant in violation of said legal right. 2

The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give rise to any liability on his part, until and unless the check is delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part:

Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. . . .

Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. 3 Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. 4 Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument.

The allegations of the petitioner in the original complaint show that the two (2) China Bank checks, numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. Without the delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein and cannot therefore assert any

39

cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents.

In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory note, and the alternative defendants, including Sima Wei, on the two checks. On appeal from the orders of dismissal of the Regional Trial Court, petitioner Bank alleged that its cause of action was not based on collecting the sum of money evidenced by the negotiable instruments stated but on quasi-delict - a claim for damages on the ground of fraudulent acts and evident bad faith of the alternative respondents. This was clearly an attempt by the petitioner Bank to change not only the theory of its case but the basis of his cause of action. It is well-settled that a party cannot change his theory on appeal, as this would in effect deprive the other party of his day in court. 5

Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Her allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank has no merit for, as We have earlier explained, these checks were never delivered to petitioner Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the delivery of checks in payment of an obligation does not constitute payment unless they are cashed or their value is impaired through the fault of the creditor. 6 None of these exceptions were alleged by respondent Sima Wei.

Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some other cause, petitioner Bank has a right of action against her for the balance due thereon.

However, insofar as the other respondents are concerned, petitioner Bank has no privity with them. Since petitioner Bank never received the checks on which it based its action against said respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything which the respondents may have done with respect to said checks could not have prejudiced petitioner Bank. It had no right or interest in the checks which could have been violated by said respondents. Petitioner Bank has therefore no cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against herco-respondents, if the allegations in the complaint are found to be true. With respect to the second assignment of error raised by petitioner Bank regarding the applicability of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to discuss the same in view of Our finding that the petitioner Bank did not acquire any right or interest in the checks due to lack of delivery. It therefore has no cause of action against the respondents, in the alternative or otherwise.

In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's complaint is AFFIRMED insofar as the second cause of action is concerned. On the first cause of action, the case is REMANDED to the trial court for a trial on the merits, consistent with this decision, in order to determine whether respondent Sima Wei is liable to the Development Bank of Rizal for any amount under the promissory note allegedly signed by her.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.

Endnotes:

* CA G.R. CV No. 11980 dated October 12, 1988. Penned by Associate Justice Venancio D. Aldecoa, Jr. with Associate Justices Ricardo P. Tensuan and Luis L. Victor, concurring.

1 Petition, p. 7; Rollo, p. 20.

2 Caseñas vs. Rosales, et al., 19 SCRA 462 (1967); Remitere, et al. vs. Vda. de Yulo, et al., 16 SCRA 251 (1966).

3 In re Martens' Estate, 226 Iowa 162, 283 N.W. 885 (1939); Shriver vs. Danby, 113 A. 612 (1921).

4 Negotiable Instruments Law, Sec. 191, par. 6.

5 Ganzon vs. Court of Appeals, 161 SCRA 646 (1988). See also 1 M. MORAN, COMMENTS ON THE RULES OF COURT 715 (1957 ed.), citing San Agustin vs. Barrios, 68 Phil. 475 (1939), Toribio vs. Decasa, 55 Phil. 461 (1930), American Express Co. vs. Natividad, 46 Phil. 207 (1924), Agoncillo vs. Javier, 38 Phil. 424 (1918).

6 CIVIL CODE, Art. 1249, par. 2.

40

FIRST DIVISION

G.R. No. 112985 April 21, 1999

PEOPLE OF THE PHILIPPINES, plaintiff-appellee vs.

MARTIN L. ROMERO and ERNESTO C. RODRIGUEZ, accused-appellants.

PARDO, J

The case before the Court is an appeal of accused Martin L. Romero and Ernesto C. Rodriguez from the Joint Judgment 1 of the Regional Trial Court, Branch 2, Butuan City, convicting each of them of estafa under Article 315, par. 2 (d) of the Revised Penal Code, in relation to Presidential Decree No. 1689, for widescale swindling, and sentencing each of them to suffer the penalty of life imprisonment and to jointly and severally pay Ernesto A. Ruiz the amount of one hundred fifty thousand pesos (P150,000.00), with interest at the rate of twelve percent (12%) per annum, starting September 14, 1989, until fully paid, and to pay ten thousand pesos (P10,000.00), as moral damages.

On October 25, 1989, Butuan City acting fiscal Ernesto M. Brocoy filed with the Regional Trial Court, Butuan City, in Information against the two (2) accused estafa, 2 as follows:

That on or about September 14, 1989, at Butuan City, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused being the General Manager and Operation Manager which solicit funds from the general public for investment, conspiring, confederating together and mutually helping, one another, by means of deceit and false pretense, did then and there willfully, unlawfully and feloniously deliberately defraud one Ernesto A. Ruiz by convincing the latter to invest his money in the amount of P150,000.00 with a promise return of 800 % profit within 21 days and in the process caused the issuance of Butuan City Rural [sic] Bank Check No. 158181 postdated to October 5, 1989 in the amount of One Million Two Hundred Thousand Pesos (P1,200,000.00) Philippine Currency, that upon presentation of said check to the drawee bank for payment the same was dishonored and that notwithstanding repeated demands made on said accused to pay and/or change the check to cash, they consistently failed and refused and still fail and refuse to pay or redeem the check, to the damage and prejudice of the complainant in the aforestated amount of P1,200,000.00. 3

On the same day, the city fiscal filed with the same court another information against the two (2) accused for violation of Batas Pambansa Bilang 22, arising from the issuance of the same check. 4

On January 11, 1990, both accused were arraigned before the Regional Trial Court, Branch 5, 5 Butuan City, where they plead not guilty to both informations.

The prosecution presented its evidence on January 10, 1991, with complainant, Ernesto A. Ruiz, and Daphne Parrocho, the usher/collector of the corporation being managed by accused, testifying for the prosecution.

On August 12, 1991, the defense presented its only witness, accused Martin L. Romero.

On November 13, 1992, the parties submitted a joint stipulation of facts, signed only by their respective counsels. Thereafter, the case was submitted for decision.

On March 30, 1993, the trail court promulgated a Joint Judgment dated March 25, 1993. The trial court acquitted the accused in Criminal Case No. 3806 6 based on reasonable doubt, but convicted them in Criminal Case No. 3808 7 and accordingly sentenced each of them, as follows:

IN VIEW OF THE FOREGOING, the Court hereby renders judgments, finding or declaring —

(a) Accused Martin L. Romero and Ernesto C. Rodriguez innocent on reasonable doubt in Criminal Case No. 3806, for violation of Batas Pambansa Bilang 22;

(b) Accused Martin L. Romero and Ernesto C. Rodriguez guilty beyond reasonable doubt in Criminal Case No. 3808 for estafa under P.D. 1689 for wide scale [sic] swindling and accordingly sentences them to suffer life imprisonment (Section 1 P.D. 1689) and ordered jointly and severally to return to Ernesto A. Ruiz the amount of One Hundred Fifty Thousand Pesos (P150,000.00) with interest thereon at the rate of Twelve percent (12%) per annum starting from September 14, 1989 until fully paid and to pay the amount Of Ten Thousand Pesos (P10,000.00) as moral damages.

In the service of their sentence, the accused pursuant to R.A. 6127, shall be credited for the preventive imprisonment they have undergone (PP vs. Ortencio, 38 Phil 941; PP vs. Gabriel, No. L-13750, October 30, 1959, cited in Gregorio's "Fundamentals of Criminal Law Review", P. 178, Seventh Edition, 1985). 8

On March 31, 1993, accused filed their notice of appeal, which the trial court gave due course on April 5, 1993. On March 16, 1994, this Court ordered the, accused to file their appellants' brief.

Accused-appellants filed their brief on October 30, 1995, while the Solicitor General filed the appellee's brief on March 8, 1996.

During the pendency of the appeal, on November 12, 1997, accused Ernesto Rodriguez died. 9 As a consequence of his death before final judgment, his criminal and civil liability ex delicto, were extinguished. 10

Complainant Ernesto A. Ruiz was a radio commentator of Radio DXRB, Butuan City. In August, 1989, he came to know the business of Surigao San Andres Industrial Development Corporation (SAIDECOR), when he interviewed accused Martin Romero and Ernesto Rodriguez regarding the corporation's investment operations in Butuan City and Agusan del Norte. Romero was the president and general manager of SAIDECOR, while Rodriguez was the operations manager.

41

SAIDECOR started its operation on August 24, 1989 as a marketing business. Later, it engaged in soliciting funds and investments from the public. The corporation guaranteed an 800% return on investment within fifteen (15) or twenty one (21) days. Investors were given coupons containing the capital and the return on the capital collectible on the date agreed upon. It stopped operations in September, 1989.

On September 14, 1989, complainant Ernesto A. Ruiz went to SAIDECOR office in Butuan City to make an investment, accompanied by his friend Jimmy Acebu, and SAIDECOR collection agent Daphne Parrocho. After handing over the amount of one hundred fifty thousand pesos (P150,000.00) to Ernesto Rodriguez, complainant received a postdated Butuan City Rural Bank check instead of the usual redeemable coupon. The check indicated P1,000,200.00 as the amount in words, but the amount in figures was for P1,200,000.00, as the return on the investment. Compliant did not notice the discrepancy.

When the check was presented to the bank for payment on October 5, 1989, it was dishonored for insufficiency of funds, as evidenced by the check return slip issued by the bank. 11 Both accused could not be located and demand for payment was made only sometime in November 1989 during the preliminary investigation of this case. Accused responded that they had no money.

Daphne Parrocho, 12 testified that on September 14, 1989, complainant, with his friend Jimmy Acebu, approached her to invest the amount of P150,000.00 at SAIDECOR. As she has reached her quota, and therefore, no longer authorized to receive the amount, she accompanied them to the office of SAIDECOR at Ong Yiu District, Butuan City. Accused Ernesto Rodriguez accepted the investment and issued the check signed by him and Martin Romero.

For their defense, accused Martin Romero 13 testified that on September 14, 1989, he issued a check in the amount of P1,2000,000.00 corresponding to the total of the P150,000.00 investment and the 800% return thereon. He claimed that the corporation had a deposit of fourteen million pesos (P14,000,000.00) at the time of the issuance of the check and four million pesos (P4,000,000.00) at the time SAIDDECOR stopped operations. Romero knew these things because he used to monitor the funds of the corporation with the bank. He was not aware that the check he issued was dishonored because he never had the occasion to meet the complainant again after the September 14, 1989 transaction. He only came to know about this when the case was already filed in court sometime in the second or third week of January 1990.

In this appeal, both accused did not deny that complainant made an investment with SAIDECOR in the amount of P150,000.00. However, they denied that deceit was employed in the transaction. They assigned as errors: (1) their conviction under P.D. 1689 due to the prosecution's failure to establish their guilt beyond reasonable doubt; and (2) the trial court's failure to consider the joint stipulation of facts in their favor. 15

There is no merit in this appeal. We sustain accused-appellant's conviction.

Under paragraph 2 (d) of Article 315, as amended by R.A. 4885, 16 the elements of estafa are: (1) a check was postdated or issued in payment of an obligation

contracted at the time it was issued; (2) lack or insufficiency of funds to cover the check; (3) damage to the payee thereof. 17 The prosecution has satisfactorily established all these elements.

Fraud, in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal equitable duty, trust, or confidence justly reposed, resulting in damage to another, or by which an undue and unconscientious advantage is taken of another. 18 It is a generic term embracing all multifarious means which human ingenuity can device, and which are resorted to by one individual to secure an advantage over another by false suggestions or by suppression of truth and includes all surprise, trick, cunning, dissembling and any unfair way by which another is cheated. 19

Deceit is a specific of fraud. It is actual fraud, and consists in any false representation or contrivance whereby one person overreaches and misleads another, to his hurt. Deceit excludes the idea of mistake. 20 There is deceit when one is misled, either by guide or trickery or by other means, to believe to be true what is really false. 21 In this case, there was deception when accused fraudulently represented to complainant that his investment with the corporation would have an 800% return in 15 or 21 days.

Upon receipt of the money, accused-appellant Martin Romero issued a postdated check. Although accused-appellant contends that sufficient funds were deposited in the bank when the check was issued, he presented no officer of the bank to substantiate the contention. The check was dishonored when presented for payment, and the check return slip submitted in evidence indicated that it was dishonored due to insufficiency of funds.

Even assuming for the sake of argument that the check was dishonored without any fraudulent pretense or fraudulent act of the drawer, the latter's failure to cover the amount within three days after notice creates a rebuttable presumption of fraud. 22

Admittedly (1) the check was dishonored for insufficiency of funds as evidenced by the check return slip; (2) complainant notified accused of the dishonor; and (3) accused failed to make good the check within three days. Presumption of deceit remained since accused failed to prove otherwise. Complainant sustained damage in the amount of P150,000.00.

Accused-appellant also contends that had the trial court admitted the Admission and Stipulaion of Facts of November 9, 1992, it would prove that SAIDECOR had sufficient funds in the bank.

Accused-appellant relies on the fact that there was a discrepancy between the amount in words and the amount in figures in the check that was dishonored. The amount in words was P1,000,200.00, while the amount in figures was P1,200,000.00. It is admitted that the corporation had in the bank P1,144,760.00 on September 28, 1989, and P1,124,307.14 on April 2, 1990. The check was presented for payment on October 5, 1989. The rule in the Negotiable Instruments Law is that when there is ambiguity in the amount in words and the amount in figures, it would be the amount in words that would prevail. 23

However, this rule of interpretation finds no application in the case. The agreement was perfectly clear that at the end of twenty one (21) days, the investment of

42

P150,000.00 would become P1,200,000.00. Even if the trial court admitted the stipulation of facts, it would not be favorable to accused-appellant.

The factual narration in this case established a kind of Ponzi scheme. 24 This is "an investment swindle in which high profits are promised from fictitious sources and early investors are paid off with funds raised from later ones." It is sometimes called a pyramid scheme because a broader base of gullible investors must support the structure as time passes.

In the recent case of People vs. Priscilla Balasa, 25 this Court held that a transaction similar to the case at hand is not an investment strategy but a gullibility scheme, which works only as long as there is an ever increasing number of new investors joining the scheme. It is difficult to sustain over a long period of time because the operator needs an ever larger pool of later investors to continue paying the promised profits to early investors. The idea behind this type of swindle is that the "con-man" collects his money from his second or third round of investors and then absconds before anyone else shows up to collect. Necessarily, these schemes only last weeks, or months at most, just like what happened in this case.

The Court notes that one of the accused-appellants, Ernesto Rodriguez, died pending appeal. Pursuant to the doctrine established in People vs. Bayotas, 26 the death of the accused pending appeal of his conviction extinguishes his criminal liability as well as the civil liability ex delicto. The criminal action is extinguished inasmuch as there is no longer a defendant to stand as the accused, the civil action instituted therein for recovery of civil liability ex delicto is ipso facto extinguished, grounded as it is on the criminal case. Corollarily, the claim for civil liability survives notwithstanding the death of the accused, if the same may also be predicted on a source of obligation other than delicit. 27

Thus, the outcome of this appeal pertains only remaining accused-appellant, Martin L. Romero. The trail court considered the swindling involved in this case as having been committed by a syndicate 28 and sentenced the accused to life imprisonment based on the provisions of Presidential Decree 1689, which increased the penalty for certain forms of swindling or estafa. 29 However, the prosecution failed to clearly establish that the corporation was a syndicate, as defined under the law. The penalty of life imprisonment cannot be imposed. What would be applicable in the present case is the second paragraph of a Presidential Decree No. 1689, Section 1, which provides that:

When not committed by a syndicate as above defined, the penalty imposable shall be reclusion temporal to reclusion perpetua if the amount of the fraud exceeds 100.000 pesos.

Art. 77 of the Revised Penal Code on complex penalties provides that "whenever the penalty prescribed does not have one of the forms specially provided for in this Code, the periods shall be distributed, applying by analogy the prescribed rules," that is, those in Articles 61 and 76. 30 Hence, where as in this case, the penalty provided by Section 1 of Presidential Decree No. 1689 for estafa under Articles 315 and 316 of the Code is reclusion temporal to reclusion perpetua, the minimum period thereof is twelve (12) year and one (1) day to sixteen (16) years of reclusion temporal; the medium period is sixteen (16) years and one (1) day to twenty (20) years of reclusion temporal; and the maximum period is reclusion perpetua.

In the case at bar, no mitigating or aggravating circumstance has been alleged or proved. Applying the rules in the Revised Penal Code for graduating penalties by degreses 31 to determine the proper period, 32 the penalty for the offense of estafa under Article 315, 2(d) as amended by P.D. 1689 involving the amount of P150,000.00 is the medium of the period of the complex penalty in said Section 1, that is, sixteen (16) years and one (1) day to twenty (20) years. This penalty, being that which is to be actually imposed in accordance with the therefor and not merely imposable as a general prescription under the law, shall be the maximum range of the indeterminate sentence. 33 The minimum thereof shall be taken, as aforesaid, from any period of the penalty next lower in degree which is prision mayor.

To enable the complainant to obtain means, diversion or amusements that will serve to alleviate the moral sufferings undergone by him, by reason of the failure of the accused to return his money, moral damages are imposed against accused-appellant Martin L. Romero in the amount of twenty thousand pesos (P20,000.00), 34 To serve as an example for the public good, exemplary damages are awarded against him in the amount of fifteen thousand pesos (P15,000. 00). 35

WHEREFORE, the Court hereby AFFIRMS WITH MODIFICATION the appealed judgment. The Court hereby sentences accused-appellant Martin Romero to suffer an indeterminate penalty of ten (10) years and one (1) day of prision mayor, as minimum, to sixteen (16) years and one (1) day of reclusion temporal, as maximum, to indemnify Ernesto A. Ruiz in the amount of one hundred fifty thousand pesos (P150,000.00) with interest thereon at six (6%) per centrum per annum from September 14, 1989, until fully paid, to pay twenty thousand pesos (P20,000.00) as moral damages and fifteen thousand pesos (P15,000.00), as exemplary damages, and the costs.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Melo, Kapunan and Ynares-Santiago, JJ., concur.

Footnotes

1 Joint Judgment, dated March 25, 1993, Rollo, pp. 15-23.

2 Docketed as Criminal Case No. 3808.

3 Rollo, p. 7.

4 Docketed as Criminal Case No. 3806.

5 During the arraignment of the accused the presiding judge of Branch 5, Regional Trial Court, Butuan City was Hon. Edelwina C. Pastoral.

6 Violation of Batas Pambansa Bilang 22.

7 Violation of Article 315, par. 2 (d) of the Revised Penal Code, in relation to Presidential Decree 1689.

8 Joint Judgment, Rollo, pp. 92-93.

9 Rollo, p. 170.

10 People vs. Tugbang, 196 SCRA 341, 345 citing People vs. Satorre, 72 SCRA 439.

43

11 Original Records, Criminal Case No. 3808, p. 41-42.

12 tsn, January 10, 1991.

13 tsn, August 12, 1991.

14 tsn, August 12, 1991, Rollo, p. 206.

15 Rollo, pp. 72-85.

16 Art. 315 Swindling (estafa) — Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by:

1. . . .

2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneous with the commission of the fraud:

(a) . . .

(d) by postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act. (As amended by RA 4885, BP 22 and P.D. 1689)

17 Jovita Sales vs. Court of Appeals, 164 SCRA 717, 721, citing the case of People vs. Sabio, 86 SCRA 568.

18 37 Am Jur 2d § 1, p. 19.

19 People vs. Priscilla Balasas, G.R. No. 106357, G.R. Nos. 108601-02, September 3, 1998.

20 37 Am Jur 2d §2 , p. 20.

21 Quirico Abela vs. Cesario C. Golez, 131 SCRA 12.

22 Reyes Inc. Revised Penal Code, Book II, p. 697, citing the explanatory note of Senate Bill No. 413, Article 315, par 2 (d), Revised Penal Code, as amended by Republic Act 4885; Vallarta vs. Court of Appeals, 150 SCRA 336, 343.

23 Section 17, Act No. 2031.

24 Named after Charles Ponzi who promoted the scheme in the 1920s, the original scheme involved the issuance of bonds which offered 50% interest in 45 days or a 100% profit if held for 90 days,; People vs. Priscilla Balasa, supra.

25 People vs. Priscilla Balasa, supra.

26 236 SCRA 239, 251.

27 People vs. Bayotas, supra.

28 A syndicate consists of five or more persons formed with the intention of carrying out the unlawful or illegal act, transaction, enterprises or scheme, and the defraudation results in the misappropriation of moneys contributed by stockholders or members of rural banks, cooperatives, "samahang nayon(s)," or farmers' associations, or funds solicited by corporations associations from the general publics [Section 1, P. D. 1689]

29 There was a need to provide for higher penalty to prevent acts of defraudation or misappropriation of funds solicited by corporations/associations from the general public which erodes the confidence of the public in the banking and cooperative system, contravenes the public interest, and constitutes economic sabotage that threatens the stability of the nation. [Preamble, P.D. 1689]

30 People vs. Lian, 255 SCRA 532, on p. 541.

31 Art. 61, Revised Penal Code.

32 Art. 64, Ibid.

33 People vs. Lian, supra on p. 542.

34 Prudenciado vs. Alliance Transport System, Inc., 148 SCRA 440, 449.

35 Lopez vs. Pan American World Airways, 16 SCRA 431.

44