Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 125851             July 11, 2006

ALLIED BANKING CORPORATION, petitioner, vs.COURT OF APPEALS, G.G. SPORTSWEAR MANUFACTURING CORPORATION, NARI GIDWANI, SPOUSES LETICIA AND LEON DE VILLA AND ALCRON INTERNATIONAL LTD., respondents.

D E C I S I O N

QUISUMBING, J.:

This petition for review on certiorari assails (a) the July 31, 1996 Decision1 of the Court of Appeals, ordering respondent G.G. Sportswear Manufacturing Corp. to reimburse petitioner US $20,085; and exonerating the guarantors from liability; and (b) the January 17, 1997 Resolution2 denying the motion for reconsideration.

The facts are undisputed.

On January 6, 1981, petitioner Allied Bank, Manila (ALLIED) purchased Export Bill No. BDO-81-002 in the amount of US $20,085.00 from respondent G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of credit No. BB640549 covered Men's Valvoline Training Suit that was in transit to West Germany (Uniger via Rotterdam) under Cont. #73/S0299. The export bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill, ALLIED credited GGS the peso equivalent of the aforementioned bill amounting toP151,474.52 and the receipt of which was acknowledged by the latter in its letter dated June 22, 1981.

On the same date, respondents Nari Gidwani and Alcron International Ltd. (Alcron) executed their respective Letters of Guaranty, holding themselves liable on the export bill if it should be dishonored or retired by the drawee for any reason.

Subsequently, the spouses Leon and Leticia de Villa and Nari Gidwani also executed a Continuing Guaranty/Comprehensive Surety (surety, for brevity), guaranteeing payment of any and all such credit accommodations which ALLIED may extend to GGS. When ALLIED negotiated the export bill to Chekiang, payment was refused due to some material discrepancies in the documents submitted by GGS relative to the exportation covered by the letter of credit. Consequently, ALLIED demanded payment from all the respondents based on the Letters of Guaranty and Surety executed in favor of ALLIED.

However, respondents refused to pay, prompting ALLIED to file an action for a sum of money.

In their joint answer, respondents GGS and Nari Gidwani admitted the due execution of the export bill and the Letters of Guaranty in favor of ALLIED, but claimed that they signed blank forms of the Letters of Guaranty and the Surety, and the blanks were only filled up by ALLIED after they had affixed their signatures. They also added that the documents did not cover the transaction involving the subject export bill.

On the other hand, the respondents, spouses de Villa, claimed that they were not aware of the existence of the export bill; they signed blank forms of the surety; and averred that the guaranty was not meant to secure the export bill.

Respondent Alcron, for its part, alleged that as a foreign corporation doing business in the Philippines, its branch in the Philippines is merely a liaison office confined to the following duties and responsibilities, to wit: acting as a message center between its office in Hongkong and its clients in the Philippines; conducting credit investigations on Filipino clients; and providing its office in Hongkong with shipping arrangements and other details in connection with its office in Hongkong. Respondent Alcron further alleged that neither its liaison office in the Philippines nor its then representative, Hans-Joachim Schloer, had the authority to issue Letters of Guaranty for and in behalf of local entities and persons. It also invoked laches against petitioner ALLIED.

GGS and Nari Gidwani filed a Motion for Summary Judgment on the ground that since the plaintiff admitted not having protested the dishonor of the export bill, it thereby discharged GGS from liability. But the trial court denied the motion. After the presentation of evidence by the petitioner, only the spouses de Villa presented their evidence. The other respondents did not. The trial court dismissed the complaint.

On appeal, the Court of Appeals modified the ruling of the trial court holding respondent GGS liable to reimburse petitioner ALLIED the peso equivalent of the export bill, but it exonerated the guarantors from their liabilities under the Letters of Guaranty. The CA decision reads as follows:

For the foregoing considerations, appellee GGS is obliged to reimburse appellant Allied Bank the amount ofP151,474.52 which was the equivalent of GGS's contracted obligation of US$20,085.00.

The lower court however correctly exonerated the guarantors from their liability under their Letters of Guaranty. A guaranty is an accessory contract. What the guarantors guaranteed in the instant case was the bill which had been discharged. Consequently, the guarantors should be correspondingly released.

WHEREFORE, judgment is hereby rendered ordering defendant-appellee G.G. Sportswear Mfg. Corporation to pay appellant the sum of P151,474.52 with interest thereon at the legal rate from the filing of the complaint, and the costs.

SO ORDERED.3

The petitioner filed a Motion for Reconsideration, but to no avail. Hence, this appeal, raising a single issue:

WHETHER OR NOT RESPONDENTS NARI, DE VILLA AND ALCRON ARE LIABLE UNDER THE LETTERS OF GUARANTY AND THE CONTINUING GUARANTY/ COMPREHENSIVE SURETY NOTWITHSTANDING THE FACT THAT NO PROTEST WAS MADE AFTER THE BILL, A FOREIGN BILL OF EXCHANGE, WAS DISHONORED.4

The main issue raised before us is: Can respondents, in their capacity as guarantors and surety, be held jointly and severally liable under the Letters of Guaranty and Continuing Guaranty/Comprehensive Surety, in the absence of protest on the bill in accordance with Section 152 of the Negotiable Instruments Law?5

The petitioner contends that part of the Court of Appeals' decision exonerating respondents Nari Gidwani, Alcron International Ltd., and spouses Leon and Leticia de Villa as guarantors and/or sureties. Respondents rely on Section 152 of the Negotiable Instruments Law to support their contention.

Our review of the records shows that what transpired in this case is a discounting arrangement of the subject export bill, between petitioner ALLIED and respondent GGS. Previously, we ruled that in a letter of credit transaction, once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents of title. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods.6 However, in most cases, instead of going to the issuing bank to claim payment, the buyer (or the beneficiary of the draft) may approach another bank, termed the negotiating bank, to have the draft discounted.7 While the negotiating bank owes no contractual duty toward the beneficiary of the draft to discount or purchase it, it may still do so. Nothing can prevent the negotiating bank from requiring additional requirements, like contracts of guaranty and surety, in consideration of the discounting arrangement.

In this case, respondent GGS, as the beneficiary of the export bill, instead of going to Chekiang First Bank Ltd. (issuing bank), went to petitioner ALLIED, to have the export bill purchased or discounted. Before ALLIED agreed to purchase the subject export bill, it required respondents Nari Gidwani and Alcron to execute Letters of Guaranty, holding them liable on demand,in case the subject export bill was dishonored or retired for any reason.8

Likewise, respondents Nari Gidwani and spouses Leon and Leticia de Villa executed Continuing Guaranty/Comprehensive Surety, holding themselves jointly and severally liable on any and all credit accommodations, instruments, loans, advances, credits and/or other obligation that may be granted by the petitioner ALLIED to respondent GGS.9 The surety also contained a clause whereby said sureties waive protest and notice of dishonor of any and all such instruments, loans, advances, credits and/or obligations.10 These letters of guaranty and surety are now the basis of the petitioner's action.

At this juncture, we must stress that obligations arising from contracts have the force of law between the parties and should be complied with in good faith.11 Nothing can stop the parties from establishing 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.12

Here, Art. 2047 of the New Civil Code is pertinent. Art. 2047 states,

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

In this case, the Letters of Guaranty and Surety clearly show that respondents undertook and bound themselves as guarantors and surety to pay the full amount of the export bill.

Respondents claim that the petitioner did not protest13 upon dishonor of the export bill by Chekiang First Bank, Ltd. According to respondents, since there was no protest made upon dishonor of the export bill, all of them, as indorsers were discharged under Section 152 of the Negotiable Instruments Law.

Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not pertinent to this case. There are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of indorsement is primarily that of transfer, while the contract of guaranty is that of personal security.14 The liability of a guarantor/surety is broader than that of an indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be discharged from liability thereon.15 On the other hand, except where required by the provisions of the contract of suretyship, a demand or notice of default is not required to fix the surety's liability.16 He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship.17 Therefore, no protest on the export bill is necessary to

charge all the respondents jointly and severally liable with G.G. Sportswear since the respondents held themselves liable upon demand in case the instrument was dishonored and on the surety, they even waived notice of dishonor as stipulated in their Letters of Guarantee.

As to respondent Alcron, it is bound by the Letter of Guaranty executed by its representative Hans-Joachim Schloer. As to the other respondents, not to be overlooked is the fact that, the "Suretyship Agreement" they executed, expressly contemplated a solidary obligation, providing as it did that "… the sureties hereby guaranteejointly and severally the punctual payment of any and all such credit accommodations, instruments, loans, … which is/are now or may hereafter become due or owing … by the borrower".18 It is a cardinal rule that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control.19 In the present case, there can be no mistaking about respondents' intent, as sureties, to be jointly and severally obligated with respondent G.G. Sportswear.

Respondents also aver that, (1) they only signed said documents in blank; (2) they were never made aware that said documents will cover the payment of the export bill; and (3) laches have set in.

Respondents' stance lacks merit. Under Section 3 (d), Rule 131 of the Rules of Court, it is presumed that a person takes ordinary care of his concerns. Hence, the natural presumption is that one does not sign a document without first informing himself of its contents and consequences. Said presumption acquires greater force in the case at bar where not only one document but several documents were executed at different times and at different places by the herein respondent guarantors and sureties.20

In this case, having affixed their consenting signatures in several documents executed at different times, it is safe to presume that they had full knowledge of its terms and conditions, hence, they are precluded from asserting ignorance of the legal effects of the undertaking they assumed thereunder. It is also presumed that private transactions have been fair and regular21 and that he who alleges has the burden of proving his allegation with the requisite quantum of evidence.22 But here the records of this case do not support their claims.

Last, we find the defense of laches unavailing. The question of laches is addressed to the sound discretion of the court and since laches is an equitable doctrine, its application is controlled by equitable considerations.23Respondents, however, failed to show that the collection suit against them as sureties was inequitable. Remedies in equity address only situations tainted with inequity, not those expressly governed by statutes.24

After considering the facts of this case vis-à-vis the pertinent laws, we are constrained to rule for the petitioner.

WHEREFORE, the instant petition is GRANTED.The assailed Decision of the Court of Appeals is herebyMODIFIED, and we hold that respondent Alcron International Ltd. is subsidiarily liable, while respondents Nari Gidwani, and Spouses Leon and Leticia de Villa are jointly and severally liable together with G.G. Sportswear, to pay petitioner Bank the sum of P151,474.52 with interest at the legal rate from the filing of the complaint, and the costs.

SO ORDERED.

Carpio, Carpio-Morales, Tinga, Velasco, Jr., J.J., concur.

Footnotes

1 Rollo, pp. 31-37. Penned by Associate Justice Alfredo L. Benipayo, with Associate Justices Buenaventura J. Guerrero, and Romeo A. Brawner concurring.

2 Id. at 38. Penned by Associate Justice Romeo A. Brawner, with Associate Justices Minerva P. Gonzaga Reyes, and Buenaventura J. Guerrero concurring.

3 Rollo, p. 36.

4 Id. at 23.

5 Sec. 152 – In what cases protest necessary – Where a foreign bill appearing on its face to be such is dishonored by non-acceptance, it must be duly protested for non-acceptance, and where such a bill which has not been previously been dishonored by non-acceptance is dishonored by non-payment, it must be duly protested for non-payment. If it is not so protested, the drawer and indorsers are discharged. Where a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary.

6 Bank of America, NT & SA v. Court of Appeals, G.R. No. 105395, December 10, 1993, 228 SCRA 357, 366.

7 Id. at 369.

8 Records, p. 12. The Letters of Guaranty provides that,

x x x x

If for any reason, my/our draft is not finally honored or retired by the drawee, I/We hereby further undertake and bind myself/ourselves to refund to you, on demand, the full amount of this negotiation, together

with the corresponding interest thereon as well as your correspondent's charges and expenses thereon, if any; and to compensate you fully for any damages that you might incur arising out of any suit, action or proceedings, whether judicial or extra-judicial that might be instituted by the buyer or importer on the ground of lack of faithful performance of the contract between said buyer or importer and myself/ourselves. . . (Emphasis supplied.)

9 Id. at 14. Paragraph I of the surety provides:

I. For and in consideration of any accommodation which you have extended and/or will extend to G.G. Sportswear Manufacturing Corporation (hereinafter called the "Borrower") with or without security,singularly or jointly and severally with others, . . . the undersigned agree(s) to guarantee, and does hereby guarantee jointly and severally the punctual payment at maturity to you of any and all such credit accommodations, instruments, loans, advances, credits and/or other obligations, hereinbefore referred to, which is/are now or may hereafter become due or owing to you by the Borrower . . .

10 Id. at 15. Paragraph VIII of the surety provides:

VIII. The undersigned hereby waives . . . protest and notice of dishonor of any and all such instruments, loans, advances, credits or other indebtedness or obligation herein-before referred to, . . 

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 171998               October 20, 2010

ANAMER SALAZAR, Petitioner, vs.J.Y. BROTHERS MARKETING CORPORATION, Respondent.

D E C I S I O N

PERALTA, J.:

Before us is a petition for review seeking to annul and set aside the Decision1 dated September 29, 2005 and the Resolution2 dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104.

The facts, as found by the Court of Appeals, are not disputed, thus:

J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worthP214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the check was dishonored due to "closed account."

Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in the amount ofP214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand letter dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the crime of estafa before the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474.

After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer to evidence. On November 19, 2001, the court a quo rendered an Order, the dispositive portion of which reads:

WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby ACQUITTED of the crime charged but is hereby held liable for the value of the 300 bags of rice. Accused Anamer D. Salazar is therefore ordered to pay J.Y. Brothers Marketing Corporation the sum of P214,000.00. Costs against the accused.

SO ORDERED.

Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to allow her to present evidence thereon. The motion was denied. Accused went up to the Supreme Court on a petition for review on certiorari under Rule 45 of the Rules of Court. Docketed as G.R. 151931, in its Decision dated September 23, 2003, the High Court ruled:

IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November 19, 2001 and January 14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court of Legaspi City, Branch 5, is hereby DIRECTED to set Criminal Case No. 7474 for the continuation of trial for the reception of the evidence-in-chief of

the petitioner on the civil aspect of the case and for the rebuttal evidence of the private complainant and the sur-rebuttal evidence of the parties if they opt to adduce any.

SO ORDERED.3

The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on the civil aspect of the criminal case.

On April 1, 2004, the RTC rendered its Decision,4 the dispositive portion of which reads:

WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer D. Salazar the civil aspect of the above-entitled case. No pronouncement as to costs.

Place into the files (archive) the record of the above-entitled case as against the other accused Nena Jaucian Timario. Let an alias (bench) warrant of arrest without expiry dated issue for her apprehension, and fix the amount of the bail bond for her provisional liberty at 59,000.00 pesos.

SO ORDERED.5

The RTC found that the Prudential Bank check drawn by Timario for the amount of P214,000.00 was payable to the order of respondent, and such check was a negotiable order instrument; that petitioner was not the payee appearing in the check, but respondent who had not endorsed the check, much less delivered it to petitioner. It then found that petitioner’s liability should be limited to the allegation in the amended information that "she endorsed and negotiated said check," and since she had never been the holder of the check, petitioner's signing of her name on the face of the dorsal side of the check did not produce the technical effect of an indorsement arising from negotiation. The RTC ruled that after the Prudential Bank check was dishonored, it was replaced by a Solid Bank check which, however, was also subsequently dishonored; that since the Solid Bank check was a crossed check, which meant that such check was only for deposit in payee’s account, a condition that rendered such check non-negotiable, the substitution of a non-negotiable Solid Bank check for a negotiable Prudential Bank check was an essential change which had the effect of discharging from the obligation whoever may be the endorser of the negotiable check. The RTC concluded that the absence of negotiability rendered nugatory the obligation arising from the technical act of indorsing a check and, thus, had the effect of novation; and that the ultimate effect of such substitution was to extinguish the obligation arising from the issuance of the Prudential Bank check.

Respondent filed an appeal with the CA on the sole assignment of error that:

IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR BY INDORSING THE CHECK (A) DID NOT BECOME A HOLDER OF THE

CHECK, (B) DID NOT PRODUCE THE TECHNICAL EFFECT OF AN INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID NOT INCUR CIVIL LIABILITY.6

After petitioner filed her appellees' brief, the case was submitted for decision. On September 29, 2005, the CA rendered its assailed Decision, the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision is REVERSED and SET ASIDE, and a new one entered ordering the appellee to pay the appellant the amount of P214,000.00, plus interest at the legal rate from the written demand until full payment. Costs against the appellee.7

In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was later replaced by a Solid Bank check issued by Timario, also indorsed by petitioner as payment for the 300 cavans of rice bought from respondent. The CA, applying Sections 63,8 669 and 2910 of the Negotiable Instruments Law, found that petitioner was considered an indorser of the checks paid to respondent and considered her as an accommodation indorser, who was liable on the instrument to a holder for value, notwithstanding that such holder at the time of the taking of the instrument knew her only to be an accommodation party.

Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated March 2, 2006.

Hence this petition, wherein petitioner raises the following assignment of errors:

1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF THE ISSUANCE OF THE SOLIDBANK CHECK IN REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH WOULD HAVE RESULTED TO THE NOVATION OF THE OBLIGATION ARISING FROM THE ISSUANCE OF THE LATTER CHECK.

2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS AGAINST THE PETITIONER THE CIVIL ASPECT OF THE CRIMINAL ACTION ON THE GROUND OF NOVATION OF OBLIGATION ARISING FROM THE ISSUANCE OF THE PRUDENTIAL BANK CHECK.

3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION WHEN IT DENIED THE MOTION FOR RECONSIDERATION OF THE PETITIONER ON THE GROUND THAT THE ISSUE RAISED THEREIN HAD ALREADY BEEN PASSED UPON AND CONSIDERED IN THE DECISION SOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND IN FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.11

Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by the respondent, in replacement of the dishonored Prudential Bank check, amounted to novation that discharged the latter check; that respondent's acceptance of the Solid Bank check, notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing whatever criminal responsibility, under Article 315 of the Revised Penal Code, the drawer or indorser of the Prudential Bank check would have incurred in the issuance thereof in the amount of P214,000.00; and that a check is a contract which is susceptible to a novation just like any other contract.

Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply thereto.

We find no merit in this petition.

Section 119 of the Negotiable Instrument Law provides, thus:

SECTION 119. Instrument; how discharged. – A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation;

(c) By the intentional cancellation thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. (Emphasis ours)

And, under Article 1231 of the Civil Code, obligations are extinguished:

x x x x

(6) By novation.

Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the dishonored Prudential bank check resulted to novation which discharged the latter check is unmeritorious.

In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co., Inc.,12 we stated the concept of novation, thus:

x x x Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the first, either by changing the object or principal conditions, or

by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. Novation may:

[E]ither be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superceded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay; in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.)

The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones or the new contract merely supplements the old one.13

In Nyco Sales Corporation v. BA Finance Corporation,14 we found untenable petitioner Nyco's claim that novation took place when the dishonored BPI check it endorsed to BA Finance Corporation was subsequently replaced by a Security Bank check,15 and said:

There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible on every point.1avvphi1 The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. In the instant case, there was no express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from liability. Neither is there incompatibility because both checks were given precisely to terminate a single obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations, such is inapplicable to this case.16

In this case, respondent’s acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to novation as there was no express

agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there must be an express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioner’s recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank check.

Moreover, respondent’s acceptance of the Solid Bank check did not result to any incompatibility, since the two checks − Prudential and Solid Bank checks − were precisely for the purpose of paying the amount of P214,000.00,i.e., the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed, there was no substantial change in the object or principal condition of the obligation of petitioner as the indorser of the check to pay the amount of P214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner the chance to pay her obligation.

Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable check being a crossed check, which replaced the dishonored Prudential Bank check, a negotiable check, is a new obligation in lieu of the old obligation arising from the issuance of the Prudential Bank check, since there was an essential change in the circumstance of each check.

Such argument deserves scant consideration.

Among the different types of checks issued by a drawer is the crossed check.17 The Negotiable Instruments Law is silent with respect to crossed checks,18 although the Code of Commerce makes reference to such instruments.19We have taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and could not be converted into cash.20 Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein.21 The change in the mode of paying the obligation was not a change in any of the objects or principal condition of the contract for novation to take place.22

Considering that when the Solid Bank check, which replaced the Prudential Bank check, was presented for payment, the same was again dishonored; thus, the obligation which was secured by the Prudential Bank check was not extinguished and the Prudential Bank check was not discharged. Thus, we found no reversible error committed by the CA in holding petitioner liable as an accommodation indorser for the payment of the dishonored Prudential Bank check.

WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the Resolution dated March 2, 2006, of the Court of Appeals in CA-G.R. CV No. 83104, are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTAAssociate Justice

WE CONCUR:

ANTONIO T. CARPIOAssociate Justice

Chairperson

ANTONIO EDUARDO B. NACHURAAssociate Justice

TERESITA J. LEONARDO-DE CASTRO*

Associate Justice

JOSE CATRAL MENDOZAAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIOAssociate JusticeSecond Division, Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONAChief Justice

Footnotes

* Designated as an additional member in lieu of Associate Justice Roberto A. Abad, per Special Order No. 905, dated October 5, 2010.

1 Penned by Associate Justice Conrado M. Vasquez, Jr., with Associate Justices Juan Q. Enriquez, Jr. and Japar B. Dimaampao, concurring; rollo, pp. 23-28.

2 Id. at 30-31.

3 Rollo, pp. 23-25.

4 Penned by Judge Pedro R. Soriao; id. at 38-40.

5 Id. at 40.

6 Rollo, p. 46.

7 Id. at 28.

8 Sec. 63. When a person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity.

9 Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent holders in due course:

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

(b) That the instrument is, at the time of his indorsement, valid and subsisting;

And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

10 Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.

11 Rollo, p. 14.

12 G.R. No. 170674, August 24, 2009, 596 SCRA 697.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 157309               March 28, 2008

MARLOU L. VELASQUEZ, Petitioner, vs.SOLIDBANK CORPORATION, Respondent.

D E C I S I O N

REYES, R.T., J.:

PARTIES may not impugn the effectivity of a contract, after much benefit has been gained to the prejudice of another. They are bound by the obligations they expressly set out to do.

Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) which affirmed with modification that of the Regional Trial Court (RTC) in Cebu City,2 holding petitioner Marlou Velasquez liable under his letter of undertaking to respondent Solidbank Corporation.

The Facts

Petitioner is engaged in the export business operating under the name Wilderness Trading. Respondent is a domestic banking corporation organized under Philippine laws.

The case arose out of a business transaction for the sale of dried sea cucumber for export to South Korea between Wilderness Trading, as seller, and Goldwell Trading of Pusan, South Korea, as buyer. To facilitate payment of the products, Goldwell Trading opened a letter of credit in favor of Wilderness Trading in the amount of US$87,500.003 with the Bank of Seoul, Pusan, Korea.

On November 12, 1992, petitioner applied for credit accommodation with respondent bank for pre-shipment financing. The credit accommodation was granted. Petitioner was successful in his first two export transactions both drawn on the letter of credit. The third export shipment, however, yielded a different result.

On February 22, 1993, petitioner submitted to respondent the necessary documents for his third shipment. Wanting to be paid the value of the shipment in advance, petitioner negotiated for a documentary sight draft to be drawn on the letter of credit, chargeable to the account of Bank of Seoul. The sight draft represented the value of the shipment in the amount of US$59,640.00.4

As a condition for the issuance of the sight draft, petitioner executed a letter of undertaking in favor of respondent. Under the terms of the letter of undertaking, petitioner promised that the draft will be accepted and paid by Bank of Seoul according to its tenor. Petitioner also held himself liable if the sight draft was not accepted. The letter of undertaking provided:

SOLIDBANK CORPORATION Feb. 22, 199332 Borromeo StreetCebu City

Gentlemen: Re: PURCHASE OF ONE DOC. SIGHT DRAFT DRAWN UNDER LC#M2073210NS00040 FOR US$59,640.00 UNDER OUR CEBP93/102.

In consideration of your negotiating the above described draft(s), we hereby warrant that the above referred to draft(s) and accompanying documents are genuine and accurately represent the facts stated therein and that the draft(s) will be accepted and paid in accordance with its/their tenor. We further undertake and agree, jointly and severally, to hold you free and harmless from and to defend all actions, claims and

demands whatsoever, and to pay on demand all damages, actual or compensatory, including attorney’s fees, in case of suit, at least equal to __% of the amount due, which you may suffer arising by reason of or on account of your negotiating the above draft(s) because of the following discrepancies or reasons or any other discrepancy or reason whatever:

1) B/L MARKED "SAID TO CONTAIN" & "SHIPPER’S LOAD, STOWAGE & COUNT."

2) LATE SHIPMENT.

3) QUANTITY SHIPPED @ US$14.00 OVERDRAWN BY 0.06 TON.

4) NO INSPECTION CERTIFICATE PRESENTED.

We hereby undertake to pay on demand the full amount of the draft(s) or any unpaid balance of the draft(s), with interest at the prevailing rate of today from the date of negotiation, plus all charges and expenses whatsoever incurred in connection therewith. You shall neither be obligated to contest or dispute any refusal to accept or to pay the whole or any part of the above draft(s) nor to proceed in anyway against the drawee thereof, the issuing bank, or against any indorser thereof before making a demand on us for the payment of the whole or any unpaid balance of the draft(s).5 (Emphasis added)

By virtue of the letter of undertaking, respondent advanced the value of the shipment which, at the current rate of exchange at that time was P1,495,115.16, less bank charges, to petitioner. Respondent then sent all the documents pertinent to the export transaction to the Bank of Seoul.

Respondent failed to collect on the sight draft as it was dishonored by non-acceptance by the Bank of Seoul. The reasons given for the dishonor were late shipment, forged inspection certificate, and absence of countersignature of the negotiating bank on the inspection certificate.6 Goldwell Trading likewise issued a stop payment order on the sight draft because most of the bags of dried sea cucumber exported by petitioner contained soil.

Due to the dishonor of the sight draft and the stop payment order, respondent demanded restitution of the sum advanced.7 Petitioner failed to heed the demand.

On June 3, 1993, respondent filed a complaint for recovery of sum of money8 with the RTC in Cebu City. In his answer, petitioner alleged that his liability under the sight draft was extinguished when respondent failed to protest its non-acceptance, as required under the Negotiable Instruments Law (NIL). He also alleged that the letter of undertaking is not binding because it is a superfluous document, and that he did not violate any of the provisions of the letter of credit.9

RTC and CA Dispositions

On September 25, 1996, the RTC rendered judgment10 in favor of respondent with the following fallo:

IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering the defendant:

(1) to pay the plaintiff the principal sum of P1,495, 115.16 plus interest at 20% per annum counted from February 22, 1993 up to the time the entire amount shall have been fully paid;

(2) to pay attorney’s fees equivalent to 10% of the total amount due the plaintiff; and

(3) to pay the costs.

SO ORDERED.11

The RTC ratiocinated:

This court is not convinced with the defendant’s argument that because of plaintiff’s failure to protest the dishonor of the sight draft, his liability is extinguished because his liability remains under the letter of undertaking which he signed and without which plaintiff would not have advanced or credited to him the amount.

Section 152 of the Negotiable Instruments Law under which defendant claims extinguishment of his liability to plaintiff is not a bar to the filing of other appropriate remedies which the aggrieved party may pursue to vindicate his rights and in this instant case, plaintiff wants his right vindicated by virtue of the letter of undertaking which defendant signed. By the letter of undertaking, defendant bound himself to pay on demand all damages including attorney’s fees which plaintiff may suffer arising by reason of or on account of negotiating the above draft because of the following discrepancies or any other discrepancy or reasons whatsoever and further to pay on demand full amount of any unpaid balance with interest at the prevailing rate. He should be bound to the fulfillment of what he expressly obligated himself to do and perform in the letter of undertaking without which, plaintiff would not have advance (sic) and credited to him the amount in the draft. He should not enrich himself at the expense of plaintiff.12 (Emphasis added)

Disagreeing, petitioner elevated the matter to the CA.

On June 27, 2002, the CA affirmed with modification the RTC decision, disposing as follows:

WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED with MODIFICATION. Defendant-appellant Marlou L. Velasquez is hereby ordered to pay

plaintiff-appellee Solidbank Corporation, the following: (1) the principal amount of One Million Four Hundred Ninety-Five Thousand One Hundred Fifteen and Sixteen Centavos (P1,495,115.16) plus interest at twelve percent (12%) per annum from February 22, 1993 until fully paid, (2) attorney’s fees equivalent to five percent (5%) of the total amount due, and (3) costs of the suit.

SO ORDERED.13

In ruling against petitioner, the CA opined:

The fact that said draft was dishonored and not paid by the Bank of Seoul-Korea, (sic) it is incumbent upon defendant-appellant Velasquez to comply with his obligation under the Letter of Undertaking. He cannot be allowed to impugn the contract of undertaking he entered into by saying that it was a superfluous document, and therefore, not binding on him. The contract of undertaking is the law between them, and must be enforced accordingly. This is in accord with Article 1159 of the New Civil Code, which provides that "obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." And parties to a contract are bound to the fulfillment of what has expressly been stipulated therein, regardless of the fact that it turn (sic) out to be financially disadvantageous.14

x x x x

The fact that Defendant-appellant benefited from the advance payment made by Plaintiff appellee, (sic) it is incumbent upon him to return what he received because the purpose of the advance payment was not attained and/or realized, as the sight draft was not paid accordingly, otherwise, it will result to unjust enrichment on the part of Defendant-appellant at the expense of Plaintiff-appellee, in violation of Articles 19 and 22 of the New Civil Code. The doctrine of unjust enrichment and restitution simply means that "the exercise of a right ends when the right disappears, and it disappears when it is abused, especially to the prejudice of others."15 (Emphasis added)

Petitioner moved for reconsideration16 but his motion was denied.17 Hence, the present recourse.

Issues

Petitioner raises twin issues for Our consideration, to wit:

THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE, NOT HERETOFORE DETERMINED BY THIS HONORABLE COURT, OR HAS DECIDED IT IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT, IN THAT:

I.

THE COURT OF APPEALS RULED THAT PETITIONER IS LIABLE ON THE ACCESSORY CONTRACT, THE LETTER OF UNDERTAKING, DESPITE THE FACT THAT PETITIONER WAS ALREADY RELEASED FROM LIABILITY UNDER THE SIGHT DRAFT, THE PRINCIPAL CONTRACT, UNDER THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW AND THE CIVIL CODE.

II.

THE COURT OF APPEALS HELD PETITIONER LIABLE UNDER THE ACCESSORY CONTRACT, THE LETTER OF UNDERTAKING, DESPITE THE FACT THAT THERE WAS NO PROOF WHATSOEVER THAT PETITIONER VIOLATED EITHER THE PRINCIPAL CONTRACT, THE SIGHT DRAFT, OR EVEN THE LETTER OF UNDERTAKING.18 (Underscoring supplied)

The main issue is whether or not petitioner should be held liable to respondent under the sight draft or the letter of undertaking. There is no dispute that petitioner duly signed and executed these documents. It is likewise admitted that the sight draft was dishonored by non acceptance by the Bank of Seoul.

Our Ruling

The petition is without merit.

Petitioner is not liable under the sight draft but he is liable under his letter of undertaking; liability under the letter of undertaking was not extinguished by non-protest of the dishonor of the sight draft.

Petitioner argues that he cannot be held liable under either the sight draft or the letter of undertaking. He claims that the failure of respondent to protest the dishonor of the sight draft under Section 152 of the NIL discharged him from liability under the negotiable instrument. It is also contended that his liability under the letter of undertaking is that of a mere guarantor; that the letter of undertaking is only an accessory contract to the sight draft. Since he was discharged from liability under the sight draft, he cannot be held liable under the letter of undertaking.

For its part, respondent counters that petitioner’s liability springs from the letter of undertaking, independently of the sight draft. It would not have advanced the amount without the letter of undertaking. According to respondent, the letter of undertaking is an independent agreement and not merely an accessory contract. To permit petitioner to escape liability under the letter of undertaking would result in unjust enrichment.1avvphi1

Petitioner’s liability under the letter of undertaking is independent from his liability under the sight draft. He may be held liable under either the sight draft or the letter of undertaking or both.

Admittedly, petitioner was discharged from liability under the sight draft when respondent failed to protest it for non-acceptance by the Bank of Seoul. A sight draft made payable outside the Philippines is a foreign bill of exchange.19 When a foreign bill is dishonored by non-acceptance or non-payment, protest is necessary to hold the drawer and indorsers liable. Verily, respondent’s failure to protest the non-acceptance of the sight draft resulted in the discharge of petitioner from liability under the instrument.

Section 152 of the NIL is explicit:

Section 152. In what cases protest necessary. – Where a foreign bill appearing on its face to be such is dishonored by non-acceptance, it must be duly protested for non-acceptance, and where such a bill which has not been previously dishonored by non-acceptance, is dishonored by non-payment, it must be duly protested for non-payment. If it is not so protested, the drawer and indorsers are discharged. Where a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary. (Emphasis added)

Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a separate contract from the sight draft. The liability of petitioner under the letter of undertaking is direct and primary. It is independent from his liability under the sight draft. Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-payment.

Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking that he will reimburse the amount in case the sight draft is dishonored. The bank would certainly not have agreed to grant petitioner an advance export payment were it not for the letter of undertaking. The consideration for the letter of undertaking was petitioner’s promise to pay respondent the value of the sight draft if it was dishonored for any reason by the Bank of Seoul.

We cannot accept petitioner’s thesis that he is only a mere guarantor under the letter of credit.1avvphi1 Petitioner cannot be both the primary debtor and the guarantor of his own debt. This is inconsistent with the very purpose of a guarantee which is for the creditor to proceed against a third person if the debtor defaults in his obligation. Certainly, to accept such an argument would make a mockery of commercial transactions.

Petitioner bound himself liable to respondent under the letter of undertaking if the sight draft is not accepted. He also warranted that the sight draft is genuine; will be paid by the issuing bank in accordance with its tenor; and that he will be held liable for the full amount of the draft upon demand, without necessity of proceeding against the drawee bank.20 Petitioner breached his undertaking when the Bank of Seoul dishonored the sight draft and Goldwell Trading ordered a stop payment order on it for discrepancies in the export documents.

Petitioner is liable without need for respondent to establish collateral facts such as violations of the letter of credit.

It is also argued that petitioner cannot be held liable under the letter of undertaking because respondent failed to prove that he violated any of the provisions in the letter of credit or that sixty (60) of the seventy-one (71) bags shipped to Goldwell Trading contained soil instead of dried sea cucumber.

We cannot agree. Respondent need not prove that petitioner violated the provisions of the letter of credit in order to be held liable under the letter of undertaking. Parties are bound to fulfill what has been expressly stipulated in the contract.21 Petitioner’s liability under the letter of undertaking is clear. He is liable to respondent if the sight draft is not accepted by the Bank of Seoul. Mere non-acceptance of the sight draft is sufficient for liability to attach. Here, the sight draft was dishonored for non-acceptance. The non-acceptance of the sight draft triggered petitioner’s liability under the letter of undertaking.

Records also show that the Bank of Seoul found discrepancies in the documents submitted by petitioner. Goldwell Trading issued a stop payment order because the products shipped were defective. It found that most of the bags shipped contained soil instead of dried sea cucumber. If petitioner disputes the finding of Goldwell Trading, he can file a case against said company but he cannot dispute his liability under either the sight draft or the letter of undertaking.

As We see it, this is a straightforward case of collection of sum of money on the basis of a letter of undertaking. Respondent advanced the export payment to petitioner on the understanding that the draft will be honored and paid. The draft was dishonored. Justice and equity dictate that petitioner be held liable to respondent bank.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Appeals dated June 27, 2002 is hereby AFFIRMED.

SO ORDERED.

RUBEN T. REYESAssociate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ*

Associate JusticeActing Chairperson

DANTE O. TINGA**

Associate JusticeMINITA V. CHICO-NAZARIO

Associate Justice

ANTONIO EDUARDO B. NACHURAAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

MA. ALICIA AUSTRIA-MARTINEZAssociate JusticeActing Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice

Footnotes

* Vice Associate Justice Consuelo Ynares-Santiago, Chairperson, who is on official leave per Special Order No. 497 dated March 14, 2008.

** Designated as additional member per Special Order No. 497 dated March 14, 2008.

1 Rollo, pp. 38-55. Penned by Associate Justice Andres B. Reyes, Jr., with Associate Justices Josefina Guevara-Salonga and Mario L. Guariña, III, concurring.

2 Id. at 115-121.

3 Irrevocable Letter of Credit No. M2073210NS00040, opened on October 6, 1992.

4 Rollo, p. 70.

5 Id.

6 Annex "Q."

7 Rollo, pp. 81-82. Demand letters dated March 9, 1993, March 23, 1993, and April 7, 1993.

8 Docketed as Civil Case No. CEB-14080, RTC, Branch 8, Cebu City.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 170574               January 30, 2009

PHILIPPINE BANKING CORPORATION (NOW: GLOBAL BUSINESS BANK, INC.), Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

The Philippine Banking Corporation, now, Global Business Bank, Inc., (petitioner) filed this Petition for Review1 to reverse the Court of Tax Appeals’ Decision2 dated 23 November 2005 in CTA EB No. 63 (C.T.A. Case No. 6395). In the assailed decision, the

Court of Tax Appeals En Banc ordered petitioner to pay P17,595,488.75 andP47,767,756.24 as deficiency documentary stamp taxes for the taxable years 1996 and 1997, respectively, on its bank product called "Special/Super Savings Deposit Account" (SSDA).

The Facts

Petitioner is a domestic corporation duly licensed as a banking institution.3 For the taxable years 1996 and 1997, petitioner offered its SSDA to its depositors. The SSDA is a form of a savings deposit evidenced by a passbook and earning a higher interest rate than a regular savings account. Petitioner believes that the SSDA is not subject to Documentary Stamp Tax (DST) under Section 180 of the 1977 National Internal Revenue Code (NIRC), as amended.4

On 10 January 2000, the Commissioner of Internal Revenue (respondent) sent petitioner a Final Assessment Notice assessing deficiency DST based on the outstanding balances of its SSDA, including increments, in the total sum of P17,595,488.75 for 1996 and P47,767,756.24 for 1997. These assessments were based on the outstanding balances of the SSDA appearing in the schedule attached to petitioner’s audited financial statements for the taxable years 1996 and 1997.5

Petitioner claims that the SSDA is in the nature of a regular savings account since both types of accounts have the following common features:

a. They are both evidenced by a passbook;

b. The depositors can make deposits or withdrawals anytime which are not subject to penalty; and

c. Both can have an Automatic Transfer Agreement (ATA) with the depositor’s current or checking account.6

Petitioner alleges that the only difference between the regular savings account and the SSDA is that the SSDA is for depositors who maintain savings deposits with a substantial average daily balance, and as an incentive, they are given higher interest rates than regular savings accounts. These deposits are classified separately in petitioner’s financial statements in order to maintain a separate record for savings deposits with substantial balances entitled to higher interest rates.7

Petitioner maintains that the tax assessments are erroneous because Section 180 of the 1977 NIRC does not include deposits evidenced by a passbook among the enumeration of instruments subject to DST. Petitioner asserts that the language of the law is clear and requires no interpretation.8 Section 180 of the 1977 NIRC, as amended,9 provides:

Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the government or any of its instrumentalities, certificates of deposit bearing interest and others not payable on sight or demand. — On all loan agreements signed abroad wherein the object of the contract is located or used in the Philippines; bills of exchange (between points within the Philippines), drafts, instruments and securities issued by the Government or any of its instrumentalities orcertificates of deposits drawing interest, or orders for the payment of any sum of money otherwise than at the sight or on demand, or on all promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos, or fractional part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of deposit, or note: provided, that only one documentary stamp tax shall be imposed on either loan agreement, or promissory note issued to secure such loan, whichever will yield a higher tax: provided, however, that loan agreements or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his purchase on installment for his personal use or that of his family and not for business, resale, barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax provided under this section. (Boldfacing supplied)

Petitioner insists that the SSDA, being issued in the form of a passbook, cannot be construed as a certificate of deposit subject to DST under Section 180 of the 1977 NIRC. Petitioner explains that the SSDA is a necessary offshoot of the deregulated interest rate regime in bank deposits.10 Petitioner elucidates:

With the removal of the respective interest rate ceilings on savings and time deposit, banks are enabled to legitimately offer higher rates on savings account which may even be at par with rates on time deposit. Practically, the distinction between a savings and a time deposit was removed insofar as interest rates are concerned. This being so, and for the legitimate purpose of further enticing deposits for savings account, banks have evolved a product – the Super/Special Savings Account – which offers the flexibility of a savings deposit but does away with the rigidity of a time deposit account and with interest rate at par with the latter. This is offered as an incentive for depositors who maintain or who wish to maintain deposits with substantial average daily balance. Such depositors will be entitled to an attractive interest rate, a rate higher than that to which the regular savings account is entitled. Just like an ordinary savings, Super/Special Savings Deposits can be withdrawn anytime. Of course, to be entitled to preferential interest rate, such account must conform to a stated minimum deposit balance within a specified holding period. Otherwise, the depositor will lose the incentive of a higher interest rate and the account will revert to an ordinary savings account and be entitled only to prevailing rates of interest applicable to regular savings account. And unlike a time deposit account, the Super/Special Savings Account comes in the form of a passbook, hence need not be formally renewed in the manner that a time deposit certificate has to be formally surrendered and renewed upon maturity.11

Petitioner argues that the DST is imposed on the basis of a mere inference or perceived implication of what the SSDA is supposed to be and not on the basis of what the law specifically states. Petitioner points out the differences between the SSDA and time deposits:12

Time Deposits SSDA

1. The holding period is fixed beforehand.

1. The holding period floats at the option of the depositor. It can be 30, 60, 90 or 120 days or more and as an incentive for maintaining a longer holding period, the depositor earns higher interest.

2. There is pre-termination because there is no partial withdrawal of a certificate. Pre-termination results in the surrender and cancellation of the certificate of deposit.

2. No pre-termination and the passbook account is simply reverted to an ordinary savings status in case of early or partial withdrawal or if the required holding period is not met.

Petitioner also argues that even on the assumption that a passbook evidencing the SSDA is a certificate of deposit, no DST will be imposed because only negotiable certificates of deposits are subject to tax under Section 180 of the 1977 NIRC.13 Petitioner reasons that a savings passbook is not a negotiable instrument and it cannot be denied that savings passbooks have never been taxed as certificates of deposits.14

Petitioner alleges that prior to the passage of Republic Act No. 924315 (RA 9243), there was no law subjecting SSDA to DST during the taxable years 1996 and 1997. The amendatory provision in RA 9243 now specifically includes "certificates or other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity date."16 Petitioner admits that with this new taxing clause, its SSDA is now subject to DST. However, the fact remains that this provision was non-existent during the taxable years 1996 and 1997 subject of the assessments in the present case.17

Respondent, through the Office of the Solicitor General, contends that the SSDA is substantially the same and identical to that of a time deposit account because in order to avail of the SSDA, one has to deposit a minimum ofP50,000 and this amount must be maintained for a required period of time to earn higher interest rates.18 In a time deposit account, the minimum deposit requirement is P20,000 and this amount must be maintained for the agreed period to earn the agreed interest rate. If a time deposit is pre-terminated, a penalty will be imposed resulting in a lower interest income. In a

regular savings account, the interest rate is fixed and there is no penalty imposed for as long as the required minimum balance is maintained. Thus, respondent asserts that the SSDA is a time deposit account, albeit in the guise of a regular savings account evidenced by a passbook.19

Respondent explains that under Section 180 of the 1977 NIRC, certificates of deposits deriving interest are subject to the payment of DST. Petitioner’s passbook evidencing its SSDA is considered a certificate of deposit, and being very similar to a time deposit account, it should be subject to the payment of DST.20

Respondent also argues that Section 180 of the 1977 NIRC categorically states that certificates of deposit deriving interest are subject to DST without limiting the enumeration to negotiable certificates of deposit. Based on the definition of a certificate of deposit in Far East Bank and Trust Company v. Querimit,21 a certificate of deposit may or may not be negotiable, since it may be payable only to the depositor.22

The Ruling of the Court of Tax Appeals

On 23 November 2005, the Court of Tax Appeals En Banc (CTA) affirmed the Decision and Resolution of the CTA’s Second Division. The dispositive portion reads:

WHEREFORE, the instant petition is DENIED for lack of merit. Accordingly, the petitioner is hereby ORDERED toPAY the amounts of P17,595,488.75 and P47,767,756.24 as deficiency documentary stamp taxes for the taxable years 1996 and 1997, plus 25% surcharge for late payment and 20% annual delinquency interest for late payment from January 20, 2002 until fully paid pursuant to Sections 248 and 249 of the Tax Code.23

The CTA ruled that a deposit account with the same features as a time deposit, i.e., a fixed term in order to earn a higher interest rate, is subject to DST imposed in Section 180 of the 1977 NIRC.24 It is clear that "certificates of deposit drawing interest" are subject to DST. The CTA, citing Far East Bank and Trust Company v. Querimit,25defined a certificate of deposit as "a written acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or some other person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created."26

The CTA pointed out that this Court neither referred to a particular form of deposit nor limited the coverage to time deposits only. This Court used the term "written acknowledgment" which means that for as long as there is some written memorandum of the fact that the bank accepted a deposit of a sum of money from a depositor, the writing constitutes a certificate of deposit. The CTA held that a passbook representing an interest-earning deposit account issued by a bank qualifies as a certificate of deposit drawing interest.27

The CTA emphasized that Section 180 of the 1977 NIRC imposes DST on documents, whether the documents are negotiable or non-negotiable.28 The CTA held that petitioner’s argument that Section 180 of the 1977 NIRC imposes the DST only on negotiable certificates of deposit as implied from the old tax provision is erroneous.29Section 217 of Commonwealth Act No. 466, as amended (old NIRC) reads:

Sec. 217. Stamp tax on negotiable promissory notes, bills of exchange, drafts, certificate of deposit bearing interest and others not payable on sight or demand. - On all bills of exchange (between points within the Philippines), drafts or certificates of deposit drawing interest, or orders for the payment of any sum of money otherwise than at sight or on demand, or all negotiable promissory notes, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of four centavos on each two hundred pesos, or fractional part thereof, of the face value of any such bill of exchange, draft, certificate of deposit, or note. (As amended by Sec. 6, Republic Act No. 40)30 (Emphasis in the original)

The CTA observed that the requirement of negotiability pertains to promissory notes only. Such intention is disclosed by the fact that the word negotiable was written before promissory notes followed by a comma, hence, the word negotiable modifies promissory notes only. Therefore, with respect to all other documents mentioned in Section 217 of the old NIRC, the attribute of negotiability is not required.31 The CTA added that the applicable provision is Section 180 of the 1977 NIRC and not Section 217 of the old NIRC.32 Section 180 of the 1977 NIRC provides that the following are subject to DST, to wit: (1) Loan Agreements; (2) Bills of Exchange; (3) Drafts; (4) Instruments and Securities issued by the Government or any of its instrumentalities; (5) Certificates of Deposits drawing interest; (6) Orders for the payment of any sum of money otherwise than at sight or on demand; and (7) Promissory Notes, whether negotiable or non-negotiable. Therefore, the DST is imposed on all certificates of deposit drawing interest without any qualification.33

The CTA held that a certificate of time deposit, a type of a certificate of deposit drawing interest, is subject to DST. The CTA observed that the SSDA has the same nature and characteristics as a time deposit.34 The CTA discussed the similarities of a time deposit account with an SSDA:

In order for the depositor to earn the agreed higher interest rate in a Special/Super Savings Account, the required minimum amount of deposit must not only be met but should also be maintained for a definite period. Thus, the Special/Super Savings Account is a deposit with a fixed term. Withdrawal before the expiration of said fixed term results to the reduction of the interest rate. The fixed term and reduction of interest rate in case of pre-termination are essentially the features of a time deposit. Hence, this Court concurs with the conclusion reached in the assailed Decision that petitioner’s Special/Super Savings Deposits and certificates of time deposit are substantially the same, if not one and the same product, and therefore both are subject to the DST on certificates of deposit.35

The CTA stated that the fact that the SSDA is evidenced by a passbook is immaterial because in determining whether certain instruments are subject to DST, substance would control over form and labels.36

On 14 December 2005, petitioner appealed to this Court the CTA decision.37

The Issue

Petitioner submits this sole issue for our consideration: whether petitioner’s product called Special/Super Savings Account is subject to DST under Section 180 of the 1977 NIRC prior to the passage of RA 9243 in 2004.38

The Ruling of the Court

The issue in the present case is whether petitioner’s SSDAs are "certificates of deposits drawing interest" as used in Section 180 of the 1977 NIRC. If they are, then the SSDAs are subject to DST. If not, then they are merely regular savings account which concededly are not subject to DST. So what are "certificates of deposits drawing interest," and how do they differ from a regular savings account?

Section 180 of the 1977 NIRC, as amended, provides:

Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the government or any of its instrumentalities, certificates of deposit bearing interest and others not payable on sight or demand. — On all loan agreements signed abroad wherein the object of the contract is located or used in the Philippines; bills of exchange (between points within the Philippines), drafts, instruments and securities issued by the Government or any of its instrumentalities orcertificates of deposits drawing interest, or orders for the payment of any sum of money otherwise than at the sight or on demand, or on all promissory notes, whether negotiable or non- negotiable, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos, or fractional part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of deposit, or note: provided, that only one documentary stamp tax shall be imposed on either loan agreement, or promissory note issued to secure such loan, whichever will yield a higher tax: provided, however, that loan agreements or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his purchase on installment for his personal use or that of his family and not for business, resale, barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax provided under this section.lavvphil.zw+(Boldfacing and underscoring supplied)

In Far East Bank and Trust Company v. Querimit,39 the Court defined a certificate of deposit as "a written acknowledgment by a bank or banker of the receipt of a sum of

money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created." A certificate of deposit is also defined as "a receipt issued by a bank for an interest-bearing time deposit coming due at a specified future date."40

The deposit operations of a bank as listed in the Bangko Sentral ng Pilipinas Manual of Regulations for Banks41consist of the following:

1. Demand Deposits – are deposits, subject to withdrawal either by check or thru the automated tellering machines which are otherwise known as current or checking accounts. The Bank may or may not pay interest on these accounts.42

2. Savings Deposits – are interest-bearing deposits which are withdrawable either upon presentation of a properly accomplished withdrawal slip together with the corresponding passbook or thru the automated tellering machines.43

3. Negotiable Order of Withdrawal Accounts – are interest-bearing savings deposit which are withdrawable by means of Negotiable Orders of Withdrawal.44

4. Time Deposits – are interest-bearing deposits with specific maturity dates and evidenced by certificates issued by the bank.45

Petitioner treats the SSDA as a regular savings deposit account since it is evidenced by a passbook and allows withdrawal. Respondent treats the SSDA as a time deposit account because of the higher interest rates and holding period. It is then significant to differentiate a regular savings deposit and a time deposit vis-à-vis the SSDA to determine if the SSDA is a certificate of deposit drawing interest referred to in Section 180 of the 1977 NIRC. A comparison of a savings account, time deposit account, and SSDA is shown in the table below:

  Savings Account Time Deposit SSDA

Interest rate Regular savings interest

Higher interest rate

Higher interest rate

Period None Fixed Term Fixed Term

Evidenced by:

Passbook Certificate of Time Deposit

Passbook

Pre-termination

None With penalty With penalty

Holding Period

None Yes Yes

Withdrawal Allowed Withdrawal Allowed

amounts to pre-termination

provided the minimum amount to earn the higher interest rate is maintained, otherwise, the regular savings interest rate will apply.

Based on the definition and comparison, it is clear that a certificate of deposit drawing interest as used in Section 180 of the 1977 NIRC refers to a time deposit account. As the Bureau of Internal Revenue (BIR) explained in Revenue Memorandum Circular No. 16-2003,46 the distinct features of a certificate of deposit from a technical point of view are as follows:

a. Minimum deposit requirement;

b. Stated maturity period;

c. Interest rate is higher than the ordinary savings account;

d. Not payable on sight or demand, but upon maturity or in case of pre-termination, prior notice is required; and

e. Early withdrawal penalty in the form of partial loss or total loss of interest in case of pre-termination.

The SSDA is for depositors who maintain savings deposits with substantial average daily balance and which earn higher interest rates. The holding period of an SSDA floats at the option of the depositor at 30, 60, 90, 120 days or more and for maintaining a longer holding period, the depositor earns higher interest rates. There is no pre-termination of accounts in an SSDA because the account is simply reverted to an ordinary savings status in case of early or partial withdrawal or if the required holding period is not met. Based on the foregoing, the SSDA has all of the distinct features of a certificate of deposit.

Petitioner argues that a deposit account evidenced by a passbook cannot be construed as a certificate of deposit subject to DST under Section 180 of the 1977 NIRC. In International Exchange Bank v. Commissioner of Internal Revenue,47 this Court categorically ruled that a passbook representing an interest earning deposit account issued by a bank qualifies as a certificate of deposit drawing interest and should be subject to DST. The Court added that "a document to be deemed a certificate of deposit requires no specific form as long as there is some written memorandum that the bank accepted a deposit of a sum of money from a depositor."48

Petitioner also argues that prior to the passage of RA 9243, there was no law subjecting SSDA to DST. InInternational Exchange Bank v. Commissioner of Internal Revenue,49 the Court held that the amendment to include "other evidences of deposits that are drawing interest significantly higher than the regular savings deposit" was intended to eliminate the ambiguity. The Court explained:

If at all, the further amendment was intended to eliminate precisely the scheme used by banks of issuing passbooks to "cloak" its time deposits as regular savings deposits. This is reflected from the following exchanges between Mr. Miguel Andaya of the Bankers Association of the Philippines and Senator Ralph Recto, Senate Chairman of the Committee on Ways and Means, during the deliberations on Senate Bill No. 2518 which eventually became RA 9243:

MR. MIGUEL ANDAYA (Bankers Association of the Philippines). Just to clarify. Savings deposit at the present is not subject to DST.

THE CHAIRMAN. That’s right.

MR. ANDAYA. Time deposit is subject. I agree with you in principle that if we are going to encourage deposits, whether savings or time...

THE CHAIRMAN. Uh-huh.

MR. ANDAYA. ...it’s questionable whether we should tax it with DST at all, even the question of imposing final withholding tax has been raised as an issue.

THE CHAIRMAN. If I had it my way, I'll cut it by half.

MR. ANDAYA. Yeah, but I guess concerning the constraint of government revenue, even the industry itself right now is not pushing in that direction, but in the long term, when most of us in this room are gone, we hope that DST will disappear from the face of this earth, no.

Now, I think the move of the DOF to expand the coverage of or to add that phrase, "Other evidence of indebtedness," it just removed ambiguity. When we testified earlier in the House on this very same bill, we did not interpose any objections if only for the sake of avoiding further ambiguity in the implementation of DST on deposits. Because of what has happened so far is, we don't know whether the examiner is gonna come in and say, "This savings deposit is not savings but it’s time deposit." So, I think what DOF has done is to eliminate any confusion. They said that a deposit that has a maturity...

THE CHAIRMAN. Uh-huh.

MR. ANDAYA. ...which is time, in effect, regardless of what form it takes should be subject to DST.

THE CHAIRMAN. Would you include savings deposit now?

MR. ANDAYA. So that if we cloaked a deposit as savings deposit but it has got a fixed maturity...

THE CHAIRMAN. Uh-huh.

MR. ANDAYA. ..that would fall under the purview. (Italics in the original)

DST is imposed on Certificates of Deposits Bearing Interestincluding a special savings account evidenced by a passbook.

Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. A DST is actually an excise tax because it is imposed on the transaction rather than on the document.50 A DST is also levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments.51 Hence, in imposing the DST, the Court considers not only the document but also the nature and character of the transaction.

Section 180 of the 1977 NIRC imposes a DST of P0.30 on each P200 of the face value of any certificate of deposit drawing interest. As correctly observed by the CTA, a certificate of deposit is a written acknowledgment by a bank of the receipt of a sum of money on deposit which the bank promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby the relation of debtor or creditor between the bank and the depositor is created.52

Petitioner’s SSDA has the following features:

1. Although the money placed in the SSDA can be withdrawn anytime, the money is subject to a holding period in order to earn a higher interest rate. Otherwise, in case of premature withdrawal, the depositor will not earn the preferred interest ranging from 8% or higher but only the normal interest rate on regular savings deposit.

2. In order to qualify for an SSDA, the depositor must place a substantial amount of money of not less thanP50,000. This amount is even larger than what is needed to open a time deposit which is P20,000. Aside from the substantial amount of money required, this amount must be maintained within a certain period just like a time deposit.

3. On the issue of penalty, in an SSDA, if the depositor withdraws the money and the balance falls below the "minimum balance" of P50,000, the interest is reduced. This condition is identical to that imposed on a time deposit that is withdrawn before maturity. 53

Based on these features, it is clear that the SSDA is a certificate of deposit drawing interest subject to DST even if it is evidenced by a passbook and non-negotiable in character. In International Exchange Bank v. Commissioner of Internal Revenue,54 we held that:

A document to be deemed a certificate of deposit requires no specific form as long as there is some written memorandum that the bank accepted a deposit of a sum of money from a depositor. What is important and controlling is the nature or meaning conveyed by the passbook and not the particular label or nomenclature attached to it, inasmuch as substance, not form, is paramount.lavvph!l.net

Moreover, a certificate of deposit may be payable to the depositor, to the order of the depositor, or to some other person or his order. From the use of the conjunction or, instead of and, the negotiable character of a certificate of deposit is immaterial in determining the imposition of DST.55

In Banco de Oro Universal Bank v. Commissioner of Internal Revenue,56 this Court upheld the CTA’s decision and ruled:

The CTA en banc likewise declared that in practice, a time deposit transaction is covered by a certificate of deposit while petitioner's Investment Savings Account (ISA) transaction is through a passbook. Despite the differences in the form of any documents, the CTA en banc ruled that a time deposit and ISA have essentially the same attributes and features. It explained that like time deposit, ISA transactions bear a fixed term or maturity because the bank acknowledges receipt of a sum of money on deposit which the bank promises to pay the depositor, bearer or to the order of a bearer on a specified period of time. Section 180 of the 1997 NIRC does not prescribed the form of a certificate of deposit. It may be any 'written acknowledgment by a bank of the receipt of money on deposit.' The definition of a certificate of deposit is all encompassing to include a savings account deposit such as ISA. (Emphasis supplied)

Availment of the Tax Amnesty Program

On 24 May 2007, during the pendency of this case before this Court, Republic Act No. 9480 or "An Act Enhancing Revenue Administration and Collection by Granting an Amnesty on All Unpaid Internal Revenue Taxes Imposed by the National Government for Taxable Year 2005 and Prior Years" (RA 9480), lapsed into law.

The pertinent provisions of RA 9480 are:

Section 1. Coverage. There is hereby authorized and granted a tax amnesty which shall cover all national internal revenue taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that have remained unpaid as of December 31, 2005: Provided, however, That the amnesty hereby authorized and granted shall not cover persons or cases enumerated under Section 8 hereof.

x x x

Sec. 6. Immunities and Privileges. Those who availed themselves of the tax amnesty under Section 5 hereof, and have fully complied with all its conditions shall be entitled to the following immunities and privileges:

1. The taxpayer shall be immune from the payment of taxes, as well as addition thereto, and the appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.

x x x

Sec. 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the following persons or cases existing as of the effectivity of this Act:

1. Withholding agents with respect to their withholding tax liabilities;

2. Those with pending cases falling under the jurisdiction of the Presidential Commission on Good Government;

3. Those with pending cases involving unexplained or unlawfully acquired wealth or under the Anti-Graft and Corrupt Practices Act;

4. Those with pending cases filed in court involving violation of the Anti-Money Laundering Law;

5. Those with pending criminal cases for tax evasion and other criminal offenses under Chapter II of Title X of the National Internal Revenue Code of 1997, as amended, and the felonies of frauds, illegal exactions and transactions, and malversation of public funds and property under Chapters III and IV of Title VII of the Revised Penal Code; and

6. Tax cases subject of final and executory judgment by the courts. (Emphasis supplied)

The Department of Finance (DOF) issued DOF Department Order No. 29-07 (DO 29-07).57 Section 6 of DO 29-07 provides:

SEC. 6. Method of Availment of Tax Amnesty. -

1. Forms/Documents to be filed. - To avail of the general tax amnesty, concerned taxpayers shall file the following documents/requirements:

a. Notice of Availment in such form as may be prescribed by the BIR;

b. Statements of Assets, Liabilities and Networth (SALN) as of December 31, 2005 in such form, as may be prescribed by the BIR;

c. Tax Amnesty Return in such form as may be prescribed by the BIR.

x x x

The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty Return shall be submitted to the RDO, which shall be received only after complete payment. The completion of these requirements shall be deemed full compliance with the provisions of RA 9480. (Emphasis supplied)

The BIR issued Revenue Memorandum Circular No. 19-2008 (RMC 19-2008).58 The pertinent provisions are:

Who may avail of the amnesty?

The following taxpayers may avail of the Tax Amnesty Program:

P Individuals

P Estates and Trusts

P Corporations

P Cooperatives and tax-exempt entities that have become taxable as of December 31, 2005

P Other juridical entities including partnerships.

Ø Fiscal year taxpayers may likewise avail of the tax amnesty using their Financial Statement ending in any month of 2005.

EXCEPT:

Q Withholding agents with respect to their withholding tax liabilities

Q Those with pending cases:

Q Under the jurisdiction of the PCGG

Q Involving violations of the Anti-Graft and Corrupt Practices Act

Q Involving violations of the Anti-Money Laundering Law

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 136202             January 25, 2007

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents

D E C I S I O N

AZCUNA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision1 dated April 3, 1998, and the Resolution2 dated November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241.

The facts3 are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein petitioner Bank of the Philippine Islands (BPI) on

December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later amended by substituting the name of Annabelle A. Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and attorney’s fees.

Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein also a private respondent, demanded from the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were allegedly payable to him, but which were deposited with the petitioner bank to private respondent Salazar’s account (Account No. 0203-1187-67) without his knowledge and corresponding endorsement.

Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No. 0203-1187-67 where the checks were deposited, since this account was already closed by private respondent Salazar or had an insufficient balance.

Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the funds represented by the checks which were deposited and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashier’s check. The difference between the value of the checks (P267,692.50) and the amount actually debited from her account (P267,707.70) represented bank charges in connection with the issuance of a cashier’s check to Templonuevo.

In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him ofP267,692.50 and argued that said payment was to correct the malicious deposit made by private respondent Salazar to her private account, and that petitioner bank’s negligence and tolerance regarding the matter was violative of the primary and ordinary rules of banking. He likewise contended that the debiting or taking of the reimbursed amount from the account of private respondent Salazar by petitioner BPI was a matter exclusively between said parties and may be pursuant to banking rules and regulations, but did not in any way affect him. The debiting from another account of private respondent Salazar, considering that her other account was effectively closed, was not his concern.

After trial, the RTC rendered a decision, the dispositive portion of which reads thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to pay as follows:

1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is fully paid;

2. The amount of P30,000.00 as and for actual damages;

3. The amount of P50,000.00 as and for moral damages;

4. The amount of P50,000.00 as and for exemplary damages;

5. The amount of P30,000.00 as and for attorney’s fees; and

6. Costs of suit.

The counterclaim is hereby ordered DISMISSED for lack of factual basis.

The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit.

Third-party defendant’s [i.e., private respondent Templonuevo’s] counterclaim is hereby likewise DISMISSED for lack of factual basis.

SO ORDERED.4

On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading5 actually belonged to Salazar and would be deposited to her account, with petitioner acquiescing to the arrangement.6

Petitioner therefore filed this petition on these grounds:

I.

The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence.

II.

The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.

III.

The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from which BPI debited the amount of P267,707.70 belonged to a corporation with a separate and distinct personality.

IV.

The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal account and that BPI was privy to this agreement.

V.

The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her business standing was eroded.

VI.

The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing SALAZAR’s complaint.

VII.

The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI.7

The issues center on the propriety of the deductions made by petitioner from private respondent Salazar’s account. Stated otherwise, does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositor’s account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed?

Petitioner argues thus:

1. There is no presumption in law that a check payable to order, when found in the possession of a person who is neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA should not have presumed that Salazar was a transferee for value within the contemplation of Section 49 of the Negotiable Instruments Law,8 as the latter applies only to a holder defined under Section 191of the same.9

2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite her allegations that these checks were deposited pursuant to a prior internal arrangement with Templonuevo and that petitioner was privy to the arrangement.

3. The CA should have applied the Civil Code provisions on legal compensation because in deducting the subject amount from Salazar’s account, petitioner was merely rectifying the undue payment it made upon the checks and exercising its prerogative to alter or modify an erroneous credit entry in the regular course of its business.

4. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was proper even though the value of the checks had been originally credited to the personal account of Salazar because A.A. Salazar Construction and Engineering Services, an unincorporated single proprietorship, had no separate and distinct personality from Salazar.

5. Assuming the deduction from Salazar’s account was improper, the CA should not have dismissed petitioner’s third-party complaint against Templonuevo because the latter would have the legal duty to return to petitioner the proceeds of the checks which he previously received from it.

6. There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CA’s conclusion that the deductions from the bank account of A.A. Salazar Construction and Engineering Services were improper stemmed from its finding that there was no ineffective payment to Salazar which would call for the exercise of petitioner’s right to set off against the former’s bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the evidence adduced during trial and upon the admissions and stipulations of fact made during the pre-trial, most significantly the following:

(a) That Salazar previously had in her possession the following checks:

(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50;

(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and,

(3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount ofP154,800.00;

(b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT Construction and Trading, the name and style under which Templonuevo does business;

(c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit the checks in her personal savings account with petitioner and encash the same;

(d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in 1990; and

(e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of one year from the date of the last check.10

Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a mistake because it failed to notice the lack of endorsement thereon by the designated payee. The CA, however, did not lend credence to this claim and concluded that petitioner’s actions were deliberate, in view of its admission that the "mistake" was committed three times on three separate occasions, indicating acquiescence to the internal arrangement between Salazar and Templonuevo. The CA explained thus:

It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them to her account and three times the amounts borne by these checks were credited to the same. And in those separate occasions, the bank did not return the checks to her so that she could have them indorsed. Neither did the bank question her as to why she was depositing the checks to her account considering that she was not the payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to appellee.

For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for deposit on three separate times nary any question. Banks are most finicky over accepting checks for deposit without the corresponding indorsement by their payee. In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they know very well.11

The CA likewise sustained Salazar’s position that she received the checks from Templonuevo pursuant to an internal arrangement between them, ratiocinating as follows:

If there was indeed no arrangement between Templonuevo and the plaintiff over the three questioned checks, it baffles us why it was only on August 31, 1991 or more than a year after the third and last check was deposited that he demanded for the refund of the total amount of P267,692.50.

A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same became due and demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at the very

moment he learns that he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He would not have waited for a year within which to do so. It is most inconceivable that Templonuevo did not do this.12

Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court.13Factual findings of the CA are entitled to great weight and respect, especially when the CA affirms the factual findings of the trial court.14 Such questions on whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are questions of fact. The same holds true for questions on whether or not the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by the adverse party may be said to be strong, clear and convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weight – all these are issues of fact which are not reviewable by the Court.15

This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; g) when the findings of the CA are contrary to those of the trial court; h) when the findings of fact are conclusions without citation of specific evidence on which they are based; i) when the finding of fact of the CA is premised on the supposed absence of evidence but is contradicted by the evidence on record; and j) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion.16

In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazar’s entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law.

Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus:

Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. 17

It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is that a valid transfer of ownership of the negotiable instrument in question has taken place.

Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred.18

The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To the Court’s mind, however, such period of delay is not of such unreasonable length as to estop Templonuevo from asserting ownership over the checks especially considering that it was readily apparent on the face of the instruments19 that these were crossed checks.

In State Investment House v. IAC,20 the Court enumerated the effects of crossing a check, thus: (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 such holder must inquire if the check has been received pursuant to that purpose.

Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazar’s possession of the checks, it cannot be said that the presumption of ownership in Templonuevo’s favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right.21

The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term "given" does not pertain merely to a transfer of physical possession of the instrument. The phrase "given or indorsed" in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by "transfer to one person or another in such a manner as to constitute the transferee the holderthereof. If payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by

delivery."22 The present case involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof.

It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder.23 Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioner’s liability to the designated payee cannot be denied.

Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account for the value of the checks it previously credited in her favor. It is of no moment that the account debited by petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the former being the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her personal account.

The right of set-off was explained in Associated Bank v. Tan:24

A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan."

Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

While, however, it is conceded that petitioner had the right of set-off over the amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an entirely different matter.25 As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship.26 In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor.

To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioner’s claim that it merely made a mistake in crediting the value of the checks to Salazar’s account and instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that 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.27The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank.28

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioner’s assurances to private respondent Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo.29 In this connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner bank’s Pasig/Ortigas branch, to private respondent Salazar informing her that her account had been frozen, thus:

From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo. But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time that letter was written, [petitioner] bank issued a cashier’s check in the name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum ofP267,692.50 (Exhibit "8") and debited said amount from Ms. Arcilla’s account No. 0201-0588-48 which was supposed to be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard of the right of its depositor.

The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar Construction and Engineering Services prior to any notice of deduction being served. The CA sustained private respondent Salazar’s claim of damages in this regard:

The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar Construction and Engineering Services caused plaintiff-appellee great damage and prejudice particularly when she had already issued checks drawn against the said account. As can be expected, the said checks bounced. To prove this, plaintiff-appellee presented as exhibits photocopies of checks dated September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits "D", "E" and "F" respectively)30

These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when petitioner unilaterally withdrew the above amount from her account without informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the bank’s negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation.31 Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorney’s fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest.32

WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion isREVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.

No costs.

SO ORDERED.

ADOLFO S. AZCUNAAssociate Justice

WE CONCUR:

REYNATO S. PUNOChairpersonChief Justice

ANGELINA SANDOVAL-GUTIERREZAssociate Justice

RENATO C. CORONAAsscociate Justice

CANCIO C. GARCIA Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 141181             April 27, 2007

SAMSON CHING, Petitioner, vs.CLARITA NICDAO and HON. COURT OF APPEALS, Respondents.

D E C I S I O N

CALLEJO, SR., J.:

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

liable to pay petitioner Ching the amounts of the dishonored checks in the aggregate sum of P20,950,000.00.

Factual and Procedural Antecedents

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

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

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

CONTRARY TO LAW.

Dinalupihan, Bataan, October 21, 1997.

(Sgd.) SAMSON T.Y. CHING

Complainant

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

Check No. Amount DatePrivate Complainant

Reason for the Dishonor

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

1997 Ching

0088563 150,000Oct. 6, 1997

" "

0121424 100,000Oct. 6, 1997

" "

0045315 50,000Oct. 6, 1997

" "

0022546 100,000Oct. 6, 1997

" "

0088757 100,000Oct. 6, 1997

" "

0089368 50,000Oct. 6, 1997

" "

0022739 50,000Oct. 6, 1997

" "

00894810 150,000Oct. 6, 1997

" "

00893511 100,000Oct. 6, 1997

" "

01037712 100,000Oct. 6, 1997

" "

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

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

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

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

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

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

Petitioner Ching confirmed the truthfulness of the allegations contained in the eleven (11) Informations that he filed against respondent Nicdao. He reiterated that, upon their agreement, the checks were all signed by respondent Nicdao but she left them undated.

Petitioner Ching admitted that he was the one who wrote the date, October 6, 1997, on those checks when respondent Nicdao refused to pay him.

With respect to the P20,000,000.00 check (Check No. 002524), petitioner Ching explained that he wrote the date and amount thereon when, upon his estimation, the money that he regularly lent to respondent Nicdao beginning October 1995 reached the said sum. He likewise intimated that prior to 1995, they had another transaction amounting to P1,200,000.00 and, as security therefor, respondent Nicdao similarly issued in his favor checks in varying amounts of P100,000.00 and P50,000.00. When the said amount was fully paid, petitioner Ching returned the checks to respondent Nicdao.

Petitioner Ching maintained that the eleven (11) checks subject of Criminal Cases Nos. 9433-9443 pertained to respondent Nicdao’s loan transactions with him beginning October 1995. He also mentioned an instance when respondent Nicdao’s husband and daughter approached him at a casino to borrow money from him. He lent themP300,000.00. According to petitioner Ching, since this amount was also unpaid, he included it in the other amounts that respondent Nicdao owed to him which totaled P20,000,000.00 and wrote the said amount on one of respondent Nicdao’s blank checks that she delivered to him.

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

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

Petitioner Ching reiterated that after the lapse of one (1) year from the time respondent Nicdao issued the checks to him, he went to her several times to collect payment. In all these instances, she said that she had no cash. Finally, in September 1997, respondent Nicdao allegedly went to his house and told him that Janette was only willing to pay him between P3,000,000.00 and P5,000,000.00 because, as far as her daughter was concerned, that was the only amount borrowed from petitioner Ching. On hearing this,

petitioner Ching angrily told respondent Nicdao that she should not have allowed her debt to reach P20,000,000.00 knowing that she would not be able to pay the full amount.

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

Another witness presented by the prosecution was Imelda Yandoc, an employee of HSLB. On direct-examination,15 she testified that she worked as a checking account bookkeeper/teller of the bank. As such, she received the checks that were drawn against the bank and verified if they were funded. On October 6, 1997, she received several checks issued by respondent Nicdao. She knew respondent Nicdao because the latter maintained a savings and checking account with them. Yandoc identified the checks subject of Criminal Cases Nos. 9433-9443 and affirmed that stamped at the back of each was the annotation "DAIF". Further, per the bank’s records, as of October 8, 1997, only a balance of P300.00 was left in respondent Nicdao’s checking account andP645.83 in her savings account. On even date, her account with the bank was considered inactive.

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

For its part, the defense proffered the testimonies of respondent Nicdao, Melanie Tolentino and Jocelyn Nicdao. On direct-examination,17 respondent Nicdao stated that she only dealt with Nuguid. She vehemently denied the allegation that she had borrowed money from both petitioner Ching and Nuguid in the total amount ofP22,950,000.00. Respondent Nicdao admitted, however, that she had obtained a loan from Nuguid but only forP2,100,000.00 and the same was already fully paid. As proof of such payment, she presented a Planters Bank demand draft dated August 13, 1996 in the amount of P1,200,000.00. The annotation at the back of the said demand draft showed that it was endorsed and negotiated to the account of petitioner Ching.

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

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

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

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

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

After the said incident, respondent Nicdao was surprised to be notified by HSLB that her check in the amount ofP20,000,000.00 was just presented to the bank for payment. She claimed that it was only then that she remembered that sometime in 1995, she was informed by her employee that one of her checks was missing. At that time, she did not let it bother her thinking that it would eventually surface when presented to the bank.

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

At the continuation of her direct-examination,19 respondent Nicdao said that she never dealt with petitioner Ching because it was Nuguid who went to the grocery store

everyday to collect the interest payments. When shown theP20,000,000.00 check, respondent Nicdao admitted that the signature thereon was hers but she denied issuing it as a blank check to petitioner Ching. On the other hand, with respect to the other ten (10) checks, she also admitted that the signatures thereon were hers and that the amounts thereon were written by either Josie Nicdao or Melanie Tolentino, her employees whom she authorized to do so. With respect to the payee, it was purposely left blank allegedly upon instruction of Nuguid who said that she would use the checks to pay someone else.

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

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

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

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

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

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

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

Jocelyn Nicdao also took the witness stand to corroborate the testimony of the other defense witnesses. On direct-examination,23 she averred that she was a saleslady at the Vignette Superstore from August 1994 up to April 1998. She knew Nuguid as well as petitioner Ching.

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

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

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

After due trial, on December 8, 1998, the MCTC rendered judgment in Criminal Cases Nos. 9433-9443 convicting respondent Nicdao of eleven (11) counts of violation of BP 22. The MCTC gave credence to petitioner Ching’s testimony that respondent Nicdao borrowed money from him in the total amount of P20,950,000.00. Petitioner Ching

delivered P1,000,000.00 every month to respondent Nicdao from 1995 up to 1997 until the sum reachedP20,000,000.00. The MCTC also found that subsequent thereto, respondent Nicdao still borrowed money from petitioner Ching. As security for these loans, respondent Nicdao issued checks to petitioner Ching. When the latter deposited the checks (eleven in all) on October 6, 1997, they were dishonored by the bank for being "DAIF."

The MCTC explained that the crime of violation of BP 22 has the following elements: (a) the making, drawing and issuance of any check to apply to account or for value; (b) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (c) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.25

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

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

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

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

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

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

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

SO ORDERED.27

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

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

Respondent Nicdao forthwith filed with the CA separate petitions for review of the two decisions of the RTC. The petition involving the eleven (11) checks purportedly issued to petitioner Ching was docketed as CA-G.R. CR No. 23055 (assigned to the 13th Division). On the other hand, the petition involving the fourteen (14) checks purportedly issued to Nuguid was docketed as CA-G.R. CR No. 23054 (originally assigned to the 7th Division but transferred to the 6th Division). The Office of the Solicitor General (OSG) filed its respective comments on the said petitions. Subsequently, the OSG filed in CA-G.R. CR No. 23055 a motion for its consolidation with CA-G.R. CR No. 23054. The OSG prayed that CA-G.R. CR No. 23055 pending before the 13th Division be transferred and consolidated with CA-G.R. CR No. 23054 in accordance with the Revised Internal Rules of the Court of Appeals (RIRCA).

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

of the two cases. She likewise filed her reply to the comment of the OSG in CA-G.R. CR No. 23055.

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

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

SO ORDERED.28

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

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

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

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

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

Soon thereafter, Emma Nuguid befriended petitioner and offered to lend money to the latter which could be used in running her newly acquired store. Nuguid represented to petitioner that as former manager of the Vignette Superstore, she knew that petitioner would be in need of credit to meet the daily expenses of running the business,

particularly in the daily purchases of merchandise to be sold at the store. After Emma Nuguid succeeded in befriending petitioner, Nuguid was able to gain access to the Vignette Superstore where petitioner’s blank and pre-signed checks were kept.29

In addition, the CA also made the finding that respondent Nicdao borrowed money from Nuguid in the total amount of P2,100,000.00 secured by twenty-four (24) checks drawn against respondent Nicdao’s account with HSLB. Upon Nuguid’s instruction, the checks given by respondent Nicdao as security for the loans were left blank as to the payee and the date. The loans consisted of (a) P950,000.00 covered by ten (10) checks subject of the criminal complaints filed by petitioner Ching (CA-G.R. CR No. 23055); and (b) P1,150,000.00 covered by fourteen (14) checks subject of the criminal complaints filed by Nuguid (CA-G.R. CR No. 23054). The loans totaledP2,100,000.00 and they were transacted between respondent Nicdao and Nuguid only. Respondent Nicdao never dealt with petitioner Ching.

Against the foregoing factual findings, the CA declared that, based on the evidence, respondent Nicdao had already fully paid the loans. In particular, the CA referred to the Planters Bank demand draft in the amount ofP1,200,000.00 which, by his own admission, petitioner Ching had received. The appellate court debunked petitioner Ching’s allegation that the said demand draft was payment for a previous transaction. According to the CA, petitioner Ching failed to adduce evidence to prove the existence of a previous transaction between him and respondent Nicdao.

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

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

The CA gave credence to the testimony of respondent Nicdao that when she had fully paid her loans to Nuguid, she tried to retrieve her checks. Nuguid, however, refused to return the checks to respondent Nicdao. Instead, Nuguid and petitioner Ching filled up the said checks to make it appear that: (a) petitioner Ching was the payee in five checks; (b) the six checks were payable to cash; (c) Nuguid was the payee in fourteen (14) checks. Petitioner Ching and Nuguid then put the date October 6, 1997 on all these checks and deposited them the following day. On October 8, 1997, through a joint demand letter, they informed respondent Nicdao that her checks were dishonored by

HSLB and gave her three days to settle her indebtedness or else face prosecution for violation of BP 22.

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

With respect to the P20,000,000.00 check, the CA was not convinced by petitioner Ching’s claim that he deliveredP1,000,000.00 every month to respondent Nicdao until the amount reached P20,000,000.00 and, when she refused to pay the same, he filled up the check, which she earlier delivered to him as security for the loans, by writing thereon the said amount. In disbelieving petitioner Ching, the CA pointed out that, contrary to his assertion, he was never employed by the La Suerte Cigar and Cigarette Manufacturing per the letter of Susan Resurreccion, Vice-President and Legal Counsel of the said company. Moreover, as admitted by petitioner Ching, he did not own the house where he and Nuguid lived.

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

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

SEC. 15. Incomplete instrument not delivered. – Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.

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

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

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

The Petitioner’s Case

As mentioned earlier, the instant petition pertains and is limited solely to the civil aspect of the case as petitioner Ching argues that notwithstanding respondent Nicdao’s acquittal of the eleven (11) counts of violation of BP 22, she should be held liable to pay petitioner Ching the amounts of the dishonored checks in the aggregate sum ofP20,950,000.00.

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

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

SEC. 1. Institution of criminal and civil actions. – When a criminal action is instituted, the civil action for the recovery of civil liability is impliedly instituted with the criminal action,

unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action.

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

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

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

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

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

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

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

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

Petitioner Ching also takes exception to the CA’s ruling that the payments made by respondent Nicdao as reflected on the computations at the back of the cigarette wrappers were for both the principal loan and interests. He insists that they were for the interests alone. Even respondent Nicdao’s testimony allegedly showed that they were daily interest payments. Petitioner Ching further avers that the interest payments totaling P5,780,000.00 can only mean that, contrary to respondent Nicdao’s claim, her loan obligations amounted to much more thanP2,100,000.00. Further, she is allegedly estopped from questioning the interests because she willingly paid the same.

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

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

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

In fine, it is petitioner Ching’s view that the CA gravely erred in disregarding the findings of the MCTC, as affirmed by the RTC, and submits that there is more than sufficient preponderant evidence to hold respondent Nicdao civilly liable to him in the amount of P20,950,000.00. He thus prays that the Court direct respondent Nicdao to pay him

the said amount plus 12% interest per annum computed from the date of written demand until the total amount is fully paid.

The Respondent’s Counter-Arguments

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

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

x x x x

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

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

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

In any case, respondent Nicdao contends that the CA did not commit serious misapprehension of facts when it found that the P20,000,000.00 check was a stolen check and that she never made any transaction with petitioner Ching. Moreover, the other ten (10) checks were not issued to apply on account or for value. These findings are allegedly supported by the evidence on record which consisted of the respective testimonies of the defense witnesses to the effect that: respondent Nicdao had the practice of leaving pre-signed checks placed inside an unsecured cash box in the Vignette Superstore; the salesladies were given the authority to fill up the said checks as to the amount, payee and date; Nuguid beguiled respondent Nicdao to obtain loans from her; as security for the loans, respondent Nicdao issued checks to Nuguid; when the salesladies gave the checks to Nuguid, she instructed them to leave blank the payee and date; Nuguid had access to the grocery store; in 1995, one of the salesladies

reported that a check was missing; in 1997, when she had fully paid her loans to Nuguid, respondent Nicdao tried to retrieve her checks but Nuguid and petitioner Ching falsely told her that she still owed them money; they then maliciously filled up the checks making it appear that petitioner Ching was the payee in the five checks and the six others were payable to "cash"; and knowing fully well that these checks were not funded because respondent Nicdao already fully paid her loans, petitioner Ching and Nuguid deposited the checks and caused them to be dishonored by HSLB.

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

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

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

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

Neither could she be held liable for the ten (10) other checks (in the total amount of P950,000,000.00) because as respondent Nicdao asseverates, she merely issued them to Nuguid as security for her loans obtained from the latter beginning October 1995 up to 1997. As evidenced by the Planters Bank demand draft in the amount ofP1,200,000.00, she already made payment in 1996. The said demand draft was negotiated to petitioner Ching’s account and he admitted receipt thereof. Respondent Nicdao belies his claim that the demand draft was payment for a prior existing obligation. She asserts that petitioner Ching was unable to present evidence of such a previous transaction.

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

Based on the foregoing evidence, the CA allegedly correctly held that, computing the amount of the Planters Bank demand draft (P1,200,000.00) and those reflected at the back of the cigarette wrappers (P5,780,000.00), respondent Nicdao had already paid petitioner Ching and Nuguid a total sum of P6,980,000.00 for her loan obligations totaling only P950,000.00, as secured by the ten (10) HSLB checks excluding the stolenP20,000,000.00 check.

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

Respondent Nicdao emphasizes that the ten (10) other checks that she issued to Nuguid as security for her loans had already been discharged upon her full payment thereof. It is her belief that these checks can no longer be used to coerce her to pay a debt that she does not owe.

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

The Court’s Rulings

The petition is denied for lack of merit.

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

It is axiomatic that "every person criminally liable for a felony is also civilly liable."34 Under the pertinent provision of the Revised Rules of Court, the civil action is

generally impliedly instituted with the criminal action. At the time of petitioner Ching’s filing of the Informations against respondent Nicdao, Section 1,35 Rule 111 of the Revised Rules of Court, quoted earlier, provided in part:

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

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

x x x x

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

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

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

In Sapiera v. Court of Appeals,38 the Court enunciated that the civil liability is not extinguished by acquittal: (a) where the acquittal is based on reasonable doubt; (b) where the court expressly declares that the liability of the accused is not criminal but only civil in nature; and (c) where the civil liability is not derived from or based on the criminal act of which the accused is acquitted. Thus, under Article 29 of the Civil Code –

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

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

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

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

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

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

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

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

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

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

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

Salazar also enunciated that the civil action based on the delict is extinguished if there is a finding in the final judgment in the criminal action that the act or omission from

which the civil liability may arise did not exist or where the accused did not commit the act or omission imputed to him.

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

The acquittal of respondent Nicdao likewise effectively extinguished her civil liability

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

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

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

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

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

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

Third, while petitioner Ching attempts to show that respondent Nicdao’s liability did not arise from or was not based upon the criminal act of which she was acquitted (ex delicto) but from her loan obligations to him (ex contractu), however, petitioner Ching miserably failed to prove by preponderant evidence the existence of these unpaid loan

obligations. Significantly, it can be inferred from the following findings of the CA in its decision acquitting respondent Nicdao that the act or omission from which her civil liability may arise did not exist. On theP20,000,000.00 check, the CA found as follows:

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

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

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

x x x x

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

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

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

Evidence sufficiently shows that the loans secured by the ten (10) checks involved in the cases subject of this petition had already been paid. It is not controverted that petitioner gave Emma Nuguid a demand draft valued atP1,200,000 to pay for the loans guaranteed by said checks and other checks issued to her. Samson Ching admitted having received the demand draft which he deposited in his bank account. However, complainant Samson Ching claimed that the said demand draft represents payment for a previous obligation incurred by petitioner. However, complainant Ching failed to adduce any evidence to prove the existence of the alleged obligation of the petitioner prior to those secured by the subject checks.

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

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

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

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

It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations – Et incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum negantis probatio nulla sit (The proof lies upon him who affirms, not upon him who denies; since, by the nature of things, he who denies a fact cannot produce any proof).48 In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater weight of evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.49 Section 1, Rule 133 of the Revised Rules of Court offers the guidelines in determining preponderance of evidence:

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

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

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

Additionally, respondent Nicdao submitted as evidence the cigarette wrappers at the back of which were written the computations of the daily payments that she had made

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

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

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

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

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

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

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

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

(a) At the instance of any party or Justice to whom the case is assigned for study and report, and with the conformity of all the Justices concerned, the consolidation may be

allowed when the cases to be consolidated involve the same parties and/or related questions of fact and/or law.53

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

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

SO ORDERED.

ROMEO J. CALLEJO, SR.Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGOAssociate Justice

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

MINITA V. CHICO-NAZARIOAsscociate Justice

ANTONIO EDUARDO B. NACHURAAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGOAssociate JusticeChairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 170325             September 26, 2008

PHILIPPINE NATIONAL BANK, Petitioner, vs.ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.

D E C I S I O N

REYES, R.T., J.:

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

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

The Facts

The facts as borne by the records are as follows:

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

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

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

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

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

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an irregular

procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual practice for the parties.

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

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

RTC Disposition

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

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

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

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

After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled that PNB (defendant) is liable to return the value of the checks. All counterclaims and cross-claims were dismissed. The dispositive portion of the RTC decision reads:

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

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

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

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

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

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

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

(e) Costs of suit.

3. Other claims and counterclaims are hereby dismissed.6

CA Disposition

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

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

We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA despite the checks being payable to order. Rather, we are more convinced by the strong and credible evidence for the defendant-appellant with regard to the plaintiffs-appellees’ and

PEMSLA’s business arrangement – that the value of the rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLA’s account for payment of the loans it has approved in exchange for PEMSLA’s checks with the full value of the said loans. This is the only obvious explanation as to why all the disputed sixty-nine (69) checks were in the possession of PEMSLA’s errand boy for presentment to the defendant-appellant that led to this present controversy. It also appears that the teller who accepted the said checks was PEMSLA’s officer, and that such was a regular practice by the parties until the defendant-appellant discovered the scam. The logical conclusion, therefore, is that the checks were never meant to be paid to order, but instead, to PEMSLA. We thus find no breach of contract on the part of the defendant-appellant.

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

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

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

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

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

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

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

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

4. Costs of suit.

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

SO ORDERED.9

The CA ruled that the checks were payable to order. According to the appellate court, PNB failed to present sufficient proof to defeat the claim of the spouses Rodriguez that they really intended the checks to be received by the specified payees. Thus, PNB is liable for the value of the checks which it paid to PEMSLA without indorsements from the named payees. The award for damages was deemed appropriate in view of the failure of PNB to treat the Rodriguez account with the highest degree of care considering the fiduciary nature of their relationship, which constrained respondents to seek legal action.

Hence, the present recourse under Rule 45.

Issues

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

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

Our Ruling

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

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

Now to the core of the petition.

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

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

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

(b) The drawer or maker; or

(c) The drawee; or

(d) Two or more payees jointly; or

(e) One or some of several payees; or

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

own personal profit. When the corporation filed an action against the bank to recover the amount of the checks, the claim was denied.

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

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

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

Consequently, a transferee’s lapse of wary vigilance, disregard of suspicious circumstances which might have well induced a prudent banker to investigate and other permutations of negligence are not relevant considerations under Section 3-405 x x x. Rather, there is a "commercial bad faith" exception to UCC 3-405, applicable when the transferee "acts dishonestly – where it has actual knowledge of facts and circumstances that amount to bad faith, thus itself becoming a participant in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits a standard of care requirement from UCC 3-405 but imposes on all parties an obligation to act with "honesty in fact." x x x19 (Emphasis added)

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

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

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

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

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

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

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

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

In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the check strictly in accordance with the drawer’s instructions, i.e., to the named payee in the check. It should charge to the drawer’s accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the amount charged to the drawer’s account.24

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

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

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

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

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

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

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

One Last Note

We note that the RTC failed to thresh out the merits of PNB’s cross-claim against its co-defendants PEMSLA and MPC. The records are bereft of any pleading filed by these two defendants in answer to the complaint of respondents-spouses and cross-claim of PNB. The Rules expressly provide that failure to file an answer is a ground for a declaration that defendant is in default.28 Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive pleadings. Verily, the RTC dismissal of PNB’s cross-claim has no basis. Thus, this judgment shall be without prejudice to whatever action the bank might take against its co-defendants in the trial court.

To PNB’s credit, it became involved in the controversial transaction not of its own volition but due to the actions of some of its employees. Considering that moral damages must be understood to be in concept of grants, not punitive or corrective in nature, We resolve to reduce the award of moral damages toP50,000.00.29

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

SO ORDERED.

RUBEN T. REYESAssociate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGOAssociate Justice

Chairperson

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

MINITA V. CHICO-NAZARIOAssociate Justice

ANTONIO EDUARDO B. NACHURAAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGOAssociate JusticeChairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 146511             September 5, 2007

TOMAS ANG, petitioner, vs.ASSOCIATED BANK AND ANTONIO ANG ENG LIONG, respondents.

D E C I S I O N

AZCUNA, J.:

This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to review the October 9, 2000 Decision1 and December 26, 2000 Resolution2 of the Court of Appeals in CA-G.R. CV No. 53413 which reversed and set aside the January 5, 1996 Decision3 of the Regional Trial Court, Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing the complaint filed by respondents for collection of a sum of money.

On August 28, 1990, respondent Associated Bank (formerly Associated Banking Corporation and now known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they executed as principal debtor and co-maker, respectively.

In the Complaint,4 respondent Bank alleged that on October 3 and 9, 1978, the defendants obtained a loan ofP50,000, evidenced by a promissory note bearing PN-No. DVO-78-382, and P30,000, evidenced by a promissory note bearing PN-No. DVO-78-390. As agreed, the loan would be payable, jointly and severally, on January 31, 1979 and December 8, 1978, respectively. In addition, subsequent amendments5 to the promissory notes as well as the disclosure statements6 stipulated that the loan would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty charge per month from due date until fully paid, and attorney's fees equivalent to 20% of the outstanding obligation.

Despite repeated demands for payment, the latest of which were on September 13, 1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively, respondent Bank claimed that the defendants failed and refused to settle their obligation, resulting in a total indebtedness of P539,638.96 as of July 31, 1990, broken down as follows:

PN-No. DVO-78-382 PN-No. DVO-78-390

Outstanding Balance

P50,000.00 P30,000.00

Add Past due charges for 4,199 days (from 01-31-79 to 07-31-90)

Past due charges for 4,253 days (from 12-8-78 to 07-31-90)

14% Interest P203,538.98 P125,334.412% Service Charge

P11,663.89 P7,088.34

12% Overdue Charge

P 69,983.34 P 42,530.00

Total P285,186.21 P174,952.75Less: Charges paid

P 500.00 None

Amount Due P334,686.21 P204,952.75

In his Answer,7 Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000. He pleaded though that the bank "be ordered to submit a more reasonable

computation" considering that there had been "no correct and reasonable statement of account" sent to him by the bank, which was allegedly collecting excessive interest, penalty charges, and attorney's fees despite knowledge that his business was destroyed by fire, hence, he had no source of income for several years.

For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-claim.8 He interposed the affirmative defenses that: the bank is not the real party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course; the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely lent his name as an accommodation party; he accepted the promissory notes in blank, with only the printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it was the bank which completed the notes upon the orders, instructions, or representations of his co-defendant; PN-No. DVO-78-382 was completed in excess of or contrary to the authority given by him to his co-defendant who represented that he would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-390 was procured through fraudulent means when his co-defendant claimed that his first loan did not push through; the promissory notes did not indicate in what capacity he was intended to be bound; the bank granted his co-defendant successive extensions of time within which to pay, without his (Tomas Ang) knowledge and consent; the bank imposed new and additional stipulations on interest, penalties, services charges and attorney's fees more onerous than the terms of the notes, without his knowledge and consent, in the absence of legal and factual basis and in violation of the Usury Law; the bank caused the inclusion in the promissory notes of stipulations such as waiver of presentment for payment and notice of dishonor which are against public policy; and the notes had been impaired since they were never presented for payment and demands were made only several years after they fell due when his co-defendant could no longer pay them.

Regarding his counterclaim, Tomas Ang argued that by reason of the bank's acts or omissions, it should be held liable for the amount of P50,000 for attorney's fees and expenses of litigation. Furthermore, on his cross-claim against Antonio Ang Eng Liong, he averred that he should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorney's fees, respectively.

In its Reply,9 respondent Bank countered that it is the real party in interest and is the holder of the notes since the Associated Banking Corporation and Associated Citizens Bank are its predecessors-in-interest. The fact that Tomas Ang never received any moneys in consideration of the two (2) loans and that such was known to the bank are immaterial because, as an accommodation maker, he is considered as a solidary debtor who is primarily liable for the payment of the promissory notes. Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that absence or failure of consideration is not a matter of defense; neither is the fact that the holder knew him to be only an accommodation party.

Respondent Bank likewise retorted that the promissory notes were completely filled up at the time of their delivery. Assuming that such was not the case, Sec. 14 of the NIL provides that the bank has the prima facie authority to complete the blank form. Moreover, it is presumed that one who has signed as a maker acted with care and had signed the document with full knowledge of its content. The bank noted that Tomas Ang is a prominent businessman in Davao City who has been engaged in the auto parts business for several years, hence, certainly he is not so naïve as to sign the notes without knowing or bothering to verify the amounts of the loans covered by them. Further, he is already in estoppel since despite receipt of several demand letters there was not a single protest raised by him that he signed for only one note in the amount of P30,000.

It was denied by the bank that there were extensions of time for payment accorded to Antonio Ang Eng Liong. Granting that such were the case, it said that the same would not relieve Tomas Ang from liability as he would still be liable for the whole obligation less the share of his co-debtor who received the extended term.

The bank also asserted that there were no additional or new stipulations imposed other than those agreed upon. The penalty charge, service charge, and attorney's fees were reflected in the amendments to the promissory notes and disclosure statements. Reference to the Usury Law was misplaced as usury is legally non-existent; at present, interest can be charged depending on the agreement of the lender and the borrower.

Lastly, the bank contended that the provisions on presentment for payment and notice of dishonor were expressly waived by Tomas Ang and that such waiver is not against public policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity therefor since being a solidary debtor he is absolutely required to pay and primarily liable on both promissory notes.

On October 19, 1990, the trial court issued a preliminary pre-trial order directing the parties to submit their respective pre-trial guide.10 When Antonio Ang Eng Liong failed to submit his brief, the bank filed an ex-partemotion to declare him in default.11 Per Order of November 23, 1990, the court granted the motion and set the ex-parte hearing for the presentation of the bank's evidence.12 Despite Tomas Ang's motion13 to modify the Order so as to exclude or cancel the ex-parte hearing based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of the Revised Rules on Civil Procedure), the hearing nonetheless proceeded.14

Eventually, a decision15 was rendered by the trial court on February 21, 1991. For his supposed bad faith and obstinate refusal despite several demands from the bank, Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14% interest per annum and 2% service charge per annum. The overdue penalty charge and attorney's fees were, however, reduced for being excessive, thus:

WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in favor of plaintiff, ordering the former to pay the latter:

On the first cause of action:

1) the amount of P50,000.00 representing the principal obligation with 14% interest per annum from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully paid;

2) P11,663.89 as accrued service charge; and

3) P34,991.67 as accrued overdue penalty charge.

On the second cause of action:

1) the amount of P50,000.00 (sic) representing the principal account with 14% interest from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully paid;

2) P7,088.34 representing accrued service charge;

3) P21,265.00 as accrued overdue penalty charge;

4) the amount of P10,000.00 as attorney's fees; and

5) the amount of P620.00 as litigation expenses and to pay the costs.

SO ORDERED.16

The decision became final and executory as no appeal was taken therefrom. Upon the bank's ex-parte motion, the court accordingly issued a writ of execution on April 5, 1991.17

Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank and Tomas Ang,18 who, in turn, filed a Motion to Dismiss19 on the ground of lack of jurisdiction over the case in view of the alleged finality of the February 21, 1991 Decision. He contended that Sec. 4, Rule 18 of the old Rules sanctions only one judgment in case of several defendants, one of whom is declared in default. Moreover, in his Supplemental Motion to Dismiss,20 Tomas Ang maintained that he is released from his obligation as a solidary guarantor and accommodation party because, by the bank's actions, he is now precluded from asserting his cross-claim against Antonio Ang Eng Liong, upon whom a final and executory judgment had already been issued.

The court denied the motion as well as the motion for reconsideration thereon.21 Tomas Ang subsequently filed a petition for certiorari and prohibition before this Court, which, however, resolved to refer the same to the Court of Appeals.22 In accordance with the prayer of Tomas Ang, the appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which annulled and set aside the portion of the Order dated November 23, 1990 setting the ex-parte presentation of the bank's evidence against

Antonio Ang Eng Liong, the Decision dated February 21, 1991 rendered against him based on such evidence, and the Writ of Execution issued on April 5, 1991.23

Trial then ensued between the bank and Tomas Ang. Upon the latter's motion during the pre-trial conference, Antonio Ang Eng Liong was again declared in default for his failure to answer the cross-claim within the reglementary period.24

When Tomas Ang was about to present evidence in his behalf, he filed a Motion for Production of Documents,25reasoning:

x x x

2. That corroborative to, and/or preparatory or incident to his testimony[,] there is [a] need for him to examine original records in the custody and possession of plaintiff, viz:

a. original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;]

b. original of Disclosure Statement in reference to PN # DVO-78-382;

c. original of PN # DVO-78-390 dated October 9, 1978;

d. original of Disclosure Statement in reference to PN # DVO-78-390;

e. Statement or Record of Account with the Associated Banking Corporation or its successor, of Antonio Ang in CA No. 470 (cf. Exh. O) including bank records, withdrawal slips, notices, other papers and relevant dates relative to the overdraft of Antonio Eng Liong in CA No. 470;

f. Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos. DVO-78-382 and DVO-78-390 (supra);

g. Other supporting papers and documents submitted by Antonio Ang Eng Liong relative to his loan application vis-à-vis PN. Nos. DVO-78-382 and DVO-78-390 such as financial statements, income tax returns, etc. as required by the Central Bank or bank rules and regulations.

3. That the above matters are very material to the defenses of defendant Tomas Ang, viz:

- the bank is not a holder in due course when it accepted the [PNs] in blank.

- The real borrower is Antonio Ang Eng Liong which fact is known to the bank.

- That the PAYEE not being a holder in due course and knowing that defendant Tomas Ang is merely an accommodation party, the latter may raise against such payee or holder or successor-in-interest (of the notes) PERSONAL and EQUITABLE DEFENSES such as FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application of [Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in delaying collection despite Eng Liong's OVERDRAFT in C.A. No. 470, etc.26

In its Order dated May 16, 1994,27 the court denied the motion stating that the promissory notes and the disclosure statements have already been shown to and inspected by Tomas Ang during the trial, as in fact he has already copies of the same; the Statements or Records of Account of Antonio Ang Eng Liong in CA No. 470, relative to his overdraft, are immaterial since, pursuant to the previous ruling of the court, he is being sued for the notes and not for the overdraft which is personal to Antonio Ang Eng Liong; and besides its non-existence in the bank's records, there would be legal obstacle for the production and inspection of the income tax return of Antonio Ang Eng Liong if done without his consent.

When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang filed a petition for certiorariand prohibition with application for preliminary injunction and restraining order before the Court of Appeals docketed as CA G.R. SP No. 34840.28 On August 17, 1994, however, the Court of Appeals denied the issuance of a Temporary Restraining Order.29

Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have waived his right to present evidence for failure to appear during the pendency of his petition before the Court of Appeals, the trial court decided to continue with the hearing of the case.30

After the trial, Tomas Ang offered in evidence several documents, which included a copy of the Trust Agreement between the Republic of the Philippines and the Asset Privatization Trust, as certified by the notary public, and news clippings from the Manila Bulletin dated May 18, 1994 and May 30, 1994.31 All the documentary exhibits were admitted for failure of the bank to submit its comment to the formal offer.32 Thereafter, Tomas Ang elected to withdraw his petition in CA G.R. SP No. 34840 before the Court of Appeals, which was then granted.33

On January 5, 1996, the trial court rendered judgment against the bank, dismissing the complaint for lack of cause of action.34 It held that:

Exh. "9" and its [sub-markings], the Trust Agreement dated 27 February 1987 for the defense shows that: the Associated Bank as of June 30, 1986 is one of DBP's or Development Bank of the [Philippines'] non-performing accounts for

transfer; on February 27, 1987 through Deeds of Transfer executed by and between the Philippine National Bank and Development Bank of the Philippines and the National Government, both financial institutions assigned, transferred and conveyed their non-performing assets to the National Government; the National Government in turn and as TRUSTOR, transferred, conveyed and assigned by way of trust unto the Asset Privatization Trust said non-performing assets, [which] took title to and possession of, [to] conserve, provisionally manage and dispose[,] of said assets identified for privatization or disposition; one of the powers and duties of the APT with respect to trust properties consisting of receivables is to handle the administration, collection and enforcement of the receivables; to bring suit to enforce payment of the obligations or any installment thereof or to settle or compromise any of such obligations, or any other claim or demand which the government may have against any person or persons[.]

The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. "9-A", "9-B", "9-C", and "9-D", show that the Monetary Board of the Bangko Sentral ng Pilipinas approved the rehabilitation plan of the Associated Bank. One main feature of the rehabilitation plan included the financial assistance for the bank by the Philippine Deposit Insurance Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945 billion subject to a buy-back arrangement over a 10 year period. The PDIC had approved of the rehab scheme, which included the purchase of AB's bad loans worth P1.86 at 25% discount. This will then be paid by AB within a 10-year period plus a yield comparable to the prevailing market rates x x x.

Based then on the evidence presented by the defendant Tomas Ang, it would readily appear that at the time this suit for Sum of Money was filed which was on August [28], 1990, the notes were held by the Asset Privatization Trust by virtue of the Deeds of Transfer and Trust Agreement, which was empowered to bring suit to enforce payment of the obligations. Consequently, defendant Tomas Ang has sufficiently established that plaintiff at the time this suit was filed was not the holder of the notes to warrant the dismissal of the complaint.35

Respondent Bank then elevated the case to the Court of Appeals. In the appellant's brief captioned,"ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG LIONG and TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee," the following errors were alleged:

I.

THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTER'S DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS.

II.

THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANT'S COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR JUDICIAL NOTICE.36

The bank stressed that it has established the causes of action outlined in its Complaint by a preponderance of evidence. As regards the Deed of Transfer and Trust Agreement, it contended that the same were never authenticated by any witness in the course of the trial; the Agreement, which was not even legible, did not mention the promissory notes subject of the Complaint; the bank is not a party to the Agreement, which showed that it was between the Government of the Philippines, acting through the Committee on Privatization represented by the Secretary of Finance as trustor and the Asset Privatization Trust, which was created by virtue of Proclamation No. 50; and the Agreement did not reflect the signatures of the contracting parties. Lastly, the bank averred that the news items appearing in the Manila Bulletin could not be the subject of judicial notice since they were completely hearsay in character.37

On October 9, 2000, the Court of Appeals reversed and set aside the trial court's ruling. The dispositive portion of the Decision38 reads:

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao City, Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED AND SET ASIDE and another one entered ordering defendant-appellee Tomas Ang to pay plaintiff-appellant Associated Bank the following:

1. P50,000.00 representing the principal amount of the loan under PN-No. DVO-78-382 plus 14% interest thereon per annum computed from January 31, 1979 until the full amount thereof is paid;

2. P30,000.00 representing the principal amount of the loan under PN-No. DVO-78-390 plus 14% interest thereon per annum computed from December 8, 1978 until the full amount thereof is paid;

All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis. Defendant-appellee's counterclaim is likewise DISMISSED for lack of legal and factual bases.

No pronouncement as to costs.

SO ORDERED.39

The appellate court disregarded the bank's first assigned error for being "irrelevant in the final determination of the case" and found its second assigned error as "not meritorious." Instead, it posed for resolution the issue of whether the trial court erred in

dismissing the complaint for collection of sum of money for lack of cause of action as the bank was said to be not the "holder" of the notes at the time the collection case was filed.

In answering the lone issue, the Court of Appeals held that the bank is a "holder" under Sec. 191 of the NIL. It concluded that despite the execution of the Deeds of Transfer and Trust Agreement, the Asset Privatization Trust cannot be declared as the "holder" of the subject promissory notes for the reason that it is neither the payee or indorsee of the notes in possession thereof nor is it the bearer of said notes. The Court of Appeals observed that the bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust Agreement and that the notes continued to remain with the bank until the institution of the collection suit.

With the bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is accountable therefor in his capacity as an accommodation party. Citing Sec. 29 of the NIL, he is liable to the bank in spite of the latter's knowledge, at the time of taking the notes, that he is only an accommodation party. Moreover, as a co-maker who agreed to be jointly and severally liable on the promissory notes, Tomas Ang cannot validly set up the defense that he did not receive any consideration therefor as the fact that the loan was granted to the principal debtor already constitutes a sufficient consideration.

Further, the Court of Appeals agreed with the bank that the experience of Tomas Ang in business rendered it implausible that he would just sign the promissory notes as a co-maker without even checking the real amount of the debt to be incurred, or that he merely acted on the belief that the first loan application was cancelled. According to the appellate court, it is apparent that he was negligent in falling for the alibi of Antonio Ang Eng Liong and such fact would not serve to exonerate him from his responsibility under the notes.

Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty and overdue charges as well as attorney's fees on the ground that the promissory notes made no mention of such charges/fees.

In his motion for reconsideration,40 Tomas Ang raised for the first time the assigned errors as follows:

x x x

2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has recently discovered that upon the filing of the complaint on August 28, 1990, under the jurisdictional rule laid down in BP Blg. 129, appellant bank fraudulently failed to specify the amount of compounded interest at 14% per annum, service charges at 2% per annum and overdue penalty charges at 12% per annum in the prayer of the complaint as of the time of its filing, paying a total of

only P640.00(!!!) as filing and court docket fees although the total sum involved as of that time was P647,566.75 including 20% attorney's fees. In fact, the stated interest in the body of the complaint alone amount to P328,373.39 (which is actually compounded and capitalized) in both causes of action and the total service and overdue penalties and charges and attorney's fees further amount to P239,193.36 in both causes of action, as of July 31, 1990, the time of filing of the complaint. Significantly, appellant fraudulently misled the Court, describing the 14% imposition as interest, when in fact the same was capitalized as principal by appellant bank every month to earn more interest, as stated in the notes. In view thereof, the trial court never acquired jurisdiction over the case and the same may not be now corrected by the filing of deficiency fees because the causes of action had already prescribed and more importantly, the jurisdiction of the Municipal Trial Court had been increased to P100,000.00 in principal claims last March 20, 1999, pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and section 31, Book I of the 1987 Administrative Code. In other words, as of today, jurisdiction over the subject falls within the exclusive jurisdiction of the MTC, particularly if the bank foregoes capitalization of the stipulated interest.

3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT WHICH LEFT OUT TOMAS ANG'S CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS AGAINST ENG LIONG. Accordingly, Tomas Ang's right of subrogation against Ang Eng Liong, expressed in his cross-claim, is now SEVERAL TIMES foreclosed because of the fault or negligence of appellant bank since 1979 up to its insistence of an ex-parte trial, and now when it failed to serve notice of appeal and appellant's brief upon him. Accordingly, appellee Tomas Ang should be released from his suretyship obligation pursuant to Art. 2080 of the Civil Code. The above is related to the issues above-stated.

4) This Court may have erred in ADDING or ASSIGNING its own bill of error for the benefit of appellant bank which defrauded the judiciary by the payment of deficient docket fees.41

Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals denied the motion in its Resolution dated December 26, 2000.42

Petitioner now submits the following issues for resolution:

1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as accommodation maker or surety because of the failure of [private] respondent bank to serve its notice of appeal upon the principal debtor, respondent Eng Liong?

2. Did the trial court have jurisdiction over the case at all?

3. Did the Court of Appeals [commit] error in assigning its own error and raising its own issue?

4. Are petitioner's other real and personal defenses such as successive extensions coupled with fraudulent collusion to hide Eng Liong's default, the payee's grant of additional burdens, coupled with the insolvency of the principal debtor, and the defense of incomplete but delivered instrument, meritorious?43

Petitioner allegedly learned after the promulgation of the Court of Appeals' decision that, pursuant to the parties' agreement on the compounding of interest with the principal amount (per month in case of default), the interest on the promissory notes as of July 31, 1990 should have been only P81,647.22 for PN No. DVO-78-382 (instead ofP203,538.98) and P49,618.33 for PN No. DVO-78-390 (instead of P125,334.41) while the principal debt as of said date should increase to P647,566.75 (instead of P539,638.96). He submits that the bank carefully and shrewdly hid the fact by describing the amounts as interest instead of being part of either the principal or penalty in order to pay a lesser amount of docket fees. According to him, the total fees that should have been paid at the time of the filing of the complaint on August 28, 1990 was P2,216.30 and not P614.00 or a shortage of 71%. Petitioner contends that the bank may not now pay the deficiency because the last demand letter sent to him was dated September 9, 1986, or more than twenty years have elapsed such that prescription had already set in. Consequently, the bank's claim must be dismissed as the trial court loses jurisdiction over the case.

Petitioner also argues that the Court of Appeals should not have assigned its own error and raised it as an issue of the case, contending that no question should be entertained on appeal unless it has been advanced in the court below or is within the issues made by the parties in the pleadings. At any rate, he opines that the appellate court's decision that the bank is the real party in interest because it is the payee named in the note or the holder thereof is too simplistic since: (1) the power and control of Asset Privatization Trust over the bank are clear from the explicit terms of the duly certified trust documents and deeds of transfer and are confirmed by the newspaper clippings; (2) even under P.D. No. 902-A or the General Banking Act, where a corporation or a bank is under receivership, conservation or rehabilitation, it is only the representative (liquidator, receiver, trustee or conservator) who may properly act for said entity, and, in this case, the bank was held by Asset Privatization Trust as trustee; and (3) it is not entirely accurate to say that the payee who has not indorsed the notes in all cases is the real party in interest because the rights of the payee may be subject of an assignment of incorporeal rights under Articles 1624 and 1625 of the Civil Code.

Lastly, petitioner maintains that when respondent Bank served its notice of appeal and appellant's brief only on him, it rendered the judgment of the trial court final and executory with respect to Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang Eng Liong) from any and all liability under the promissory notes and, thereby, foreclosed petitioner's cross-claims. By such act, the bank, even if it be the "holder" of the promissory notes, allegedly discharged a simple contract for the payment

of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented a surety like petitioner from being subrogated in the shoes of his principal (Article 2080, Civil Code), and impaired the notes, producing the effect of payment (Article 1249, Civil Code).

The petition is unmeritorious.

Procedurally, it is well within the authority of the Court of Appeals to raise, if it deems proper under the circumstances obtaining, error/s not assigned on an appealed case. In Mendoza v. Bautista,44 this Court recognized the broad discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned, thus:

As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its consideration. Higher courts are precluded from entertaining matters neither alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time only in a motion for reconsideration or on appeal.

However, as with most procedural rules, this maxim is subject to exceptions. Indeed, our rules recognize the broad discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned. Section 8 of Rule 51 of the Rules of Court provides:

SEC. 8. Questions that may be decided. — No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered, unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors.

Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the appeal in these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b) matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) matters not assigned as errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on appeal but upon which the determination of a question properly assigned is dependent. (Citations omitted)45

To the Court's mind, even if the Court of Appeals regarded petitioner's two assigned errors as "irrelevant" and "not meritorious," the issue of whether the trial court erred in

dismissing the complaint for collection of sum of money for lack of cause of action (on the ground that the bank was not the "holder" of the notes at the time of the filing of the action) is in reality closely related to and determinant of the resolution of whether the lower court correctly ruled in not holding Antonio Ang Eng Liong and petitioner Tomas Ang liable to the bank on their unpaid loans despite documentary exhibits allegedly proving their obligations and in dismissing the complaint based on newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on this point.

Now, the more relevant question is: who is the real party in interest at the time of the institution of the complaint, is it the bank or the Asset Privatization Trust?

To answer the query, a brief history on the creation of the Asset Privatization Trust is proper.

Taking into account the imperative need of formally launching a program for the rationalization of the government corporate sector, then President Corazon C. Aquino issued Proclamation No. 5046 on December 8, 1986. As one of the twin cornerstones of the program was to establish the privatization of a good number of government corporations, the proclamation created the Asset Privatization Trust, which would, for the benefit of the National Government, take title to and possession of, conserve, provisionally manage and dispose of transferred assets that were identified for privatization or disposition.47

In accordance with the provisions of Section 2348 of the proclamation, then President Aquino subsequently issued Administrative Order No. 14 on February 3, 1987, which approved the identification of and transfer to the National Government of certain assets (consisting of loans, equity investments, accrued interest receivables, acquired assets and other assets) and liabilities (consisting of deposits, borrowings, other liabilities and contingent guarantees) of the Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB). The transfer of assets was implemented through a Deed of Transfer executed on February 27, 1987 between the National Government, on one hand, and the DBP and PNB, on the other. In turn, the National Government designated the Asset Privatization Trust to act as its trustee through a Trust Agreement, whereby the non-performing accounts of DBP and PNB, including, among others, the DBP's equity with respondent Bank, were entrusted to the Asset Privatization Trust.49 As provided for in the Agreement, among the powers and duties of the Asset Privatization Trust with respect to the trust properties consisting of receivables was to handle their administration and collection by bringing suit to enforce payment of the obligations or any installment thereof or settling or compromising any of such obligations or any other claim or demand which the Government may have against any person or persons, and to do all acts, institute all proceedings, and to exercise all other rights, powers, and privileges of ownership that an absolute owner of the properties would otherwise have the right to do.50

Incidentally, the existence of the Asset Privatization Trust would have expired five (5) years from the date of issuance of Proclamation No. 50.51 However, its original term was

extended from December 8, 1991 up to August 31, 1992,52 and again from December 31, 1993 until June 30, 1995,53 and then from July 1, 1995 up to December 31, 1999,54 and further from January 1, 2000 until December 31, 2000.55 Thenceforth, the Privatization and Management Office was established and took over, among others, the powers, duties and functions of the Asset Privatization Trust under the proclamation.56

Based on the above backdrop, respondent Bank does not appear to be the real party in interest when it instituted the collection suit on August 28, 1990 against Antonio Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had the authority to enforce its claims against both debtors. In fact, during the pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it was under the trusteeship of the Asset Privatization Trust.57 The Asset Privatization Trust, which should have been represented by the Office of the Government Corporate Counsel, had the authority to file and prosecute the case.

The foregoing notwithstanding, this Court can not, at present, readily subscribe to petitioner's insistence that the case must be dismissed. Significantly, it stands without refute, both in the pleadings as well as in the evidence presented during the trial and up to the time this case reached the Court, that the issue had been rendered moot with the occurrence of a supervening event – the "buy-back" of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from the Asset Privatization Trust when the case was still pending in the lower court, the bank reclaimed its real and actual interest over the unpaid promissory notes; hence, it could rightfully qualify as a "holder"58 thereof under the NIL.

Notably, Section 29 of the NIL defines an accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person.59An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto.60 The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for accommodation.61

As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and surety – the accommodation party being the surety.62 As such, he is deemed an original promisor and debtor from the beginning;63 he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable.64 Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the surety's liability to the creditor

is immediate, primary and absolute; he is directly and equally bound with the principal.65 As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom.66

Contrary to petitioner's adamant stand, however, Article 208067 of the Civil Code does not apply in a contract of suretyship.68 Art. 2047 of the Civil Code states that if a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and solidary obligations) shall govern the relationship of petitioner with the bank.

The case of Inciong, Jr. v. CA69 is illuminating:

Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a release of his obligation, especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which provides that:

"The guarantors, even though they be solidary, are released from their obligation whenever by come act of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter."

It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid."

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. On the other hand, Article 2047 of the Civil Code states:

"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the contract is called a suretyship." (Italics supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains:

"A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The later, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of rights of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code."

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidarily liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.

Because the promissory note involved in this case expressly states that the three signatories therein arejointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection. (Citations omitted)70

In the instant case, petitioner agreed to be "jointly and severally" liable under the two promissory notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This being so, it is completely immaterial if the bank would opt to proceed only against petitioner or Antonio Ang Eng Liong or both of them since the law confers upon the creditor the prerogative to choose whether to enforce the entire obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an accommodation party, may seek reimbursement from Antonio Ang Eng Liong, being the party accommodated.71

It is plainly mistaken for petitioner to say that just because the bank failed to serve the notice of appeal and appellant's brief to Antonio Ang Eng Liong, the trial court's judgment, in effect, became final and executory as against the latter and, thereby, bars his (petitioner's) cross-claims against him: First, although no notice of appeal and appellant's brief were served to Antonio Ang Eng Liong, he was nonetheless impleaded in the case since his name appeared in the caption of both the notice and the brief as one of the defendants-appellees;72 Second, despite including in the caption of the appellee's brief his co-debtor as one of the defendants-appellees, petitioner did not also serve him a copy thereof;73 Third, in the caption of the Court of Appeals' decision, Antonio Ang Eng Liong was expressly named as one of the defendants-appellees;74 and Fourth, it was only in his motion for reconsideration from the adverse

judgment of the Court of Appeals that petitioner belatedly chose to serve notice to the counsel of his co-defendant-appellee.75

Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his "special appearance" through counsel, that the Court of Appeals, much less this Court, already lacked jurisdiction over his person or over the subject matter relating to him because he was not a party in CA-G.R. CV No. 53413. Stress must be laid of the fact that he had twice put himself in default – one, in not filing a pre-trial brief and another, in not filing his answer to petitioner's cross-claims. As a matter of course, Antonio Ang Eng Liong, being a party declared in default, already waived his right to take part in the trial proceedings and had to contend with the judgment rendered by the court based on the evidence presented by the bank and petitioner. Moreover, even without considering these default judgments, Antonio Ang Eng Liong even categorically admitted having secured a loan totaling P80,000. In his Answer to the complaint, he did not deny such liability but merely pleaded that the bank "be ordered to submit a more reasonable computation" instead of collecting excessive interest, penalty charges, and attorney's fees. For failing to tender an issue and in not denying the material allegations stated in the complaint, a judgment on the pleadings76 would have also been proper since not a single issue was generated by the Answer he filed.

As the promissory notes were not discharged or impaired through any act or omission of the bank, Sections 119 (d)77 and 12278 of the NIL as well as Art. 124979 of the Civil Code would necessarily find no application. Again, neither was petitioner's right of reimbursement barred nor was the bank's right to proceed against Antonio Ang Eng Liong expressly renounced by the omission to serve notice of appeal and appellant's brief to a party already declared in default.

Consequently, in issuing the two promissory notes, petitioner as accommodating party warranted to the holder in due course that he would pay the same according to its tenor.80 It is no defense to state on his part that he did not receive any value therefor81 because the phrase "without receiving value therefor" used in Sec. 29 of the NIL means "without receiving value by virtue of the instrument" and not as it is apparently supposed to mean, "without receiving payment for lending his name."82 Stated differently, when a third person advances the face value of the note to the accommodated party at the time of its creation, the consideration for the note as regards its maker is the money advanced to the accommodated party. It is enough that value was given for the note at the time of its creation.83 As in the instant case, a sum of money was received by virtue of the notes, hence, it is immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not received anything in payment of the use of his name.84

Under the law, upon the maturity of the note, a surety may pay the debt, demand the collateral security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate himself in the place of the creditor with the right to enforce the guaranty against the other signers of the note for the reimbursement of what he is entitled to recover from them.85 Regrettably, none of these were prudently done by petitioner.

When he was first notified by the bank sometime in 1982 regarding his accountabilities under the promissory notes, he lackadaisically relied on Antonio Ang Eng Liong, who represented that he would take care of the matter, instead of directly communicating with the bank for its settlement.86 Thus, petitioner cannot now claim that he was prejudiced by the supposed "extension of time" given by the bank to his co-debtor.

Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor.87 In Clark v. Sellner,88this Court held:

x x x The mere delay of the creditor in enforcing the guaranty has not by any means impaired his action against the defendant. It should not be lost sight of that the defendant's signature on the note is an assurance to the creditor that the collateral guaranty will remain good, and that otherwise, he, the defendant, will be personally responsible for the payment.

True, that if the creditor had done any act whereby the guaranty was impaired in its value, or discharged, such an act would have wholly or partially released the surety; but it must be born in mind that it is a recognized doctrine in the matter of suretyship that with respect to the surety, the creditor is under no obligation to display any diligence in the enforcement of his rights as a creditor. His mere inaction indulgence, passiveness, or delay in proceeding against the principal debtor, or the fact that he did not enforce the guaranty or apply on the payment of such funds as were available, constitute no defense at all for the surety, unless the contract expressly requires diligence and promptness on the part of the creditor, which is not the case in the present action. There is in some decisions a tendency toward holding that the creditor's laches may discharge the surety, meaning by laches a negligent forbearance. This theory, however, is not generally accepted and the courts almost universally consider it essentially inconsistent with the relation of the parties to the note. (21 R.C.L., 1032-1034)89

Neither can petitioner benefit from the alleged "insolvency" of Antonio Ang Eng Liong for want of clear and convincing evidence proving the same. Assuming it to be true, he also did not exercise diligence in demanding security to protect himself from the danger thereof in the event that he (petitioner) would eventually be sued by the bank. Further, whether petitioner may or may not obtain security from Antonio Ang Eng Liong cannot in any manner affect his liability to the bank; the said remedy is a matter of concern exclusively between themselves as accommodation party and accommodated party. The fact that petitioner stands only as a surety in relation to Antonio Ang Eng Liong is immaterial to the claim of the bank and does not a whit diminish nor defeat the rights of the latter as a holder for value. To sanction his theory is to give unwarranted legal recognition to the patent absurdity of a situation where a co-maker, when sued on an instrument by a holder in due course and for value, can escape liability by the

convenient expedient of interposing the defense that he is a merely an accommodation party.90

In sum, as regards the other issues and errors alleged in this petition, the Court notes that these were the very same questions of fact raised on appeal before the Court of Appeals, although at times couched in different terms and explained more lengthily in the petition. Suffice it to say that the same, being factual, have been satisfactorily passed upon and considered both by the trial and appellate courts. It is doctrinal that only errors of law and not of fact are reviewable by this Court in petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the most cogent and compelling reason, it is not our function under the rule to examine, evaluate or weigh the probative value of the evidence presented by the parties all over again.91

WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition is DENIED for lack of merit.

No costs.

SO ORDERED.

Puno, C.J., Chairperson, Sandoval-Gutierrez, Corona, Garcia, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 152071               May 8, 2009

PRODUCERS BANK OF THE PHILIPPINES, Petitioner, vs.EXCELSA INDUSTRIES, INC., Respondent.

D E C I S I O N

TINGA, J.:

This is a petition for review on certiorari1 under Rule 43 of the 1997 Rules of Civil Procedure, assailing the decision2 and resolution3 of the Court of Appeals in CA-G.R. CV No. 59931. The Court of Appeals’ decision4reversed the decision of the Regional Trial Court (RTC), Branch 73, Antipolo, Rizal, upholding the extrajudicial foreclosure of the mortgage on respondent’s properties, while the resolution denied petitioner’s motion for reconsideration.5

As borne by the records of the case, the following factual antecedents appear:

Respondent Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularly charcoal briquettes, as an alternative fuel source. Sometime in January 1987, respondent applied for a packing credit line or a credit export advance with petitioner Producers Bank of the Philippines, a banking institution duly organized and existing under Philippines laws.6

The application was supported by Letter of Credit No. M3411610NS2970 dated 14 October 1986. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of credit through its correspondent bank, the Bank of the Philippine Islands, in the amount of US$23,000.00 for the account of Shin Sung Commercial Co., Ltd., also located in Seoul, Korea. T.L. World Development Corporation was the original beneficiary of the letter of credit. On 05 December 1986, for value received, T.L. World transferred to respondent all its rights and obligations under the said letter of credit. Petitioner approved respondent’s application for a packing credit line in the amount of P300,000.00, of which about P96,000.00 in principal remained outstanding.7 Respondent executed the corresponding promissory notes evidencing the indebtedness.8

Prior to the application for the packing credit line, respondent had obtained a loan from petitioner in the form of a bill discounted and secured credit accommodation in the amount of P200,000.00, of which P110,000.00 was outstanding at the time of the approval of the packing credit line. The loan was secured by a real estate mortgage dated 05 December 1986 over respondent’s properties covered by Transfer Certificates of Titles (TCT) No. N-68661, N-68662, N-68663, N-68664, N-68665 and N-68666, all issued by the Register of Deeds of Marikina.9

Significantly, the real estate mortgage contained the following clause:

For and in consideration of those certain loans, overdraft and/or other credit accommodations on this date obtained from the MORTGAGEE, and to secure the payment of the same, the principal of all of which is hereby fixed at FIVE HUNDRED THOUSAND PESOS ONLY (P500,000.00) Pesos, Philippine Currency, as well as those that the MORTGAGEE may hereafter extend to the MORTGAGOR, including interest and expenses or any other obligation owing to the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE, its successors or assigns, the parcel(s) of land which is/are described in the list inserted on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the MORTGAGOR declares that he/it is the absolute owner, free from all liens and encumbrances.10

On 17 March 1987, respondent presented for negotiation to petitioner drafts drawn under the letter of credit and the corresponding export documents in consideration for its drawings in the amounts of US$5,739.76 and US$4,585.79. Petitioner purchased the

drafts and export documents by paying respondent the peso equivalent of the drawings. The purchase was subject to the conditions laid down in two separate undertakings by respondent dated 17 March 1987 and 10 April 1987.11

On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable that the Korean buyer refused to pay respondent’s export documents on account of typographical discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the export documents.12

Upon learning about the Korean importer’s non-payment, respondent sent petitioner a letter dated 27 July 1987, informing the latter that respondent had brought the matter before the Korea Trade Court and that it was ready to liquidate its past due account with petitioner. Respondent sent another letter dated 08 September 1987, reiterating the same assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd. informed petitioner that it would be returning the export documents on account of the non-acceptance by the importer.13

Petitioner demanded from respondent the payment of the peso equivalent of the export documents, plus interest and other charges, and also of the other due and unpaid loans. Due to respondent’s failure to heed the demand, petitioner moved for the extrajudicial foreclosure on the real estate mortgage over respondent’s properties.

Per petitioner’s computation, aside from charges for attorney’s fees and sheriff’s fees, respondent had a total due and demandable obligation of P573,225.60, including interest, in six different accounts, namely:

1) EBP-PHO-87-1121 (US$4,585.97 x 21.212) = P119,165.06

2) EBP-PHO-87-1095 (US$ 5,739.76 x 21.212) = 151,580.97

3) BDS-001-87 = 61,777.78

4) BDS-030/86 A = 123,555.55

5) BDS-PC-002-/87 = 55,822.91

6) BDS-005/87 = 61,323.33

P573,225.6014

The total approved bid price, which included the attorney’s fees and sheriff fees, was pegged at P752,074.63. At the public auction held on 05 January 1988, the Sheriff of Antipolo, Rizal issued a Certificate of Sale in favor of petitioner as the highest bidder.15 The certificate of sale was registered on 24 March 1988.16

On 12 June 1989, petitioner executed an affidavit of consolidation over the foreclosed properties after respondent failed to redeem the same. As a result, the Register of Deeds of Marikina issued new certificates of title in the name of petitioner.17

On 17 November 1989, respondent instituted an action for the annulment of the extrajudicial foreclosure with prayer for preliminary injunction and damages against petitioner and the Register of Deeds of Marikina. Docketed as Civil Case No. 1587-A, the complaint was raffled to Branch 73 of the RTC of Antipolo, Rizal. The complaint prayed, among others, that the defendants be enjoined from causing the transfer of ownership over the foreclosed properties from respondent to petitioner.18

On 05 April 1990, petitioner filed a petition for the issuance of a writ of possession, docketed as LR Case No. 90-787, before the same branch of the RTC of Antipolo, Rizal. The RTC ordered the consolidation of Civil Case No, 1587-A and LR Case No. 90-787.19

On 18 December 1997, the RTC rendered a decision upholding the validity of the extrajudicial foreclosure and ordering the issuance of a writ of possession in favor of petitioner, to wit:

WHEREFORE, in Case No. 1587-A, the court hereby rules that the foreclosure of mortgage for the old and new obligations of the plaintiff Excelsa Industries Corp., which has remained unpaid up to the time of foreclosure by defendant Producers Bank of the Philippines was valid, legal and in order; In Case No. 787-A, the court hereby orders for the issuance of a writ of possession in favor of Producer’s Bank of the Philippines after the properties of Excelsa Industries Corp., which were foreclosed and consolidated in the name of Producers Bank of the Philippines under TCT No. 169031, 169032, 169033, 169034 and 169035 of the Register of Deeds of Marikina.

SO ORDERED.20

The RTC held that petitioner, whose obligation consisted only of receiving, and not of collecting, the export proceeds for the purpose of converting into Philippine currency and remitting the same to respondent, cannot be considered as respondent’s agent. The RTC also held that petitioner cannot be presumed to have received the export proceeds, considering that respondent executed undertakings warranting that the drafts and accompanying documents were genuine and accurately represented the facts stated therein and would be accepted and paid in accordance with their tenor.21

Furthermore, the RTC concluded that petitioner had no obligation to return the export documents and respondent could not expect their return prior to the payment of the export advances because the drafts and export documents were the evidence that respondent received export advances from petitioner.22

The RTC also found that by its admission, respondent had other loan obligations obtained from petitioner which were due and demandable; hence, petitioner correctly

exercised its right to foreclose the real estate mortgage, which provided that the same secured the payment of not only the loans already obtained but also the export advances.231avvphi1

Lastly, the RTC found respondent guilty of laches in questioning the foreclosure sale considering that petitioner made several demands for payment of respondent’s outstanding loans as early as July 1987 and that respondent acknowledged the failure to pay its loans and advances.24

The RTC denied respondent’s motion for reconsideration.25 Thus, respondent elevated the matter to the Court of Appeals, reiterating its claim that petitioner was not only a collection agent but was considered a purchaser of the export

On 30 May 2001, the Court of Appeals rendered the assailed decision, reversing the RTC’s decision, thus:

WHEREFORE, the appeal is hereby GRANTED. The decision of the trial court dated December 18, 1997 is REVERSED and SET ASIDE. Accordingly, the foreclosure of mortgage on the properties of appellant is declared as INVALID. The issuance of the writ of possession in favor of appellee is ANNULLED. The following damages are hereby awarded in favor of appellant:

(a) Moral damages in the amount of P100,000.00;

(b) Exemplary damages in the amount of P100,000.00; and

(c) Costs.

SO ORDERED.26

The Court of Appeals held that respondent should not be faulted for the dishonor of the drafts and export documents because the obligation to collect the export proceeds from Kwang Ju Bank, Ltd. devolved upon petitioner. It cited the testimony of petitioner’s manager for the foreign currency department to the effect that petitioner was respondent’s agent, being the only entity authorized under Central Bank Circular No. 491 to collect directly from the importer the export proceeds on respondent’s behalf and converting the same to Philippine currency for remittance to respondent. The appellate court found that respondent was not authorized and even powerless to collect from the importer and it appeared that respondent was left at the mercy of petitioner, which kept the export documents during the time that respondent attempted to collect payment from the Korean importer.

The Court of Appeals disregarded the RTC’s finding that the export documents were the only evidence of respondent’s export advances and that petitioner was justified in refusing to return them. It opined that granting petitioner had no obligation to return the

export documents, the former should have helped respondent in the collection efforts instead of augmenting respondent’s dilemma.

Furthermore, the Court of Appeals found petitioner’s negligence as the cause of the refusal by the Korean buyer to pay the export proceeds based on the following: first, petitioner had a hand in preparing and scrutinizing the export documents wherein the discrepancies were found; and, second, petitioner failed to advise respondent about the warning from Kwang Ju Bank, Ltd. that the export documents would be returned if no explanation regarding the discrepancies would be made.

The Court of Appeals invalidated the extrajudicial foreclosure of the real estate mortgage on the ground that the posting and publication of the notice of extrajudicial foreclosure proceedings did not comply with

the personal notice requirement under paragraph 1227 of the real estate mortgage executed between petitioner and respondent. The Court of Appeals also overturned the RTC’s finding that respondent was guilty of estoppel by laches in questioning the extrajudicial foreclosure sale.

Petitioner’s motion for reconsideration28 was denied in a Resolution dated 29 January 2002. Hence, the instant petition, arguing that the Court of Appeals erred in finding petitioner as respondent’s agent, which was liable for the discrepancies in the export documents, in invalidating the foreclosure sale and in declaring that respondent was not estopped from questioning the foreclosure sale.29

The validity of the extrajudicial foreclosure of the mortgage is dependent on the following issues posed by petitioner: (1) the coverage of the "blanket mortgage clause;" (2) petitioner’s failure to furnish personal notice of the foreclosure to respondent; and (3) petitioner’s obligation as negotiating bank under the letter of credit.

Notably, the errors cited by petitioners are factual in nature. Although the instant case is a petition for review under Rule 45 which, as a general rule, is limited to reviewing errors of law, findings of fact being conclusive as a matter of general principle, however, considering the conflict between the factual findings of the RTC and the Court of Appeals, there is a need to review the factual issues as an exception to the general rule.30

Much of the discussion has revolved around who should be liable for the dishonor of the draft and export documents. In the two undertakings executed by respondent as a condition for the negotiation of the drafts, respondent held itself liable if the drafts were not accepted. The two undertakings signed by respondent are similarly-worded and contained respondent’s express warranties, to wit:

In consideration of your negotiating the above described draft(s), we hereby warrant that the said draft(s) and accompanying documents thereon are valid, genuine and accurately represent the facts stated therein, and that such draft(s) will be

accepted and paid in accordance with its/their tenor. We further undertake and agree, jointly and severally, to defend and hold you free and harmless from any and all actions, claims and demands whatsoever, and to pay on demand all damages actual or compensatory including attorney’s fees, costs and other awards or be adjudged to pay, in case of suit, which you may suffer arising from, by reason, or on account of your negotiating the above draft(s) because of the following discrepancies or reasons or any other discrepancy or reason whatever.

We hereby undertake to pay on demand the full amount of the above draft(s) or any unpaid balance thereof, the Philippine perso equivalent converted at the prevailing selling rate (or selling rate prevailing at the date you negotiate our draft, whichever is higher) allowed by the Central Bank with interest at the rate prevailing today from the date of negotiation, plus all charges and expenses whatsoever incurred in connection therewith. You shall neither be obliged to contest or dispute any refusal to accept or to pay the whole or any part of the above draft(s), nor proceed in any way against the drawee, the issuing bank or any endorser thereof, before making a demand on us for the payment of the whole or any unpaid balance of the draft(s).(Emphasis supplied)31

In Velasquez v. Solidbank Corporation,32 where the drawer therein also executed a separate letter of undertaking in consideration for the bank’s negotiation of its sight drafts, the Court held that the drawer can still be made liable under the letter of undertaking even if he is discharged due to the bank’s failure to protest the non-acceptance of the drafts. The Court explained, thus:

Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a separate contract from the sight draft. The liability of petitioner under the letter of undertaking is direct and primary. It is independent from his liability under the sight draft. Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-payment.

Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking that he will reimburse the amount in case the sight draft is dishonored. The bank would certainly not have agreed to grant petitioner an advance export payment were it not for the letter of undertaking. The consideration for the letter of undertaking was petitioner’s promise to pay respondent the value of the sight draft if it was dishonored for any reason by the Bank of Seoul.33

Thus, notwithstanding petitioner’s alleged failure to comply with the requirements of notice of dishonor and protest under Sections 8934 and 152,35 respectively, of the Negotiable Instruments Law, respondent may not escape its liability under the separate undertakings, where respondent promised to pay on demand the full amount of the drafts.

The next question, therefore, is whether the real estate mortgage also served as security for respondent’s drafts that were not accepted and paid by the Kwang Ju Bank, Ltd.

Respondent executed a real estate mortgage containing a "blanket mortgage clause," also known as a "dragnet clause." It has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.36

In Union Bank of the Philippines v. Court of Appeals,37 the nature of a dragnet clause was explained, thus:

Is one which is specifically phrased to subsume all debts of past and future origins. Such clauses are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their

having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.38

x x x

Petitioner, therefore, was not precluded from seeking the foreclosure of the real estate mortgage based on the unpaid drafts drawn by respondent. In any case, respondent had admitted that aside from the unpaid drafts, respondent also had due and demandable loans secured from another account as evidenced by Promissory Notes (PN Nos.) BDS-001-87, BDS-030/86 A, BDS-PC-002-/87 and BDS-005/87.

However, the Court of Appeals invalidated the extrajudicial foreclosure of the mortgage on the ground that petitioner had failed to furnish respondent personal notice of the sale contrary to the stipulation in the real estate mortgage.

Petitioner, on the other hand, claims that under paragraph 1239 of the real estate mortgage, personal notice of the foreclosure sale is not a requirement to the validity of the foreclosure sale.

A perusal of the records of the case shows that a notice of sheriff’s sale40 was sent by registered mail to respondent and received in due course.41 Yet, respondent claims that it did not receive the notice but only learned about it from petitioner. In any event, paragraph 12 of the real estate mortgage requires petitioner merely to furnish respondent with the notice and does not oblige petitioner to ensure that respondent

actually receives the notice. On this score, the Court holds that petitioner has performed its obligation under paragraph 12 of the real estate mortgage.

As regards the issue of whether respondent may still question the foreclosure sale, the RTC held that the sale was conducted according to the legal procedure, to wit:

Plaintiff is estopped from questioning the foreclosure. The plaintiff is guilty of laches and cannot at this point in time question the foreclosure of the subject properties. Defendant bank made demands against the plaintiff for the payment of plaintiff’s outstanding loans and advances with the defendant as early as July 1997. Plaintiff acknowledged such outstanding loans and advances to the defendant bank and committed to liquidate the same. For failure of the plaintiff to pay its obligations on maturity, defendant bank foreclosed the mortgage on subject properties on January 5, 1988 the certificate of sale was annotated on March 24, 1988 and there being no redemption made by the plaintiff, title to said properties were consolidated in the name of defendant in July 1989. Undeniably, subject foreclosure was done in accordance with the prescribed rules as may be borne out by the exhibits submitted to this Court which are Exhibit "33," a notice of extrajudicial sale executed by the Sheriff of Antipolo, Exhibit "34" certificate posting of extrajudicial sale, Exhibit "35" return card evidencing receipt by plaintiff of the notice of extrajudicial sale and Exhibit "21" affidavit of publication.

The Court adopts and approves the aforequoted findings by the RTC, the same being fully supported by the evidence on record.

WHEREFORE, the instant petition for review on certiorari is GRANTED and the decision and resolution of the Court of Appeals in CA-G.R. CV No. 59931 are REVERSED and SET ASIDE. The decision of the Regional Trial Court Branch 73, Antipolo, Rizal in Civil Case No. 1587-A and LR Case No. 90-787 is REINSTATED.

SO ORDERED.

DANTE O. TINGAAssociate Justice

WE CONCUR:

CONCHITA CARPIO MORALES*

Associate JusticeActing Chairperson

PRESBITERO J. VELASCO, JR.Associate Justice

TERESITA LEONARDO DE-CASTRO**

Associate Justice

ARTURO D. BRIONAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CONCHITA CARPIO MORALESAssociate JusticeActing Chairperson, Second Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson’s Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 176664               July 21, 2008

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.SPOUSES REYNALDO AND VICTORIA ROYECA, Respondents.

D E C I S I O N

NACHURA, J.:

Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals (CA) Decision1 dated July 12, 2006, and Resolution2 dated February 13, 2007, which dismissed its complaint for replevin and damages and granted the respondents’ counterclaim for damages.

The case stems from the following undisputed facts:

On August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed and delivered to Toyota Shaw, Inc. a Promissory Note3 for P577,008.00 payable in 48 equal monthly installments of P12,021.00, with a maturity date of August 18, 1997. The Promissory Note provides for a penalty of 3% for every month or fraction of a month that an installment remains unpaid.

To secure the payment of said Promissory Note, respondents executed a Chattel Mortgage4 in favor of Toyota over a certain motor vehicle, more particularly described as follows:

<

p>Make and Type 1993 Toyota Corolla 1.3 XL

Motor No. 2E-2649879

Serial No. EE100-9512571

Color D.B. Gray Met.

Toyota, with notice to respondents, executed a Deed of Assignment5 transferring all its rights, title, and interest in the Chattel Mortgage to Far East Bank and Trust Company (FEBTC).

Claiming that the respondents failed to pay four (4) monthly amortizations covering the period from May 18, 1997 to August 18, 1997, FEBTC sent a formal demand to respondents on March 14, 2000 asking for the payment thereof, plus penalty.6 The

respondents refused to pay on the ground that they had already paid their obligation to FEBTC.

On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the respondents with the Metropolitan Trial Court (MeTC) of Manila praying for the delivery of the vehicle, with an alternative prayer for the payment of P48,084.00 plus interest and/or late payment charges at the rate of 36% per annum from May 18, 1997 until fully paid. The complaint likewise prayed for the payment of P24,462.73 as attorney’s fees, liquidated damages, bonding fees and other expenses incurred in the seizure of the vehicle. The complaint was later amended to substitute BPI as plaintiff when it merged with and absorbed FEBTC.7

In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto Financing Department of FEBTC eight (8) postdated checks in different amounts totaling P97,281.78. The Acknowledgment Receipt,8 which they attached to the Answer, showed that FEBTC received the following checks:

DATE BANK CHECK NO. AMOUNT

26 May 97 Landbank #610945 P13,824.15

6 June 97Head Office

#610946 12,381.63

30 May 97 FEBTC #17A00-11550P 12,021.00

15 June 97 Shaw Blvd. #17A00-11549P 12,021.00

30 June 97 " #17A00-11551P 12,021.00

18 June 97 Landbank #610947 11,671.00

18 July 97Head Office

#610948 11,671.00

18 August 97 #610949 11,671.00

The respondents further averred that they did not receive any notice from the drawee banks or from FEBTC that these checks were dishonored. They explained that, considering this and the fact that the checks were issued three years ago, they believed in good faith that their obligation had already been fully paid. They alleged that the

complaint is frivolous and plainly vexatious. They then prayed that they be awarded moral and exemplary damages, attorney’s fees and costs of suit.9

During trial, Mr. Vicente Magpusao testified that he had been connected with FEBTC since 1994 and had assumed the position of Account Analyst since its merger with BPI. He admitted that they had, in fact, received the eight checks from the respondents. However, two of these checks (Landbank Check No. 0610947 and FEBTC Check No. 17A00-11551P) amounting to P23,692.00 were dishonored. He recalled that the remaining two checks were not deposited anymore due to the previous dishonor of the two checks. He said that after deducting these payments, the total outstanding balance of the obligation was P48,084.00, which represented the last four monthly installments.

On February 23, 2005, the MeTC dismissed the case and granted the respondents’ counterclaim for damages, thus:

WHEREFORE, judgment is hereby rendered dismissing the complaint for lack of cause of action, and on the counterclaim, plaintiff is ordered to indemnify the defendants as follows:

a) The sum of PhP30,000.00 as and by way of moral damages;

b) The sum of PhP30,000.00 as and by way of exemplary damages;

c) The sum of PhP20,000.00 as and by way of attorney’s fees; and

d) To pay the costs of the suit.

SO ORDERED.10

On appeal, the Regional Trial Court (RTC) set aside the MeTC Decision and ordered the respondents to pay the amount claimed by the petitioner. The dispositive portion of its Decision11 dated August 11, 2005 reads:

WHEREFORE, premises considered, the Decision of the Metropolitan Trial Court, Branch 9 dated February 23, 2005 is REVERSED and a new one entered directing the defendants-appellees to pay the plaintiff-appellant, jointly and severally,

1. The sum of P48,084.00 plus interest and/or late payment charges thereon at the rate of 36% per annum from May 18, 1997 until fully paid;

2. The sum of P10,000.00 as attorney’s fees; and

3. The costs of suit.

SO ORDERED.12

The RTC denied the respondents’ motion for reconsideration.13

The respondents elevated the case to the Court of Appeals (CA) through a petition for review. They succeeded in obtaining a favorable judgment when the CA set aside the RTC’s Decision and reinstated the MeTC’s Decision on July 12, 2006.14 On February 13, 2007, the CA denied the petitioner’s motion for reconsideration.15

The issues submitted for resolution in this petition for review are as follows:

I. WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE FULL PAYMENT OF THEIR OBLIGATION AS ONE OF THEIR AFFIRMATIVE DEFENSES.

II. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES PAYMENT.

III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES.16

The petitioner insists that the respondents did not sufficiently prove the alleged payment. It avers that, under the law and existing jurisprudence, delivery of checks does not constitute payment. It points out that this principle stands despite the fact that there was no notice of dishonor of the two checks and the demand to pay was made three years after default.

On the other hand, the respondents postulate that they have established payment of the amount being claimed by the petitioner and, unless the petitioner proves that the checks have been dishonored, they should not be made liable to pay the obligation again.17

The petition is partly meritorious.

In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence, or evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.18 Thus, the party, whether plaintiff or defendant, who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment. For the plaintiff, the burden to prove its positive assertions never parts. For the defendant, an affirmative defense is one which is not a denial of an essential ingredient in the plaintiff’s cause of action, but one which, if established, will be a good defense – i.e. an "avoidance" of the claim.19

In Jimenez v. NLRC,20 cited by both the RTC and the CA, the Court elucidated on who, between the plaintiff and defendant, has the burden to prove the affirmative defense of payment:

As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. The

debtor has the burden of showing with legal certainty that the obligation has been discharged by payment.

When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the creditor. Where the debtor introduces some evidence of payment, the burden of going forward with the evidence - as distinct from the general burden of proof - shifts to the creditor, who is then under a duty of producing some evidence to show non-payment.21

In applying these principles, the CA and the RTC, however, arrived at different conclusions. While both agreed that the respondents had the burden of proof to establish payment, the two courts did not agree on whether the respondents were able to present sufficient evidence of payment — enough to shift the burden of evidence to the petitioner. The RTC found that the respondents failed to discharge this burden because they did not introduce evidence of payment, considering that mere delivery of checks does not constitute payment.22 On the other hand, the CA concluded that the respondents introduced sufficient evidence of payment, as opposed to the petitioner, which failed to produce evidence that the checks were in fact dishonored. It noted that the petitioner could have easily presented the dishonored checks or the advice of dishonor and required respondents to replace the dishonored checks but none was presented. Further, the CA remarked that it is absurd for a bank, such as petitioner, to demand payment of a failed amortization only after three years from the due date.

The divergence in this conflict of opinions can be narrowed down to the issue of whether the Acknowledgment Receipt was sufficient proof of payment. As correctly observed by the RTC, this is only proof that respondents delivered eight checks in payment of the amount due. Apparently, this will not suffice to establish actual payment.

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment.23 Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.24

To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks.1avvphi1

Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the

checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim.25

To stress, the obligation to prove that the checks were not dishonored, but were in fact encashed, fell upon the respondents who would benefit from such fact. That payment was effected through the eight checks was the respondents’ affirmative allegation that they had to establish with legal certainty. If the petitioner were seeking to enforce liability upon the check, the burden to prove that a notice of dishonor was properly given would have devolved upon it.26 The fact is that the petitioner’s cause of action was based on the original obligation as evidenced by the Promissory Note and the Chattel Mortgage, and not on the checks issued in payment thereof.

Further, it should be noted that the petitioner, as payee, did not have a legal obligation to inform the respondents of the dishonor of the checks. A notice of dishonor is required only to preserve the right of the payee to recover on the check. It preserves the liability of the drawer and the indorsers on the check. Otherwise, if the payee fails to give notice to them, they are discharged from their liability thereon, and the payee is precluded from enforcing payment on the check. The respondents, therefore, cannot fault the petitioner for not notifying them of the non-payment of the checks because whatever rights were transgressed by such omission belonged only to the petitioner.

In all, we find that the evidence at hand preponderates in favor of the petitioner. The petitioner’s possession of the documents pertaining to the obligation strongly buttresses its claim that the obligation has not been extinguished. The creditor’s possession of the evidence of debt is proof that the debt has not been discharged by payment.27 A promissory note in the hands of the creditor is a proof of indebtedness rather than proof of payment.28 In an action for replevin by a mortgagee, it is prima facie evidence that the promissory note has not been paid.29Likewise, an uncanceled mortgage in the possession of the mortgagee gives rise to the presumption that the mortgage debt is unpaid.30

Finally, the respondents posit that the petitioner’s claim is barred by laches since it has been three years since the checks were issued. We do not agree. Laches is a recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches cannot, as a rule, abate a collection suit filed within the prescriptive period mandated by the New Civil Code.31 The petitioner’s action was filed within the ten-year prescriptive period provided under Article 1144 of the New Civil Code. Hence, there is no room for the application of laches.

Nonetheless, the Court cannot ignore what the respondents have consistently raised — that they were not notified of the non-payment of the checks. Reasonable banking practice and prudence dictates that, when a check given to a creditor bank in payment of an obligation is dishonored, the bank should immediately return it to the debtor and demand its replacement or payment lest it causes any prejudice to the drawer. In light of this and the fact that the obligation has been partially paid, we deem it just and equitable to reduce the 3% per month penalty charge as stipulated in the Promissory

Note to 12% per annum.32 Although a court is not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit, as long as they contravene no law, morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with.33

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated July 12, 2006, and Resolution dated February 13, 2007, are REVERSED and SET ASIDE. The Decision of the Regional Trial Court, dated August 11, 2005, is REINSTATED with the MODIFICATION that respondents are ordered to deliver the possession of the subject vehicle, or in the alternative, pay the petitioner P48,084.00 plus late penalty charges/interest thereon at the rate of 12% per annum from May 18, 1997 until fully paid.

SO ORDERED.

ANTONIO EDUARDO B. NACHURAAssociate Justice

WE CONCUR:

LEONARDO A. QUISUMBING*

Associate Justice

CONSUELO YNARES-SANTIAGOAssociate Justice

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

RUBEN T. REYESAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGOAssociate JusticeChairperson, Third Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above decision had been reached in

consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

A.M. No. P-05-2038             January 25, 2006(Formerly OCA I.P.I. No. 04-2055-P)

ATTY. JOSE RICUERDO P. FLORES, Complainant, vs.FELIX M. FALCOTELO, Sheriff IV, RTC, Branch 276, Muntinlupa City, Respondent.

R E S O L U T I O N

AUSTRIA-MARTINEZ, J.:

On October 29, 2004, Executive Judge Juanita T. Guerrero, Regional Trial Court (RTC), Muntinlupa City, indorsed to the Office of the Court Administrator (OCA) a letter from Atty. Jose Ricuerdo P. Flores, Clerk of Court of RTC Muntinlupa City, dated October 10, 2004, regarding the alleged attempt of Sheriff Felix M. Falcotelo of RTC Br. 276, Muntinlupa City to deposit in his personal savings account a manager’s check worth P900,000.00, together with the Answer of Sheriff Falcotelo dated October 20, 2004.1

Atty. Flores narrates in his letter that: on October 5, 2004, he received a call from a certain Mrs. Alcaraz of the Accounting Division of this Court asking whether he authorized a sheriff to deposit in said sheriff’s personal bank account a check issued in favor of the RTC-Muntinlupa City; after answering in the negative, he immediately went to Landbank-Muntinlupa and talked with the bank manager who confirmed that Felix Falcotelo, Sheriff IV of RTC Br. 276, tried to deposit a check in his (Falcotelo’s) personal bank account; the bank manager did not allow Falcotelo to deposit said check and told the latter to coordinate with the Clerk of Court of RTC, Muntinlupa; Atty. Flores then went to Judge N.C. Perello, of RTC Br. 276 and informed her of the matter; Judge Perello said that she had no knowledge about the bank transaction and that she will issue a memorandum to Falcotelo regarding the matter; upon his return to his office, he found Falcotelo waiting for him who then showed him (a) the check in question, dated October 4, 2004 with the "Regional Trial Court, Branch 276 Muntinlupa City, thru: Felix M. Falcotelo, Sheriff IV" as payee, in the amount of P900,000.00, (b) a Landbank check deposit slip dated October 5, 2004 with account name "Felix Falcotelo" with the check description "Prudential Bank, Navotas Branch, Check No. 019460" in the amount of P900,000.00, and (c) Falcotelo’s Landbank savings account passbook; after handing the said documents to him, Falcotelo admitted that he tried to deposit the subject check in his personal savings account but explained that he only did so at the insistence of Atty. Marcelo G. Rempillo, Jr., the counsel of the plaintiff in Civil Case No. 95-172 entitled Polilio Shipping Lines, Inc. vs. Mariano V. Buquia, pending before RTC-Branch 276 and that such action was resorted only to expedite proceedings and not for personal gain; it was the manager of Prudential Bank, Navotas Branch, the bank of the defendant in Civil Case No. 95-172, that issued the said check payable to the RTC, Br. 276 through Falcotelo. Atty. Flores thereafter requested that a formal investigation on the matter be conducted in order to determine the criminal/administrative liability of the concerned sheriff, if any.2

In his Answer to the letter of Atty. Flores, Falcotelo stated that he has no intention whatsoever to misappropriate the sum of P900,000.00 covered by the subject check since the issuance of the same was with the conformity of both the plaintiff and defendant in Civil Case No. 95-172. He then prayed that the matter be laid to rest.3

Attached to said Answer is the Memorandum of Judge Perello dated October 11, 2004 addressed to Falcotelo stating that she believes that there was no intention to misappropriate the money involved, although the issuance of the check may have been with the knowledge and consent of the sheriff in whose name the check was allegedly issued.4

Also attached to the Answer is the Incident Report prepared by Florian T. Galera, authorized representative of the law firm Lopez & Rempillo, and noted by Atty. Rempillo, Jr., counsel of the plaintiff in the civil case, narrating that:

1. On October 4, 2004, (Sheriff Falcotelo) and the representative of our law firm, upon the invitation of defendant, held a conference at his office to discuss settlement of the case;

2. On said date, our representative and defendant arrived at a settlement, and thereafter, they proceeded (to) Prudential Bank, Navotas Branch (defendant’s bank) to secure a Manager’s Check payable to DIVINA S. REMOLLINO, the President of the plaintiff corporation, in the amount of P900,000.00;

3. Accordingly, by reason of this settlement, the scheduled Sheriff Auction Sale on October 5, 2004 was cancelled and reset to October 21, 2004;

4. However, the Branch Manager of Prudential Bank, Navotas Branch, informed them that there was a priorNotice of Garnishment issued by the Court Branch Sheriff and that the amount of P900,000.00 corresponding to the amount of the Manager’s Check cannot be withdrawn without lifting the Notice of Garnishment;

5. This prompted the Court Branch Sheriff to serve the said bank a Notice To Deliver The Garnished Amount, in the presence and with conformity of the defendant/depositor;

6. After having been served with a Notice To Deliver The Garnished Amount of P900,000.00, the Branch Manager referred the matter to their Legal Department for Clearance on the delivery of the garnished amount of P900,000.00;

7. The Legal Department approved the delivery and release of the amount of P900,000.00;

8. Before the Manager’s Check of P900,000.00 could be issued, our representative, with the conformity of the Sheriff, requested that the Manager’s Check of P900,000.00 be made payable to DIVINA S. REMOLLINO, the President of the plaintiff corporation;

9. The Branch Manager sought the advice of their Legal Department and thereafter, informed our representative that it cannot grant the request since it was not stated on the Notice to Deliver the garnished amount that the amount should be payable directly to DIVINA S. REMOLLINO;

10. Thus, the Branch Manager issued a Prudential Bank Manager’s Check No. 0000019460 forP900,000.00 payable to the Order of REGIONAL TRIAL COURT, BRANCH 276, MUNTINLUPA CITY thru FELIX FALCOTELO SHERIFF IV;

11. However, the Court Branch Sheriff countered that the check should not be made payable to him;

12. Since the Manager’s Check of P900,000.00 was already issued by the bank in the name of the Court thru the implementing Sheriff, our representative adviced the Sheriff that the check be replaced with another check in the name of DIVINA S. REMOLLINO;

13. On October 5, 2004, two (2) of our representatives, FLORIAN T. GALERA and SOFRONIO GONOWON, and the Court Branch Sheriff proceeded to the Land Bank of the Philippines, Muntinlupa Branch to deposit the said Manager’s Check of P900,000.00 and to order/purchase a Manager’s Check of P900,000.00 payable directly to the plaintiff DIVINA S. REMOLLINO. But, the bank refused since the said check is not directly payable to Sheriff FELIX FALCOTELO but to the RTC, Branch 276, Muntinlupa City;

14. Instead, the bank advice (sic) us to coordinate with the Office of the Clerk of Court of Muntinlupa;

15. The Court Branch Sheriff and our representatives proceeded to the Office of the Clerk of Court of Muntinlupa and adviced our representative to make a report on the incident.5

On December 2, 2004, the OCA required Falcotelo to file a comment on the letter of Atty. Flores.6

In his Comment dated December 23, 2004, Falcotelo reiterated his defense that: he had no intention to misappropriate the sum of P900,000.00 covered by Prudential Bank manager’s check as the issuance of the same was with the conformity of the plaintiff’s counsel in Civil Case No. 95-172; it was respondent’s intention that the garnished amount be issued in his name and in fact it was through the instruction of the legal department of Prudential Bank that the aforesaid amount be addressed and named "thru" the sheriff of RTC Br. 276 reasoning that since the favorable decision was rendered by Br. 276, the same should be properly addressed thereat; the incident report submitted by Atty. Rempillo, counsel of the plaintiff, shows that it was not respondent’s intention that the manager’s check be issued by Prudential Bank in the name of RTC Br. 276; since the check was issued in the name of RTC Br. 276 through Falcotelo, respondent was then accompanied by the representative of the counsel for the plaintiff and tried to deposit the said check in respondent’s account to have it cleared for the purpose of withdrawing the amount covered by the check after clearing and the same to be given to the plaintiff; when the matter was brought to the attention of Judge Perello, she issued a memorandum with a finding that the respondent had no intention to misappropriate the subject amount.7

Respondent submitted a Supplement to the Comment, dated January 10, 2005, portions of which read as follows:

9. That before the sought after Manager’s Check could be issued, the judgment creditor requested that the aforesaid check be named after or be directly made payable to DIVINA REMOLLINO, the President of Polilio Shipping Lines, Inc., the plaintiff in the case, but because of the complications that might arise in the process as it was not Mrs. Remollino who is the actual plaintiff in the said civil case, the legal department of the said bank instead advised that the Manager’s Check No. 0000019460 in the amount of Nine Hundred Thousand (Php.900,000.00) Pesos be made payable to

the order of Regional Trial Court Branch 276, Muntinlupa City thru Felix M. Falcotelo, Sheriff IV, which manner of issuance was well within the conformity of all parties concerned with herein respondent advancing his vehement opposition thereto, but to no avail;

10. That on October 05, 2004, the judgment creditor, through its representatives, and accompanied by herein respondent proceeded to Landbank of the Philippines, Muntinlupa Branch, with the Prudential Bank Branch Manager advising herein respondent to just deposit the aforesaid check in his account, as he was the one named therein, for the mere purpose of having the check expeditedly cleared or withdrawn in favor of the former;

11. That in the process, the Manager of Landbank advised the representatives of judgment creditor to coordinate the matter with the Office of the Clerk of Court of Muntinlupa City maybe to determine the propriety of the transaction but instead, the Clerk of Court, Atty. Jose Ricuerdo P. Flores took in his possession the manager’s check and herein respondent’s bankbook over the vehement opposition of the counsel for the judgment creditor;8(Emphasis supplied)

Attached to said Supplement is a copy of a letter of Atty. Rempillo to Atty. Flores, dated October 13, 2004, stating that the subject check was issued by the bank by virtue of a Notice of Garnishment served upon them by the implementing Sheriff of the RTC of Muntinlupa City, Branch 276 in connection with Civil Case No. 95-172 which was erroneously made payable to the latter court and that the manager’s check should have been made payable to the plaintiff in said case for the purpose of satisfying the writ of execution against defendant.9

The OCA then submitted its report with the following evaluation and recommendation:

The version of the respondent Sheriff is that the manager’s check in the amount of Nine Hundred Thousand Pesos (P900,000.00) issued by the Prudential Bank in favor of the ‘Regional Trial Court, Branch 276, Muntinlupa City, thru: Felix M. Falcotelo, Sheriff’ was at the instance of the counsel for the plaintiff.

As culled from the records, it appears that the manager’s check was issued by the bank pursuant to the Notice of Garnishment served by the implementing sheriff of RTC, Branch 276, Muntinlupa City in connection with Civil Case No. 95-172 entitled, ‘Polilio Shipping Lines, Inc. vs. Mariano V. Buquia.’ After the Notice of Garnishment was served upon the bank, the representative of the judgment obligee and the respondent sheriff requested the bank Branch Manager to make the manager’s check payable to Divina S. Remollino, President of the plaintiff corporation. But since it is not stated in the Notice to Deliver Garnished Amount that the amount should be paid directly to Divina S. Remollino, the Branch Manager of the bank issued a Manager’s Check payable to the order of RTC, Branch 276, Muntinlupa City, thru Felix Falcotelo, Sheriff IV. The representative of the plaintiff and the respondent sheriff proceeded to the Land Bank of

the Philippines, Muntinlupa Branch to deposit the Manager’s Check in order to purchase a Manager’s Check in the same amount payable directly to Divina S. Remollino.

The fault of the respondent Sheriff was when he prepared the Notice to Deliver the Garnished Amount not in favor of the judgment obligee for which reason, the Manager of the Bank made a check payable to the Regional Trial Court of Muntinlupa, Branch 276, thru Felix Falcotelo, Sheriff IV.

Respondent can also be faulted for attempting to deposit the manager’s check in his Lank Bank personal savings account. Only the presence of mind of the Manager of the Land Bank prevented the consummation of the transaction. What respondent Sheriff should have done was to deliver the Manager’s Check to the Clerk of Court that issued the writ or deposit the amount to a fiduciary account in the nearest depository bank of the RTC in the locality. "The Clerk of Court shall thereafter arrange for the remittance of the deposit to the account of the court that issued the writ whose Clerk of Court shall deliver said payment to the judgment obligee in satisfaction of the judgment. xxx" (Section 9, Rule 39, 1997 Rules of Civil Procedure).

xxx Respectfully submitted for consideration of the Honorable Court is the recommendation that the instant IPI complaint be RE-DOCKETED as a regular administrative matter and respondent be SUSPENDED from office for six (6) months with a STERN WARNING that repetition of the same or similar offense shall be dealt with more severely.10

The parties manifested that they are willing to submit the case for resolution on the basis of the pleadings filed.11

We agree with the evaluation and findings of the OCA except as to the recommended penalty.

This Court has pointed out, time and again, the heavy burden and responsibility court personnel are saddled with in view of their exalted positions as keepers of the public faith.12 Any impression of impropriety, misdeed or negligence in the performance of official functions must therefore be avoided.13 Court personnel should be examples of responsibility, competence and efficiency and must discharge their duties with due care and utmost diligence.14 Any conduct, act or omission on the part of those who would violate the norm of public accountability and diminish or even just tend to diminish the faith of the people in the judiciary shall not be countenanced.15

Sheriffs in particular play an important role in the administration of

justice16 since they are called upon to serve court writs, execute all processes, and carry into effect the orders of the court with due care and utmost diligence. As officers of the court, sheriffs are duty-bound to use reasonable skill and diligence in the performance of their duties, and conduct themselves with propriety and decorum and act above suspicion.17

As we pronounced in Tan vs. Paredes:18

It must be stressed that high standards are expected of sheriffs, who, play an important role in the administration of justice. At the grassroots of our judicial machinery, sheriffs and deputy sheriffs are indispensably in close contact with the litigants, hence, their conduct should be geared towards maintaining the prestige and integrity of the court. The Court condemns and would never countenance any conduct, act or omission on the part of all those involved in the administration of justice, which would violate the norm of public accountability and diminish or even just tend to diminish the faith of the people in the judiciary.19

Under paragraph (c), Section 9, Rule 39 of the Rules of Court on garnishment of bank deposits, the executing sheriff is mandated to observe the same procedure under paragraph (a) of the same Rule with respect to delivery of payment to the judgment obligee, to wit:

Sec. 9. Execution of judgments for money, how enforced. ---

(a) Immediate payment on demand. --- The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees. The judgment obligor shall pay in cash, certified bank check payable to the judgment obligee, or any other form of payment acceptable to the latter, the amount of the judgment debt under proper receipt directly to the judgment obligee or his authorized representative if present at the time of payment. The lawful fees shall be handed under proper receipt to the executing sheriff who shall turn over the said amount within the same day to the clerk of court of the court that issued the writ.

If the judgment obligee or his authorized representative is not present to receive payment, the judgment obligor shall deliver the aforesaid payment to the executing sheriff. The latter shall turn over all the amounts coming into his possession within the same day to the clerk of the court of the court that issued the writ, or if the same is not practicable, deposit said amounts to a fiduciary account in the nearest government depository bank of the Regional Trial Court of the locality.

The clerk of said court shall thereafter arrange for the remittance of the deposit to the account of the court that issued the writ whose clerk of court shall then deliver said payment to the judgment obligee in satisfaction of the judgment. The excess, if any, shall be delivered to the judgment obligor while the lawful fees shall be retained by the clerk of court for disposition as provided by law. In no case shall the executing sheriff demand that any payment by check be made payable to him.

Respondent failed to comply faithfully with said Rule.

Respondent explains that the prevailing party in the civil case initially sought to have the check made payable to Divina Remollino, president of plaintiff Polilio Shipping Lines.

However, since the notice of garnishment did not specify to whom it shall be issued, the bank did not directly issue a check in the name of said prevailing party and instead issued a check to the order of "RTC Br. 276 Muntinlupa thru Felix Falcotelo, Sheriff IV."

While such explanation may dispel any ill motive on the part of the sheriff, still, his act cannot be allowed to go unpunished for he failed to strictly observe the rules in implementing money judgments.

Respondent allowed a check to be made payable through him despite the clear intent of the rules proscribing sheriffs from having checks made payable to them. He likewise attempted to deposit the check in his personal account despite the clear mandate of the rules directing sheriffs to deliver sums of money intended for judgment creditors to the clerks of court or deposit the same to a fiduciary account.

The procedure in receiving money intended for judgment creditors are clearly specified by the rules. Thus inBalanag, Jr. vs. Osita,20 the Court explained that:

In case where the judgment obligor voluntarily pays in cash or certified check the judgment debt and the judgment obligee is not present, Section 9 of Rule 39 requires the sheriff to receive the payment. However, the sheriff must turn over the amount within the same day to the clerk of court. If it is not practicable to deliver the amount to the clerk of court within the same day, the sheriff shall deposit the amount in a fiduciary account with the nearest government depository bank. The clerk of court then delivers the amount to the judgment obligee in satisfaction of the judgment.21

Indeed, issuing checks in the name of sheriffs is fraught with danger. In Philippine Airlines, Inc. vs. Court of Appeals,22 where the judgment debtor issued a check in the name of the sheriff who later absconded with the money, the Court explained why checks should not be made payable through sheriffs:

It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name of another. Making the checks payable to the judgment creditor would have prevented the encashment or the taking of undue advantage by the sheriff, or any person into whose hands the checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in the name of the sheriff clearly made possible the misappropriation of the funds that were withdrawn.23

xxxx

The attention of this Court has been called to the bad practice of a number of executing officers, of requiring checks in satisfaction of judgment debts to be made out in their own names. If a sheriff directs a judgment debtor to issue the checks in the sheriff’s name, claiming he must get his commission or fees, the debtor must report the sheriff immediately to the court which ordered the execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions, and salaries are paid through regular channels. This improper procedure also allows such officers, who have sixty

(60) days within which to make a return, to treat the moneys as their personal funds and to deposit the same in their private accounts to earn sixty (60) days interest, before said funds are turned over to the court or judgment creditor xxx. Quite as easily, such officers could put up the defense that said checks had been issued to them in their private or personal capacity. Without a receipt evidencing payment of the judgment debt, the misappropriation of funds by such officers becomes clean and complete. The practice is ingenious but evil as it unjustly enriches court personnel at the expense of litigants and the proper administration of justice. The temptation could be far greater, as proved to be in this case of the absconding sheriff. The correct and prudent thing for the petitioner was to have issued the checks in the intended payee’s name.

The pernicious effects of issuing checks in the name of a person other than the intended payee, without the latter’s agreement or consent, are as many as the ways that an artful mind could concoct to get around the safeguards provided by the law on negotiable instruments. An angry litigant who loses a case, as a rule, would not want the winning party to get what he won in the judgment. He would think of ways to delay the winning party’s getting what has been adjudged in his favor. We cannot condone that practice especially in cases where the courts and their officers are involve xxx.24

Respondent argues that he never had any intention to misappropriate the amount of P900,000.00 covered by the subject check since the issuance of the same was with the conformity of both the plaintiff and the defendant in Civil Case No. 95-172.

Even if true, such excuse will not completely exculpate him. Good faith on the part of the sheriff, in proceeding to execute his mandate would be of no moment for he is chargeable with the knowledge that being the officer of the court tasked therefor, it behooves him to make due compliances.26 Indeed, despite the hazards that come with the implementation of the judgment, sheriffs must perform their duties by the book.27

For his failure to properly observe Sec. 9, Rule 39 of the Rules of Court, respondent is guilty of simple neglect of duty.

In Balanag vs. Osita,28 the respondent Sheriff therein was found guilty of simple neglect of duty for failing to follow the procedure laid down by the Rules of Court in failing to secure the approval of the court on the expenses of execution and in turning over the proceeds to one of the four plaintiffs without authority from the others to receive their shares and without first turning over the proceeds to the clerk of court under Section 9, Rule 39; and finedP5,000.00 with a stern warning that a repetition of the same or similar act shall be dealt with more severely by the Court.

Under Sec. 23, Rule XIV of the Omnibus Civil Service Rules and Regulations, simple neglect of duty is punishable by suspension for one (1) month and one (1) day to six (6) months for the first offense. Considering however the fact that this is respondent’s first administrative offense, and that there is no evidence that shows bad faith or malice on the part of respondent in view of the fact that the counsel of the plaintiff corroborated the defense of respondent that the representative of plaintiff agreed to have the check

deposited in the personal account of respondent, for the "purpose of having the check expeditely cleared or withdrawn in favor of the former," we find that the penalty of fine of P5,000.00 is just and reasonable.

WHEREFORE, respondent FELIX FALCOTELO, Sheriff IV of RTC Branch 276, Muntinlupa City, is found GUILTYof simple neglect of duty and FINED the amount of Five Thousand Pesos (P5,000.00) with a WARNING that a repetition of the same or similar acts in the future shall be dealt with more severely.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN Associate Justice

CONSUELO YNARES-SANTIAGOAssociate Justice

ROMEO J. CALLEJO, SR.Asscociate Justice

MINITA V. CHICO-NAZARIO Associate Justice

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 168486             June 27, 2006

NOE S. ANDAYA, Petitioner, vs.PEOPLE OF THE PHILIPPINES, Respondent.

D E C I S I O N

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari from the September 29, 2004 Decision1 of the Court of Appeals in CA-G.R. CR No. 26556, affirming the January 29, 2002 Decision2 of the Regional Trial Court, Branch 104 of Quezon City in Criminal Case No. 92-36145, convicting petitioner Noe S. Andaya of falsification of private document, and the April 26, 2005 Resolution3 denying the motion for reconsideration.

Complainant Armed Forces and Police Savings and Loan Association, Inc. (AFPSLAI) is a non-stock and non-profit association authorized to engage in savings and loan transactions. In 1986, petitioner Noe S. Andaya was elected as president and general manager of AFPSLAI. During his term, he sought to increase the capitalization of AFPSLAI to boost its lending capacity to its members. Consequently, on June 1, 1988, the Board of Trustees of AFPSLAI passed and approved Resolution No. RS-88-006-048 setting up a Finder’s Fee Program whereby any officer, member or employee, except investment counselors, of AFPSLAI who could solicit an investment of not less than P100,000.00 would be entitled to a finder’s fee equivalent to one percent of the amount solicited.

In a letter4 dated September 1991, the Central Bank wrote Gen. Lisandro C. Abadia, then Chairman of the Board of Trustees, regarding the precarious financial position of AFPSLAI due to its alleged flawed management. As a result, Gen. Abadia requested the National Bureau of Investigation (NBI) to conduct an investigation on alleged irregularities in the operations of AFPSLAI which led to the filing of several criminal cases against petitioner, one of which is the instant case based on the alleged fraudulent implementation of the Finder’s Fee Program.

On October 5, 1992, an information for estafa through falsification of commercial document was filed against petitioner, to wit:

The undersigned accuses NOE S. ANDAYA of the crime of Estafa thru Falsification of Commercial Document, committed as follows:

That on or about the 8th day of April, 1991 in Quezon City, Philippines, the above-named accused, with intent to gain, by means of deceit, false pretenses and falsification of commercial document, did then and there, wilfully, unlawfully and feloniously defraud the ARMED FORCES AND POLICE SAVINGS AND LOAN ASSOCIATION, INC., represented by its Chairman of the Board of Director[s], Gen. Lisandro C. Abadia, AFP, in the following manner, to wit: on the date and in the place aforementioned the said accused being then the President and General Manager of the Armed Forces and Police Savings and Loan Association, Inc., caused and approved the disbursement of the sum of P21,000.00, Philippine Currency, from the funds of the association, by then and there making it appear in Disbursement Voucher No. 58380 that said amount represented the 1% finder’s fee of one DIOSDADO J. GUILLAS [Guilas]; when in truth and in fact accused knew fully well that there was no such payment to be made by the association as finder’s fee; that by virtue of said falsification, said accused was able to encashed (sic) and received (sic) MBTC Check No. 583768 in the sum of P21,000.00, which amount once in his possession, misapplied, misappropriated and converted to his own personal use and benefit, to the damage and prejudice of the said offended party in the aforesaid sum of P21,000.00, Philippine Currency.

CONTRARY TO LAW.5 (Emphasis supplied)

The case was raffled to Branch 104 of the Regional Trial Court of Quezon City and docketed as Criminal Case No. 92-36145. On May 30, 1994, petitioner was arraigned6 and pleaded not guilty to the charge, after which trial on the merits ensued.

The prosecution presented two witnesses, namely, Diosdado Guilas and Judy Balangue.

Guilas, a general clerk of AFPSLAI’s Time Deposit Section, testified that on April 8, 1991, he was informed by Tini Gabriel and Julie Alabansa of the Treasury Department that there was a finder’s fee in the amount of P21,000.00 in his name. Subsequently, Judy Balangue, an investment clerk of the Time Deposit Section, told him that the finder’s fee was for petitioner. When Guilas went to petitioner’s office to inform him about the finder’s fee in his (Guilas’) name, petitioner instructed him to collect the P21,000.00 and turn over the same to the latter. Guilas returned to the Treasury Department and signed Disbursement Voucher No. 583807 afterwhich he was issued Metrobank Check No. 6837688 for P21,000.00. After encashing the check, he turned over the proceeds to petitioner. On cross-examination, Guilas admitted that there was no prohibition in placing the finder’s fee under the name of a person who did not actually solicit the investment.

Balangue also testified that on April 3, 1991, petitioner instructed him to prepare Certificate of Capital Contribution Monthly No. 521789 in the name of Rosario Mercader for an investment in AFPSLAI in the amount of P2,100,000.00 and to inform Guilas that the finder’s fee for the aforesaid investment will be placed in the latter’s name. On cross-examination, Balangue confirmed that a P2,100,000.00 worth of investment from Rosario Mercader was deposited in AFPSLAI. He further acknowledged that the Finder’s Fee Program did not prohibit the placing of another person’s name as payee of the finder’s fee.

The defense presented three witnesses, namely, Emerita Arevalo, Ernesto Hernandez and petitioner.

Arevalo, secretary of petitioner in AFPSLAI, explained that the finder’s fee was for the P2,100,000.00 investment solicited by Ernesto Hernandez from Rosario Mercader. The finder’s fee was placed in the name of Guilas upon request of Hernandez so that the same would not be reflected in his (Hernandez’s) income tax return. She alleged that Guilas consented to the arrangement of placing the finder’s fee in his (Guilas’) name. She also claimed that there was no prohibition in the Finder’s Fee Program regarding the substitution of the name of the solicitor as long as there was no double claim for the finder’s fee over the same investment.

Hernandez, an associate member of AFPSLAI and vice president of Philippine Educational Trust Plan, Inc. (PETP Plans), testified that sometime in 1991, he was able to solicit from Rosario Mercader an investment of P2,100,000.00 in AFPSLAI. He also asked petitioner to place the finder’s fee in the name of one of his employees so that he (Hernandez) would not have to report a higher tax base in his income tax return. On April 8, 1991, petitioner handed to him the finder’s fee in the amount of P21,000.00.

Petitioner denied all the charges against him. He claimed that the P21,000.00 finder’s fee was in fact payable by AFPSLAI because of the P2,100,000.00 investment of Rosario Mercader solicited by Ernesto Hernandez. He denied misappropriating the P21,000.00 finder’s fee for his personal benefit as the same was turned over to Ernesto Hernandez who was the true solicitor of the aforementioned investment. Since the finder’s fee was in fact owed by AFPSLAI, then no damage was done to the association. The finder’s fee was placed in the name of Guilas as requested by Hernandez in order to reduce the tax obligation of the latter. According to petitioner, Guilas consented to the whole setup.

Petitioner also claimed that Hernandez was an associate member of AFPSLAI because his application for membership was approved by the membership committee and the Board of Trustees and was in fact issued an I.D. There was no prohibition under the rules and regulation of the Finder’s Fee Program regarding the substitution of the name of the solicitor with the name of another person. On cross-examination, petitioner claimed that he merely approved the substitution of the name of Hernandez with that of Guilas in the disbursement voucher upon the request of Hernandez. He brushed aside the imputation of condoning tax evasion by claiming that the issue in the instant

proceedings was whether he defrauded AFPSLAI and not his alleged complicity in tax evasion.

After the defense rested its case, the prosecution presented two rebuttal witnesses, namely, Ma. Victoria Maigue and Ma. Fe Moreno.

Maigue, membership affairs office supervisor of AFPSLAI, testified that Hernandez was ineligible to become a member of AFPSLAI under sections 1 and 2 of Article II of the association’s by-laws. However, she admitted that the application of Hernandez as member was approved by the membership committee.

Moreno, legal officer of AFPSLAI at the time of her testimony on January 25, 2000, stated that there are eight criminal cases pending against the petitioner in various branches of the Regional Trial Court of Quezon City. In one case decided by Judge Bacalla of Branch 216, petitioner was convicted of estafa through falsification involving similar facts as the instant case. She further stated that Hernandez was not a member of AFPSLAI under sections 1 and 2 of Article II of the by-laws. On cross-examination, she admitted that the case decided by Judge Bacalla convicting petitioner was on appeal with the Court of Appeals.

The defense dispensed with the presentation of Mercader in view of the stipulation of the prosecution on the fact that Mercader was a depositor of AFPSLAI and that she was convinced to invest in the association by Ernesto Hernandez.10

On June 20, 2001, the trial court rendered a Decision11 convicting petitioner of falsification of private document. On July 5, 2001, petitioner filed a motion for new trial.12 In an Order13 dated December 20, 2001, the trial court ruled that the evidence submitted by petitioner in support of his motion was inadequate to conduct a new trial, however, in the interest of substantial justice, the case should still be reopened pursuant to Section 24,14 Rule 119 of the Rules of Court in order to avoid a miscarriage of justice.

Petitioner proceeded to submit documentary evidence consisting of the financial statements of AFPSLAI from 1996 to 1999 to show that AFPSLAI did not suffer any damage from the payment of the P21,000.00 finder’s fee. He likewise offered the testimony of Paterno Madet, senior vice president of AFPSLAI, who testified that he was personally aware that Rosario Mercader invested P2,100,000.00 in AFPSLAI; that Hernandez was a member of AFPSLAI and was the one who convinced Mercader to invest; that the finder’s fee was placed in the name of Guilas; that petitioner called him to grant the request of Hernandez for the finder’s fee to be placed in the name of one of the employees of AFPSLAI; that there was no policy which prohibits the placing of the name of the solicitor of the investment in the name of another person; that the substitution of the name of Hernandez with that of Guilas was approved by petitioner but he (Madet) was the one who approved the release of the disbursement voucher.

On January 29, 2002, the trial court rendered the assailed Decision convicting petitioner of falsification of private document based on the following findings of fact: Hernandez

solicited from Rosario Mercader an investment of P2,100,000.00 for AFPSLAI; Hernandez requested petitioner to place the finder’s fee in the name of another person; petitioner caused it to appear in the disbursement voucher that Guilas solicited the aforesaid investment; the voucher served as the basis for the issuance of the check for P21,000.00 representing the finder’s fee for the investment of Mercader; and Guilas encashed the check and turned over the money to petitioner who in turn gave it to Hernandez.

The trial court ruled that all the elements of falsification of private document were present. First, petitioner caused it to appear in the disbursement voucher, a private document, that Guilas, instead of Hernandez, was entitled to a P21,000.00 finder’s fee. Second, the falsification of the voucher was done with criminal intent to cause damage to the government because it was meant to lower the tax base of Hernandez and, thus, evade payment of taxes on the finder’s fee.

Petitioner moved for reconsideration but was denied by the trial court in an Order15 dated May 13, 2002. On appeal, the Court of Appeals affirmed in toto the decision of the trial court and denied petitioner’s motion for reconsideration; hence, the instant petition challenging the validity of his conviction for the crime of falsification of private document.

Preliminarily, petitioner contends that the Court of Appeals contradicted the ruling of the trial court. He claims that the Court of Appeals stated in certain portions of its decision that petitioner was guilty of estafa through falsification of commercial document whereas in the trial court’s decision petitioner was convicted of falsification of private document.

A close reading of the Court of Appeals’ decision shows that the alleged points of contradiction were the result of inadvertence in the drafting of the same. Read in its entirety, the decision of the Court of Appeals affirmed in toto the decision of the trial court and, necessarily, it affirmed the conviction of petitioner for the crime of falsification of private document and not of estafa through falsification of commercial document.

In the main, petitioner implores this Court to review the pleadings he filed before the lower courts as well as the evidence on record on the belief that a review of the same will prove his innocence. However, he failed to specify what aspects of the factual and legal bases of his conviction should be reversed.

Time honored is the principle that an appeal in a criminal case opens the whole action for review on any question including those not raised by the parties.16 After a careful and thorough review of the records, we are convinced that petitioner should be acquitted based on reasonable doubt.

The elements of falsification of private document under Article 172, paragraph 217 in relation to Article 17118 of the Revised Penal Code are: (1) the offender committed any of the acts of falsification under Article 171 which, in the case at bar, falls under paragraph 2 of Article 171, i.e., causing it to appear that persons have participated in

any act or proceeding when they did not in fact so participate; (2) the falsification was committed on a private document; and (3) the falsification caused damage or was committed with intent to cause damage to a third party.

Although the public prosecutor designated the offense charged in the information as estafa through falsification of commercial document, petitioner could be convicted of falsification of private document, had it been proper, under the well-settled rule that it is the allegations in the information that determines the nature of the offense and not the technical name given by the public prosecutor in the preamble of the information. We explained this principle in the case of U.S. v. Lim San19 in this wise:

From a legal point of view, and in a very real sense, it is of no concern to the accused what is the technical name of the crime of which he stands charged. It in no way aids him in a defense on the merits. x x x That to which his attention should be directed, and in which he, above all things else, should be most interested, are the facts alleged. The real question is not did he commit a crime given in the law some technical and specific name, but did he perform the acts alleged in the body of the information in the manner therein set forth. x x x The real and important question to him is, "Did you perform the acts alleged in the manner alleged?" not, "Did you commit a crime named murder?" If he performed the acts alleged, in the manner stated, the law determines what the name of the crime is and fixes the penalty therefor. x x x If the accused performed the acts alleged in the manner alleged, then he ought to be punished and punished adequately, whatever may be the name of the crime which those acts constitute.20

The facts alleged in the information are sufficient to constitute the crime of falsification of private document. Specifically, the allegations in the information can be broken down into the three aforestated essential elements of this offense as follows: (1) petitioner caused it to appear in Disbursement Voucher No. 58380 that Diosdado Guillas was entitled to a finder’s fee from AFPSLAI in the amount of P21,000.00 when in truth and in fact no finder’s fee was due to him; (2) the falsification was committed on Disbursement Voucher No. 58380; and (3) the falsification caused damage to AFPSLAI in the amount of P21,000.00.

The first element of the offense charged in the information was proven by the prosecution. The testimonies of the prosecution witnesses, namely, Diosdado Guilas and Judy Balangue, as well as the presentation of Disbursement Voucher No. 58380 established that petitioner caused the preparation of the voucher in the name of Guilas despite knowledge that Guilas was not entitled to the finder’s fee. Significantly, petitioner admitted his participation in falsifying the voucher when he testified that he authorized the release of the voucher in the name of Guilas upon the request of Ernesto Hernandez. While petitioner did not personally prepare the voucher, he could be considered a principal by induction, had his conviction been proper, since he was the president and general manager of AFPSLAI at the time so that his employees merely followed his instructions in preparing the falsified voucher.

The second element of the offense charged in the information, i.e., the falsification was committed in Disbursement Voucher No. 58380, a private document, is likewise present. It appears that the public prosecutor erroneously characterized the disbursement voucher as a commercial document so that he designated the offense as estafa through falsification of commercial document in the preamble of the information. However, as correctly ruled by the trial court,21 the subject voucher is a private document only; it is not a commercial document because it is not a document used by merchants or businessmen to promote or facilitate trade or credit transactions22 nor is it defined and regulated by the Code of Commerce or other commercial law.23 Rather, it is a private document, which has been defined as a deed or instrument executed by a private person without the intervention of a public notary or of other person legally authorized, by which some disposition or agreement is proved, evidenced or set forth,24 because it acted as the authorization for the release of the P21,000.00 finder’s fee to Guilas and as the receipt evidencing the payment of this finder’s fee.

While the first and second elements of the offense charged in the information were satisfactorily established by the prosecution, it is the third element which is decisive in the instant case. In the information, it was alleged that petitioner caused damage in the amount of P21,000.00 to AFPSLAI because he caused it to appear in the disbursement voucher that Diosdado Guilas was entitled to a P21,000.00 finder’s fee when in truth and in fact AFPSLAI owed no such sum to him. However, contrary to these allegations in the information, petitioner was able to prove that AFPSLAI owed a finder’s fee in the amount of P21,000.00 although not to Guilas but to Ernesto Hernandez.

It was positively shown that Hernandez was able to solicit a P2,100,000.00 worth of investment for AFPSLAI from Rosario Mercader which entitled him to a finder’s fee equivalent to one percent of the amount solicited (i.e., P21,000.00) under the Finder’s Fee Program. The documentary evidence consisting of the Certificate of Capital Contribution Monthly No. 5217825 which was presented by the prosecution categorically stated that Rosario Mercader deposited P2,100,000.00 worth of investment in AFPSLAI. In fact, Rosario Mercader was no longer presented as a defense witness in view of the stipulation by the prosecution on the fact that Mercader was a depositor of AFPSLAI and that Hernandez was the one who convinced her to make such deposit.26 Moreover, the defense showed that the disbursement voucher was merely placed in the name of Guilas upon the request of Hernandez so that he would have a lower tax base. Thus, after Guilas received the P21,000.00 from AFPSLAI, he gave the money to petitioner who in turn surrendered the amount to Hernandez.

It was further established that Hernandez was an associate member of AFPSLAI and, thus, covered by the Finder’s Fee Program. The prosecution tried to cast doubt on the validity of Hernandez’s membership in the association but it merely relied on the unsubstantiated claims of its two rebuttal witnesses, namely, Ma. Victoria Maigue, membership affairs office supervisor of AFPSLAI and Ma. Fe Moreno, legal officer of AFPSLAI, who claimed that Hernandez was disqualified from being an associate member under AFPSLAI’s by-laws. However, except for a recital of certain provisions of the by-laws, they failed to support their claims with documentary evidence clearly

showing that Hernandez was disqualified from being an associate member. Significantly, Maigue admitted on cross-examination that Hernandez’s membership was approved by AFPSLAI’s membership committee and was issued an AFPSLAI I.D. card.27 Documentary evidence consisting of Hernandez’s I.D. card as well as the oral testimonies of petitioner, Arevalo and Hernandez, and the admission of Maigue on cross-examination, support the claim of the defense that Hernandez was an associate member of AFPSLAI.

Considering that Hernandez was able to solicit a P2,100,000.00 investment from Mercader, it follows that he was entitled to receive the finder’s fee in the amount of P21,000.00. AFPSLAI suffered no damage because it really owed the P21,000.00 finder’s fee to Hernandez albeit the sum was initially paid to Guilas and only later turned over to Hernandez. Clearly then, the third essential element of the offense as alleged in the information, i.e., the falsification caused damage to AFPSLAI in the amount of P21,000.00, was not proven by the prosecution.

In all criminal prosecutions, the burden of proof is on the prosecution to establish the guilt of the accused beyond reasonable doubt.28 It has the duty to prove each and every element of the crime charged in the information to warrant a finding of guilt for the said crime or for any other crime necessarily included therein. However, in the case at bar, the prosecution failed to prove the third essential element of the crime charged in the information. Thus, petitioner should be acquitted due to insufficiency of evidence.

The trial court convicted petitioner of falsification of private document, while conceding that AFPSLAI suffered no damage, however, the court reasoned that the third essential element of falsification of private document was present because the falsification of the voucher was done with criminal intent to cause damage to the government considering that its purpose was to lower the tax base of Hernandez and, thus, allow him to evade payment of taxes on the finder’s fee.

We find ourselves unable to agree with this ratiocination of the trial court because it violates the constitutional right29 of petitioner to be informed of the nature and cause of the accusation against him. As early as the 1904 case of U.S. v. Karelsen,30 the rationale of this fundamental right of the accused was already explained in this wise:

The object of this written accusation was – First. To furnish the accused with such a description of the charge against him as will enable him to make his defense; and second, to avail himself of his conviction or acquittal for protection against a further prosecution for the same cause; and third, to inform the court of the facts alleged, so that it may decide whether they are sufficient in law to support a conviction, if one should be had. (United States vs. Cruikshank, 92 U.S. 542.) In order that this requirement may be satisfied, facts must be stated, not conclusions of law. Every crime is made up of certain acts and intent; these must be set forth in the complaint with reasonable particularity of time, place, names (plaintiff and defendant), and circumstances. In short, the complaint must contain a specific allegation of every fact and circumstances necessary to constitute the crime charged.31(Emphasis supplied)

It is fundamental that every element constituting the offense must be alleged in the information. The main purpose of requiring the various elements of a crime to be set out in the information is to enable the accused to suitably prepare his defense because he is presumed to have no independent knowledge of the facts that constitute the offense.32 The allegations of facts constituting the offense charged are substantial matters and an accused’s right to question his conviction based on facts not alleged in the information cannot be waived.33 No matter how conclusive and convincing the evidence of guilt may be, an accused cannot be convicted of any offense unless it is charged in the information on which he is tried or is necessarily included therein.34 To convict him of a ground not alleged while he is concentrating his defense against the ground alleged would plainly be unfair and underhanded.35 The rule is that a variance between the allegation in the information and proof adduced during trial shall be fatal to the criminal case if it is material and prejudicial to the accused so much so that it affects his substantial rights.36

Thus, in Alonto v. People,37 Dico v. Court of Appeals38 and Ongson v. People,39 we acquitted the accused for violation of Batas Pambansa Bilang 22 ("The Bouncing Checks Law") because there was a variance between the identity and date of issuance of the check alleged in the information and the check proved by the prosecution during trial:

This Court notes, however, that under the third count, the information alleged that petitioner issued a check dated May 14, 1992 whereas the documentary evidence presented and duly marked as Exhibit "I" was BPI Check No. 831258 in the amount of P25,000 dated April 5, 1992. Prosecution witness Fernando Sardes confirmed petitioner's issuance of the three BPI checks (Exhibits "G," "H," and "I"), but categorically stated that the third check (BPI Check No. 831258) was dated May 14, 1992, which was contrary to that testified to by private complainant Violeta Tizon, i.e., BPI check No. 831258 dated April 5, 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 petitioner's fourth assignment of error is tenable, in that the prosecution's exhibit, i.e., Exhibit "I" (BPI Check No. 831258 dated April 5, 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 petitioner's 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.40(Underscoring supplied)

Similarly, in the case of Burgos v. Sandiganbayan,41 we upheld the constitutional right of the accused to be informed of the accusation against him in a case involving a variance between the means of committing the violation of Section 3(e) of R.A. 3019 alleged in the information and the means found by the Sandiganbayan:

Common and foremost among the issues raised by petitioners is the argument that the Sandiganbayan erred in convicting them on a finding of fact that was not alleged in the information. They contend that the information charged them with having allowed payment of P83,850 to Ricardo Castañeda despite being aware and knowing fully well that the surveying instruments were not actually repaired and rendered functional/operational. However, their conviction by the Sandiganbayan was based on the finding that the surveying instruments were not repaired in accordance with the specifications contained in the job orders.

x x x x

In criminal cases, where the life and liberty of the accused is at stake, due process requires that the accused be informed of the nature and cause of the accusation against him. An accused cannot be convicted of an offense unless it is clearly charged in the complaint or information. To convict him of an offense other than that charged in the complaint or information would be a violation of this constitutional right.

The important end to be accomplished is to describe the act with sufficient certainty in order that the accused may be appraised of the nature of the charge against him and to avoid any possible surprise that may lead to injustice. Otherwise, the accused would be left in the unenviable state of speculating why he is made the object of a prosecution.

x x x x

There is no question that the manner of commission alleged in the information and the act the Sandiganbayan found to have been committed are both violations of Section 3(e) of R.A. 3019. Nonetheless, they are and remain two different means of execution and, even if reference to Section 3(e) of R.A. 3019 has been made in the information, appellants’ conviction should only be based on that which was charged, or included, in the information. Otherwise, there would be a violation of their constitutional right to be informed of the nature of the accusation against them.

In Evangelista v. People, a judgment of conviction by the Sandiganbayan, for violation of Section 3(e) of the Anti-Graft and Corrupt Practices Act, was reversed by the Court on the ground that accused was made liable for acts different from those described in the information. The accused therein was convicted on the finding that she failed to identify with certainty in her certification the kinds of taxes paid by Tanduay Distillery, Inc., although the information charged her with falsifying said certificate. The Court said that, constitutionally, the accused has a right to be informed of the nature and cause of the accusation against her. To convict her of an offense other than that charged in the complaint or information would be a violation of this constitutional right.

Contrary to the stand of the prosecution, the allegations contained in the information and the findings stated in the Sandiganbayan decision are not synonymous. This is clearly apparent from the mere fact that the defenses applicable for each one are different. To counter the allegations contained in the information, petitioners only had to

prove that the instruments were repaired and rendered functional/operational. Under the findings stated in the Sandiganbayan decision, petitioners’ defense would have been to show not only that the instruments were repaired, but were repaired in accordance with the job order.

x x x x

This is not to say that petitioners cannot be convicted under the information charged. The information in itself is valid. It is only that the Sandiganbayan erred in convicting them for an act that was not alleged therein. x x x.42(Underscoring supplied)

As in the Burgos case, the information in the case at bar is valid, however, there is a variance between the allegation in the information and proof adduced during trial with respect to the third essential element of falsification of private document, i.e., the falsification caused damage or was committed with intent to cause damage to a third party. To reiterate, petitioner was charged in the information with causing damage to AFPSLAI in the amount of P21,000.00 because he caused it to appear in the disbursement voucher that Guilas was entitled to a P21,000.00 finder’s fee when in truth and in fact AFPSLAI owed no such amount to Guilas. However, he was convicted by the trial court of falsifying the voucher with criminal intent to cause damage to the government because the trial court found that petitioner’s acts were designed to lower the tax base of Hernandez and aid the latter in evading payment of taxes on the finder’s fee.

We find this variance material and prejudicial to petitioner which, perforce, is fatal to his conviction in the instant case. By the clear and unequivocal terms of the information, the prosecution endeavored to prove that the falsification of the voucher by petitioner caused damage to AFPSLAI in the amount of P21,000.00 and not that the falsification of the voucher was done with intent to cause damage to the government. It is apparent that this variance not merely goes to the identity of the third party but, more importantly, to the nature and extent of the damage done to the third party. Needless to state, the defense applicable for each is different.

More to the point, petitioner prepared his defense based precisely on the allegations in the information. A review of the records shows that petitioner concentrated on disproving that AFPSLAI suffered damage for this was the charge in the information which he had to refute to prove his innocence. As previously discussed, petitioner proved that AFPSLAI suffered no damage inasmuch as it really owed the finder’s fee in the amount of P21,000.00 to Hernandez but the same was placed in the name of Guilas upon Hernandez’s request. If we were to convict petitioner now based on his intent to cause damage to the government, we would be riding roughshod over his constitutional right to be informed of the accusation because he was not forewarned that he was being prosecuted for intent to cause damage to the government. It would be simply unfair and underhanded to convict petitioner on this ground not alleged while he was concentrating his defense against the ground alleged.

The surprise and injustice visited upon petitioner becomes more evident if we take into consideration that the prosecution never sought to establish that petitioner’s acts were done with intent to cause damage to the government in that it purportedly aided Hernandez in evading the payment of taxes on the finder’s fee. The Bureau of Internal Revenue was never made a party to this case. The income tax return of Hernandez was, likewise, never presented to show the extent, if any, of the actual damage to the government of the supposed under declaration of income by Hernandez. Actually, the prosecution never tried to establish actual damage, much less intent to cause damage, to the government in the form of lost income taxes. There was here no opportunity for petitioner to object to the evidence presented by the prosecution on the ground that the evidence did not conform to the allegations in the information for the simple reason that no such evidence was presented by the prosecution to begin with.

Instead, what the trial court did was to deduce intent to cause damage to the government from the testimony of petitioner and his three other witnesses, namely, Arevalo, Hernandez and Madet, that the substitution of the names in the voucher was intended to lower the tax base of Hernandez to avoid payment of taxes on the finder’s fee. In other words, the trial court used part of the defense of petitioner in establishing the third essential element of the offense which was entirely different from that alleged in the information. Under these circumstances, petitioner obviously had no opportunity to defend himself with respect to the charge that he committed the acts with intent to cause damage to the government because this was part of his defense when he explained the reason for the substitution of the names in the voucher with the end goal of establishing that no actual damage was done to AFPSLAI. If we were to approve of the method employed by the trial court in convicting petitioner, then we would be sanctioning the surprise and injustice that the accused’s constitutional right to be informed of the nature and cause of the accusation against him precisely seeks to prevent. It would be plain denial of due process.

In view of the foregoing, we rule that it was error to convict petitioner for acts which purportedly constituted the third essential element of the crime but which were entirely different from the acts alleged in the information because it violates in no uncertain terms petitioner’s constitutional right to be informed of the nature and cause of the accusation against him.

No doubt tax evasion is a deplorable act because it deprives the government of much needed funds in delivering basic services to the people. However, the culpability of petitioner should have been established under the proper information and with an opportunity for him to adequately prepare his defense. It is worth mentioning that the public prosecutor has been apprised of petitioner’s defense in the counter-affidavit43 that he filed before the NBI. He claimed there that AFPSLAI really owed the P21,000.00 finder’s fee not to Guilas but to Hernandez and that the finder’s fee was placed in the name of Guilas under a purported financial arrangement between petitioner and Guilas. Yet in his Resolution44 dated September 14, 1992, the public prosecutor disregarded petitioner’s defense and proceeded to file the information based on the alleged damage that petitioner caused to AFPSLAI in the amount of P21,000.00 representing

unwarranted payment of finder’s fee.45 During the trial proper, the prosecution was again alerted to the fact that AFPSLAI suffered no actual damage and that the substitution of the names in the voucher was designed to aid Hernandez in evading the payment of taxes on the finder’s fee. This was shown by no less than the prosecution’s own documentary evidence – the Certificate of Capital Contribution Monthly No. 52178 in the amount of P2,100,000.00 issued to Rosario Mercader which was prepared and identified by the prosecution witness, Judy Balangue. Later on, the testimonies of the defense witnesses, Arevalo, Hernandez, Madet and petitioner, clearly set forth the reasons for the substitution of the names in the disbursement voucher. However, the prosecution did not take steps to seek the dismissal of the instant case and charge petitioner and his cohorts with the proper information before judgment by the trial court as expressly allowed under Section 19,46 Rule 119 of the Rules of Court.47 Instead, the prosecution proceeded to try petitioner under the original information even though he had an adequate defense against the offense charged in the information. Regrettably, these mistakes of the prosecution can only benefit petitioner.

In closing, it is an opportune time to remind public prosecutors of their important duty to carefully study the evidence on record before filing the corresponding information in our courts of law and to be vigilant in identifying and rectifying errors made. Mistakes in filing the proper information and in the ensuing prosecution of the case serve only to frustrate the State’s interest in enforcing its criminal laws and adversely affect the administration of justice.

WHEREFORE, the petition is GRANTED. The September 29, 2004 Decision and April 26, 2005 Resolution of the Court Appeals in CA-G.R. CR No. 26556 are REVERSED and SET ASIDE. Petitioner is ACQUITTED based on reasonable doubt. The Bail Bond is CANCELLED.

SO ORDERED.

CONSUELO YNARES-SANTIAGOAssociate Justice

WE CONCUR:

ARTEMIO V. PANGANIBANChief JusticeChairperson

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

ROMEO J. CALLEJO, SR.Asscociate Justice

MINITA V. CHICO-NAZARIOAssociate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBANChief Justice

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 170782               June 22, 2009

SIAIN ENTERPRISES, INC., Petitioner, vs.CUPERTINO REALTY CORP. and EDWIN R. CATACUTAN, Respondents.

D E C I S I O N

NACHURA, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals in CA-G.R. CV No. 714241 which affirmed the decision of the Regional Trial Court, Branch 29, Iloilo City in Civil Case No. 23244.2

On April 10, 1995, petitioner Siain Enterprises, Inc. obtained a loan of P37,000,000.00 from respondent Cupertino Realty Corporation (Cupertino) covered by a promissory note signed by both petitioner’s and Cupertino’s respective presidents, Cua Le Leng and Wilfredo Lua. The promissory note authorizes Cupertino, as the creditor, to place in escrow the loan proceeds of P37,000,000.00 with Metropolitan Bank & Trust Company to pay off petitioner’s loan obligation with Development Bank of the Philippines (DBP). To secure the loan, petitioner, on the same date, executed a real estate mortgage over two (2) parcels of land and other immovables, such as equipment and machineries.

Two (2) days thereafter, or on April 12, 1995, the parties executed an amendment to promissory note which provided for a seventeen percent (17%) interest per annum on the P37,000,000.00 loan.3 The amendment to promissory note was likewise signed by Cua Le Leng and Wilfredo Lua on behalf of petitioner and Cupertino, respectively.

On August 16, 1995, Cua Le Leng signed a second promissory note in favor of Cupertino for P160,000,000.00. Cua Le Leng signed the second promissory note as maker, on behalf of petitioner, and as co-maker, liable to Cupertino in her personal capacity. This second promissory note provides:

PROMISSORY NOTE

AMOUNT DATE: AUGUST 16, 1995

ONE HUNDRED SIXTY MILLION PESOS(PHP 160,000,000.00)

FOR VALUE RECEIVED, after one (1) year from this date on or August 16, 1996, WE, SIAIN ENTERPRISES INC. with Metro Manila office address at 306 J.P. Rizal St., Mandaluyong City, represented herein by its duly authorized President, Ms. LELENG CUA, (a copy of her authority is hereto attached as Annex "A") and Ms. LELENG CUA in her personal capacity, a resident of ILOILO CITY, jointly and severally, unconditionally promise to pay CUPERTINO REALTY CORPORATION, or order, an existing corporation duly organized under Philippine laws, the amount/sum of ONE HUNDRED SIXTY MILLION PESOS (PHP 160,000,000.00), Philippine Currency, without further need of any demand, at the office of CUPERTINO REALTY CORPORATION;

The amount/sum of ONE HUNDRED SIXTY MILLION PESOS (PHP 160,000,000.00) shall earn a compounding interest of 30% per annum which interest shall be payable to CUPERTINO REALTY CORPORATION at its above given address ON THE FIRST DAY OF EVERY MONTH WITHOUT THE NEED OF DEMAND.

In case We fail to pay the principal amount of this note at maturity or in the event of bankruptcy or insolvency, receivership, levy of execution, garnishment or attachment or in case of conviction for a criminal offense carrying with it the penalty of civil interdiction

or in any of the cases covered by Article 1198 of the Civil Code of the Philippines, then the entire principal of this note and other interests and penalties due thereon shall, at the option of CUPERTINO REALTY CORPORATION, immediately become due and payable and We jointly and severally agree to pay additionally a penalty at the rate of THREE PERCENT (3%) per month on the total amount/sum due until fully paid. Furthermore, We jointly and severally agree to pay an additional sum equivalent to 20% of the total amount due but in no case less than PHP 100,000.00 as and for attorney’s fees in addition to expenses and costs of suit.

We hereby authorize and empower CUPERTINO REALTY CORPORATION at its option at any time, without notice, to apply to the payment of this note and or any other particular obligation or obligations of all or any one of us to CUPERTINO REALTY CORPORATION, as it may select, irrespective of the dates of maturity, whether or not said obligations are then due, any and all moneys, checks, securities and things of value which are now or which may hereafter be in its hand on deposit or otherwise to the credit of, or belonging to, both or any one of us, and CUPERTINO REALTY CORPORATION is hereby authorized to sell at public or private sale such checks, securities, or things of value for the purpose of applying the proceeds thereof to such payments of this note.

We hereby expressly consent to any extension and/or renewals hereof in whole or in part and/or partial payment on account which may be requested by and granted to us or any one of us for the payment of this note as long as the remaining unpaid balance shall earn an interest of THREE percent (3%) a month until fully paid. Such renewals or extensions shall, in no case, be understood as a novation of this note or any provision thereof and We will thereby continue to be liable for the payment of this note.

We submit to the jurisdiction of the Courts of the City of Manila or of the place of execution of this note, at the option of CUPERTINO REALTY CORPORATION without divesting any other court of the its jurisdiction, for any legal action which may arise out of this note. In case of judical execution of this obligation, or any part of it, we hereby waive all our rights under the provisions of Rule 39, section 12 of the Rules of Court.

We, who are justly indebted to CUPERTINO REALTY CORPORATION, agree to execute respectively a real estate mortgage and a pledge or a chattel mortgage covering securities to serve as collaterals for this loan and to execute likewise an irrevocable proxy to allow representatives of the creditor to be able to monitor acts of management so as to prevent any premature call of this loan. We further undertake to execute any other kind of document which CUPERTINO REALTY CORPORATION may solely believe is necessary in order to effect any security over any collateral.

For this purpose, Ms. LELENG CUA, upon the foregoing promissory note, has this 16th day of Aug 1995, pledged her shares of stocks in SIAIN ENTERPRISES, INC., worth PHP 1,800,000.00 which she hereby confesses as representing 80% of the total outstanding shares of the said company.

In default of payment of said note or any part thereof at maturity, Ms. LELENG CUA hereby authorizes CUPERTINO REALTY CORPORATION or its assigns, to dispose of said security or any part thereof at public sale. The proceeds of such sale or sales shall, after payment of all expenses and commissions attending said sale or sales, be applied to this promissory note and the balance, if any, after payment of this promissory note and interest thereon, shall be returned to the undersigned, her heirs, successors and administrators; it shall be optional for the owner of the promissory note to bid for and purchase the securities or any part thereof.

SIAIN ENTERPRISES, INC.

(signed)LELENG CUA

In her personal capacityCO-MAKER

By:

(signed)LELENG CUAMAKER

WITNESSES:

(signed)EDGARDO LUA

(signed)ROSE MARIE RAGODON4

Parenthetically, on even date, the parties executed an amendment of real estate mortgage, providing in pertinent part:

WHEREAS, on 10 April 1995, the [petitioner] executed, signed and delivered a Real Estate Mortgage to and in favor of [Cupertino] on certain real estate properties to secure the payment to [Cupertino] of a loan in the amount of THIRTY SEVEN MILLION PESOS (P37,000,000.00) Philippine Currency, granted by [Cupertino] was ratified (sic) on 10 April 1995 before Constancio Mangoba, Jr., Notary Public in Makati City, as Doc. No. 242; in Page No. 50; Book No., XVI; Series of 1995, and duly recorded in the Office of the Register of Deeds for the said City of Iloilo;

WHEREAS, the [petitioner] has increased its loan payable to [Cupertino] which now amounts to ONE HUNDRED NINETY SEVEN MILLION PESOS (197,000,000.00); and

WHEREAS, the [petitioner] and [Cupertino] intend to amend the said Real Estate Mortgage in order to reflect the current total loan secured by the said Real Estate Mortgage;

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereto have agreed and by these presents do hereby agree to amend said Real Estate Mortgage dated 10 April 1995 mentioned above by substituting the total amount of the loan secured by said Real Estate Mortgage from P37,000,000.00 toP197,000,000.00.

It is hereby expressly understood that with the foregoing amendment, all other terms and conditions of said Real Estate Mortgage dated 10 April 1995 are hereby confirmed, ratified and continued to be in full force and effect, and that this agreement be made an integral part of said Real Estate Mortgage.5

Curiously however, and contrary to the tenor of the foregoing loan documents, petitioner, on March 11, 1996, through counsel, wrote Cupertino and demanded the release of the P160,000,000.00 loan increase covered by the amendment of real estate mortgage.6 In the demand letter, petitioner’s counsel stated that despite repeated verbal demands, Cupertino had yet to release the P160,000,000.00 loan. On May 17, 1996, petitioner demanded anew from Cupertino the release of the P160,000,000.00 loan.7

In complete refutation, Cupertino, likewise through counsel, responded and denied that it had yet to release theP160,000,000.00 loan. Cupertino maintained that petitioner had long obtained the proceeds of the aforesaid loan. Cupertino declared petitioner’s demand as made to "abscond from a just and valid obligation," a mere afterthought, following Cupertino’s letter demanding payment of the P37,000,000.00 loan covered by the first promissory note which became overdue on March 5, 1996.

Not surprisingly, Cupertino instituted extrajudicial foreclosure proceedings over the properties subject of the amended real estate mortgage. The auction sale was scheduled on October 11, 1996 with respondent Notary Public Edwin R. Catacutan commissioned to conduct the same. This prompted petitioner to file a complaint with a prayer for a restraining order to enjoin Notary Public Catacutan from proceeding with the public auction.

The following are the parties’ conflicting claims, summarized by the RTC, and quoted verbatim by the CA in its decision:

"The verified complaint alleges that [petitioner] is engaged in the manufacturing and retailing/wholesaling business. On the other hand, Cupertino is engaged in the realty business. That on April 10, 1995, [petitioner] executed a Real Estate Mortgage over its real properties covered by Transfer Certificates of title Nos. T-75109 and T-73481 ("the mortgage properties") of the Register of Deeds of Iloilo in favor of Cupertino to secure the former’s loan obligation to the latter in the amount of Php37,000,000.00. That it has been the agreement between [petitioner] and Cupertino that the aforesaid loan will be non-interest bearing. Accordingly, the parties saw to it that the promissory note (evidencing their loan agreement) did not provide any stipulation with respect to interest. On several occasions thereafter, [petitioner] made partial payments to Cupertino in respect of the aforesaid loan obligation by the former to the latter in the total amount of Php7,985,039.08, thereby leaving a balance of Php29,014,960.92. On August 16, 1995,

[petitioner] and Cupertino executed an amendment of Real Estate Mortgage (Annex "C") increasing the total loan covered by the aforesaid REM from Php37,000,000.00 to P197,000,000.00. This amendment to REM was executed preparatory to the promised release by Cupertino of additional loan proceeds to [petitioner] in the total amount of Php160,000,000.00. However, despite the execution of the said amendment to REM and its subsequent registration with the Register of Deeds of Iloilo City and notwithstanding the clear agreement between [petitioner] and Cupertino and the latter will release and deliver to the former the aforesaid additional loan proceeds of P160,000,000.00 after the signing of pertinent documents and the registration of the amendment of REM, Cupertino failed and refused to release the said additional amount for no apparent reason at all, contrary to its repeated promises which [petitioner] continuously relied on. On account of Cupertino’s unfulfilled promises, [petitioner] repeatedly demanded from Cupertino the release and/or delivery of the said Php160,000,000.00 to the former. However, Cupertino still failed and refused and continuously fails and refuses to release and/or deliver the Php160,000,000.00 to [petitioner]. When [petitioner] tendered payment of the amount of Php29,014,960.92 which is the remaining balance of the Php37,000,000.00 loan subject of the REM, in order to discharge the same, Cupertino unreasonably and unjustifiably refused acceptance thereof on the ground that the previous payment amounting to Php7,985,039.08, was applied by Cupertino to alleged interests and not to principal amount, despite the fact that, as earlier stated, the aforesaid loan by agreement of the parties, is non-interest bearing. Worst, unknown to [petitioner], Cupertino was already making arrangements with [respondent] Notary Public for the extrajudicial sale of the mortgage properties even as [petitioner] is more than willing to pay the Php29,014,960.92 which is the remaining balance of the Php37,000,000.00 loan and notwithstanding Cupertino’s unjustified refusal and failure to deliver to [petitioner] the amount of Php160,000,000.00. In fact, a notarial sale of the mortgaged properties is already scheduled on 04 October 1996 by [respondent] Notary Public at his office located at Rm. 100, Iloilo Casa Plaza, Gen Luna St., Iloilo City. In view of the foregoing, Cupertino has no legal right to foreclose the mortgaged properties. In any event, Cupertino cannot extrajudicially cause the foreclosure by notarial sale of the mortgage properties by [respondent] Notary Public as there is nothing in the REM (dated 10 April 1995) or in the amendment thereto that grants Cupertino the said right.

x x x x

"[Respondents] finally filed an answer to the complaint, alleging that the loan have (sic) an interest of 17% per annum: that no payment was ever made by [petitioner], that [petitioner] has already received the amount of the loan prior to the execution of the promissory note and amendment of Real Estate Mortgage, xxx.

"[Petitioner] filed a supplemental complaint alleging subsequent acts made by defendants causing the subsequent auction sale and registering the Certificates of Auction Sale praying that said auction sale be declared null and void and ordering the Register of Deeds to cancel the registration and annotation of the Certificate of Notarial Sale."

Thereafter, the Pre-Trial conference was set. Both parties submitted their respective Brief and the following facts were admitted, viz:

1. Execution of the mortgage dated April 10, 1995;

2. Amendment of Real Estate Mortgage dated August 16, 1995;

3. Execution of an Extra-Judicial Foreclosure by the [Cupertino];

4. Existence of two (2) promissory notes;

5. Existence but not the contents of the demand letter March 11, 1996 addressed to Mr. Wilfredo Lua and receipt of the same by [Cupertino]; and

6. Notice of Extra-Judicial Foreclosure Sale."

For failing to arrive at an amicable settlement, trial on the merits ensued. The parties presented oral and documentary evidence to support their claims and contentions. [Petitioner] insisted that she never received the proceeds of Php160,000,000.00, thus, the foreclosure of the subject properties is null and void. [Cupertino] on the other hand claimed otherwise.8

After trial, the RTC rendered a decision dismissing petitioner’s complaint and ordering it to pay CupertinoP100,000.00 each for actual and exemplary damages, and P500,000.00 as attorney’s fees. The RTC recalled and set aside its previous order declaring the notarial foreclosure of the mortgaged properties as null and void. On appeal, the CA, as previously adverted to, affirmed the RTC’s ruling.

In dismissing petitioner’s complaint and finding for Cupertino, both the lower courts upheld the validity of the amended real estate mortgage. The RTC found, as did the CA, that although the amended real estate mortgage fell within the exceptions to the parol evidence rule under Section 9, Rule 130 of the Rules of Court, petitioner still failed to overcome and debunk Cupertino’s evidence that the amended real estate mortgage had a consideration, and petitioner did receive the amount of P160,000,000.00 representing its incurred obligation to Cupertino. Both courts ruled that as between petitioner’s bare denial and negative evidence of non-receipt of theP160,000,000.00, and Cupertino’s affirmative evidence on the existence of the consideration, the latter must be given more weight and value. In all, the lower courts gave credence to Cupertino’s evidence that theP160,000,000.00 proceeds were the total amount received by petitioner and its affiliate companies over the years from Wilfredo Lua, Cupertino’s president. In this regard, the lower courts applied the doctrine of "piercing the veil of corporate fiction" to preclude petitioner from disavowing receipt of the P160,000,000.00 and paying its obligation under the amended real estate mortgage.

Undaunted, petitioner filed this appeal insisting on the nullity of the amended real estate mortgage. Petitioner is adamant that the amended real estate mortgage is void as it did

not receive the agreed consideration therefor i.e.P160,000,000.00. Petitioner avers that the amended real estate mortgage does not accurately reflect the agreement between the parties as, at the time it signed the document, it actually had yet to receive the amount ofP160,000,000.00. Lastly, petitioner asseverates that the lower courts erroneously applied the doctrine of "piercing the veil of corporate fiction" when both gave credence to Cupertino’s evidence showing that petitioner’s affiliates were the previous recipients of part of the P160,000,000.00 indebtedness of petitioner to Cupertino.

We are in complete accord with the lower courts’ rulings.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are considered conclusive between the parties.9A review of such findings by this Court is not warranted except upon a showing of highly meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on speculation, surmises or conjectures; (2) when a lower court’s inference from its factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence, or are contradicted by evidence on record.10 None of these exceptions necessitating a reversal of the assailed decision obtains in this instance.

Conversely, we cannot subscribe to petitioner’s faulty reasoning.

First. All the loan documents, on their face, unequivocally declare petitioner’s indebtedness to Cupertino:

1. Promissory Note dated April 10, 1995, prefaced with a "[f]or value received," and the escrow arrangement for the release of the P37,000,000.00 obligation in favor of DBP, another creditor of petitioner.

2. Mortgage likewise dated April 10, 1995 executed by petitioner to secure its P37,000,000.00 loan obligation with Cupertino.

3. Amendment to Promissory Note for P37,000,000.00 dated April 12, 1995 which tentatively sets the interest rate at seventeen percent (17%) per annum.

4. Promissory Note dated August 16, 1995, likewise prefaced with "[f]or value received," and unconditionally promising to pay Cupertino P160,000,000.00 with a stipulation on compounding interest at thirty percent (30%) per annum. The Promissory Note requires, among others, the execution of a real estate mortgage to serve as collateral therefor. In case of default in payment, petitioner,

specifically, through its president, Cua Le Leng, authorizes Cupertino to "dispose of said security or any part thereof at [a] public sale."

5. Amendment of Real Estate Mortgage also dated August 16, 1995 with a recital that the mortgagor, herein petitioner, has increased its loan payable to the mortgagee, Cupertino, from P37,000,000.00 toP197,000,000.00. In connection with the increase in loan obligation, the parties confirmed and ratified the Real Estate Mortgage dated April 10, 1995.

Unmistakably, from the foregoing chain of transactions, a presumption has arisen that the loan documents were supported by a consideration.

Rule 131, Section 3 of the Rules of Court specifies that a disputable presumption is satisfactory if uncontradicted and not overcome by other evidence. Corollary thereto, paragraphs (r) and (s) thereof and Section 24 of the Negotiable Instruments Law read:

SEC. 3. Disputable presumptions.— The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence:

x x x x

(r) That there was sufficient consideration for a contract;

(s) That a negotiable instrument was given or indorsed for a sufficient consideration;

x x x

SEC. 24. Presumption of consideration.— Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

Second. The foregoing notwithstanding, petitioner insists that the Amended Real Estate Mortgage was not supported by a consideration, asserting non-receipt of the P160,000,000.00 loan increase reflected in the Amended Real Estate Mortgage. However, petitioner’s bare-faced assertion does not even dent, much less, overcome the aforesaid presumptions on consideration for a contract. As deftly pointed out by the trial court:

x x x In this case, this Court finds that the [petitioner] has not been able to establish its claim of non-receipt by a preponderance of evidence. Rather, the Court is inclined to give more weight and credence to the affirmative and straightforward testimony of [Cupertino] explaining in plain and categorical words that the Php197,000,000.00 loan represented by the amended REM was the total sum of the debit memo, the checks, the real estate mortgage and the amended real estate mortgage, the pledges of jewelries, the trucks and the condominiums plus the interests that will be incurred which all in all amounted to Php197,000,000.00. It is a basic axiom in this jurisdiction that as between

the plaintiff’s negative evidence of denial and the defendant’s affirmative evidence on the existence of the consideration, the latter must be given more weight and value. Moreover, [Cupertino’s] foregoing testimony on the existence of the consideration of the Php160,000,000.00 promissory note has never been refuted nor denied by the [petitioner], who while initially having manifested that it will present rebuttal evidence eventually failed to do so, despite all available opportunities accorded to it. By such failure to present rebutting evidence, [Cupertino’s] testimony on the existence of the consideration of the amended real estate mortgage does not only become impliedly admitted by the [petitioner], more significantly, to the mind of this Court, it is a clear indication that [petitioner] has no counter evidence to overcome and defeat the [Cupertino’s] evidence on the matter. Otherwise, there is no logic for [petitioner] to withhold it if available. Assuming that indeed it exists, it may be safely assumed that such evidence having been willfully suppressed is adverse if produced.

The presentation by [petitioner] of its cash Journal Receipt Book as proof that it did not receive the proceeds of the Php160,000,000.00 promissory note does not likewise persuade the Court. In the first place, the subject cash receipt journal only contained cash receipts for the year 1995. But as appearing from the various checks and debit memos issued by Wilfredo Lua and his wife, Vicky Lua and from the former’s unrebutted testimony in Court, the issuance of the checks, debit memos, pledges of jewelries, condominium units, trucks and the other components of the Php197,000,000.00 amended real estate mortgage had all taken place prior to the year 1995, hence, they could not have been recorded therein. What is more, the said cash receipt journal appears to be prepared solely at the behest of the [petitioner], hence, can be considered as emanating from a "poisonous tree" therefore self-serving and cannot be given any serious credibility.11

Significantly, petitioner asseverates that the parol evidence rule, which excludes other evidence, apart from the written agreement, to prove the terms agreed upon by the parties contained therein,12 is not applicable to the Amended Real Estate Mortgage. Both the trial and appellate courts agreed with petitioner and did not apply the parol evidence rule. Yet, despite the allowance to present evidence and prove the invalidity of the Amended Real Estate Mortgage, petitioner still failed to substantiate its claim of non-receipt of the proceeds of theP160,000,000.00 loan increase.

Moreover, petitioner was the plaintiff in the trial court, the party that brought suit against respondent. Accordingly, it had the burden of proof, the duty to present a preponderance of evidence to establish its claim.13 However, petitioner’s evidence consisted only of a barefaced denial of receipt and a vaguely drawn theory that in their previous loan transaction with respondent covered by the first promissory note, it did not receive the proceeds of the P37,000,000.00. Petitioner conveniently ignores that this particular promissory note secured by the real estate mortgage was under an escrow arrangement and taken out to pay its obligation to DBP. Thus, petitioner, quite obviously, would not be in possession of the proceeds of the loan. Contrary to petitioner’s contention, there is no precedent to explain its stance that respondent

undertook to release the P160,000,000.00 loan only after it had first signed the Amended Real Estate Mortgage.1avvphi1

Third. Petitioner bewails the lower courts’ application of the doctrine of "piercing the veil of corporate fiction."

As a general rule, a corporation will be deemed a separate legal entity until sufficient reason to the contrary appears.14 But the rule is not absolute. A corporation’s separate and distinct legal personality may be disregarded and the veil of corporate fiction pierced when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime.15

In this case, Cupertino presented overwhelming evidence that petitioner and its affiliate corporations had received the proceeds of the P160,000,000.00 loan increase which was then made the consideration for the Amended Real Estate Mortgage. We quote with favor the RTC’s and the CA’s disquisitions on this matter:

That the checks, debit memos and the pledges of the jewelries, condominium units and trucks were constituted not exclusively in the name of [petitioner] but also either in the name of Yuyek Manufacturing Corporation, Siain Transport, Inc., Cua Leleng and Alberto Lim is of no moment. For the facts established in the case at bar has convinced the Court of the propriety to apply the principle known as "piercing the veil of the corporate entity" by virtue of which, the juridical personalities of the various corporations involved are disregarded and the ensuing liability of the corporation to attach directly to its responsible officers and stockholders. x x x

x x x x

The conjunction of the identity of the [petitioner] corporation in relation to Siain Transport, Inc. (Siain Transport), Yuyek Manufacturing Corp. (Yuyek), as well as the individual personalities of Cua Leleng and Alberto Lim has been indubitably shown in the instant case by the following established considerations, to wit:

1. Siain and Yuyek have [a] common set of [incorporators], stockholders and board of directors;

2. They have the same internal bookkeeper and accountant in the person of Rosemarie Ragodon;

3. They have the same office address at 306 Jose Rizal St., Mandaluyong City;

4. They have the same majority stockholder and president in the person of Cua Le Leng; and

5. In relation to Siain Transport, Cua Le Leng had the unlimited authority by and on herself, without authority from the Board of Directors, to use the funds of Siain Trucking to pay the obligation incurred by the [petitioner] corporation.

Thus, it is crystal clear that [petitioner] corporation, Yuyek and Siain Transport are characterized by oneness of operations vested in the person of their common president, Cua Le Leng, and unity in the keeping and maintenance of their corporate books and records through their common accountant and bookkeeper, Rosemarie Ragodon. Consequently, these corporations are proven to be the mere alter-ego of their president Cua Leleng, and considering that Cua Leleng and Alberto Lim have been living together as common law spouses with three children, this Court believes that while Alberto Lim does not appear to be an officer of Siain and Yuyek, nonetheless, his receipt of certain checks and debit memos from Willie Lua and Victoria Lua was actually for the account of his common-law wife, Cua Leleng and her alter ego corporations. While this Court agrees with Siain that a corporation has a personality separate and distinct from its individual stockholders or members, this legal fiction cannot, however, be applied to its benefit in this case where to do so would result to injustice and evasion of a valid obligation, for well settled is the rule in this jurisdiction that the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice, or for purposes that could not have been intended by the law that created it; or to justify wrong, or for evasion of an existing obligation. Resultantly, the obligation incurred and/or the transactions entered into either by Yuyek, or by Siain Trucking, or by Cua Leleng, or by Alberto Lim with Cupertino are deemed to be that of the [petitioner] itself.

The same principle equally applies to Cupertino. Thus, while it appears that the issuance of the checks and the debit memos as well as the pledges of the condominium units, the jewelries, and the trucks had occurred prior to March 2, 1995, the date when Cupertino was incorporated, the same does not affect the validity of the subject transactions because applying again the principle of piercing the corporate veil, the transactions entered into by Cupertino Realty Corporation, it being merely the alter ego of Wilfredo Lua, are deemed to be the latter’s personal transactions and vice-versa.16

x x x x

x x x Firstly. As can be viewed from the extant record of the instant case, Cua Leleng is the majority stockholder of the three (3) corporations namely, Yuyek Manufacturing Corporation, Siain Transport, Inc., and Siain Enterprises Inc., at the same time the President thereof. Second. Being the majority stockholder and the president, Cua Le leng has the unlimited power, control and authority without the approval from the board of directors to obtain for and in behalf of the [petitioner] corporation from [Cupertino] thereby mortgaging her jewelries, the condominiums of her common law husband, Alberto Lim, the trucks registered in the name of [petitioner] corporation’s sister company, Siain Transport Inc., the subject lots registered in the name of [petitioner] corporation and her oil mill property at Iloilo City. And, to apply the proceeds thereof in whatever way she wants, to the prejudice of the public.

As such, [petitioner] corporation is now estopped from denying the above apparent authorities of Cua Le Leng who holds herself to the public as possessing the power to do those acts, against any person who dealt in good faith as in the case of Cupertino.17

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 71424 is AFFIRMED. Costs against the petitioner.

SO ORDERED.

ANTONIO EDUARDO B. NACHURAAssociate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGOAssociate Justice

Chairperson

MINITA V. CHICO-NAZARIOAssociate Justice

PRESBITERO J. VELASCO, JR.Associate Justice

DIOSDADO M. PERALTAAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGOAssociate JusticeChairperson, Third Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice