PRESENTMENT FOR PAYMENT

G.R. No. 89802 May 7, 1992

ASSOCIATED BANK and CONRADO CRUZ, petitioners, vs. HON. COURT OF APPEALS, and MERLE V. REYES, doing business under the name and style "Melissa's RTW," respondents.

Soluta, Leonidas, Marifosque, Javier, Liboon & aguila Law Offices for petitioners.

Roberto B. Lugue for private respondent.

CRUZ, J.:

The sole issue raised in this case is whether or not the private respondent has a cause of action against the petitioners for their encashment and payment to another person of certain crossed checks issued in her favor.

The private respondent is engaged in the business of ready-to-wear garments under the firm name "Melissa's RTW." She deals with, among other customers, Robinson's Department Store, Payless Department Store, Rempson Department Store, and the Corona Bazaar.

These companies issued in payment of their respective accounts crossed checks payable to Melissa's RTW in the amounts and on the dates indicated below:

PAYOR BANK AMOUNT DATE

Payless Solid Bank P3,960.00 January 19, 1982 Robinson's FEBTC 4,140.00 December 18, 1981 Robinson's FEBTC 1,650.00 December 24, 1981 Robinson's FEBTC 1,980.00 January 12, 1982 Rempson TRB 1,575.00 January 9, 1982 Corona RCBC 2,500.00 December 22, 1981

When she went to these companies to collect on what she thought were still unpaid accounts, she was informed of the issuance of the above-listed crossed checks. Further inquiry revealed that the said checks had been deposited with the Associated Bank (hereinafter, "the Bank") and subsequently paid by it to one Rafael Sayson, one of its "trusted depositors," in the words of its branch manager and co-petitioner, Conrado Cruz, Sayson had not been authorized by the private respondent to deposit and encash the said checks.

The private respondent sued the petitioners in the Regional Trial Court of Quezon City for recovery of the total value of the checks plus damages. After trial, judgment was rendered requiring them to pay the private respondent the total value of the subject checks in the amount of P15,805.00 plus 12% interest, P50,000.00 actual damages, P25,000.00 exemplary damages, P5,000.00 attorney's fees, and the costs of the suit. 1

The petitioners appealed to the respondent court, reiterating their argument that the private respondent had no cause of action against them and should have proceeded instead against the companies that issued the checks. In disposing of this contention, the Court of Appeals 2 said:

The cause of action of the appellee in the case at bar arose from the illegal, anomalous and irregular acts of the appellants in violating common banking practices to the damage and prejudice of the appellees, in allowing to be deposited and encashed as well as paying to improper parties without the knowledge, consent, authority or endorsement of the appellee which totalled P15,805.00, the six (6) checks in dispute which were "crossed checks" or "for payee's account only," the appellee being the payee.

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

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

We affirm.

Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top portion of the checks. The crossing is special where the name of a bank or a business institution is written between the two parallel lines, which means

that the drawee should pay only with the intervention of that company. 3 The crossing is general where the words written between the two parallel lines are "and Co." or "for payee's account only," as in the case at bar. This means that the drawee bank should not encash the check but merely accept it for deposit. 4

In State Investment House vs. IAC, 5 this Court declared that "the effects of crossing a check are: (1) that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once –– to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose."

The effects therefore of crossing a check relate to the mode of its presentment for payment. Under Sec. 72 of the Negotiable Instruments Law, presentment for payment, to be sufficient, must be made by the holder or by some person authorized to receive payment on his behalf. Who the holder or authorized person is depends on the instruction stated on the face of the check.

The six checks in the case at bar had been crossed and issued "for payee's account only." This could only signify that the drawers had intended the same for deposit only by the person indicated, to wit, Melissa's RTW.

The petitioners argue that the cause of action for violation of the common instruction found on the face of the checks exclusively belongs to the issuers thereof and not to the payee. Moreover, having acted in good faith as they merely facilitated the encashment of the checks, they cannot be made liable to the private respondent.

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

The weight of authority is to the effect that "the possession of check on a forged or unauthorized indorsement is wrongful, and when the money is collected on the check, the bank can be held 'for moneys had and received." 6The proceeds are held for the rightful owner of the payment and may be recovered by him. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected without indorsement at all. The act of the bank amounts to conversion of the check. 7

It is not disputed that the proceeds of the subject checks belonged to the private respondent. As she had not at any time authorized Rafael Sayson to endorse or encash them, there was conversion of the funds by the Bank.

When the Bank paid the checks so endorsed notwithstanding that title had not passed to the endorser, it did so at its peril and became liable to the payee for the value of the checks. This liability attached whether or not the Bank was aware of the unauthorized endorsement. 8

The petitioners were negligent when they permitted the encashment of the checks by Sayson. The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to the private respondent's account. Its failure to inquire into Sayson's authority was a breach of a duty it owed to the private respondent.

As the Court stressed in Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corp., 9 "the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct."

The petitioners insist that the private respondent has no cause of action against them because they have no privity of contract with her. They also argue that it was Eddie Reyes, the private respondent's own husband, who endorsed the checks.

Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be liable to the private respondent because he was not authorized to make the endorsements. And even if the endorsements were forged, as alleged, the Bank would still be liable to the private respondent for not verifying the endorser's authority. There is no substantial difference between an actual forging of a name to a check as an endorsement by a person not authorized to make the signature and the affixing of a name to a check as an endorsement by a person not authorized to endorse it. 10

The Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire as to the authority of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a prior endorsement by Eddie Reyes. The failure of the Bank to make this inquiry was a breach of duty that made it liable to the private respondent for the amount of the checks.

There being no evidence that the crossed checks were actually received by the private respondent, she would have a right of action against the drawer companies, which in turn could go against their respective drawee banks, which in turn could sue the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify proceedings, the payee of the illegally encashed checks should be allowed to recover directly from the bank responsible for such encashment regardless of whether or not the checks were actually delivered to the payee. 11 We approve such direct action in the case at bar.

It is worth repeating that before presenting the checks for clearing and for payment, the Bank had stamped on the back thereof the words: "All prior endorsements and/or lack of endorsements guaranteed," and thus made the assurance that it had ascertained the genuineness of all prior endorsements.

We find that the respondent court committed no reversible error in holding that the private respondent had a valid cause of action against the petitioners and that the latter are indeed liable to her for their unauthorized encashment of the subject checks. We also agree with the reduction of the award of the exemplary damages for lack of sufficient evidence to support them.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.

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

[G.R. No. 141968. February 12, 2001]

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF

THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and

MA. LUZ E. GUECO,respondents.

D E C I S I O N

KAPUNAN, J.:

The respondents Gueco Spouses obtained a loan from petitioner

International Corporate Bank (now Union Bank of the Philippines) to purchase a car a

Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed

promissory notes which were payable in monthly installments and chattel mortgage

over the car to serve as security for the notes.

The Spouses defaulted in payment of installments. Consequently, the Bank filed

on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for Sum of Money

with Prayer for a Writ of Replevin[1] before the Metropolitan Trial Court of Pasay

City, Branch 45.[2] On August 25, 1995, Dr. Francis Gueco was served summons and

was fetched by the sheriff and representative of the bank for a meeting in the bank

premises. Desi Tomas, the Banks Assistant Vice President demanded payment of the

amount of P184,000.00 which represents the unpaid balance for the car loan. After

some negotiations and computation, the amount was lowered

to P154,000.00, However, as a result of the non-payment of the reduced amount on

that date, the car was detained inside the banks compound.

On August 28, 1995, Dr. Gueco went to the bank and talked with its

Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson

Rivera. The negotiations resulted in the further reduction of the outstanding loan

to P150,000.00.

On August 29, 1995, Dr. Gueco delivered a managers check in the amount

of P150,000.00 but the car was not released because of his refusal to sign the Joint

Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr.

Gueco need not sign the motion for joint dismissal considering that they had not yet

filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is

standard operating procedure in their bank to effect a compromise and to preclude

future filing of claims, counterclaims or suits for damages.

After several demand letters and meetings with bank representatives, the

respondents Gueco spouses initiated a civil action for damages before the

Metropolitan Trial Court of Quezon City, Branch 33.The Metropolitan Trial Court

dismissed the complaint for lack of merit.[3]

On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision

of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there

was a meeting of the minds between the parties as to the reduction of the amount of

indebtedness and the release of the car but said agreement did not include the signing

of the joint motion to dismiss as a condition sine qua non for the effectivity of the

compromise. The court further ordered the bank:

1. to return immediately the subject car to the appellants in good working condition; Appellee

may deposit the Managers check the proceeds of which have long been under the control of

the issuing bank in favor of the appellee since its issuance, whereas the funds have long been

paid by appellants to secure said Managers Check, over which appellants have no control;

2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary

damages, and P25,000.00 as attorneys fees, and

3. to pay the cost of suit.

In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby

AFFIRMED.[4]

The case was elevated to the Court of Appeals, which on February 17, 2000,

issued the assailed decision, the decretal portion of which reads:

WHEREFORE, premises considered, the petition for review on certiorari is hereby

DENIED and the Decision of the Regional Trial Court of Quezon City, Branch 227, in

Civil Case No. Q-97-31176, for lack of any reversible error, is AFFIRMED in

toto. Costs against petitioner.

SO ORDERED.[5]

The Court of Appeals essentially relied on the respect accorded to the finality of

the findings of facts by the lower court and on the latter's finding of the existence of

fraud which constitutes the basis for the award of damages.

The petitioner comes to this Court by way of petition for

review on certiorari under Rule 45 of the Rules of Court, raising the following

assigned errors:

I

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION

TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT.

II

THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY

DAMAGES AND ATTORNEYS FEES IN FAVOR OF THE RESPONDENTS.

III

THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER

RETURN THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING

ANY PROVISION FOR THE ISSUANCE OF THE NEW MANAGERS/CASHIERS

CHECK BY THE RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF

THE ORIGINAL CASHIERS CHECK THAT ALREADY BECAME STALE.[6]

As to the first issue, we find for the respondents. The issue as to what constitutes

the terms of the oral compromise or any subsequent novation is a question of fact that

was resolved by the Regional Trial Court and the Court of Appeals in favor of

respondents. It is well settled that the findings of fact of the lower court, especially

when affirmed by the Court of Appeals, are binding upon this Court.[7] While there are

exceptions to this rule,[8] the present case does not fall under any one of them, the

petitioners claim to the contrary, notwithstanding.

Being an affirmative allegation, petitioner has the burden of evidence to prove his

claim that the oral compromise entered into by the parties on August 28, 1995

included the stipulation that the parties would jointly file a motion to dismiss. This

petitioner failed to do. Notably, even the Metropolitan Trial Court, while ruling in

favor of the petitioner and thereby dismissing the complaint, did not make a factual

finding that the compromise agreement included the condition of the signing of a joint

motion to dismiss.

The Court of Appeals made the factual findings in this wise:

In support of its claim, petitioner presented the testimony of Mr. Jefferson Rivera who

related that respondent Dr. Gueco was aware that the signing of the draft of the Joint

Motion to Dismiss was one of the conditions set by the bank for the acceptance of the

reduced amount of indebtedness and the release of the car. (TSN, October 23, 1996,

pp. 17-21, Rollo, pp. 18, 5). Respondents, however, maintained that no such condition

was ever discussed during their meeting of August 28, 1995 (Rollo, p. 32).

The trial court, whose factual findings are entitled to respect since it has the

opportunity to directly observe the witnesses and to determine by their demeanor on

the stand the probative value of their testimonies (People vs. Yadao, et al. 216 SCRA

1, 7 [1992]), failed to make a categorical finding on the issue. In dismissing the claim

of damages of the respondents, it merely observed that respondents are not entitled to

indemnity since it was their unjustified reluctance to sign of the Joint Motion to

Dismiss that delayed the release of the car. The trial court opined, thus:

As regards the third issue, plaintiffs claim for damages is unavailing. First, the

plaintiffs could have avoided the renting of another car and could have avoided this

litigation had he signed the Joint Motion to Dismiss. While it is true that herein

defendant can unilaterally dismiss the case for collection of sum of money with

replevin, it is equally true that there is nothing wrong for the plaintiff to affix his

signature in the Joint Motion to Dismiss, for after all, the dismissal of the case against

him is for his own good and benefit. In fact, the signing of the Joint Motion to

Dismiss gives the plaintiff three (3) advantages.First, he will recover his car. Second,

he will pay his obligation to the bank on its reduced amount of P150,000.00 instead of

its original claim of P184,985.09. And third, the case against him will be

dismissed. Plaintiffs, likewise, are not entitled to the award of moral damages and

exemplary damages as there is no showing that the defendant bank acted fraudulently

or in bad faith. (Rollo, p. 15)

The Court has noted, however, that the trial court, in its findings of facts, clearly

indicated that the agreement of the parties on August 28, 1995 was merely for the

lowering of the price, hence -

xxx On August 28, 1995, bank representative Jefferson Rivera and plaintiff

entered into an oral compromise agreement, whereby the original claim of the

bank of P184,985.09 was reduced to P150,000.00 and that upon payment of

which, plaintiff was informed that the subject motor vehicle would be

released to him. (Rollo, p. 12)

The lower court, on the other hand, expressly made a finding that petitioner failed to

include the aforesaid signing of the Joint Motion to Dismiss as part of the

agreement. In dismissing petitioners claim, the lower court declared, thus:

If it is true, as the appellees allege, that the signing of the joint motion was a

condition sine qua non for the reduction of the appellants obligation, it is only

reasonable and logical to assume that the joint motion should have been shown to Dr.

Gueco in the August 28, 1995 meeting. Why Dr. Gueco was not given a copy of the

joint motion that day of August 28, 1995, for his family or legal counsel to see to be

brought signed, together with the P150,000.00 in managers check form to be

submitted on the following day on August 29, 1995? (sic) [I]s a question whereby the

answer up to now eludes this Courts comprehension. The appellees would like this

Court to believe that Dr. Gueco was informed by Mr. Rivera of the bank requirement

of signing the joint motion on August 28, 1995 but he did not bother to show a copy

thereof to his family or legal counsel that day August 28, 1995. This part of the theory

of appellee is too complicated for any simple oral agreement. The idea of a Joint

Motion to Dismiss being signed as a condition to the pushing through a deal surfaced

only on August 29, 1995.

This Court is not convinced by the appellees posturing. Such claim rests on too

slender a frame, being inconsistent with human experience. Considering the effect of

the signing of the Joint Motion to Dismiss on the appellants substantive right, it is

more in accord with human experience to expect Dr. Gueco, upon being shown the

Joint Motion to Dismiss, to refuse to pay the Managers Check and for the bank to

refuse to accept the manager's check. The only logical explanation for this inaction is

that Dr. Gueco was not shown the Joint Motion to Dismiss in the meeting of August

28, 1995, bolstering his claim that its signing was never put into consideration in

reaching a compromise. xxx.[9]

We see no reason to reverse.

Anent the issue of award of damages, we find the claim of petitioner

meritorious. In finding the petitioner liable for damages, both the Regional Trial Court

and the Court of Appeals ruled that there was fraud on the part of the petitioner. The

CA thus declared:

The lower court's finding of fraud which became the basis of the award of

damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil Code

of the Philippines, as amended is the deliberate and intentional evasion of the normal

fulfillment of obligation When petitioner refused to release the car despite

respondent's tender of payment in the form of a manager's check, the former

intentionally evaded its obligation and thereby became liable for moral and exemplary

damages, as well as attorneys fees.[10]

We disagree.

Fraud has been defined as the deliberate intention to cause damage or prejudice. It

is the voluntary execution of a wrongful act, or a willful omission, knowing and

intending the effects which naturally and necessarily arise from such act or omission;

the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional

evasion of the normal fulfillment of obligation.[11] We fail to see how the act of the

petitioner bank in requiring the respondent to sign the joint motion to dismiss could

constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that

the signing of a joint motion to dismiss is a standard operating procedure of petitioner

bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to

dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner

against it before the lower court would be dismissed with prejudice. The whole point

of the parties entering into the compromise agreement was in order that Dr. Gueco

would pay his outstanding account and in return petitioner would return the car and

drop the case for money and replevin before the Metropolitan Trial Court. The joint

motion to dismiss was but a natural consequence of the compromise agreement and

simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of

the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can

not be said to be a deliberate attempt on the part of petitioner to renege on the

compromise agreement of the parties. It should, likewise, be noted that in cases of

breach of contract, moral damages may only be awarded when the breach was

attended by fraud or bad faith.[12] The law presumes good faith. Dr. Gueco failed to

present an iota of evidence to overcome this presumption. In fact, the act of petitioner

bank in lowering the debt of Dr. Gueco from P184,000.00 to P150,000.00 is indicative

of its good faith and sincere desire to settle the case. If respondent did suffer any

damage, as a result of the withholding of his car by petitioner, he has only himself to

blame. Necessarily, the claim for exemplary damages must fail. In no way, may the

conduct of petitioner be characterized as wanton, fraudulent, reckless, oppressive or

malevolent.[13]

We, likewise, find for the petitioner with respect to the third assigned error. In the

meeting of August 29, 1995, respondent Dr. Gueco delivered a managers check

representing the reduced amount ofP150,000.00. Said check was given to Mr. Rivera,

a representative of respondent bank. However, since Dr. Gueco refused to sign the

joint motion to dismiss, he was made to execute a statement to the effect that he was

withholding the payment of the check.[14]Subsequently, in a letter addressed to Ms.

Desi Tomas, vice president of the bank, dated September 4, 1995, Dr. Gueco

instructed the bank to disregard the hold order letter and demanded the immediate

release of his car,[15] to which the former replied that the condition of signing the joint

motion to dismiss must be satisfied and that they had kept the checkwhich could be

claimed by Dr. Gueco anytime.[16] While there is controversy as to whether the

document evidencing the order to hold payment of the check was formally offered as

evidence by petitioners,[17] it appears from the pleadings that said check has not been

encashed.

The decision of the Regional Trial Court, which was affirmed in toto by the Court

of Appeals, orders the petitioner:

1. to return immediately the subject car to the appellants in good working

condition. Appellee may deposit the Managers Check the proceeds of which have

long been under the control of the issuing bank in favor of the appellee since its

issuance, whereas the funds have long been paid by appellants to secure said

Managers Check over which appellants have no control.[18]

Respondents would make us hold that petitioner should return the car or its value

and that the latter, because of its own negligence, should suffer the loss occasioned by

the fact that the check had become stale.[19] It is their position that delivery of the

managers check produced the effect of payment[20] and, thus, petitioner was negligent

in opting not to deposit or use said check. Rudimentary sense of justice and fair play

would not countenance respondents position.

A stale check is one which has not been presented for payment within a

reasonable time after its issue. It is valueless and, therefore, should not be paid. Under

the negotiable instruments law, an instrument not payable on demand must be

presented for payment on the day it falls due. When the instrument is payable on

demand, presentment must be made within a reasonable time after its issue. In the

case of a bill of exchange, presentment is sufficient if made within a reasonable time

after the last negotiation thereof.[21]

A check must be presented for payment within a reasonable time after its

issue,[22] and in determining what is a reasonable time, regard is to be had to the nature

of the instrument, the usage of trade or business with respect to such instruments, and

the facts of the particular case.[23] The test is whether the payee employed such

diligence as a prudent man exercises in his own affairs.[24] This is because the nature

and theory behind the use of a check points to its immediate use and payability. In a

case, a check payable on demand which was long overdue by about two and a half (2-

1/2) years was considered a stale check.[25] Failure of a payee to encash a check for

more than ten (10) years undoubtedly resulted in the check becoming stale.[26] Thus,

even a delay of one (1) week[27] or two (2) days,[28] under the specific circumstances of

the cited cases constituted unreasonable time as a matter of law.

In the case at bar, however, the check involved is not an ordinary bill of exchange

but a managers check. A managers check is one drawn by the banks manager upon the

bank itself. It is similar to a cashiers check both as to effect and use. A cashiers check

is a check of the banks cashier on his own or another check. In effect, it is a bill of

exchange drawn by the cashier of a bank upon the bank itself, andaccepted in

advance by the act of its issuance.[29] It is really the banks own check and may be

treated as a promissory note with the bank as a maker.[30] The check becomes the

primary obligation of the bank which issues it and constitutes its written promise to

pay upon demand. The mere issuance of it is considered an acceptance thereof. If

treated as promissory note, the drawer would be the maker and in which case the

holder need not prove presentment for payment or present the bill to the drawee for

acceptance.[31]

Even assuming that presentment is needed, failure to present for payment within a

reasonable time will result to the discharge of the drawer only to the extent of the loss

caused by the delay.[32] Failure to present on time, thus, does not totally wipe out all

liability. In fact, the legal situation amounts to an acknowledgment of liability in the

sum stated in the check. In this case, the Gueco spouses have not alleged, much less

shown that they or the bank which issued the managers check has suffered damage or

loss caused by the delay or non-presentment. Definitely, the original obligation to pay

certainly has not been erased.

It has been held that, if the check had become stale, it becomes imperative that the

circumstances that caused its non-presentment be determined.[33] In the case at bar,

there is no doubt that the petitioner bank held on the check and refused to encash the

same because of the controversy surrounding the signing of the joint motion to

dismiss. We see no bad faith or negligence in this position taken by the Bank.

WHEREFORE, premises considered, the petition for review is given due

course. The decision of the Court of Appeals affirming the decision of the Regional

Trial Court is SET ASIDE. Respondents are further ordered to pay the original

obligation amounting to P150,000.00 to the petitioner upon surrender or cancellation

of the managers check in the latters possession, afterwhich, petitioner is to return the

subject motor vehicle in good working condition.

SO ORDERED.

NOTICE OF DISHONOR

[G.R. No. 141669. February 28, 2005]

JAIME DICO, petitioner, vs. HON. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking the reversal of the Decision[1] of the Court of Appeals dated 30 September 1999 and its Resolution[2] dated 11 January 2000 denying petitioners motion for reconsideration.

Accused Jaime Dico, now petitioner, was charged on 28 March 1994 with three (3) counts of violation of Batas Pambansa Bilang 22 (B.P. Blg. 22), docketed as Criminal Cases No. 38254-R to No. 38256-R, before the Municipal Trial Court in Cities (MTCC), Branch 7, Cebu City.

The accusatory portion of the Information in Criminal Case No. 38254-R reads:

That on or about the 12th day of May, 1993 and for sometime subsequent

thereto, in the City of Cebu, Philippines, and within the jurisdiction of this

Honorable Court, the said accused, knowing at the time of issue of the check

she/he does not have sufficient funds in or credit with the drawee bank for the

payment of such check in full upon its presentment, with deliberate intent, with

intent of gain and of causing damage, did then and there issue, make or draw

Far East Bank and Trust Co. Check No. 364903 dated May 12, 1993 in the

amount of P100,000.00 payable to Equitable Banking Corp. which check was

issued in payment of an obligation of said accused, but when said check was

presented with said bank, the same was dishonored for reason Account Closed

and despite notice and demands made to redeem or make good said check, said

accused failed and refused, and up to the present time still fails and refuses to

do so, to the damage and prejudice of said Equitable Card Network Inc. in the

amount of P100,000.00 Philippine Currency.[3]

The two other Informations are similarly worded except for the number, date, and amount of the checks. The pertinent data in the other informations are as follows:

Case No. Check No. Date Amount

38255-R 369404 June 12, 1993 P200,000.00[4]

38256-R 369380 Jan. 15, 1993 P296,736.27[5]

When arraigned on 11 January 1995, accused pleaded not guilty to each of the charges. Upon agreement of the parties, pre-trial of the cases was waived.[6] The cases were consolidated and were jointly heard.

The prosecution presented Lily Canlas,[7] Collection Manager of Equitable Card Network, Inc., as its sole witness. On the other hand, the defense presented two witnesses Debbie Dy, Manager of Equitable Card Network, Inc., Cebu Branch, as a hostile witness, and the petitioner himself.

The facts, as summarized by the MTCC, are quoted by the Court of Appeals:

The evidence of the prosecution adduced thru the testimony of Lily Canlas,

collection manager of the complainant Equitable Card Network, Inc. show that

the accused is a credit card holder of the said network; that the complainant

filed these cases because the three (3) checks which the accused issued in its

favor, and in payment of his obligation to the complainant card network all

bounced, for reason Account Closed (Exhs. A, B, C, A-1, B-1, and C-1).

That the complainant sent a letter to the accused to redeem or pay the amounts

of the checks but the accused refused to comply, hence, the filing of these cases

in Court. (Exhs. 2, 3 and 4).

On cross-examination, Ms. Canlas testified that in 1993, the credit line of the

accused with the complainant Equitable Card Network was P499,000.00; that

the accused had a good record with the complainant until he issued the

bouncing checks above-mentioned; that the outstanding obligation of the

accused to the complainant Equitable Card Network including interests and

charges thereon is P1,035,590.28 (Exh. D and D-1); and that the obligation of

the accused to the complainant rose to a million because the accused abused his

credit card; that in January, 1993, the accused applied with the complainant for

an increase of his credit line to P699,000.00 but this was rejected by the

complainant (Exh. 1), because the amount of P499,000.00 is the highest credit

line that the complainant can give the accused, and besides, the current

obligation of the accused has not yet been settled.

For his defense, the accused presented Ms. Debbie Dy, Branch Manager of the

local branch of the complainant Equitable Card Network as his hostile witness

who testified that she is familiar with the accounts of the accused with the

complainant; that including interests and other charges, the total obligation of

the accused to the complainant is P1,035,590.31; that the credit line of the

accused with the complainant is P499,000.00; and the accuseds application for

an increase of his credit line P699,000.00 was rejected by the complainant; and

that the total amount of the three (3) checks issued by the accused in favor of

the complainant in three (3) cases is P596,736.27.

The accused Jaime Dico testifying on direct examination admits having issued

in favor of the complainant Equitable Card Network FEBTC Check No.

369380 dated January 15, 1993 in the amount of P296,736.27 (Exh. A);

FEBTC Check No. 369403 dated May 12, 1993 in the amount of P100,000.00

(Exh. B) and FEBTC Check No. 369404 dated June 12, 1993 in the amount of

P200,000.00 (Exh. C).

That due to the conflicts and inconsistencies in the billings made upon him by

the complainant with regard(s) to amounts reflected in his accounts, he advised

the Branch Manager then, Bernard Chua not to present to the bank the checks

that he has issued until all the said conflicts and inconsistencies in his accounts

shall have been reconciled.

That since 1985, he is a credit card holder of the complainant Equitable Card

Network, Inc., and when he issued the checks in question, he was holding the

position of sales manager of the Yap Auto Supply, Cebu City; and because of

the nature of his work which is to travel in the Visayas and Mindanao, he

needed a credit card in his trips.

That as of January, 1993, his credit limit with the complainant was exactly

P499,000.00; and the reconciliation of his billings which he has asked the

complainant over the years [was] not heeded; that because P596,736.27 is quite

a big amount, he did not redeem the checks he issued because he wanted to be

sure that he would be paying the right amount.

That with respect to the check (Exh. B) dated May 12, 1993, in the amount of

P100,000.00, he issued said check on April 7, 1993; and because of the

inconsistencies in his billings, and because he was billed every month, he

proposed to the Branch Manager then, Bernard Chua that pending

reconciliation of his accounts, he will issue four (4) checks; the three (3) of

which are the checks marked as the prosecutions Exhs. A, B, and C and subject

of these cases, and another check; that he issued above-mentioned four (4)

checks in addition to his cash payment of P100,000.00 which he has paid to

Bernard Chua; that in his proposal dated April 7, 1993 (Exh. 12), he included

the above-mentioned four (4) post dated checks as a sign of good faith; and as a

way of commitment to pay his outstanding balance to the complainant which is

to [be] amortized as follows: May 12, 1993 P100,000.00; June 12, 1993 -

P200,000.00; July 12, 1993 P300,000.00; and on August 12, 1993

P300,000.00; but his proposal was rejected by the complainants top

management in Manila; that based on Exh. 8 which is the Summary furnished

by Debbie Dy, incumbent Branch Manager of the complainant network in Cebu

City, his outstanding balance to the complainant is P752,389.19, but with the

payment of P100,000.00 he made on April 7, 1993, his balance to the

complainant is P652,389.19.

That he does not understand why his total obligation to the complainant has

already reached P1,035,589.28 when his credit line is only P499,000.00; hence,

he approached the complainants manager to reconcile his accounts and find out

where the complainant was mistaken; that even if his accounts were reconciled,

he cannot admit that his obligation to the complainant has already reached

millions; and that the problem with the complainant is that it did not return to

him the checks which he sent to the complainant together with his proposal to

reconcile his accounts.

On cross-examination, the accused testified that on April 6, 1993, he made a

cash payment of P100,000.00 to the complainant; then on January 15, 1993, he

issued the check Exh. A; then on April 7, 1993, he issued the checks Exhs. B

and C; and then on April 30, 1993, he issued two (2) other checks to the

complainant; and the total out of these five (5) checks which he has issued in

favor of the complainant is P1,881,000.12.

That on May 31, 1993, he filed a Petition For Insolvency with the Regional

Trial Court, Cebu City (Exh. B); that attached to the said Petition is Schedule A

which contains a Statement of his Assets and Liabilities; that as reflected in the

Schedule of Creditors (Exh. E-3), one of his creditors is the Equitable Card

Network (Exh. E-3-A) which is the complainant in these cases; and the nature

of his obligation to the said creditor is a loan in the amount of P1,888,181.29

(Exh. B-3-A).

It is also confirmed by the accused that in the Schedule List of Check issued

(Exh. E-4), the seven (7) checks mentioned therein (Exh. E-4-A) include the

checks which issued to the complainant in these cases and marked as Exhs. A,

B, and C.

The accused further testified on cross-examination that although he could not

agree on his outstanding obligation to the complainant, he nevertheless placed

his total liability to the complainant in his Petition, because he was made to

understand in the insolvency proceedings that he has to list down the checks

that he has issued but were never returned to him; and since the complainant

did not return to him the checks subject of these cases, he has to include said

checks in his assets and liabilities in his petition for insolvency.[8]

In a decision dated 19 June 1996, Amado B. Bajarias, Sr., Presiding Judge of the MTCC, Branch 7, Cebu City, convicted petitioner of the crimes charged. The dispositive portion of which reads:

WHEREFORE, the Court finds the accused Jaime Dico guilty beyond

reasonable doubt of the crime of violation of BP Blg. 22 as defined and

penalized under Sec. 1 of the said law and as charged in the above-entitled

three (3) Informations, and hereby imposes upon the accused; the following

penalties:

1) For Crim. Case No. 38254-R, to suffer imprisonment of six (6) months, and to indemnify the complainant, the sum of P100,000.00;

2) For Crim. Case No. 38255-R, to suffer imprisonment of six (6) months, and to indemnify the complainant, the sum of P200,000.00; and

3) For Crim. Case No. 3856-R,[9] to suffer imprisonment of six (6) months, and to indemnify the complainant the sum of P296,736.27.[10]

On 25 July 1996, petitioner filed a Motion for Reconsideration[11] which the prosecution opposed.[12] In an order dated 26 August 1996, the motion was denied.[13]

On 30 August 1996, petitioner appealed to the Regional Trial Court (RTC) by filing a notice of appeal.[14]

In a Judgment dated 20 February 1997, Ferdinand J. Marcos, Presiding Judge of the RTC of Cebu City, Branch 20, affirmed en toto the decision of the MTCC.[15] Petitioner moved for its reconsideration[16] which was opposed by the prosecution.[17] On 23 June 1997, the motion for reconsideration was denied.[18]

By way of Petition for Review, accused Dico went up to the Court of Appeals seeking the reversal of the Judgment of the RTC which affirmed the decision of the MTCC.[19]

In its Comment to the Petition for Review, the Office of the Solicitor General asked for the dismissal of the petition on the ground that the same had no merit.[20]

In its Decision dated 30 September 1999, the Court of Appeals, in acquitting petitioner in one of the cases, said:

However, with respect to subject FEBTC Check No. 369380 dated January 15,

1993, which was dishonored when presented for payment on May 17, 1993 or

beyond ninety (90) days from date thereof, no such prima facie evidence of

knowledge of insufficiency of funds or credit exists. Hence, it is incumbent

upon the prosecution to adduce evidence to prove that petitioner has knowledge

of the insufficiency of his funds or credit at the time he issued FEBTC Check

No. 369380 dated January 15, 1993. Unfortunately, the prosecution failed to

present evidence to establish such knowledge of insufficiency of funds or credit

on the part of the petitioner regarding the said check, as the record is bereft of

any evidence to prove the existence thereof. Perforce, petitioner cannot be

convicted of violation of B.P. Blg. 22 with respect to subject FEBTC Check

No. 369380 dated January 15, 1993. This, notwithstanding, the petitioner is

nevertheless liable to pay private complainant Equitable the amount of

P296,736.27 appearing on the face of said check as it was preponderantly

proven in the civil aspect of the case that said check was one of the unpaid

checks issued by petitioner to settle his standing obligation which up to the

present remains unpaid.[21]

The Decision disposes:

WHEREFORE, premises considered, the challenged decision via petition for review

is MODIFIED to read as follows:

(1) Petitioner Jaime Dico is ACQUITTED in Criminal Case No. 38256-R but is,

nevertheless, ordered to indemnify private complainant the sum of P296,736.27

representing his unpaid obligation covered by FEBTC Check No. 369380 dated

January 15, 1993.

(2) The judgment convicting Petitioner Jaime Dico in Criminal Cases Nos. 38254-R

and 38255-R and penalizing him to suffer imprisonment of six (6) months in each of

the said cases and ordering him to indemnify private complainant in the amount of

P100,000.00 and P200,000.00 representing his unpaid obligation covered by FEBTC

Check Nos. 369403 (dated May 12, 1993) and 369404 (dated June 12, 1993) is

AFFIRMED in toto.[22]

On 11 January 2000, the Court of Appeals denied[23] the Motion for Reconsideration[24] filed by petitioner.

On 14 February 2000, accused Dico filed the instant petition.[25] He prays that the decision and resolution of the Court of Appeals be reversed and set aside, and that he be acquitted in Criminal Cases No. 38254-R and No. 38255-R, or in the alternative, the penalty of imprisonment be deleted, and in lieu thereof, a fine be imposed.

The petition makes the following submissions:

I

THE COURT OF APPEALS VERDICT CONVICTING PETITIONER IN TWO OF

THE THREE VIOL. OF B.P. 22 CASES VIOLATES PETITIONERS RIGHT

AGAINST NON- IMPRISONMENT FOR A DEBT, AS SUBJECT CHECKS ARE

BEYOND THE APPLICATION OF B.P. 22 IN THAT:

A. ELEMENT NO. 2 (KNOWLEDGE OF INSUFFICIENCY OF FUNDS OR

CREDIT) OF B.P. 22 IS OSTENSIBLY ABSENT; AND

B. THERE ARE ABUNDANT UNCONTRADICTED YET MISAPPRECIATED

EVIDENCE EFFECTIVELY BELYING THE EXISTENCE OF ELEMENT NO. 1

OF B.P. 22 THAT THE CHECKS WERE ISSUED TO APPLY TO ACCOUNT OR

FOR VALUE.

II

IT WAS HIGHLY ERRONEOUS FOR THE COURT OF APPEALS TO RELY ON

PETITIONERS/ACCUSEDS OWN EVIDENCE, DESPITE THE PROSECUTIONS

SCANT AND WEAK EVIDENCE, TO SUPPORT HIS CONVICTION.

III

THE COURT OF APPEALS FAILED TO APPLY THE BENEFIT OF AN

OBVIOUS CLOUD OF DOUBT IN FAVOR OF PETITIONER/ACCUSED.

IV

THE PENALTY OF IMPRISONMENT IS A HARSH AND CRUEL PENALTY

CONSIDERING THE ATTENDANT CIRCUMSTANCES.[26]

The resolution of the cases revolves around the question: Was the prosecution able to prove all the elements of B.P. Blg. 22?

The essential elements of the offense penalized under Section 1, B.P. Blg. 22 are as follows: (1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.[27] The prosecution has the burden to prove all the elements of the crime beyond reasonable doubt. Failure to do so will necessarily result in exoneration.

In the cases at bar, petitioner argues that the first and second elements of the crime are not present.

Re: Criminal Case No. 38254-R

It is axiomatic that where an accused appeals the decision against him, he throws open the whole case for review and it then becomes the duty of the Supreme Court to correct any error as may be found in the appealed judgment, whether it was made the subject of assignment of errors or not.[28]

In the information filed by Felipe C. Belcia, Prosecutor II, the check involved is described as Far East Bank and Trust Company (FEBTC) Check No. 364903 dated 12 May 1993 in the amount of P100,000 payable to Equitable Banking Corporation.[29] However, after going over the records of the case, the parties, including the courts, overlooked the fact that the check being identified in court was different from that described in the information. The prosecution marked as its Exhibit B FEBTC Check No. 369403 dated 12 May 1993 in the amount of P100,000 payable to Equitable Banking Corporation. The issue as to the identity of the check, though not raised as an error, should be considered in favor of the petitioner.

The variance in the identity of the check nullifies petitioners conviction. The identity of the check enters into the first element of the offense under Section 1 of B.P. Blg. 22 that a person draws or issues a check on account or for value. There being a discrepancy in the identity of the checks described in the information and that presented in court, petitioners constitutional right to be informed of the nature of the offense charged will be violated if his conviction is upheld.

In the case of Alonto v. People,[30] this Court had this to say when there was a variance involving the date as regards the check described in the information and that adduced in evidence:

This Court notes, however, that under the third count, the information alleged that

petitioner issued a check dated 14 May 1992 whereas the documentary evidence

presented and duly marked as Exhibit I was BPI Check No. 831258 in the amount of

P25,000 dated 05 April 1992. Prosecution witness Fernando Sardes confirmed

petitioners issuance of the three BPI checks (Exhibits G, H, and I), but categorically

stated that the third check (BPI Check No. 831258) was dated 14 May 1992, which

was contrary to that testified to by private complainant Violeta Tizon, i.e., BPI check

No. 831258 dated 05 April 1992. In view of this variance, the conviction of petitioner

on the third count (Criminal Case No. Q-93-41751) cannot be sustained. It is on this

ground that petitioners fourth assignment of error is tenable, in that the prosecutions

exhibit, i.e., Exhibit I (BPI Check No. 831258 dated 05 April 1992 in the amount of

P25,000) is excluded by the law and the rules on evidence. Since the identity of the

check enters into the first essential element of the offense under Section 1 of B.P. 22,

that is, that a person makes, draws or issues a check on account or for value, and the

date thereof involves its second element, namely, that at the time of issue the maker,

drawer or issuer knew that he or she did not have sufficient funds to cover the same,

there is a violation of petitioners constitutional right to be informed of the nature of

the offense charged in view of the aforesaid variance, thereby rendering the

conviction for the third count fatally defective.

As the FEBTC Check No. 369403 dated 12 May 1993 in the amount of P100,000.00 was the check adduced in evidence and used as payment for petitioners unpaid obligation to Equitable Card Network, Inc., petitioner cannot be held civilly liable therefor considering that this is not the check described in the information.[31]

Re: Criminal Case No. 38255-R

As regards FEBTC Check No. 369404[32] dated 12 June 1993 which was deposited on 14 June 1993, petitioner maintains that the notice of dishonor given for said check was not the one required by law since said notice was given before the check became due and before it was deposited.

The record of the case shows the only letter received by petitioner involving the three checks subject of these cases was the one dated 08 June 1993.[33] This letter sent by the counsel of private complainant asked petitioner to make good the checks within five (5) days from receipt thereof, otherwise, criminal charges for violation of B.P. Blg. 22 will be filed against him.

From the evidence presented, it has been proved that FEBTC Check No. 369404 was dishonored when presented for payment on the ground of Account Closed.

To hold a person liable under B.P. Blg. 22, the prosecution must not only establish that a check was issued and that the same was subsequently dishonored, it must further be shown that accused knew at the time of the issuance of the check that he did not have sufficient funds or credit with the drawee bank for the payment of such check in full upon its presentment.

This knowledge of insufficiency of funds or credit at the time of the issuance of the check is the second element of the offense. Inasmuch as this element involves a state of mind of the person making, drawing or issuing the check which is difficult to prove, Section 2 of B.P. Blg. 22 creates a prima facie presumption of such knowledge. Said section reads:

SEC. 2. Evidence of knowledge of insufficient funds. The making, drawing and

issuance of a check payment of which is refused by the drawee because of

insufficient funds in or credit with such bank, when presented within ninety

(90) days from the date of the check, shall be prima facie evidence of

knowledge of such insufficiency of funds or credit unless such maker or drawer

pays the holder thereof the amount due thereon, or makes arrangements for

payment in full by the drawee of such check within five (5) banking days after

receiving notice that such check has not been paid by the drawee.

For this presumption to arise, the prosecution must prove the following: (a) the check is presented within ninety (90) days from the date of the check; (b) the drawer or maker of the check receives notice that such check has not been paid by the drawee; and (c) the drawer or maker of the check fails to pay the holder of the check the amount due thereon, or make arrangements for payment in full within five (5) banking days after receiving notice that such check has not been paid by the drawee. In other words, the presumption is brought into existence only after it is proved that the issuer had received a notice of dishonor and that within five days from receipt thereof, he failed to pay the amount of the check or to make arrangements for its payment.[34] The presumption or prima facie evidence as provided in this section cannot arise, if such notice of nonpayment by the drawee bank is not sent to the maker or drawer, or if there is no proof as to when such notice was received by the drawer, since there would simply be no way of reckoning the crucial 5-day period.[35]

A notice of dishonor received by the maker or drawer of the check is thus indispensable before a conviction can ensue. The notice of dishonor may be

sent by the offended party or the drawee bank.[36] The notice must be in writing.[37] A mere oral notice to pay a dishonored check will not suffice. The lack of a written notice is fatal for the prosecution.

The requirement of notice, its sending to, and its actual receipt by, the drawer or maker of the check gives the latter the option to prevent criminal prosecution if he pays the holder of the check the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that the check has not been paid.

This Court, in Ting v. Court of Appeals,[38] citing Lao v. Court of Appeals, said:

. . . [W]e emphasized that the full payment of the amount appearing in the

check within five banking days from notice of dishonor is a complete defense.

The absence of a notice of dishonor necessarily deprives an accused an

opportunity to preclude a criminal prosecution. Accordingly, procedural due

process clearly enjoins that a notice of dishonor be actually served on petitioner.

Petitioner has a right to demand and the basic postulate of fairness require that

the notice of dishonor be actually sent to and received by her to afford her the

opportunity to avert prosecution under B.P. 22.

As already stated above, the only notice received by petitioner for the three checks involved in these cases was that dated 08 June 1993. There is no dispute that there was indeed a demand letter from the counsel of Equitable Card Network, Inc., but the same was received by petitioner before the checks maturity or due date on 12 June 1993. As testified to by prosecution witness Lily Canlas, the demand letter was sent to petitioner on 08 June 1993[39] and the check was deposited on 14 June 1993.[40] The demand letter was sent four days before the date of the check and six days before said check was deposited.

This Court rules that as regards FEBTC Check No. 369404,[41] petitioner did not receive the notice of dishonor contemplated by the law. There was no valid notice of dishonor to speak of. The term notice of dishonor denotes that a check has been presented for payment and was subsequently dishonored by the drawee bank. This means that the check must necessarily be due and demandable because only a check that has become due can be presented for payment and subsequently be dishonored. A postdated check cannot be dishonored if presented for payment before its due date.

The failure of Equitable Card Network, Inc., to send another letter demanding that FEBTC Check No. 369404 be paid within five days after it has been dishonored prevents the disputable presumption - that petitioner had

knowledge of the insufficiency of his funds at the time he issued the check - from arising. Absent such presumption, the burden of evidence shifts to the prosecution to prove such knowledge.[42]

There being no evidence presented by the prosecution to show that petitioner had knowledge of the insufficiency of his funds at the time he issued the check, the second element of the offense was not satisfied. Accordingly, having failed to prove all the elements of B.P. Blg. 22, petitioner must, perforce, be acquitted in Criminal Case No. 38255-R. The decisions convicting petitioner of violation of B.P. Blg. 22 before the Court of Appeals, the RTC and the MTCC are reversed and set aside.

The evidence on record, both testimonial and documentary, shows that petitioner still has an outstanding balance on his credit card with Equitable Card Network, Inc. We, therefore, sustain the finding of the Court of Appeals holding petitioner liable for the amount of P200,000 which is the amount reflected on FEBTC Check No. 369404 representing part of his unpaid obligation to Equitable Card Network, Inc. He is ordered to pay Equitable Card Network, Inc., the amount of P200,000.00 with 12% legal interest per annum, from the filing of the information until the finality of this decision, the sum of which, inclusive of interest shall be subject thereafter to 12% per annum interest until the amount is fully paid.[43]

WHEREFORE, the Court of Appeals Decision dated 30 September 1999 and Resolution dated 11 January 2000 affirming the 19 June 1996 Decision of the Municipal Trial Court in Cities, Branch 7, Cebu City, and the 20 February 1997 Decision of the Regional Trial Court, Branch 20, Cebu City, in Criminal Cases No. 38254-R and No. 38255-R, convicting petitioner JAIME DICO of violation of B.P. Blg. 22 are hereby REVERSED and SET ASIDE, and another one entered ACQUITTING petitioner of the crimes charged on the ground that his guilt has not been proved beyond reasonable doubt.

Petitioner is ordered to pay Equitable Card Network, Inc., the amount of P200,000.00, representing the face value of FEBTC Check No. 369404, with 12% legal interest per annum, from the filing of the information until the finality of this decision, the sum of which, inclusive of interest shall be subject thereafter to 12% per annum interest until the amount is fully paid. Costs de oficio.

SO ORDERED.

[G.R. No. 119178. June 20, 1997]

LINA LIM LAO, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

D E C I S I O N

PANGANIBAN, J.:

May an employee who, as part of her regular duties, signs blank corporate checks -- with the name of the payee and the amount drawn to be filled later by another signatory -- and, therefore, does so without actual knowledge of whether such checks are funded, be held criminally liable for violation of Batas Pambansa Bilang 22 (B.P. 22), when checks so signed are dishonored due to insufficiency of funds? Does a notice of dishonor sent to the main office of the corporation constitute a valid notice to the said employee who holds office in a separate branch and who had no actual knowledge thereof? In other words, is constructive knowledge of the corporation, but not of the signatory-employee, sufficient?

These are the questions raised in the petition filed on March 21, 1995 assailing the Decision[1] of Respondent Court of Appeals[2] promulgated on December 9, 1994 in CA-G.R. CR No. 14240 dismissing the appeal of petitioner and affirming the decision dated September 26, 1990 in Criminal Case Nos. 84-26967 to 84-26969 of the Regional Trial Court of Manila, Branch 33. The dispositive portion of the said RTC decision affirmed by the respondent appellate court reads:[3]

WHEREFORE, after a careful consideration of the evidence presented by the

prosecution and that of the defense, the Court renders judgment as follows:

In Criminal Case No. 84-26969 where no evidence was presented by the prosecution

notwithstanding the fact that there was an agreement that the cases be tried jointly and

also the fact that the accused Lina Lim Lao was already arraigned, for failure of the

prosecution to adduce evidence against the accused, the Court hereby declares her

innocent of the crime charged and she is hereby acquitted with cost de oficio.

For Criminal Case No. 84-26967, the Court finds the accused Lina Lim Lao guilty

beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the

penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without

subsidiary imprisonment in case of insolvency.

For Criminal Case No. 84-26968, the Court finds the accused Lina Lim Lao guilty

beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the

penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without

subsidiary imprisonment in case of of (sic) insolvency.

For the two cases the accused is ordered to pay the cost of suit.

The cash bond put up by the accused for her provisional liberty in Criminal Case No.

84-26969 where she is declared acquitted is hereby ordered cancelled (sic).

With reference to the accused Teodulo Asprec who has remained at large, in order

that the cases as against him may not remain pending in the docket for an indefinite

period, let the same be archived without prejudice to its subsequent prosecution as

soon as said accused is finally apprehended.

Let a warrant issue for the arrest of the accused Teodulo Asprec which warrant need

not be returned to this Court until the accused is finally arrested.

SO ORDERED.

The Facts

Version of the Prosecution

The facts are not disputed. We thus lift them from the assailed Decision, as follows:

Appellant (and now Petitioner Lina Lim Lao) was a junior officer of Premiere

Investment House (Premiere) in its Binondo Branch. As such officer, she was

authorized to sign checks for and in behalf of the corporation (TSN, August 16, 1990,

p. 6). In the course of the business, she met complainant Father Artelijo Pelijo, the

provincial treasurer of the Society of the Divine Word through Mrs. Rosemarie

Lachenal, a trader for Premiere. Father Palijo was authorized to invest donations to

the society and had been investing the societys money with Premiere (TSN, June 23,

1987, pp. 5, 9-10). Father Palijo had invested a total of P514,484.04, as evidenced by

the Confirmation of Sale No. 82-6994 (Exh A) dated July 8, 1993. Father Palijo was

also issued Traders Royal Bank (TRB) checks in payment of interest, as follows:

Check Date Amount

299961 Oct. 7, 1993 (sic) P150,000.00 (Exh. B)

299962 Oct. 7, 1983 P150,000.00 (Exh. C)

323835 Oct. 7, 1983 P 26,010.73

All the checks were issued in favor of Artelijo A. Palijo and signed by appellant

(herein petitioner) and Teodulo Asprec, who was the head of operations. Further

evidence of the transaction was the acknowledgment of postdated checks dated July 8,

1983 (Exh . D) and the cash disbursement voucher (Exh. F, TSN, supra, at pp. 11-16).

When Father Palijo presented the checks for encashment, the same were dishonored for the

reason Drawn Against Insufficient Funds (DAIF). Father Palijo immediately made demands on

premiere to pay him the necessary amounts. He first went to the Binondo Branch but was

referred to the Cubao Main Branch where he was able to talk with the President, Mr. Cario. For

his efforts, he was paid P5,000.00. Since no other payments followed, Father Palijo wrote

Premiere a formal letter of demand. Subsequently, Premiere was placed under receivership

(TSN, supra, at pp. 16-19).[4]

Thereafter, on January 24, 1984, Private Complainant Palijo filed an affidavit-complaint against Petitioner Lina Lim Lao and Teodulo Asprec for violation of B.P. 22. After preliminary investigation,[5] three Informations charging Lao and Asprec with the offense defined in the first paragraph of Section 1, B.P. 22 were filed by Assistant Fiscal Felix S. Caballes before the trial court on May 11, 1984,[6] worded as follows:

1. In Criminal Case No. 84-26967:

That on or about October 7, 1983 in the City of Manila, Philippines, the said accused

did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to

apply on account or for value a Traders Royal Bank Check No. 299962

for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing

that at the time of issue he/she did not have sufficient funds in or credit with the

drawee bank for full payment of the said check upon its presentment as in fact the said

check, when presented within ninety (90) days from the date thereof, was dishonored

by the drawee bank for the reason:Insufficient Funds; that despite notice of such

dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said

check or to make arrangement for full payment of the same within five (5) banking

days from receipt of said notice.

CONTRARY TO LAW.

2. In Criminal Case No. 84-26968:

That on or about October 7, 1983 in the City of Manila, Philippines, the said accused

did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to

apply on account or for value a Traders Royal Bank Check No. 299961

for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 83 well knowing

that at the time of issue he/she did not have sufficient funds in or credit with the

drawee bank for full payment of the said check upon its presentment as in fact the said

check, when presented within ninety (90) days from the date thereof, was dishonored

by the drawee bank for the reason:Insuficient Funds; that despite notice of such

dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said

check or to make arrangement for full payment of the same within five (5) banking

days from receipt of said notice.

CONTRARY TO LAW.

3. And finally in Criminal Case No. 84-26969:

That on or about July 8, 1983 in the City of Manila, Philippines, the said accused did

then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on

account for value a Traders Royal Bank Check No. 323835 for P26,010.03 payable to

Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue

he/she did not have sufficient funds in or credit with the drawee bank for full payment

of the said check upon its presentment as in fact the said check, when presented within

ninety (90) days from the date thereof, was dishonored by the drawee bank for the

reason: Insufficient Funds; that despite notice of such dishonor, said accused failed to

pay said Artelijo A. Palijo the amount of the said check or to make arrangement for

full payment of the same within five (5) banking days from receipt of said notice.

CONTRARY TO LAW.

Upon being arraigned, petitioner assisted by counsel pleaded not guilty. Asprec was not arrested; he has remained at large since the trial, and even now on appeal.

After due trial, the Regional Trial Court convicted Petitioner Lina Lim Lao in Criminal Case Nos. 84-26967 and 84-26968 but acquitted her in Criminal Case No. 84-26969.[7] On appeal, the Court of Appeals affirmed the decision of the trial court.

Version of the Defense

Petitioner aptly summarized her version of the facts of the case thus:

Petitioner Lina Lim Lao was, in 1983, an employee of Premiere Financing

Corporation (hereinafter referred to as the Corporation), a corporation engaged in

investment management, with principal business office at Miami, Cubao, Quezon

City. She was a junior officer at the corporation who was, however, assigned not at its

main branch but at the corporations extension office in (Binondo) Manila. (Ocampo,

T.S.N., 16 August 1990, p. 14)

In the regular course of her duties as a junior officer, she was required to co-sign

checks drawn against the account of the corporation. The other co-signor was her head

of office, Mr. Teodulo Asprec. Since part of her duties required her to be mostly in the

field and out of the office, it was normal procedure for her to sign the checks in blank,

that is, without the names of the payees, the amounts and the dates of maturity. It was

likewise Mr. Asprec, as head of office, who alone decided to whom the checks were

to be ultimately issued and delivered. (Lao, T.S.N., 28 September 1989, pp. 9-11, 17,

19.)

In signing the checks as part of her duties as junior officer of the corporation,

petitioner had no knowledge of the actual funds available in the corporate

account. (Lao, T.S.N., 28 September 1989, p. 21) The power, duty and responsibility

of monitoring and assessing the balances against the checks issued, and funding the

checks thus issued, devolved on the corporations Treasury Department in its main

office in Cubao, Quezon City, headed then by the Treasurer, Ms. Veronilyn

Ocampo. (Ocampo, T.S.N., 19 July 1990, p. 4; Lao, T.S.N., 28 September 1989, pp.

21-23) All bank statements regarding the corporate checking account were likewise

sent to the main branch in Cubao, Quezon City, and not in Binondo, Manila, where

petitioner was holding office. (Ocampo, T.S.N., 19 July 1990, p. 24; Marqueses,

T.S.N., 22 November 1988, p. 8)

The foregoing circumstances attended the issuance of the checks subject of the instant

prosecution.

The checks were issued to guarantee payment of investments placed by private

complainant Palijo with Premiere Financing Corporation. In his transactions with the

corporation, private complainant dealtexclusively with one Rosemarie Lachenal, a

trader connected with the corporation, and he never knew nor in any way dealt with

petitioner Lina Lim Lao at any time before or during the issuance of the delivery of

the checks. (Palijo, T.S.N., 23 June 1987, pp. 28-29, 32-34; Lao, T.S.N., 15 May

1990, p. 6; Ocampo, T.S.N., p. 5) Petitioner Lina Lim Lao was not in any way

involved in the transaction which led to the issuance of the checks.

When the checks were co-signed by petitioner, they were signed in advance and in

blank, delivered to the Head of Operations, Mr. Teodulo Asprec, who subsequently

filled in the names of the payee, the amounts and the corresponding dates of

maturity. After Mr. Asprec signed the checks, they were delivered to private

complainant Palijo. (Lao, T.S.N., 28 September 1989, pp. 8-11, 17, 19; note also that

the trial court in its decision fully accepted the testimony of petitioner [Decision of

the Regional Trial Court, p. 12], and that the Court of Appeals affirmed said

decision in toto)

Petitioner Lina Lim Lao was not in any way involved in the completion, and the

subsequent delivery of the check to private complainant Palijo.

At the time petitioner signed the checks, she had no knowledge of the sufficiency or

insufficiency of the funds of the corporate account. (Lao, T.S.N., 28 September 1989,

p. 21) It was not within her powers, duties or responsibilities to monitor and assess the

balances against the issuance; much less was it within her (duties and responsibilities)

to make sure that the checks were funded. Premiere Financing Corporation had a

Treasury Department headed by a Treasurer, Ms. Veronilyn Ocampo, which alone had

access to information as to account balances and which alone was responsible for

funding the issued checks. (Ocampo, T.S.N., 19 July 1990, p. 4; Lao, T.S.N., 28

September 1990, p. 23) All statements of account were sent to the Treasury

Department located at the main office in Cubao, Quezon City.Petitioner was holding

office at the extension in Binondo Manila. (Lao, T.S.N., 28 September 1989, p. 24-

25) Petitioner Lina Lim Lao did not have knowledge of the insufficiency of the funds

in the corporate account against which the checks were drawn.

When the checks were subsequently dishonored, private complainant sent a notice of

said dishonor to Premier Financing Corporation at its head office in Cubao, Quezon

City. (Please refer to Exh. E; Palijo, T.S.N., 23 June 1987, p. 51) Private

complainant did not send notice of dishonor to petitioner. (Palijo, T.S.N., 24 July

1987, p. 10) He did not follow up his investment with petitioner. (Id.) Private

complainant never contacted, never informed, and never talked with, petitioner after

the checks had bounced. (Id., at p. 29) Petitioner never had notice of the dishonor of

the checks subject of the instant prosecution.

The Treasurer of Premiere Financing Corporation, Ms. Veronilyn Ocampo testified

that it was the head office in Cubao, Quezon City, which received notice of dishonor

of the bounced checks. (Ocampo, T.S.N., 19 July 1990, pp. 7-8) The dishonor of the

check came in the wake of the assassination of the late Sen. Benigno Aquino, as a

consequence of which event a majority of the corporations clients pre-terminated their

investments. A period of extreme illiquidity and financial distress followed, which

ultimately led to the corporations being placed under receivership by the Securities

and Exchange Commission. (Ocampo, T.S.N., 16 August 1990, p. 8, 19; Lao, T.S.N.,

28 September 1989, pp. 25-26; Please refer also to Exhibit 1, the order of

receivership issued by the Securities and Exchange Commission) Despite the

Treasury Departments and (Ms. Ocampos) knowledge of the dishonor of the checks,

however, the main office in Cubao, Quezon City never informed petitioner Lina Lim

Lao or anybody in the Binondo office for that matter. (Ocampo, T.S.N., 16 August

1990, pp. 9-10) In her testimony, she justified her omission by saying that the checks

were actually the responsibility of the main office (Ocampo, T.S.N., 19 July 1990, p.

6) and that, at that time of panic withdrawals and massive pre-termination of clients

investments, it was futile to inform the Binondo office since the main office was

strapped for cash and in deep financial distress. (Id., at pp. 7-9) Moreover, the

confusion which came in the wake of the Aquino assassination and the consequent

panic withdrawals caused them to lose direct communication with the Binondo

office. (Ocampo, T.S.N., 16 August 1990, p. 9-10)

As a result of the financial crisis and distress, the Securities and Exchange

Commission placed Premier Financing Corporation under receivership, appointing a

rehabilitation receiver for the purpose of settling claims against the corporation. (Exh.

1) As he himself admits, private complainant filed a claim for the payment of the

bounced check before and even after the corporation had been placed under

receivership. (Palijo, T.S.N., 24 July 1987, p. 10-17) A check was prepared by the

receiver in favor of the private complainant but the same was not claimed by

him. (Lao, T.S.N., 15 May 1990, p. 18)

Private complainant then filed the instant criminal action. On 26 September 1990, the

Regional Trial Court of Manila, Branch 33, rendered a decision convicting petitioner,

and sentencing the latter to suffer the aggregate penalty of two (2) years and to pay a

fine in the total amount of P300,000.00. On appeal, the Court of Appeals affirmed

said decision. Hence, this petition for review.[8]

The Issue

In the main, petitioner contends that the public respondent committed a reversible error in concluding that lack of actual knowledge of insufficiency of funds was not a defense in a prosecution for violation of B.P. 22. Additionally, the petitioner argues that the notice of dishonor sent to the main office of the corporation, and not to petitioner herself who holds office in that corporations branch office, does not constitute the notice mandated in Section 2 of BP 22; thus, there can be no prima facie presumption that she had knowledge of the insufficiency of funds.

The Courts Ruling

The petition is meritorious.

Strict Interpretation of Penal Statutes

It is well-settled in this jurisdiction that penal statutes are strictly construed against the state and liberally for the accused, so much so that the scope of a penal statute cannot be extended by good intention, implication, or even equity consideration. Thus, for Petitioner Lina Lim Laos acts to be penalized under the Bouncing Checks Law or B.P. 22, they must come clearly within both the spirit and the letter of the statute.[9]

The salient portions of B.P. 22 read:

SECTION 1. Checks without sufficient funds. -- Any person who makes or draws and

issues any check to apply on account or for value, knowing at the time of issue that he

does not have sufficient funds in or credit with the drawee bank for the payment of

such check in full upon its presentment, which check is subsequently dishonored by

the drawee bank for insufficiency of funds or credit or would have been dishonored

for the same reason had not the drawer, without any valid reason, ordered the bank to

stop payment, shall be punished by imprisonment of not less than thirty days but not

more than one (1) year or by a fine of not less than but not more than double the

amount of the check which fine shall in no case exceed Two hundred thousand pesos,

or both such fine and imprisonment at the discretion of the court.

The same penalty shall be imposed upon any person who having sufficient funds in or

credit with the drawee bank when he makes or draws and issues a check, shall fail to

keep sufficient funds or to maintain a credit or to cover the full amount of the check if

presented within a period of ninety (90) days from the date appearing thereon, for

which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons

who actually signed the check in behalf of such drawer shall be liable under this Act.

SECTION 2. Evidence of knowledge of insufficient funds. -- The making, drawing and

issuance of a check payment of which is refused by the drawee because of insufficient

funds in or credit with such bank, when presented within ninety (90) days from the

date of the check, shall be prima facie evidence of knowledge of such insufficiency of

funds or credit unless such maker or drawer pays the holder thereof the amount due

thereon, or makes arrangements for payment in full by the drawee of such check

within five (5) banking days after receiving notice that such check has not been paid

by the drawee.

This Court listed the elements of the offense penalized under B.P. 22, as follows: (1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.[10]

Justice Luis B. Reyes, an eminent authority in criminal law, also enumerated the elements of the offense defined in the first paragraph of Section 1 of B.P. 22, thus:

1. That a person makes or draws and issues any check.

2. That the check is made or drawn and issued to apply on account or for value.

3. That the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in fullupon its presentment.

4. That the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.[11]

Crux of the Petition

Petitioner raised as defense before the Court of Appeals her lack of actual knowledge of the insufficiency of funds at the time of the issuance of the checks, and lack of personal notice of dishonor to her. The respondent appellate court, however, affirmed the RTC decision, reasoning that the makers knowledge of the insufficiency of funds is legally presumed from the dishonor of his checks for insufficiency of funds. (People vs. Laggui, 171 SCRA 305; Nieras vs. Hon. Auxencio C. Dacuycuy, 181 SCRA 1)[12] The Court of Appeals also stated that her alleged lack of knowledge or intent to issue a bum check would not exculpate her from any responsibility under B.P. Blg. 22, since the act of making and issuing a worthless check is amalum prohibitum.[13] In the words of the Solicitor General, (s)uch alleged lack of knowledge is not material for petitioners liability under B.P.Blg. 22.[14]

Lack of Actual Knowledge of Insufficiency of Funds

Knowledge of insufficiency of funds or credit in the drawee bank for the payment of a check upon its presentment is an essential element of the offense.[15] There is a prima faciepresumption of the existence of this element from the fact of drawing, issuing or making a check, the payment of which was subsequently refused for insufficiency of funds. It is important to stress, however, that this is not a conclusive presumption that forecloses or precludes the presentation of evidence to the contrary.

In the present case, the fact alone that petitioner was a signatory to the checks that were subsequently dishonored merely engenders the prima facie presumption that she knew of the insufficiency of funds, but it does not render her automatically guilty under B.P. 22. The prosecution has a duty to prove all the elements of the crime, including the acts that give rise to theprima facie presumption; petitioner, on the other hand, has a right to rebut the prima facie presumption.[16] Therefore, if such knowledge of insufficiency of funds is proven to be actuallyabsent or non-existent, the accused should not be held liable for the offense defined under the first paragraph of Section 1 of B.P. 22. Although the offense charged is a malum prohibitum, the prosecution is not thereby excused from its responsibility of proving beyond reasonable doubt all the elements of the offense, one of which is knowledge of the insufficiency of funds.

After a thorough review of the case at bar, the Court finds that Petitioner Lina Lim Lao did not have actual knowledge of the insufficiency of funds in the corporate accounts at the time she affixed her signature to the checks involved in this case, at the time the same were issued, and even at the time the checks were subsequently dishonored by the drawee bank.

The scope of petitioners duties and responsibilities did not encompass the funding of the corporations checks; her duties were limited to the marketing department of the Binondo branch.[17] Under the organizational structure of Premiere Financing Corporation, funding of checks was the sole responsibility of the Treasury Department. Veronilyn Ocampo, former Treasurer of Premiere, testified thus:

Q Will you please tell us whose (sic) responsible for the funding of checks in Premiere?

A The one in charge is the Treasury Division up to the Treasury Disbursement and then they give it directly to Jose Cabacan, President of Premiere.[18]

Furthermore, the Regional Trial Court itself found that, since Petitioner Lina Lim Lao was often out in the field taking charge of the marketing department of the Binondo branch, she signed the checks in blank as to name

of the payee and the amount to be drawn, and without knowledge of the transaction for which they were issued.[19] As a matter of company practice, her signature was required in addition to that of Teodulo Asprec, who alone placed the name of the payee and the amount to be drawn thereon. This is clear from her testimony:

q x x x Will you please or will you be able to tell us the condition of this check when you signed this or when you first saw this check?

Witness

a I signed the check in blank. There were no payee. No amount, no date, sir.

q Why did you sign this check in blank when there was no payee, no amount and no date?

a It is in order to facilitate the transaction, sir.

x x x x x x x x x

COURT

(to witness)

q Is that your practice?

Witness

a Procedure, Your Honor.

COURT

That is quiet (sic) unusual. That is why I am asking that last question if that is a practice of your office.

a As a co-signer, I sign first, sir.

q So the check cannot be encashed without your signature, co-signature?

a Yes, sir.

Atty. Gonzales

(to witness)

q Now, you said that you sign first, after you sign, who signs the check?

a Mr. Teodoro Asprec, sir.

q Is this Teodoro Asprec the same Teodoro Asprec, one of the accused in all these cases?

a Yes, sir.

q Now, in the distribution or issuance of checks which according to you, as a co-signee, you sign. Who determines to whom to issue or to whom to pay the check after Teodoro Asprec signs the check?

Witness

a He is the one.

Atty. Gonzales

q Mr. Asprec is the one in-charge in . . . are you telling the Honorable Court that it was Teodoro Asprec who determines to whom to issue the check? Does he do that all the time?

Court

q Does he all the time?

(to witness)

a Yes, Your Honor.

q So the check can be negotiated? So, the check can be good only upon his signing? Without his signing or signature the check cannot be good?

a Yes, Your Honor.

Atty. Gonzales

(to witness)

q You made reference to a transaction which according to you, you signed this check in order to facilitate the transaction . . . I withdraw that question. I will reform.

COURT

(for clarification to witness)

Witness may answer.

q Only to facilitate your business transaction, so you signed the other checks?

Witness

a Yes, Your Honor.

q So that when ever there is a transaction all is needed . . . all that is needed is for the other co-signee to sign?

a Yes, Your Honor.

COURT

(To counsel)

Proceed.

Atty. Gonzales

(to witness)

q Why is it necessary for you to sign?

a Because most of the time I am out in the field in the afternoon, so, in order to facilitate the transaction I sign so if I am not around they can issue the check.[20]

Petitioner did not have any knowledge either of the identity of the payee or the transaction which gave rise to the issuance of the checks. It was her co-

signatory, Teodulo Asprec, who alone filled in the blanks, completed and issued the checks. That Petitioner Lina Lim Lao did not have any knowledge or connection with the checks payee, Artelijo Palijo, is clearly evident even from the latters testimony, viz.:

ATTY. GONZALES:

Q When did you come to know the accused Lina Lim Lao?

A I cannot remember the exact date because in their office Binondo, --

COURT: (before witness could finish)

Q More or less?

A It must have been late 1983.

ATTY. GONZALES:

Q And that must or that was after the transactions involving alleged checks marked in evidence as Exhibits B and C?

A After the transactions.

Q And that was also before the transaction involving that confirmation of sale marked in evidence as Exhibit A?

A It was also.

Q And so you came to know the accused Lina Lim Lao when all those transactions were already consummated?

A Yes, sir.

Q And there has never been any occasion where you transacted with accused Lina Lim Lao, is that correct?

A None, sir, there was no occasion.

Q And your coming to know Lina Lim Lao the accused in these cases was by chance when you happened to drop by in the office at Binondo of the Premier Finance Corporation, is that what you mean?

A Yes, sir.

Q You indicated to the Court that you were introduced to the accused Lina Lim Lao, is that correct?

A I was introduced.

x x x x x x x x x

Q After that plain introduction there was nothing which transpired between you and the accused Lina Lim Lao?

A There was none.[21]

Since Petitioner Lina Lim Lao signed the checks without knowledge of the insufficiency of funds, knowledge she was not expected or obliged to possess

under the organizational structure of the corporation, she may not be held liable under B.P. 22. For in the final analysis, penal statutes such as B.P. 22 must be construed with such strictness as to carefully safeguard the rights of the defendant x x x.[22] The element of knowledge of insufficiency of funds having been proven to be absent, petitioner is therefore entitled to an acquittal.

This position finds support in Dingle vs. Intermediate Appellate Court[23] where we stressed that knowledge of insufficiency of funds at the time of the issuance of the check was an essential requisite for the offense penalized under B.P. 22. In that case, the spouses Paz and Nestor Dingle owned a family business known as PMD Enterprises. Nestor transacted the sale of 400 tons of silica sand to the buyer Ernesto Ang who paid for the same. Nestor failed to deliver. Thus, he issued to Ernesto two checks, signed by him and his wife as authorized signatories for PMD Enterprises, to represent the value of the undelivered silica sand. These checks were dishonored for having been drawn against insufficient funds. Nestor thereafter issued to Ernesto another check, signed by him and his wife Paz, which was likewise subsequently dishonored. No payment was ever made; hence, the spouses were charged with a violation of B.P. 22 before the trial court which found them both guilty. Paz appealed the judgment to the then Intermediate Appellate Court which modified the same by reducing the penalty of imprisonment to thirty days. Not satisfied, Paz filed an appeal to this Court insisting on her innocence and contending that she did not incur any criminal liability under B.P. 22 because she had no knowledge of the dishonor of the checks issued by her husband and, for that matter, even the transaction of her husband with Ang. The Court ruled in Dingle as follows:

The Solicitor General in his Memorandum recommended that petitioner be acquitted

of the instant charge because from the testimony of the sole prosecution witness

Ernesto Ang, it was established that he dealt exclusively with Nestor Dingle. Nowhere

in his testimony is the name of Paz Dingle ever mentioned in connection with the

transaction and with the issuance of the check. In fact, Ang categorically stated that it

was Nestor Dingle who received his two (2) letters of demand. This lends credence to

the testimony of Paz Dingle that she signed the questioned checks in blank together

with her husband without any knowledge of its issuance, much less of the transaction

and the fact of dishonor.

In the case of Florentino Lozano vs. Hon. Martinez, promulgated December 18, 1986,

it was held that an essential element of the offense is knowledge on the part of the

maker or drawer of the check of the insufficiency of his funds.

WHEREFORE, on reasonable doubt, the assailed decision of the Intermediate

Appellate Court (now the Court of Appeals) is hereby SET ASIDE and a new one is

hereby rendered ACQUITTING petitioner on reasonable doubt."[24]

In rejecting the defense of herein petitioner and ruling that knowledge of the insufficiency of funds is legally presumed from the dishonor of the checks for insufficiency of funds,Respondent Court of Appeals cited People vs. Laggui[25] and Nierras vs. Dacuycuy.[26] These, however, are inapplicable here. The accused in both cases issued personal -- not corporate -- checks and did not aver lack of knowledge of insufficiency of funds or absence of personal notice of the checks dishonor. Furthermore, in People vs. Laggui[27] the Court ruled mainly on the adequacy of an information which alleged lack of knowledge of insufficiency of funds at the time the check was issued and not at the time of its presentment. On the other hand, the Court inNierras vs. Dacuycuy[28] held mainly that an accused may be charged under B.P. 22 and Article 315 of the Revised Penal Code for the same act of issuing a bouncing check.

The statement in the two cases -- that mere issuance of a dishonored check gives rise to the presumption of knowledge on the part of the drawer that he issued the same without funds -- does not support the CA Decision. As observed earlier, there is here only a prima facie presumption which does not preclude the presentation of contrary evidence. On the contrary,People vs. Laggui clearly spells out as an element of the offense the fact that the drawer must have knowledge of the insufficiency of funds in, or of credit with, the drawee bank for the payment of the same in full on presentment; hence, it even supports the petitioners position.

Lack of Adequate Notice of Dishonor

There is another equally cogent reason for the acquittal of the accused. There can be no prima facie evidence of knowledge of insufficiency of funds in the instant case because no notice of dishonor was actually sent to or received by the petitioner.

The notice of dishonor may be sent by the offended party or the drawee bank. The trial court itself found absent a personal notice of dishonor to Petitioner Lina Lim Lao by the drawee bank based on the unrebutted testimony of Ocampo (t)hat the checks bounced when presented with the drawee bank but she did not inform anymore the Binondo branch and Lina Lim Lao as there was no need to inform them as the corporation was in

distress.[29] The Court of Appeals affirmed this factual finding. Pursuant to prevailing jurisprudence, this finding is binding on this Court.[30]

Indeed, this factual matter is borne by the records. The records show that the notice of dishonor was addressed to Premiere Financing Corporation and sent to its main office in Cubao, Quezon City. Furthermore, the same had not been transmitted to Premieres Binondo Office where petitioner had been holding office.

Likewise no notice of dishonor from the offended party was actually sent to or received by Petitioner Lao. Her testimony on this point is as follows:

Atty. Gonzales

q Will you please tell us if Father Artelejo Palejo (sic) ever notified you of the bouncing of the check or the two (2) checks marked as Exhibit B or C for the prosecution?

Witness

a No, sir.

q What do you mean no, sir?

a I was never given a notice. I was never given notice from Father Palejo (sic).

COURT

(to witness)

q Notice of what?

a Of the bouncing check, Your Honor.[31]

Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a bum check; there must also be a showing that, within five banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or to make arrangement for its payment in full by the drawee of such check.

It has been observed that the State, under this statute, actually offers the violator a compromise by allowing him to perform some act which operates to preempt the criminal action, and if he opts to perform it the action is abated. This was also compared to certain laws[32] allowing illegal possessors of firearms a certain period of time to surrender the illegally possessed firearms to the Government, without incurring any criminal liability.[33] In this light, the full payment of the amount appearing in the check within five banking days from notice of dishonor is a complete defense.[34] The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a

criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand -- and the basic postulates of fairness require -- that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under B.P. 22.

In this light, the postulate of Respondent Court of Appeals that (d)emand on the Corporation constitutes demand on appellant (herein petitioner),[35] is erroneous. Premiere has no obligation to forward the notice addressed to it to the employee concerned, especially because the corporation itself incurs no criminal liability under B.P. 22 for the issuance of a bouncing check. Responsibility under B.P. 22 is personal to the accused; hence, personal knowledge of the notice of dishonor is necessary. Consequently, constructive notice to the corporation is not enough to satisfy due process. Moreover, it is petitioner, as an officer of the corporation, who is the latters agent for purposes of receiving notices and other documents, and not the other way around. It is but axiomatic that notice to the corporation, which has a personality distinct and separate from the petitioner, does not constitute notice to the latter.

Epilogue

In granting this appeal, the Court is not unaware of B.P. 22s intent to inculcate public respect for and trust in checks which, although not legal tender, are deemed convenient substitutes for currency. B.P. 22 was intended by the legislature to enhance commercial and financial transactions in the Philippines by penalizing makers and issuers of worthless checks. The public interest behind B.P. 22 is thus clearly palpable from its intended purpose.[36]

At the same time, this Court deeply cherishes and is in fact bound by duty to protect our peoples constitutional rights to due process and to be presumed innocent until the contrary is proven.[37] These rights must be read into any interpretation and application of B.P. 22. Verily, the public policy to uphold civil liberties embodied in the Bill of Rights necessarily outweighs the public policy to build confidence in the issuance of checks. The first is a basic human right while the second is only proprietary in nature.[38] Important to remember also is B.P. 22s requirements that the check issuer must know at the time of issue that he does not have sufficient funds in or credit with the drawee bank and that he must receive notice that such check has not been paid by the drawee. Hence, B.P. 22 must not be applied in a manner which contravenes an accuseds constitutional and statutory rights.

There is also a social justice dimension in this case. Lina Lim Lao is only a minor employee who had nothing to do with the issuance, funding and delivery of checks. Why she was required by her employer to countersign checks escapes us. Her signature is completely unnecessary for it serves no fathomable purpose at all in protecting the employer from unauthorized disbursements. Because of the pendency of this case, Lina Lim Lao stood in jeopardy -- for over a decade -- of losing her liberty and suffering the wrenching pain and loneliness of imprisonment, not to mention the stigma of prosecution on her career and family life as a young mother, as well as the expenses, effort and aches in defending her innocence.Upon the other hand, the senior official -- Teodulo Asprec -- who appears responsible for the issuance, funding and delivery of the worthless checks has escaped criminal prosecution simply because he could not be located by the authorities. The case against him has been archived while the awesome prosecutory might of the government and the knuckled ire of the private complainant were all focused on poor petitioner. Thus, this Court exhorts the prosecutors and the police authorities concerned to exert their best to arrest and prosecute Asprec so that justice in its pristine essence can be achieved in all fairness to the complainant, Fr. Artelijo Palijo, and the People of the Philippines. By this Decision, the Court enjoins the Secretary of Justice and the Secretary of Interior and Local Government to see that essential justice is done and the real culprit(s) duly-prosecuted and punished.

WHEREFORE, the questioned Decision of the Court of Appeals affirming that of the Regional Trial Court, is hereby REVERSED and SET ASIDE. Petitioner Lina Lim Lao isACQUITTED. The Clerk of Court is hereby ORDERED to furnish the Secretary of Justice and the Secretary of Interior and Local Government with copies of this Decision. No costs.

SO ORDERED.

[G.R. No. 105774. April 25, 2002]

GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG

LIN, petitioners, vs. THE COURT OF APPEALS and BANCASIA

FINANCE AND INVESTMENT CORPORATION, respondents.

D E C I S I O N

CARPIO, J.:

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Revised

Rules on Civil Procedure assailing the June 9, 1992 Decision[1] of the Court of

Appeals[2] in CA-G.R. CV No. 20167. The Court of Appeals affirmed the January 26,

1988 Decision[3] of the Regional Trial Court of Manila, Branch 52,[4] ordering

petitioners Great Asian Sales Center Corporation (Great Asian for brevity) and Tan

Chong Lin to pay, solidarily, respondent Bancasia Finance and Investment

Corporation (Bancasia for brevity) the amount of P1,042,005.00. The Court of

Appeals affirmed the trial courts award of interest and costs of suit but deleted the

award of attorneys fees.

The Facts

Great Asian is engaged in the business of buying and selling general merchandise,

in particular household appliances. On March 17, 1981, the board of directors of Great

Asian approved a resolution authorizing its Treasurer and General Manager, Arsenio

Lim Piat, Jr. (Arsenio for brevity) to secure a loan from Bancasia in an amount not to

exceed P1.0 million. The board resolution also authorized Arsenio to sign all papers,

documents or promissory notes necessary to secure the loan. On February 10, 1982,

the board of directors of Great Asian approved a second resolution authorizing Great

Asian to secure a discounting line with Bancasia in an amount not exceeding P2.0

million. The second board resolution also designated Arsenio as the authorized

signatory to sign all instruments, documents and checks necessary to secure the

discounting line.

On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of

Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. On January

29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety Agreement

in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to

Bancasia. Thus, Tan Chong Lin signed two surety agreements (Surety Agreements for

brevity) in favor of Bancasia.

Great Asian, through its Treasurer and General Manager Arsenio, signed four (4)

Deeds of Assignment of Receivables (Deeds of Assignment for brevity), assigning to

Bancasia fifteen (15) postdated checks. Nine of the checks were payable to Great

Asian, three were payable to New Asian Emp., and the last three were payable to

cash. Various customers of Great Asian issued these postdated checks in payment for

appliances and other merchandise.

Great Asian and Bancasia signed the first Deed of Assignment on January 12,

1982 covering four postdated checks with a total face value of P244,225.82, with

maturity dates not later than March 17, 1982. Of these four postdated checks, two

were dishonored. Great Asian and Bancasia signed the second Deed of Assignment

also on January 12, 1982 covering four postdated checks with a total face value

of P312,819.00, with maturity dates not later than April 1, 1982. All these four checks

were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on

February 11, 1982 covering eight postdated checks with a total face value

of P344,475.00, with maturity dates not later than April 30, 1982. All these eight

checks were dishonored. Great Asian and Bancasia signed the fourth Deed of

Assignment on March 5, 1982 covering one postdated check with a face value

of P200,000.00, with maturity date on March 18, 1982. This last check was also

dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate

of less than 24% of the face value of the checks.

Arsenio endorsed all the fifteen dishonored checks by signing his name at the

back of the checks. Eight of the dishonored checks bore the endorsement of Arsenio

below the stamped name of Great Asian Sales Center, while the rest of the dishonored

checks just bore the signature of Arsenio. The drawee banks dishonored the fifteen

checks on maturity when deposited for collection by Bancasia, with any of the

following as reason for the dishonor: account closed, payment stopped, account under

garnishment, and insufficiency of funds. The total amount of the fifteen dishonored

checks is P1,042,005.00. Below is a table of the fifteen dishonored checks:

Drawee Bank Check No. Amount Maturity Date 1st Deed Solid Bank C-A097480 P137,500.00 March 16, 1982

Pacific Banking Corp. 23950 P47,211.00 March 17, 1982 2nd Deed Metrobank 030925 P68,722.00 March 19, 1982

030926 P45,230.00 March 19, 1982

Solidbank C-A097478 P140,000.00 March 23, 1982

Pacific Banking Corp. CC 769910 P58,867.00 April 1, 1982 3rd Deed Phil. Trust Company 060835 P21,228.00 April 21, 1982

060836 P22,187.00 April 28, 1982

Allied Banking Corp. 11251624 P41,773.00 April 22, 1982

11251625 P38,592.00 April 29, 1982

Pacific Banking Corp. 237984 P37,886.00 April 23, 1982

237988 P47,385.00 April 28, 1982

237985 P46,748.00 April 30, 1982

Security Bank & Trust Co. 22061 P88,676.00 April 30, 1982 4th Deed

Pacific Banking Corp. 860178 P200,000.00 March 18, 1982

After the drawee bank dishonored Check No. 097480 dated March 16,

1982, Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by

registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the

dishonor and demanding payment from him. Subsequently, Bancasia sent by personal

delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the dishonor

of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan

Chong Lin paid Bancasia the dishonored checks.

On May 21, 1982, Great Asian filed with the then Court of First Instance of

Manila a petition for insolvency, verified under oath by its Corporate Secretary, Mario

Tan. Attached to the verified petition was a Schedule and Inventory of Liabilities and

Creditors of Great Asian Sales Center Corporation, listing Bancasia as one of the

creditors of Great Asian in the amount of P1,243,632.00.

On June 23, 1982, Bancasia filed a complaint for collection of a sum of money

against Great Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because

of the Surety Agreements he signed in favor of Bancasia. In its answer, Great Asian

denied the material allegations of the complaint claiming it was unfounded, malicious,

baseless, and unlawfully instituted since there was already a pending insolvency

proceedings, although Great Asian subsequently withdrew its petition for voluntary

insolvency. Great Asian further raised the alleged lack of authority of Arsenio to sign

the Deeds of Assignment as well as the absence of consideration and consent of all the

parties to the Surety Agreements signed by Tan Chong Lin.

Ruling of the Trial Court

The trial court rendered its decision on January 26, 1988 with the following

findings and conclusions:

From the foregoing facts and circumstances, the Court finds that the plaintiff has

established its causes of action against the defendants. The Board Resolution (Exh. T),

dated March 17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and

treasurer of the defendant Great Asian to apply and negotiate for a loan

accommodation or credit line with the plaintiff Bancasia in an amount not exceeding

One Million Pesos (P1,000,000.00), and the other Board Resolution approved on

February 10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for defendant Asian

Center a discounting line with Bancasia at prevailing discounting rates in an amount

not to exceed Two Million Pesos (P2,000,000.00), both of which were intended to

secure money from the plaintiff financing firm to finance the business operations of

defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was able to have

the aforementioned fifteen (15) checks totaling P1,042,005.00 discounted with the

plaintiff, which transactions were obviously known by the beneficiary thereof,

defendant Great Asian, as in fact, in its aforementioned Schedule and Inventory of

Liabilities and Creditors (Exh. DD, DD-1) attached to its Verified Petition for

Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian admitted an

existing liability to the plaintiff, in the amount of P1,243,632.00, secured by it, by way

of financing accommodation, from the said financing institution Bancasia Finance and

Investment Corporation, plaintiff herein, sufficiently establish the liability of the

defendant Great Asian to the plaintiff for the amount of P1,042,005.00 sought to be

recovered by the latter in this case.[5]

xxx

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the

two (2) defendants ordering the latter, jointly and severally, to pay the former:

(a) The amount of P1,042,005.00, plus interest thereon at the legal rate from

the filing of the complaint until the same is fully paid;

(b) Attorneys fees equivalent to twenty per cent (20%) of the total amount

due; and

(c) The costs of suit.

SO ORDERED.[6]

Ruling of the Court of Appeals

On appeal, the Court of Appeals sustained the decision of the lower court,

deleting only the award of attorneys fees, as follows:

As against appellants bare denial of it, the Court is more inclined to accept the

appellees version, to the effect that the subject deeds of assignment are but individual

transactions which -- being collectively evidentiary of the loan accommodation

and/or credit line it granted the appellant corporation -- should not be taken singly and

distinct therefrom. In addition to its plausibility, the proposition is, more importantly,

adequately backed by the documentary evidence on record. Aside from the aforesaid

Deeds of Assignment (Exhs. A, D, I, and R) and the Board Resolutions of the

appellant corporations Board of Directors (Exhs. T, U and V), the appellee --

consistent with its theory -- interposed the Surety Agreements the appellant Tan

Chong Lin executed (Exhs. W and X), as well as the demand letters it served upon the

latter as surety (Exhs. Y and Z). It bears emphasis that the second Resolution of the

appellant corporations Board of Directors (Exh. V) even closely coincides with the

execution of the February 11, 1982 and March 5, 1982 Deeds of Assignment (Exhs. I

and R). Were the appellants posturings true, it seems rather strange that the appellant

Tan Chong Lin did not even protest or, at least, make known to the appellee what he -

- together with the appellant corporation -- represented to be a corporate larceny to

which all of them supposedly fell prey. In the petition for voluntary insolvency it

filed, the appellant corporation, instead, indirectly acknowledged its indebtedness in

terms of financing accommodations to the appellee, in an amount which, while not

exactly matching the sum herein sought to be collected, approximates the same (Exhs.

CC, DD and DD-1).[7]

xxx

The appellants contend that the foregoing warranties enlarged or increased the suretys

risk, such that appellant Tan Chong Lin should be released from his liabilities (pp. 37-

44, Appellants Brief). Without saying more, the appellants position is, however,

soundly debunked by the undertaking expressed in the Comprehensive and

Continuing Surety Agreements (Exhs. W and X), to the effect that the xxx surety/ies,

jointly and severally among themselves and likewise with the principal, hereby

agree/s and bind/s himself to pay at maturity all the notes, drafts, bills of exchange,

overdrafts and other obligations which the principal may now or may hereafter owe

the creditor xxx. With the possible exception of the fixed ceiling for the amount of

loan obtainable, the surety undertaking in the case at bar is so comprehensive as to

contemplate each and every condition, term or warranty which the principal parties

may have or may be minded to agree on. Having affixed his signature thereto, the

appellant Tan Chong Lin is expected to have, at least, read and understood the same.

xxx

With the foregoing disquisition, the Court sees little or no reason to go into the

appellants remaining assignments of error, save the matter of attorneys fees. For want

of a statement of the rationale therefore in the body of the challenged decision, the

trial courts award of attorneys fees should be deleted and disallowed (Abrogar vs.

Intermediate Appellate Court, 157 SCRA 57).

WHEREFORE, the decision appealed from is MODIFIED, to delete the trial courts

award of attorneys fees. The rest is AFFIRMED in toto.

SO ORDERED.[8]

The Issues

The petition is anchored on the following assigned errors:

1. The respondent Court erred in not holding that the proper parties against whom this action for

collection should be brought are the drawers and indorser of the checks in question, being

the real parties in interest, and not the herein petitioners.

2. The respondent Court erred in not holding that the petitioner-corporation is discharged from

liability for failure of the private respondent to comply with the provisions of the Negotiable

Instruments Law on the dishonor of the checks.

3. The respondent Court erred in its appreciation and interpretation of the effect and legal

consequences of the signing of the deeds of assignment and the subsequent indorsement of

the checks by Arsenio Lim Piat, Jr. in his individual and personal capacity and without

stating or indicating the name of his supposed principal.

4. The respondent Court erred in holding that the assignment of the checks is a loan

accommodation or credit line accorded by the private respondent to petitioner-corporation,

and not a purchase and sale thereof.

5. The respondent Court erred in not holding that there was a material alteration of the risk

assumed by the petitioner-surety under his surety agreement by the terms, conditions,

warranties and obligations assumed by the assignor Arsenio Lim Piat, Jr. under the deeds of

assignment or receivables.

6. The respondent Court erred in holding that the petitioner-corporation impliedly admitted its

liability to private respondent when the former included the latter as one of its creditors in its

petition for voluntary insolvency, although no claim was filed and proved by the private

respondent in the insolvency court.

7. The respondent Court erred in holding the petitioners liable to private respondent on the

transactions in question.[9]

The issues to be resolved in this petition can be summarized into three:

1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF

ASSIGNMENT AND THUS BIND GREAT ASIAN;

2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF

ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL CODE,

INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;

3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY

AGREEMENTS.

The Courts Ruling

The petition is bereft of merit.

First Issue: Authority of Arsenio to Sign the Deeds of Assignment

Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the

checks in his personal capacity. The primordial question that must be resolved is

whether Great Asian authorized Arsenio to sign the Deeds of Assignment. If Great

Asian so authorized Arsenio, then Great Asian is bound by the Deeds of Assignment

and must honor its terms.

The Corporation Code of the Philippines vests in the board of directors the

exercise of the corporate powers of the corporation, save in those instances where the

Code requires stockholders approval for certain specific acts. Section 23 of the Code

provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this

Code, the corporate powers of all corporations formed under this Code shall be

exercised, all business conducted and all property of such corporations controlled

and held by the board of directors or trustees x x x.

In the ordinary course of business, a corporation can borrow funds or dispose of assets

of the corporation only on authority of the board of directors. The board of directors

normally designates one or more corporate officers to sign loan documents or deeds of

assignment for the corporation.

To secure a credit accommodation from Bancasia, the board of directors of Great

Asian adopted two board resolutions on different dates, the first on March 17, 1981,

and the second on February 10, 1982. These two board resolutions, as certified under

oath by Great Asians Corporate Secretary Mario K. Tan, state:

First Board Resolution

RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be

authorized as he is authorized to apply for and negotiate for a loan

accommodation or credit line in the amount not to exceed ONE MILLION

PESOS (P1,000,000.00), with Bancasia Finance and Investment Corporation, and

likewise to sign any and all papers, documents, and/or promissory notes in

connection with said loan accommodation or credit line, including the power to

mortgage such properties of the corporation as may be needed to effectuate the

same.[10] (Emphasis supplied)

Second Board Resolution

RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with

BANCASIA FINANCE & INVESTMENT CORPORATION, at prevailing

discounting rates, in an amount not to exceed** TWO MILLION PESOS ONLY

(P2,000,000),** Philippine Currency.

RESOLVED FURTHER, that the corporation secure such other forms of credit

lines with BANCASIA FINANCE & INVESTMENT CORPORATION in an

amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000.00),**

PESOS, under such terms and conditions as the signatories may deem fit and

proper.

RESOLVED FURTHER, that the following persons be authorized individually,

jointly or collectively to sign, execute and deliver any and all instruments,

documents, checks, sureties, etc. necessary or incidental to secure any of the

foregoing obligation:

(signed)

Specimen Signature

1. ARSENIO LIM PIAT, JR._

2. _______________________

3. _______________________

4. _______________________

PROVIDED FINALLY that this authority shall be valid, binding and effective until

revoked by the Board of Directors in the manner prescribed by law, and that BANCASIA

FINANCE & INVESTMENT CORPORATION shall not be bound by any such revocation

until such time as it is noticed in writing of such revocation.[11] (Emphasis supplied)

The first board resolution expressly authorizes Arsenio, as Treasurer of Great

Asian, to apply for a loan accommodation or credit line with Bancasia for not more

than P1.0 million. Also, the first resolution explicitly authorizes Arsenio to sign any

document, paper or promissory note, including mortgage deeds over properties of

Great Asian, to secure the loan or credit line from Bancasia.

The second board resolution expressly authorizes Great Asian to secure

a discounting line from Bancasia for not more than P2.0 million. The second board

resolution also expressly empowers Arsenio, as the authorized signatory of Great

Asian, to sign, execute and deliver any and all documents, checks x x x necessary or

incidental to secure the discounting line. The second board resolution specifically

authorizes Arsenio to secure the discounting line under such terms and conditions as

(he) x x x may deem fit and proper.

As plain as daylight, the two board resolutions clearly authorize Great Asian to

secure a loan or discounting line from Bancasia. The two board resolutions also

categorically designate Arsenio as the authorized signatory to sign and deliver all the

implementing documents, including checks, for Great Asian. There is no iota of doubt

whatsoever about the purpose of the two board resolutions, and about the authority of

Arsenio to act and sign for Great Asian. The second board resolution even gave

Arsenio full authority to agree with Bancasia on the terms and conditions of the

discounting line. Great Asian adopted the correct and proper board resolutions to

secure a loan or discounting line from Bancasia, and Bancasia had a right to rely on

the two board resolutions of Great Asian. Significantly, the two board resolutions

specifically refer to Bancasia as the financing institution from whom Great Asian will

secure the loan accommodation or discounting line.

Armed with the two board resolutions, Arsenio signed the Deeds of Assignment

selling, and endorsing, the fifteen checks of Great Asian to Bancasia. On the face of

the Deeds of Assignment, the contracting parties are indisputably Great Asian and

Bancasia as the names of these entities are expressly mentioned therein as the assignor

and assignee, respectively. Great Asian claims that Arsenio signed the Deeds of

Assignment in his personal capacity because Arsenio signed above his printed name,

below which was the word Assignor, thereby making Arsenio the assignor. Great

Asian conveniently omits to state that the first paragraph of the Deeds expressly

contains the following words: the ASSIGNOR, Great Asian Sales Center, a domestic

corporation x x x herein represented by its Treasurer Arsenio Lim Piat, Jr. The

assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio. The only

issue to determine is whether the Deeds of Assignment are indeed the transactions the

board of directors of Great Asian authorized Arsenio to sign under the two board

resolutions.

Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a

discount, over three months, to Bancasia. The Deeds of Assignment uniformly state

that Great Asian,

x x x for valuable consideration received, does hereby SELL, TRANSFER,

CONVEY, and ASSIGN, unto the ASSIGNEE, BANCASIA FINANCE &

INVESTMENT CORP., a domestic corporation x x x, the following ACCOUNTS

RECEIVABLES due and payable to it, having an aggregate face value of x x x.

The Deeds of Assignment enabled Great Asian to generate instant cash from its

fifteen checks, which were still not due and demandable then. In short, instead of

waiting for the maturity dates of the fifteen postdated checks, Great Asian sold the

checks to Bancasia at less than the total face value of the checks. In exchange for

receiving an amount less than the face value of the checks, Great Asian obtained

immediately much needed cash. Over three months, Great Asian entered into four

transactions of this nature with Bancasia, showing that Great Asian availed of a

discounting line with Bancasia.

In the financing industry, the term discounting line means a credit facility with a

financing company or bank, which allows a business entity to sell, on a continuing

basis, its accounts receivable at a discount.[12] The term discount means the sale of a

receivable at less than its face value. The purpose of a discounting line is to enable a

business entity to generate instant cash out of its receivables which are still to mature

at future dates. The financing company or bank which buys the receivables makes its

profit out of the difference between the face value of the receivable and the discounted

price. Thus, Section 3 (a) of the Financing Company Act of 1998 provides:

Financing companies are corporations x x x primarily organized for the purpose

of extending credit facilities to consumers and to industrial, commercial or

agricultural enterprises by discounting or factoring commercial papers

or accounts receivable, or by buying and selling contracts, leases, chattel

mortgages, or other evidences of indebtedness, or by financial leasing of movable

as well as immovable property. (Emphasis supplied)

This definition of financing companies is substantially the same definition as in the

old Financing Company Act (R.A. No. 5980).[13]

Moreover, Section 1 (h) of the New Rules and Regulations adopted by the

Securities and Exchange Commission to implement the Financing Company Act of

1998 states:

Discounting is a type of receivables financing whereby evidences of

indebtedness of a third party, such as installment contracts, promissory notes and

similar instruments, are purchased by, or assigned to, a financing company in an

amount or for a consideration less than their face value. (Emphasis supplied)

Likewise, this definition of discounting is an exact reproduction of the definition of

discounting in the implementing rules of the old Finance Company Act.

Clearly, the discounting arrangements entered into by Arsenio under the Deeds of

Assignment were the very transactions envisioned in the two board resolutions of

Great Asian to raise funds for its business. Arsenio acted completely within the limits

of his authority under the two board resolutions. Arsenio did exactly what the board of

directors of Great Asian directed and authorized him to do.

Arsenio had all the proper and necessary authority from the board of directors of

Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated

checks. Arsenio signed the Deeds of Assignment as agent and authorized signatory of

Great Asian under an authority expressly granted by its board of directors. The

signature of Arsenio on the Deeds of Assignment is effectively also the signature of

the board of directors of Great Asian, binding on the board of directors and on Great

Asian itself. Evidently, Great Asian shows its bad faith in disowning the Deeds of

Assignment signed by its own Treasurer, after receiving valuable consideration for the

checks assigned under the Deeds.

Second Issue: Breach of Contract by Great Asian

Bancasias complaint against Great Asian is founded on the latters breach of

contract under the Deeds of Assignment. The Deeds of Assignment uniformly

stipulate[14] as follows:

If for any reason the receivables or any part thereof cannot be paid by the obligor/s,

the ASSIGNOR unconditionally and irrevocably agrees to pay the same, assuming

the liability to pay, by way of penalty three per cent (3%) of the total amount unpaid,

for the period of delay until the same is fully paid.

In case of any litigation which the ASSIGNEE may institute to enforce the terms of

this agreement, the ASSIGNOR shall be liable for all the costs, plus attorneys fees

equivalent to twenty-five (25%) per cent of the total amount due. Further thereto, the

ASSIGNOR agrees that any and all actions which may be instituted relative hereto

shall be filed before the proper courts of the City of Manila, all other appropriate

venues being hereby waived.

The last Deed of Assignment[15] contains the following added stipulation:

xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR

hereby made are deemed part of the consideration for this transaction, such that any

violation of any one, some, or all of said warranties shall be deemed as deliberate

misrepresentation on the part of the ASSIGNOR. In such event, the monetary

obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed

defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to

make good said obligation, and making the ASSIGNOR liable to pay the penalty

stipulated hereinabove as if the original obligor/s of the receivables actually defaulted.

xxx

Obviously, there is one vital suspensive condition in the Deeds of

Assignment. That is, in case the drawers fail to pay the checks on maturity, Great

Asian obligated itself to pay Bancasia the full face value of the dishonored checks,

including penalty and attorneys fees. The failure of the drawers to pay the checks is a

suspensive condition,[16] the happening of which gives rise to Bancasias right to

demand payment from Great Asian. This conditional obligation of Great Asian arises

from its written contracts with Bancasia as embodied in the Deeds of

Assignment. Article 1157 of the Civil Code provides that -

Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts.

By express provision in the Deeds of Assignment, Great Asian unconditionally

obligated itself to pay Bancasia the full value of the dishonored checks. In short, Great

Asian sold the postdated checks onwith recourse basis against itself. This is an

obligation that Great Asian is bound to faithfully comply because it has the force of

law as between Great Asian and Bancasia. Article 1159 of the Civil Code further

provides that -

Obligations arising from contracts have the force of law between the contracting

parties and should be complied with in good faith.

Great Asian and Bancasia agreed on this specific with recourse stipulation,

despite the fact that the receivables were negotiable instruments with the endorsement

of Arsenio. The contracting parties had the right to adopt the with recourse stipulation

which is separate and distinct from the warranties of an endorser under the Negotiable

Instruments Law. Article 1306 of the Civil Code provides that

The contracting parties may establish such stipulations, clauses, terms and conditions

as they may deem convenient, provided they are not contrary to law, morals, good

customs, public order, or public policy.

The explicit with recourse stipulation against Great Asian effectively enlarges, by

agreement of the parties, the liability of Great Asian beyond that of a mere endorser of

a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to

Great Asian, the latter remains liable to Bancasia because of the with

recourse stipulation which is independent of the warranties of an endorser under the

Negotiable Instruments Law.

There is nothing in the Negotiable Instruments Law or in the Financing Company

Act (old or new), that prohibits Great Asian and Bancasia parties from adopting

the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of

being negotiated, a negotiable instrument may be assigned.[17] Assignment of a

negotiable instrument is actually the principal mode of conveying accounts receivable

under the Financing Company Act. Since in discounting of receivables the assignee is

subrogated as creditor of the receivable, the endorsement of the negotiable instrument

becomes necessary to enable the assignee to collect from the drawer. This is

particularly true with checks because collecting banks will not accept checks unless

endorsed by the payee. The purpose of the endorsement is merely to facilitate

collection of the proceeds of the checks.

The purpose of the endorsement is not to make the assignee finance company a

holder in due course because policy considerations militate against according finance

companies the rights of a holder in due course.[18] Otherwise, consumers who purchase

appliances on installment, giving their promissory notes or checks to the seller, will

have no defense against the finance company should the appliances later turn out to be

defective. Thus, the endorsement does not operate to make the finance company a

holder in due course. For its own protection, therefore, the finance company usually

requires the assignor, in a separate and distinct contract, to pay the finance company

in the event of dishonor of the notes or checks.

As endorsee of Great Asian, Bancasia had the option to proceed against Great

Asian under the Negotiable Instruments Law. Had it so proceeded, the Negotiable

Instruments Law would have governed Bancasias cause of action. Bancasia, however,

did not choose this route. Instead, Bancasia decided to sue Great Asian for breach of

contract under the Civil Code, a right that Bancasia had under the expresswith

recourse stipulation in the Deeds of Assignment.

The exercise by Bancasia of its option to sue for breach of contract under the Civil

Code will not leave Great Asian holding an empty bag. Great Asian, after paying

Bancasia, is subrogated back as creditor of the receivables. Great Asian can then

proceed against the drawers who issued the checks. Even if Bancasia failed to give

timely notice of dishonor, still there would be no prejudice whatever to Great

Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the

drawer has no right to expect or require the bank to honor the check, or if the drawer

has countermanded payment.[19] In the instant case, all the checks were dishonored for

any of the following reasons: account closed, account under garnishment,

insufficiency of funds, or payment stopped. In the first three instances, the drawers

had no right to expect or require the bank to honor the checks, and in the last instance,

the drawers had countermanded payment.

Moreover, under common law, delay in notice of dishonor, where such notice is

required, discharges the drawer only to the extent of the loss caused by the

delay.[20] This rule finds application in this jurisdiction pursuant to Section 196 of the

Negotiable Instruments Law which states, Any case not provided for in this Act shall

be governed by the provisions of existing legislation, or in default thereof, by the rules

of the Law Merchant. Under Section 186 of the Negotiable Instruments Law, delay in

the presentment of checks discharges the drawer. However, Section 186 refers only to

delay in presentment of checks but is silent on delay in giving notice of

dishonor. Consequently, the common law or Law Merchant can supply this gap in

accordance with Section 196 of the Negotiable Instruments Law.

One other issue raised by Great Asian, that of lack of consideration for the Deeds

of Assignment, is completely unsubstantiated. The Deeds of Assignment uniformly

provide that the fifteen postdated checks were assigned to Bancasia for valuable

consideration. Moreover, Article 1354 of the Civil Code states that, Although the

cause is not stated in the contract, it is presumed that it exists and is lawful, unless the

debtor proves the contrary. The record is devoid of any showing on the part of Great

Asian rebutting this presumption. On the other hand, Bancasias Loan Section

Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a consideration at

the discount rate of less than 24% of the face value of the postdated

checks.[21] Moreover, in its verified petition for voluntary insolvency, Great Asian

admitted its debt to Bancasia when it listed Bancasia as one of its creditors, an extra-

judicial admission that Bancasia proved when it formally offered in evidence the

verified petition for insolvency.[22]The Insolvency Law requires the petitioner to

submit a schedule of debts that must contain a full and true statement of all his debts

and liabilities.[23] The Insolvency Law even requires the petitioner to state in his

verification that the schedule of debts contains a full, correct and true discovery of all

my debts and liabilities x x x.[24] Great Asian cannot now claim that the listing of

Bancasia as a creditor was not an admission of its debt to Bancasia but merely an

acknowledgment that Bancasia had sent a demand letter to Great Asian.

Great Asian, moreover, claims that the assignment of the checks is not a loan

accommodation but a sale of the checks. With the sale, ownership of the checks

passed to Bancasia, which must now, according to Great Asian, sue the drawers and

indorser of the check who are the parties primarily liable on the checks. Great Asian

forgets that under the Deeds of Assignment, Great Asian expressly undertook to pay

the full value of the checks in case of dishonor. Again, we reiterate that this obligation

of Great Asian is separate and distinct from its warranties as indorser under the

Negotiable Instruments Law.

Great Asian is, however, correct in saying that the assignment of the checks is a

sale, or more properly a discounting, of the checks and not a loan

accommodation. However, it is precisely because the transaction is a sale or a

discounting of receivables, embodied in separate Deeds of Assignment, that the

relevant provisions of the Civil Code are applicable and not the Negotiable

Instruments Law.

At any rate, there is indeed a fine distinction between a discounting line and a loan

accommodation. If the accounts receivable, like postdated checks, are sold for a

consideration less than their face value, the transaction is one of discounting, and is

subject to the provisions of the Financing Company Act. The assignee is immediately

subrogated as creditor of the accounts receivable. However, if the accounts receivable

are merely used as collateral for the loan, the transaction is only a simple loan, and the

lender is not subrogated as creditor until there is a default and the collateral is

foreclosed.

In summary, Great Asians four contracts assigning its fifteen postdated checks to

Bancasia expressly stipulate the suspensive condition that in the event the drawers of

the checks fail to pay, Great Asian itself will pay Bancasia. Since the common

condition in the contracts had transpired, an obligation on the part of Great Asian

arose from the four contracts, and that obligation is to pay Bancasia the full value of

the checks, including the stipulated penalty and attorneys fees.

Third Issue: The liability of surety Tan Chong Lin

Tan Chong Lin, the President of Great Asian, is being sued in his personal

capacity based on the Surety Agreements he signed wherein he solidarily held himself

liable with Great Asian for the payment of its debts to Bancasia. The Surety

Agreements contain the following common condition:

Upon failure of the Principal to pay at maturity, with or without demand, any of the

obligations above mentioned, or in case of the Principals failure promptly to respond

to any other lawful demand made by the Creditor, its successors, administrators or

assigns, both the Principal and the Surety/ies shall be considered in default and the

Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding

obligations of the Principal, whether due or not due, and whether held by the Creditor

as Principal or agent, and it is agreed that a certified statement by the Creditor as to

the amount due from the Principal shall be accepted by the Surety/ies as correct and

final for all legal intents and purposes.

Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay

Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on due

date. The condition on which Tan Chong Lins obligation hinged had happened. As

surety, Tan Chong Lin automatically became liable for the entire obligation to the

same extent as Great Asian.

Tan Chong Lin, however, contends that the following warranties in the Deeds of

Assignment enlarge or increase his risks under the Surety Agreements:

The ASSIGNOR warrants:

1. the soundness of the receivables herein assigned;

2. that said receivables are duly noted in its books and are supported by

appropriate documents;

3. that said receivables are genuine, valid and subsisting;

4. that said receivables represent bona fide sale of goods, merchandise, and/or

services rendered in the ordinary course of its business transactions;

5. that the obligors of the receivables herein assigned are solvent;

6. that it has valid and genuine title to and indefeasible right to dispose of said

accounts;

7. that said receivables are free from all liens and encumbrances;

8. that the said receivables are freely and legally transferable, and that the

obligor/s therein will not interpose any objection to this assignment, and has

in fact given his/their consent hereto.

Tan Chong Lin maintains that these warranties in the Deeds of Assignment

materially altered his obligations under the Surety Agreements, and therefore he is

released from any liability to Bancasia.Under Article 1215 of the Civil Code, what

releases a solidary debtor is a novation, compensation, confusion or remission of the

debt made by the creditor with any of the solidary debtors. These warranties, however,

are the usual warranties made by one who discounts receivables with a financing

company or bank. The Surety Agreements, written on the letter head of Bancasia

Finance & Investment Corporation, uniformly state that Great Asian Sales Center x x

x has obtained and/or desires to obtain loans, overdrafts, discounts and/or other

forms of credits from Bancasia. Tan Chong Lin was clearly on notice that he was

holding himself as surety of Great Asian which was discounting postdated checks

issued by its buyers of goods and merchandise. Moreover, Tan Chong Lin, as

President of Great Asian, cannot feign ignorance of Great Asians business activities or

discounting transactions with Bancasia. Thus, the warranties do not increase or

enlarge the risks of Tan Chong Lin under the Surety Agreements.There is, moreover,

no novation of the debt of Great Asian that would warrant release of the surety.

In any event, the provisions of the Surety Agreements are broad enough to include

the obligations of Great Asian to Bancasia under the warranties. The first Surety

Agreement states that:

x x x herein Surety/ies, jointly and severally among themselves and likewise with

principal, hereby agree/s and bind/s himself/themselves to pay at maturity all the

notes, drafts, bills of exchange, overdraft and other obligations of every kind which

the Principal may now or may hereafter owe the Creditor, including extensions or

renewals thereof in the sum *** ONE MILLION ONLY*** PESOS (P1,000,000.00),

Philippine Currency, plus stipulated interest thereon at the rate of sixteen percent

(16%) per annum, or at such increased rate of interest which the Creditor may charge

on the Principals obligations or renewals or the reduced amount thereof, plus all the

costs and expenses which the Creditor may incur in connection therewith.

x x x

Upon failure of the Principal to pay at maturity, with or without demand, any of the

obligations above mentioned, or in case of the Principals failure promptly to

respond to any other lawful demand made by the Creditor, its successors,

administrators or assigns, both the Principal and the Surety/ies shall be considered in

default and the Surety/ies agree/s to pay jointly and severally to the Creditor all

outstanding obligations of the Principal, whether due or not due, and whether held

by the Creditor as Principal or agent, and it is agreed that a certified statement by the

Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as

correct and final for all legal intents and purposes. (Emphasis supplied)

The second Surety Agreement contains the following provisions:

x x x herein Surety/ies, jointly and severally among themselves and likewise with

PRINCIPAL, hereby agree and bind themselves to pay at maturity all the notes,

drafts, bills of exchange, overdraft and other obligations of every kind which the

PRINCIPAL may now or may hereafter owe the Creditor, including extensions

and/or renewals thereof in the principal sum not to exceed

TWO MILLION(P2,000,000.00) PESOS, Philippine Currency, plus stipulated interest

thereon, or such increased or decreased rate of interest which the Creditor may charge

on the principal sum outstanding pursuant to the rules and regulations which the

Monetary Board may from time to time promulgate, together with all the cost and

expenses which the CREDITOR may incur in connection therewith.

If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the

obligations or amounts due to the CREDITOR, or if for any reason whatsoever the

PRINCIPAL fails to promptly respond to and comply with any other lawful demand

made by the CREDITOR, or if for any reason whatsoever any obligation of the

PRINCIPAL in favor of any person or entity should be considered as defaulted, then

both the PRINCIPAL and the SURETY/IES shall be considered in default under the

terms of this Agreement. Pursuant thereto, the SURETY/IES agree/s to pay jointly

and severally with the PRINCIPAL, all outstanding obligations of the CREDITOR,

whether due or not due, and whether owing to the PRINCIPAL in its personal

capacity or as agent of any person, endorsee, assignee or transferee. x x x. (Emphasis

supplied)

Article 1207 of the Civil Code provides, xxx There is a solidary liability only

when the obligation expressly so states, or when the law or nature of the obligation

requires solidarity. The stipulations in the Surety Agreements undeniably mandate the

solidary liability of Tan Chong Lin with Great Asian. Moreover, the stipulations in the

Surety Agreements are sufficiently broad, expressly encompassing all the notes,

drafts, bills of exchange, overdraft and other obligations of every kind which the

PRINCIPAL may now or may hereafter owe the Creditor. Consequently, Tan Chong

Lin must be held solidarily liable with Great Asian for the nonpayment of the fifteen

dishonored checks, including penalty and attorneys fees in accordance with the Deeds

of Assignment.

The Deeds of Assignment stipulate that in case of suit Great Asian shall pay

attorneys fees equivalent to 25% of the outstanding debt. The award of attorneys fees

in the instant case is justified,[25] not only because of such stipulation, but also because

Great Asian and Tan Chong Lin acted in gross and evident bad faith in refusing to pay

Bancasias plainly valid, just and demandable claim. We deem it just and equitable that

the stipulated attorneys fee should be awarded to Bancasia.

The Deeds of Assignment also provide for a 3% penalty on the total amount due

in case of failure to pay, but the Deeds are silent on whether this penalty is a running

monthly or annual penalty. Thus, the 3% penalty can only be considered as a one-time

penalty. Moreover, the Deeds of Assignment do not provide for interest if Great Asian

fails to pay. We can only award Bancasia legal interest at 12% interest per annum, and

only from the time it filed the complaint because the records do not show that

Bancasia made a written demand on Great Asian prior to filing the

complaint.[26] Bancasia made an extrajudicial demand on Tan Chong Lin, the surety,

but not on the principal debtor, Great Asian.

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV

No. 20167 is AFFIRMED with MODIFICATION. Petitioners are ordered to pay,

solidarily, private respondent the following amounts: (a) P1,042,005.00 plus 3%

penalty thereon, (b) interest on the total outstanding amount in item (a) at the legal

rate of 12% per annum from the filing of the complaint until the same is fully paid, (c)

attorneys fees equivalent to 25% of the total amount in item (a), including interest at

12% per annum on the outstanding amount of the attorneys fees from the finality of

this judgment until the same is fully paid, and (c) costs of suit.

SO ORDERED.

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

[G. R. No. 141466. January 19, 2001]

ELIZA T. TAN, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

D E C I S I O N

PARDO, J.:

The case is an appeal from a decision of the Court of Appeals[1] affirming in toto that of the

Regional Trial Court, Quezon City, Branch 95 finding petitioner Eliza T. Tan guilty of violation

of B.P. 22 and sentencing her to imprisonment of one year with costs, and to pay complainant

Fidel M. Francisco, Jr. the sum of P23,739.09, with legal rate of interest from January 5, 1994,

until fully paid.

The facts, as found by the Court of Appeals, are as follows:[2]

Accused-appellant Eliza is the Vice-President of Hometown Development, Inc.

(HDI), owner/developer of the South Garden Homes, located at Salitran, Dasmarinas,

Cavite. Fidel [M. Francisco, Jr.] is the president of the construction firm F.M.

Francisco & Associates (FMF).

On January 28, 1992, Eliza, representing HDI, and Fidel, for FMF, entered into a

Construction Agreement whereby the FMF was hired by Eliza to undertake land

development (construction of roads, railings, curbs, and gutters) at the South Garden

Homes. Among others, the Construction Agreement set forth that the manner of

payment would be on a monthly progress billing based on accomplishment reports to

be submitted by the FMF.

Based on the testimony of Fidel, it would appear for the prosecution that when Eliza

failed to pay, both parties terminated the contract. For its accomplishment for the

month of November 1992, FMF was paid P23,739.09 by Eliza with Philtrust Bank

Check No. A000913 dated February 28, 1993.

Upon presentment for payment, however, subject check was dishonored. After receipt

of the notice of dishonor, Fidel verbally notified Eliza and the latter promised to

pay. Later on, when Eliza still did not pay, Fidel sent her a demand letter by registered

mail. Failing to heed his demand letter, Eliza was charged in court.

Meanwhile, Eliza presented a different version of the case altogether. According to

accused-appellant, she initially issued for (4) checks with P50,000.00 each to FMF as

advance partial payment as per voucher No. 1575 dated July 25, 1992, to wit:

Check # Amount Date

861776 P50,000.00 August 15, 1992

861777 50,000.00 August 30, 1992

861778 50,000.00 Sept. 15, 1992

861779 50,000.00 Sept. 30, 1992

When FMF failed to accomplish land development in Cavite, the Construction

Agreement was terminated and Eliza asked for the return of the four (4) above-

mentioned checks. With the excuse, however, that Check No. 861776 dated August

15, 1992 got lost, Fidel gave back only three (3) of the for (4) checks.

As their accounting records reflected that HDI still had an account of P46,000.00 with

FMF, and at the behest of Fidel, Eliza issued to the latter, two (2) checks: Philtrust

Bank Check Nos. A000904 and A000913 dated January 30, 1993 and February 28,

1993, respectively, each for P23,739.09, as replacement checks for the one that got

lost.

She replaced later on these two (2) checks with cash as evidenced by the

acknowledgement signature of Fidel on Voucher No. 2028 dated March 30, 1993.

Subsequently, it was realized by HDIs accounting department that Philtrust Bank

Check Nos. A000904 and A000913 had already been replaced with cash and so a

request to stop payment of these two (2) checks were made by Eliza to the bank.

Accused-appellant maintains that Philtrust Bank Check No. A000913 was dishonored

not because it was drawn against insufficient funds but precisely because of her order

to stop payment therefor. She stressed that although that bank had stamped DAUD in

subject check upon its presentment on March 2, 1993, she had sufficient funds to

cover the check because at that time, she had a credit limit of P25 million with

Philtrust Bank. This allegation was supported by Aileen Sy, representative of the

Philippine Trust Bank who confirmed in Court that had there been no stop payment

request received by their bank as early as January 27, 1993, the amount of P23,739.09

covered by subject Philtrust Bank Check No. A000913 could have been withdrawn on

March 2, 1993 because of the available credit limit of P5 million. This was the reason

why, at the dorsal portion of subject check is written under the column Reason for

Return, at No. 1 thereof: Payment Stopped Funded.

In rebuttal, the wife of Fidel, Erlinda S. Francisco, disputes the allegation of Eliza

who used to be her friend especially on her husband having allegedly received

payment in cash in exchange for Philtrust Bank Check Nos. A000904 and A0009013

and suspects the genuineness of Voucher No. 2028 dated March 30, 1992. For one,

Mrs. Francisco asserts that whenever she pays them (FMF) Eliza paid in checks and

never in cash and vouchers were already prepared typewritten unlike Voucher No.

2028 where the data are handwritten. Secondly, after Eliza issued the two (2) checks

in December 1992, Mrs. Francisco and her husband no longer saw accused-appellant,

not even after the demand letter had been sent on March 18, 1993.[3]

On May 24, 1996, the trial court rendered a decision the dispositive portion of which reads:

WHEREFORE, Judgment is hereby rendered finding the accused Eliza Tan guilty

beyond reasonable doubt of the offense of Violation of B.P. 22 and metes on the said

accused the penalty of one (1) year imprisonment and to pay the costs. The accused

Eliza Tan is further ordered to pay the amount of P23,739.09 with legal rate of interest

to Fidel M. Francisco, Jr., computed from January 5, 1994 until it is fully paid.

SO ORDERED.

Quezon City, Philippines, May 24, 1996.

(S/T) DIOSDADO M. PERALTA

Judge[4]

In time, petitioner appealed to the Court of Appeals.[5]

On October 22, 1999, the Court of Appeals promulgated its decision affirming in its entirely

the decision of the trial court.[6]

Hence, this appeal.[7]

The issue raised is whether petitioner is guilty of violation of B.P. 22 because when she

issued Philtrust Bank Check No. A000913 to FMF on February 28, 1993, she knew that there

were insufficient funds on deposit with the bank to honor the check upon presentment.

The elements of the offense defined and penalized in Section 1 of Batas Pambansa Blg. 22

are:

1. That a person makes or draws and issues any check.

2. That the check is made or drawn and issued to apply on account or for value.

3. That the person who makes or draws and issues the check knows at the time of

issue that he does not have sufficient funds in or credit with the drawee bank for the

payment of such check in full upon its presentment.

4. That the check is subsequently dishonored by the drawee bank for insufficiency of

funds or credit, or would have been dishonored for the same reason had not the

drawer, without any valid reason, ordered the bank to stop payment.[8]

In this case, the third and fourth elements of the offense charged were not established or

proved.

In the first place, the banks representative testified that petitioners account at the time of the

presentment of the check she issued was funded, as she had a credit line to the extent of P25

million, much more than the amount of the check issued.

In the second place, even without relying on the credit line, petitioners bank account covered

the check she issued because even though there were some deposits that were still uncollected

the deposits became good and the bank certified that the check was funded.

Actually, the check in question was not issued without sufficient funds and was not

dishonored due to insufficiency of funds.[9] What was stamped on the check in question was

Payment Stopped-Funded at the same time DAUD meaning drawn against uncollected

deposits. Even with uncollected deposits, the bank may honor the check at its discretion in favor

of favored clients, in which case there would be no violation of B.P. 22.[10]

In fact, petitioner requested the bank to stop payment of the check for a valid reason,

namely, that the account has been paid in cash.

IN VIEW WHEREOF, we REVERSE the appealed decision of the Court of Appeals.

In lieu thereof, we ACQUIT petitioner of the offense charged, with costs de oficio.

SO ORDERED.

BANK OF THE G.R. No. 167750

PHILIPPINE ISLANDS,

Petitioner, Present:

CARPIO, J., Chairperson,

- versus - BRION,

DEL CASTILLO,

ABAD, and

PEREZ, JJ.

REYNALD R. SUAREZ, Promulgated:

Respondent. March 15, 2010

x-----------------------------------------------------------------------------------------x

D E C I S I O N

CARPIO, J.:

The Case

This petition for review[1] assails the Decision dated 30 November 2004[2] and

Resolution dated 11 April 2005 of the Court of Appeals in CA-G.R. CV No.

76988, affirming the trial court's decision of 18 October 2002 and denying

reconsideration.

The Facts

Respondent Reynald R. Suarez (Suarez) is a lawyer who used to maintain both

savings and current accounts with petitioner Bank of the Philippine Islands (BPI)

Ermita Branch from 1988 to 1997.

Sometime in 1997, Suarez had a client who planned to purchase several parcels of

land in Tagaytay City, but preferred not to deal directly with the land owners. In

accordance with his clients instruction, Suarez transacted with the owners of the

Tagaytay properties, making it appear that he was the buyer of the lots. As regards

the payment of the purchase money, Suarez and his client made an arrangement

such that Suarezs client would deposit the money in Suarezs BPI account and then,

Suarez would issue checks to the sellers. Hence, on 16 June 1997, Suarezs client

deposited a Rizal Commercial Banking Corporation (RCBC) check with a face

value of P19,129,100, representing the total consideration of the sales, in BPI

Pasong Tamo Branch to be credited to Suarezs current account in BPI Ermita

Branch.

Aware of the banking systems 3-day check clearing policy,[3] Suarez instructed his

secretary, Petronila Garaygay (Garaygay), to confirm from BPI whether the face

value of the RCBC check was already credited to his account that same day of 16

June 1997. According to Garaygay, BPI allegedly confirmed the same-day

crediting of the RCBC check.Relying on this confirmation, Suarez issued on the

same day five checks of different amounts totaling P19,129,100 for the purchase of

the Tagaytay properties.[4]

The next day, Suarez left for the United States (U.S.) for a vacation. While Suarez

was in the U.S., Garaygay informed him that the five checks he issued were all

dishonored by BPI due to insufficiency of funds and that his current account had

been debited a total of P57,200 as penalty for the dishonor. Suarezs secretary

further told him that the checks were dishonored despite an assurance from RCBC,

the drawee bank for the sum of P19,129,100, that this amount had already been

debited from the account of the drawer on 16 June 1997 and the RCBC check was

fully funded.

On 19 June 1997, the payees of the five BPI checks that Suarez issued on 16 June

1997 presented the checks again. Since the RCBC check (which Suarezs client

issued) had already been cleared by that time, rendering Suarezs available funds

sufficient, the checks were honored by BPI.

Subsequently, Suarez sent a letter to BPI demanding an apology and the reversal of

the charges debited from his account. Suarez received a call from Fe Gregorius,

then manager of the BPI Ermita Branch, who requested a meeting with him to

explain BPIs side. However, the meeting did not transpire.

Suarez sent another letter to BPI addressed to its president, Xavier Loinaz.

Consequently, BPI representatives asked another meeting with Suarez. During the

meeting, the BPI officers handed Suarez a letter, the relevant text of which reads:

Dear Atty. Suarez:

Your letter to our President, Xavier P. Loinaz dated 02 July 1997 was referred to us

for investigation and reply.

Our investigation discloses that when the checks you issued against your account were

received for clearing, the checks you deposited were not yet cleared. Hence, the

dishonor of the your checks.

We do not see much in your allegation that you have suffered damages just because

the reason for the return was DAIF and not DAUD. In both instances, there is a

dishonor nonetheless.[5]

Upon Suarezs request, BPI delivered to him the five checks which he issued on 16

June 1997. Suarez claimed that the checks were tampered with, specifically the

reason for the dishonor, prompting him to send another letter informing BPI of its

act of falsification by making it appear that it marked the checks with drawn

against uncollected deposit (DAUD) and not drawn against insufficient fund

(DAIF). In reply, BPI offered to reverse the penalty charges which were debited

from his account, but denied Suarezs claim for damages. Suarez rejected BPIs

offer.

Claiming that BPI mishandled his account through negligence, Suarez filed with

the Regional Trial Court a complaint for damages, docketed as Civil Case No. 98-

574.

The Regional Trial Court, Makati City, Branch 136 rendered judgment in favor of

Suarez, thus:

WHEREFORE, judgment is hereby rendered ordering defendant bank to

pay the following amounts:

1. The amount of P57,200.00, with interest

from date of first demand until full

payment as actual damages;

2. The sum of P3,000,000.00 by way of moral

damages;

3. The amount of P1,000,000.00 as and for

exemplary damages;

4. The sum of P1.00 as attorneys fees, and

The costs of litigation.

SO ORDERED.[6]

BPI appealed to the Court of Appeals, which affirmed the trial courts decision. The

dispositive portion of the 30 November 2004 Decision of the Court of Appeals

reads:

WHEREFORE, premises considered, the instant appeal is

DISMISSED. The decision dated 18 October 2002 of the Regional Trial

Court, Branch 136, of Makati is AFFIRMED in toto.

SO ORDERED.[7]

The Court of Appeals denied BPIs motion for reconsideration in its 11 April 2005

Resolution.

Hence, this petition.

The Court of Appeals Ruling

In affirming the trial courts decision, the Court of Appeals ruled as follows:

Contrary to its contention, plaintiff-appellees evidence convincingly

established the latters entitlement to damages, which was the direct result

of defendant-appellants negligence in handling his account. It was duly

proven that after his client deposited a check in the amount

of P19,129,100.00 on 16 June 1997, it was confirmed through plaintiff-

appellees secretary by an employee of defendant-appellant bank that the

aforesaid amount was, on the same day, already credited to his

account. It was on the basis of this confirmation which made plaintiff-

appellee issue five (5) checks in the amount of P19,129,100.00 to

different payees. And despite RCBCs assurance that the aforementioned

amount had already been debited from the account of the drawer bank,

defendant-appellant bank still dishonored the five (5) checks for DAIF as

reason when the various payees presented them for payment on 17 June

1997.

It was also proven that defendant-appellant bank through its employee inadvertently

marked the dorsal sides of the checks as DAIF instead of DAUD. A closer look at the

checks would indicate that intercalations were made marking the acronym DAIF

thereon to appear as DAUD. Although the intercalation was obvious in the P12

million check, still the fact that there was intercalation made in the said check cannot

be denied. It bears to stress that there lies a big difference between a check dishonored

for reasons of DAUD and a check dishonored for DAIF. A check dishonored for

reasons of DAIF would unduly expose herein plaintiff-appellee to criminal

prosecution for violation of B.P. 22 while a check dishonored for reasons of DAUD

would not. Thus, it was erroneous on the part of defendant-appellant bank to surmise

that plaintiff-appellee would not suffer damages anyway for the dishonored checks for

reasons of DAUD or DAIF because there was dishonor nonetheless.

While plaintiff-appellee had been spared from any criminal prosecution, his

reputation, however, was sullied on account of the dishonored checks by reason of

DAIF. His transaction with the would be sellers of the property in Tagaytay was

aborted because the latter doubted his capacity to fulfill his obligation as buyer of

their [properties.] As the agent of the true buyers, he had a lot of explaining to do with

his client. In short, he suffered humiliation.

Defendant-appellant bank also contends that plaintiff-appellee is liable to pay the

charges mandated by the Philippine Clearing House Rules and Regulations (PCHRR).

If truly these charges were mandated by the PCHRR, defendant-appellant bank should

not have attempted to renege on its act of debiting the charges to plaintiff-appellees

account. In its letter dated 28 July 1997 addressed to plaintiff-appellee, the former has

offered to reverse these charges in order to mitigate the effects of the returned checks

on the latter. This, to the mind of the court, is tantamount to an admission on their

(defendant-appellant banks employees) part that they have committed a blunder in

handling plaintiff-appellees account. Perforce, defendant-appellant bank should return

the amount of the service charges debited to plaintiff-appellee. It is basic in the law

governing human relations that no one shall be unjustly enriched at the expense of

others.[8]

The Issues

In its Memorandum, BPI raised the following issues:

A. WHETHER [BPI] WAS NEGLIGENT IN HANDLING THE

ACCOUNT OF [SUAREZ];

B. WHETHER [SUAREZ] IS LIABLE TO PAY THE SERVICE

CHARGES IMPOSED BY THE PHILIPPINE CLEARING

HOUSE CORPORATION; and

C. WHETHER [BPI] IS LIABLE TO PAY [SUAREZ] MORAL AND

EXEMPLARY DAMAGES, ATTORNEYS FEES AND COSTS OF LITIGATION.[9]

The Courts Ruling

The petition is partly meritorious.

As a rule, this Court is not a trier of facts. However, there are well- recognized

exceptions to this rule, one of which is when certain relevant facts were overlooked

by the lower court, which facts, if properly appreciated, would justify a different

conclusion from the one reached in the assailed decision.[10] Reviewing the records,

we find that the lower courts misappreciated the evidence in this case.

Suarez insists that BPI was negligent in handling his account when BPI dishonored

the checks he issued to various payees on 16 June 1997, despite the RCBC check

deposit made to his account on the same day to cover the total amount of the BPI

checks.

Negligence is defined as the omission to do something which a reasonable man,

guided upon those considerations which ordinarily regulate the conduct of human

affairs, would do, or the doing of something which a prudent man and reasonable

man could not do.[11] The question concerning BPI's negligence,

however, depends on whether BPI indeed confirmed the same-day crediting of the

RCBC checks face value to Suarezs BPI account.

In essence, Suarez impresses upon this Court that BPI is estopped[12] from

dishonoring his checks since BPI confirmed the same-day crediting of the RCBC

check deposit and assured the adequacy of funds in his account. Suarez points out

that he relied on this confirmation for the issuance of his checks to the owners of

the Tagaytay properties. In other words, Suarez claims that BPI made a

representation that he had sufficient available funds to cover the total value of his

checks.

Suarez is mistaken.

Based on the records, there is no sufficient evidence to show that BPI conclusively

confirmed the same-day crediting of the RCBC check which Suarezs client

deposited late on 16 June 1997.[13] Suarezs secretary, Garaygay, testified that she

was able to talk to a BPI male employee about the same-day crediting of the RCBC

check.[14] However, Garaygay failed to (1) identify and name the alleged BPI

employee, and (2) establish that this particular male employee was authorized by

BPI either to disclose any information regarding a depositors bank account to a

person other than the depositor over the telephone, or to assure Garaygay that

Suarez could issue checks totaling the face value of the RCBC check. Moreover, a

same-day clearing of a P19,129,100 check requires approval of designated bank

official or officials, and not any bank official can grant such approval. Clearly,

Suarez failed to prove that BPI confirmed the same-day crediting of the RCBC

check, or that BPI assured Suarez that he had sufficient available funds in his

account.Accordingly, BPI was not estopped from dishonoring the checks for

inadequacy of available funds in Suarezs account since the RCBC check remained

uncleared at that time.

While BPI had the discretion to undertake the same-day crediting of the RCBC

check,[15] and disregard the banking industrys 3-day check clearing policy, Suarez

failed to convincingly show his entitlement to such privilege. As BPI pointed out,

Suarez had no credit or bill purchase line with BPI which would qualify him to the

exceptions to the 3-day check clearing policy.[16]

Considering that there was no binding representation on BPIs part as regards the

same-day crediting of the RCBC check, no negligence can be ascribed to BPIs

dishonor of the checks precisely because BPI was justified in dishonoring the

checks for lack of available funds in Suarezs account.[17]

However, BPI mistakenly marked the dishonored checks with drawn against

insufficient funds (DAIF), instead of drawn against uncollected deposit

(DAUD). DAUD means that the account has, on its face, sufficient funds but not

yet available to the drawer because the deposit, usually a check, had not yet been

cleared.[18] DAIF, on the other hand, is a condition in which a depositors balance is

inadequate for the bank to pay a check.[19] In other words, in the case of DAUD, the

depositor has, on its face, sufficient funds in his account, although it is not

available yet at the time the check was drawn, whereas in DAIF, the depositor

lacks sufficient funds in his account to pay the check. Moreover, DAUD does not

expose the drawer to possible prosecution for estafa and violation of BP 22, while

DAIF subjects the depositor to liability for such offenses.[20] It is clear therefore

that, contrary to BPIs contention, DAIF differs from DAUD. Now, does the

erroneous marking of DAIF, instead of DAUD, give rise to BPIs liability for

damages?

THE FOLLOWING ARE THE CONDITIONS FOR THE AWARD OF MORAL

DAMAGES: (1) THERE IS AN INJURY WHETHER PHYSICAL, MENTAL OR

PSYCHOLOGICAL CLEARLY SUSTAINED BY THE CLAIMANT; (2) THE

CULPABLE ACT OR OMISSION IS FACTUALLY ESTABLISHED; (3) THE

WRONGFUL ACT OR OMISSION OF THE DEFENDANT IS THE

PROXIMATE CAUSE OF THE INJURY SUSTAINED BY THE CLAIMANT;

AND (4) THE AWARD OF DAMAGES IS PREDICATED ON ANY OF THE

CASES STATED IN ARTICLE 2219[21] OF THE CIVIL CODE.[22]

IN THE PRESENT CASE, SUAREZ FAILED TO ESTABLISH THAT HIS

CLAIMED INJURY WAS PROXIMATELY CAUSED BY THE ERRONEOUS

MARKING OF DAIF ON THE CHECKS. PROXIMATE CAUSE HAS BEEN

DEFINED AS ANY CAUSE WHICH, IN NATURAL AND CONTINUOUS

SEQUENCE, UNBROKEN BY ANY EFFICIENT INTERVENING CAUSE,

PRODUCES THE RESULT COMPLAINED OF AND WITHOUT WHICH

WOULD NOT HAVE OCCURRED.[23] THERE IS NOTHING IN SUAREZS

TESTIMONY WHICH CONVINCINGLY SHOWS THAT THE ERRONEOUS

MARKING OF DAIF ON THE CHECKS PROXIMATELY CAUSED HIS

ALLEGED PSYCHOLOGICAL OR SOCIAL INJURIES. SUAREZ MERELY

TESTIFIED THAT HE SUFFERED HUMILIATION AND THAT THE

PROSPECTIVE CONSOLIDATION OF THE TITLES TO THE TAGAYTAY

PROPERTIES DID NOT MATERIALIZE DUE TO THE DISHONOR OF HIS

CHECKS,[24]NOT DUE TO THE ERRONEOUS MARKING OF DAIF ON HIS

CHECKS. HENCE, SUAREZ HAD ONLY HIMSELF TO BLAME FOR HIS

HURT FEELINGS AND THE UNSUCCESSFUL TRANSACTION WITH HIS

CLIENT AS THESE WERE DIRECTLY CAUSED BY THE JUSTIFIED

DISHONOR OF THE CHECKS. IN SHORT, SUAREZ CANNOT RECOVER

COMPENSATORY DAMAGES FOR HIS OWN NEGLIGENCE.[25]

WHILE THE ERRONEOUS MARKING OF DAIF, WHICH BPI BELATEDLY

RECTIFIED, WAS NOT THE PROXIMATE CAUSE OF SUAREZS CLAIMED

INJURY, THE COURT REMINDS BPI THAT ITS BUSINESS IS AFFECTED

WITH PUBLIC INTEREST. IT MUST AT ALL TIMES MAINTAIN A HIGH

LEVEL OF METICULOUSNESS AND SHOULD GUARD AGAINST INJURY

ATTRIBUTABLE TO NEGLIGENCE OR BAD FAITH ON ITS

PART.[26] SUAREZ HAD A RIGHT TO EXPECT SUCH HIGH LEVEL OF

CARE AND DILIGENCE FROM BPI. SINCE BPI FAILED TO EXERCISE

SUCH DILIGENCE, SUAREZ IS ENTITLED TO NOMINAL DAMAGES[27] TO

VINDICATE SUAREZS RIGHT TO SUCH HIGH DEGREE OF CARE AND

DILIGENCE. THUS, WE AWARD SUAREZ P75,000.00 NOMINAL

DAMAGES.

ON THE AWARD OF ACTUAL DAMAGES, WE FIND THE SAME

WITHOUT ANY BASIS. CONSIDERING THAT BPI LEGALLY

DISHONORED THE CHECKS FOR BEING DRAWN AGAINST

UNCOLLECTED DEPOSIT, BPI WAS JUSTIFIED IN DEBITING THE

PENALTY CHARGES AGAINST SUAREZS ACCOUNT, PURSUANT TO

THE RULES OF THE PHILIPPINE CLEARING HOUSE

CORPORATION,[28] TO WIT:

Sec. 27. PENALTY CHARGES ON RETURNED ITEMS

27.1 A SERVICE CHARGE OF P600.00 FOR EACH

CHECK SHALL BE LEVIED AGAINST THE DRAWER

OF ANY CHECK OR CHECKS RETURNED FOR ANY

REASON, EXCEPT FOR THE FOLLOWING:

A) ACCOUNT CLOSED

B) NO ACCOUNT

C) UNDER GARNISHMENT

D) SPURIOUS CHECK

E) DOCUMENTARY STAMPS MISSING (FOR FOREIGN CHECKS/DRAFTS

ONLY)

F) POST-DATED/STALE-DATED

G) VALIDITY RESTRICTED

H) MISCLEARED ITEMS

I) DECEASED DEPOSITOR

J) VIOLATION OF CLEARING RULES AND/OR PROCEDURES

K) LOST BY PRESENTING BANK WHILE IN TRANSIT TO CLEARING

AS WELL AS OTHER EXCEPTIONS WHICH MAY BE

DEFINED/CIRCULATED BY PCHC FROM TIME TO TIME.[29]

IN VIEW OF THE FOREGOING, THE COURT DEEMS IT UNNECESSARY

TO RESOLVE THE OTHER ISSUES RAISED IN THIS CASE.

WHEREFORE, THE COURT GRANTS THE PETITION IN PART. THE

COURT SETS ASIDE THE 30 NOVEMBER 2004 DECISION AND 11 APRIL

2005 RESOLUTION OF THE COURT OF APPEALS IN CA-G.R. CV NO.

76988, AND DELETES THE AWARD OF ALL DAMAGES AND FEES. THE

COURT AWARDS TO RESPONDENT REYNALD R. SUAREZ NOMINAL

DAMAGES IN THE SUM OF P75,000.00.

SO ORDERED.

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

JAMES SVENDSEN,

Petitioner,

-versus-

G.R. No. 175381

Present:

QUISUMBING, J., Chairperson,

CARPIO,

CARPIO MORALES,

TINGA, and

VELASCO, JR., JJ.

PEOPLE OF

THEPHILIPPINES,

Respondent.

Promulgated:

February 26, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CARPIO MORALES, J.:

Assailed via Petition for Review on Certiorari is the Court of Appeals

Decision[1]

of November 16, 2006 denying petitioners appeal from the December

22, 2005 Decision[2]

of the Regional Trial Court (RTC) of Manila, Branch 14

which affirmed the December 17, 2003 Judgment[3]

of the Metropolitan Trial Court

(MeTC) of Manila, Branch 5, finding James Svendsen (petitioner) guilty of

violation of Batas Pambansa Blg. (B.P. Blg.) 22 or the Bouncing Checks Law.

In October 1997, Cristina Reyes (Cristina) extended a loan to petitioner in

the amount of P200,000, to bear interest at 10% a month. After petitioner had

partially paid his obligation, he failed to settle the balance thereof which had

reached P380,000 inclusive of interest.[4]

Cristina thus filed a collection suit against petitioner, which was eventually

settled when petitioner paid her P200,000[5]

and issued in her favor an International

Exchange Bank check postdated February 2, 1999 (the check) in the amount

of P160,000 representing interest.[6]

The check was co-signed by one Wilhelm

Bolton.

When the check was presented for payment on February 9, 1999, it was dishonored

for having been Drawn Against Insufficient Funds (DAIF).[7]

Cristina, through counsel, thus sent a letter to petitioner by registered mail

informing him that the check was dishonored by the drawee bank, and demanding

that he make it good within five (5) days from receipt thereof.[8]

No settlement having been made by petitioner, Cristina filed a complaint

dated March 1, 1999 against him and his co-signatory to the check, Bolton, for

violation of B.P. Blg. 22 before the City Prosecutors Office of Manila. No counter-

affidavit was submitted by petitioner and his co-respondent. An Information dated

April 13, 1999 for violation of B.P.Blg. No. 22 was thus filed on April 29,

1999 before the MeTC of Manila against the two, the accusatory portion of which

reads:

That sometime in December 1998 the said accused did then and there

willfully, unlawfully, and feloniously and jointly make or draw and issue

to CRISTINA C. REYES to apply on account or for value

INTERNATIONAL EXCHANGE BANK check no. 0000009118 dated

February 2, 1999 payable to CRISTINA REYES in the amount of

P160,000.00 said accused well knowing that at the time of issue

she/he/they did not have sufficient funds and/or credit with

the drawee bank for payment of such check in full upon its presentment,

which check after having been depositedin the City of Manila,

Philippines, and upon being presented for payment within ninety (90)

days from the date thereof was subsequently dishonored by

the drawee bank for INSUFFICIENCY OF FUNDS and despite receipt

of notice of such dishonor, said accused failed to pay said CRISTINA C.

REYES the amount of the check or to make arrangement for full

payment of the same within five (5) banking days after receiving said

notice.

CONTRARY TO LAW.[9]

Bolton having remained at large, the trial court never acquired jurisdiction over his

person.[10]

By Judgment of December 17, 2003, Branch 5 of the Manila MeTC found

petitioner guilty as charged, disposing as follows:

WHEREFORE, this Court finds accused James

Robert Svendson [sic] GUILTY beyond reasonable doubt of a violation

of Batas Pambansa Blg. 22 (Bouncing Checks Law) and imposes upon

him to pay a fine of ONE HUNDRED SIXTY THOUSAND PESOS

(P160,000.00), with subsidiary imprisonment in case of insolvency.

Accused is also made liable to pay private complainant Cristina C.

Reyes civil indemnity in the total amount of ONE HUNDRED SIXTY

THOUSAND PESOS (P160,000.00) representing his civil obligation

covered by subject check.

Meantime, considering that other accused Wilhelm Bolton remains

at large, let a warrant of arrest against him ISSUE. Pending

his apprehension, let the case against him be sent to theARCHIVES.

(Emphasis in the original; underscoring supplied)

As priorly stated, the RTC affirmed the MeTC judgment and the Court of

Appeals denied petitioners appeal.

Hence, the present petition for review.

Petitioner argues that the appellate court erred in finding that the first

element of violation of B.P. Blg. 22 the making, drawing, and issuance of any

check to apply on account or for value was present, as the obligation to pay interest

is void, the same not being in writing and the 10% monthly interest is

unconscionable; in holding him civilly liable in the amount of P160,000 to private

complainant, notwithstanding the invalidity of the interest stipulation; and in

violating his right to due process when it convicted him, notwithstanding the

absence of proof of receipt by him of a written notice of dishonor.

The petition is impressed with merit.

Section 1 of B.P. Blg. 22 or the Bouncing Checks Law reads:

SECTION 1. Checks without sufficient funds. Any person who makes or

draws and issues any check to apply on account or for value, knowing at

the time of issue that he does not have sufficient funds in or credit with

the drawee bank for the payment of such check in full upon its

presentment, which check is subsequently dishonored by

the drawee bank for insufficiency of funds or credit or would have been

dishonored for the same reason had not the drawer, without any valid

reason, ordered the bank to stop payment, shall be punished by

imprisonment of not less than thirty days but not more than one (1) year

or by fine of not less than but not more than double the amount of the

check which fine shall in no case exceed Two Hundred Thousand pesos,

or both such fine and imprisonment at the discretion of the court.

The same penalty shall be imposed upon any person who, having

sufficient funds in or credit with the drawee bank when he makes or

draws and issues a check, shall fail to keep sufficient funds or to

maintain a credit to cover the full amount of the check if presented

within a period of ninety (90) days from the date appearing thereon, for

which reason it is dishonored by thedrawee bank. Where the check is

drawn by a corporation, company or entity, the person or persons who

actually signed the check in behalf of such drawer shall be liable under

this Act.

For petitioner to be validly convicted of the crime under B.P. Blg. 22, the

following requisites must thus concur: (1) the making, drawing and issuance of any

check to apply for account or for value; (2) the knowledge of the maker, drawer, or

issuer that at the time of issue he does not have sufficient funds in or credit with

the drawee bank for the payment of the check in full upon its presentment; and (3)

the 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.[11]

Petitioner admits having issued the postdated check to Cristina. The check,

however, was dishonored when deposited for payment in Banco de Oro due to

DAIF. Hence, the first and the third elements obtain in the case.

As for the second element, Section 2 of B.P. Blg. 22 provides that

[t]he making, drawing and issuance of a check payment of which is

refused by the drawee because of insufficient funds in or credit with such

bank, when presented within ninety (90) days from the date of the check,

shall be prima facie evidence of knowledge of such insufficiency of

funds or credit unless such maker or drawer pays the holder thereof the

amount due thereon, or makes arrangements for payment in full by

the drawee of such check within five (5) banking days after receiving

notice that such check has not been paid by the drawee.

In Rico v. People of the Philippines,[12] this Court held:

x x x [I]f x x x notice of non-payment by the drawee bank is not

sent to the maker or drawer of the bum check, or if there is no proof as to

when such notice was received by the drawer, then the presumption of

knowledge as provided in Section 2 of B.P. 22 cannot arise, since there

would simply be no way of reckoning the crucial five-day period.

x x x In recent cases, we had the occasion to emphasize that not

only must there be a written notice of dishonor or demand letters actually

received by the drawer of a dishonored check, but there must also

be proof of receipt thereof that is properly authenticated, and not mere

registered receipt and/or return receipt.

Thus, as held in Domagsang vs. Court of Appeals, while Section 2

of B.P. 22 indeed does not state that the notice of dishonor be in writing,

this must be taken in conjunction with Section 3 of the law, i.e., that

where there are no sufficient funds in or credit with such drawee bank,

such fact shall always be explicitly stated in the notice of dishonor or

refusal. A mere oral notice or demand to pay would appear to be

insufficient for conviction under the law. In our view, both the spirit and

letter of the Bouncing Checks Law require for the act to be

punishedthereunder not only that the accused issued a check that is

dishonored, but also that the accused has actually been notified in

writing of the fact of dishonor. This is consistent with the rule that penal

statues must be construed strictly against the state and liberally in favor

of the accused. x x x

In fine, the failure of the prosecution to prove the existence and

receipt by petitioner of the requisite written notice of dishonor and that

he was given at least five banking days within which to settle his account

constitutes sufficient ground for his acquittal.[13] (Italics in the

original; emphasis and underscoring supplied)

The evidence for the prosecution failed to prove the second element. While

the registry receipt,[14]

which is said to cover the letter-notice of dishonor and of

demand sent to petitioner, was presented, there is no proof that he or a duly

authorized agent received the same. Receipts for registered letters including return

receipts do not themselves prove receipt; they must be properly authenticated to

serve as proof of receipt of the letters.[15]

Thus in Ting v. Court of Appeals,[16]

this

Court observed:

x x x All that we have on record is an illegible signature on the

registry receipt as evidence that someone received the letter. As to

whether this signature is that of one of the petitioners or of their

authorized agent remains a mystery. From the registry receipt alone, it is

possible that petitioners or their authorized agent did receive the demand

letter. Possibilities, however, cannot replace proof beyond reasonable

doubt.[17]

For failure then to prove all the elements of violation of B.P. Blg. 22, petitioners

acquittal is in order.

Petitioner is civilly liable, however. For in a criminal case, the social injury

is sought to be repaired through the imposition of the corresponding penalty,

whereas with respect to the personal injury of the victim, it is sought to be

compensated through indemnity, which is civil in nature.[18]

The decision of the MeTC, which was affirmed on appeal by the RTC and the

appellate court, ordering petitioner to pay private complainant Cristina C. Reyes

civil indemnity in the total amount of ONE HUNDRED SIXTY THOUSAND

PESOS (P160,000) representing his civil obligation covered by subject check,

deserves circumspect examination, however, given that the obligation of petitioner

to pay 10% interest per month on the loan is unconscionable and against public

policy.

The P160,000 check petitioner issued to Cristina admittedly represented unpaid

interest. By Cristinas information, the interest was computed at a fixed rate of 10%

per month.[19]

While the Usury Law ceiling on interest rates was lifted by Central Bank Circular

No. 905, nothing therein grants lenders carte blanche to raise interest rates to

levels which will either enslave their borrowers or lead to a hemorrhaging of their

assets.[20]

Stipulations authorizing such interest are contra bonos mores, if not

against the law. They are, under Article 1409[21]

of the New Civil Code, inexistent

and void from the beginning.[22]

The interest rate of 10% per month agreed upon by the parties in this case being

clearly excessive, iniquitous and unconscionable cannot thus be

sustained. In Macalalag v.People,[23]

Dio v. Jardines,[24]

and

in Cuaton v. Salud,[25]

this Court, finding the 10% per month interest rate to be

unconscionable, reduced it to 12% per annum. And in other cases[26]

where the

interest rates stipulated were even less than that involved herein, the Court

equitably reduced them.

This Court deems it fair and reasonable then, consistent with existing

jurisprudence, to adjust the civil indemnity to P16,000, the equivalent of

petitioners unpaid interest on the P200,000 loan at 12% percent per annum as of

February 2, 1999, the date of the check, plus 12% per annum interest to be

computed from April 29, 1999, the date of judicial demand (date of the filing of the

Information) up to the finality of this judgment. After the judgment becomes final

and executory until the obligation is satisfied, the total amount due shall bear

interest at 12% per annum.[27]

Respecting petitioners claim that since the promissory note incorporating the

stipulated 10% interest per month was not presented, there is no written proof

thereof, hence, his obligation to pay the same must be void, the same fails. As

reflected above, Cristina admitted such stipulation.

In any event, the presentation of the promissory note may be dispensed with

in a prosecution for violation of B.P. Blg. 22 as the purpose for the issuance of

such check is irrelevant in the determination of the accuseds criminal liability. It is

for the purpose of determining his civil liability that the document bears

significance. Notably, however, Section 24 of the Negotiable Instruments Law

provides that Every negotiable instrument is deemed prima facie to have been

issued for a valuable consideration, and every person whose signature appears

thereon to have become a party thereto for value. It was incumbent then on

petitioner to prove that the check was not for a valuable consideration. This he

failed to discharge.

WHEREFORE, the Court of Appeals Decision of November 16,

2006 is REVERSED and SET ASIDE.

Petitioner, James Svendsen, is acquitted of the crime charged for failure of the

prosecution to prove his guilt beyond reasonable doubt.

He is, however, ordered to pay private complainant, Cristina C. Reyes, the

amount of SIXTEEN THOUSAND PESOS (P16,000) representing civil

indemnity, plus 12% interest per annum computed from April 29, 1999 up to the

finality of this judgment. After the judgment becomes final and executory until the

obligation is satisfied, the total amount due shall earn interest at 12% per annum.

SO ORDERED.