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Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. L-56169 June 26, 1992

TRAVEL-ON, INC., petitioner,

vs.

COURT OF APPEALS and ARTURO S. MIRANDA, respondents.

R E S O L U T I O N

FELICIANO, J.:

Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on

commission basis for and in behalf of different airline companies. Private respondent

Arturo S. Miranda had a revolving credit line with petitioner. He procured tickets from

petitioner on behalf of airline passengers and derived commissions therefrom.

On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of

Manila to collect on six (6) checks issued by private respondent with a total face

amount of P115,000.00. The complaint, with a prayer for the issuance of a writ of

preliminary attachment and attorney's fees, averred that from 5 August 1969 to 16

January 1970, petitioner sold and delivered various airline tickets to respondent at a

total price of P278,201.57; that to settle said account, private respondent paid

various amounts in cash and in kind, and thereafter issued six (6) postdated checks

amounting to P115,000.00 which were all dishonored by the drawee banks. Travel-

On further alleged that in March 1972, private respondent made another payment of

P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was

granted by the court a quo.

In his answer, private respondent admitted having had transactions with Travel-On

during the period stipulated in the complaint. Private respondent, however, claimed

that he had already fully paid and even overpaid his obligations and that refunds

were in fact due to him. He argued that he had issued the postdated checks for

purposes of accommodation, as he had in the past accorded similar favors to

petitioner. During the proceedings, private respondent contested several tickets

alleged to have been erroneously debited to his account. He claimed reimbursement

of his alleged over payments, plus litigation expenses, and exemplary and moral

damages by reason of the allegedly improper attachment of his properties.

In support of his theory that the checks were issued for accommodation, private

respondent testified that he bad issued the checks in the name of Travel-On in order

that its General Manager, Elita Montilla, could show to Travel-On's Board of Directorsthat the accounts receivable of the company were still good. He further stated that

Elita Montilla tried to encash the same, but that these were dishonored and were

subsequently returned to him after the accommodation purpose had been attained.

Travel-On's witness, Elita Montilla, on the other hand explained that the

"accommodation" extended to Travel-On by private respondent related to situations

where one or more of its passengers needed money in Hongkong, and upon request

of Travel-On respondent would contact his friends in Hongkong to advance

Hongkong money to the passenger. The passenger then paid Travel-On upon his

return to Manila and which payment would be credited by Travel-On to respondent's

running account with it.

In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay

private respondent the amount of P8,894.91 representing net overpayments by

private respondent, moral damages of P10,000.00 for the wrongful issuance of the

writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and

the costs of the suit.

The trial court ruled that private respondent's indebtedness to petitioner was not

satisfactorily established and that the postdated checks were issued not for the

purpose of encashment to pay his indebtedness but to accommodate the General

Manager of Travel-On to enable her to show to the Board of Directors that Travel-On

was financially stable.

Petitioner filed a motion for reconsideration that was, however, denied by the trial

court, which in fact then increased the award of moral damages to P50,000.00.

On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced

the award of moral damages to P20,000.00, with interest at the legal rate from the

date of the filing of the Answer on 28 August 1972.

Petitioner moved for reconsideration of the Court of Appeal's' decision, without

success.

In the instant Petition for Review, it is urged that the postdated checks are per

se evidence of liability on the part of private respondent. Petitioner further argues

that even assuming that the checks were for accommodation, private respondent is

still liable thereunder considering that petitioner is a holder for value.

Both the trial and appellate courts had rejected the checks as evidence of

indebtedness on the ground that the various statements of account prepared by

petitioner did not show that Private respondent had an outstanding balance of

P115,000.00 which is the total amount of the checks he issued. It was pointed out

that while the various exhibits of petitioner showed various accountabilities of

private respondent, they did not satisfactorily establish the amount of the

outstanding indebtedness of private respondent. The appellate court made much of

the fact that the figures representing private respondent's unpaid accounts found in

the "Schedule of Outstanding Account" dated 31 January 1970 did not tally with the

figures found in the statement which showed private respondent's transactions with

petitioner for the years 1969 and 1970; that there was no satisfactory explanation

as to why the total outstanding amount of P278,432.74 was still used as basis in theaccounting of 7 April 1972 considering that according to the table of transactions for



the year 1969 and 1970, the total unpaid account of private respondent amounted

to P239,794.57.

We have, however, examined the record and it shows that the 7 April 1972

Statement of Account had simply not been updated; that if we use as basis the

figure as of 31 January 1970 which is P278,432.74 and from it deduct P38,638.17

which represents some of the payments subsequently made by private respondent,

the figure — P239,794.57 will be obtained.

Also, the fact alone that the various statements of account had variances in figures,simply did not mean that private respondent had no more financial obligations to

petitioner. It must be stressed that private respondent's account with petitioner was

a running or open one, which explains the varying figures in each of the statements

rendered as of a given date.

The appellate court erred in considering only the statements of account in

determining whether private respondent was indebted to petitioner under the

checks. By doing so, it failed to give due importance to the most telling piece of

evidence of private respondent's indebtedness — the checks themselves which he

had issued.

Contrary to the view held by the Court of Appeals, this Court finds that the checks

are the all important evidence of petitioner's case; that these checks clearly

established private respondent's indebtedness to petitioner; that private respondent

was liable thereunder.

It is important to stress that a check which is regular on its face is deemed prima

facie to have been issued for a valuable consideration and every person whose

signature appears thereon is deemed to have become a party thereto for

value. 1 Thus, the mere introduction of the instrument sued on in evidence prima

facie entitles the plaintiff to recovery. Further, the rule is quite settled that a

negotiable instrument is presumed to have been given or indorsed for a sufficient

consideration unless otherwise contradicted and overcome by other competent

evidence. 2

In the case at bar, the Court of Appeals, contrary to these established rules, placed

the burden of proving the existence of valuable consideration upon petitioner. Thiscannot be countenanced; it was up to private respondent to show that he had

indeed issued the checks without sufficient consideration. The Court considers that

Private respondent was unable to rebut satisfactorily this legal presumption. It must

also be noted that those checks were issued immediately after a letter demanding

payment had been sent to private respondent by petitioner Travel-On.

The fact that all the checks issued by private respondent to petitioner were

presented for payment by the latter would lead to no other conclusion than that

these checks were intended for encashment. There is nothing in the checks

themselves (or in any other document for that matter) that states otherwise.

We are unable to accept the Court of Appeals' conclusion that the checks here

involved were issued for "accommodation" and that accordingly private respondentmaker of those checks was not liable thereon to petitioner payee of those checks.

In the first place, while the Negotiable Instruments Law does refer to

accommodation transactions, no such transaction was here shown. Section 29 of the

Negotiable Instruments Law provides as follows:

Sec. 29. Liability of accommodation party . — An accommodation

party is one who has signed the instrument as maker, drawer,

acceptor, or indorser, without receiving value therefor, and for the

purpose of lending his name to some other person. Such a person

is liable on the instrument to a holder for value, notwithstanding

such holder, at the time of taking the instrument, knew him to beonly an accommodation party.

In accommodation transactions recognized by the Negotiable Instruments

Law, an accommodating party lends his credit to the accommodated party,

by issuing or indorsing a check which is held by a payee or indorsee as a

holder in due course, who gave full value therefor to the accommodated

party. The latter, in other words, receives or realizes full value which the

accommodated party then must repay to the accommodating party, unless

of course the accommodating party intended to make a donation to the

accommodated party. But the accommodating party is bound on the check

to the holder in due course who is necessarily a third party and is not the

accommodated party. Having issued or indorsed the check, the

accommodating party has warranted to the holder in due course that hewill pay the same according to its tenor. 3

In the case at bar, Travel-On was payee of all six (6) checks, it presented these

checks for payment at the drawee bank but the checks bounced. Travel-On

obviously was not an accommodated party; it realized no value on the checks which

bounced.

Travel-On was entitled to the benefit of the statutory presumption that it was a

holder in due course, 4 that the checks were supported by valuable

consideration. 5 Private respondent maker of the checks did not successfully rebut

these presumptions. The only evidence aliunde that private respondent offered was

his own self-serving uncorroborated testimony. He claimed that he had issued the

checks to Travel-On as payee to "accommodate" its General Manager who allegedly

wished to show those checks to the Board of Directors of Travel-On to "prove" that

Travel-On's account receivables were somehow "still good." It will be seen that this

claim was in fact a claim that the checks were merely simulated, that private

respondent did not intend to bind himself thereon. Only evidence of the clearest and

most convincing kind will suffice for that purpose; 6 no such evidence was submitted

by private respondent. The latter's explanation was denied by Travel-On's General

Manager; that explanation, in any case, appears merely contrived and quite hollow

to us. Upon the other hand, the "accommodation" or assistance extended to Travel-

On's passengers abroad as testified by petitioner's General Manager involved, not

the accommodation transactions recognized by the NIL, but rather the

circumvention of then existing foreign exchange regulations by passengers booked

by Travel-On, which incidentally involved receipt of full consideration by private

respondent.



Thus, we believe and so hold that private respondent must be held liable on the six

(6) checks here involved. Those checks in themselves constituted evidence of

indebtedness of private respondent, evidence not successfully overturned or

rebutted by private respondent.

Since the checks constitute the best evidence of private respondent's liability to

petitioner Travel-On, the amount of such liability is the face amount of the checks,

reduced only by the P10,000.00 which Travel-On admitted in its complaint to have

been paid by private respondent sometime in March 1992.

The award of moral damages to Private respondent must be set aside, for the reason

that Petitioner's application for the writ of attachment rested on sufficient basis and

no bad faith was shown on the part of Travel-On. If anyone was in bad faith, it was

private respondent who issued bad checks and then pretended to have

"accommodated" petitioner's General Manager by assisting her in a supposed

scheme to deceive petitioner's Board of Directors and to misrepresent Travel-On's

financial condition.

ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review

on Certiorari and to REVERSE and SET ASIDE the Decision dated 22 October 1980

and the Resolution of 23 January 1981 of the Court of Appeals, as well as the

Decision dated 31 January 1975 of the trial court, and to enter a new decision

requiring private respondent Arturo S. Miranda to pay to petitioner Travel-On the

amount of P105,000.00 with legal interest thereon from 14 June 1972, plus ten

percent (10%) of the total amount due as attorney's fees. Costs against Private

respondent.

Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.

Footnotes

1 Section 24 of the Negotiable Instruments Law provides:

Section 24. Presumption of consideration. — Every negotiable

instrument is deemed prima facie to have been issued for avaluable consideration; and every person whose signature appears

thereon to have become a party thereto for value.

Section 5(s) of Rule 131 also establishes the presumption "[t]hat a

negotiable instrument was given or indorsed for a sufficient

consideration; . . ."

2 Pineda vs. dela Rama, 121 SCRA 671 (1983); Bank of Philippine

Islands vs. Laguna Coconut Oil Co., 48 Phil. 5 (1925).


Section 60. Liability of maker . — The maker of a negotiableinstrument, by making it, engages that he will pay it according to

its tenor, and admits the existence of the payee and his then

capacity to indorse.

Further, Section 61 provides:

Section 61. Liability of drawer . — The drawer by drawing the

instrument admits the existence of the payee and his then

capacity to indorse; and engages that, on due presentment, the

instrument will be accepted or paid, or both, according to its tenor,

and that if it be dishonored and the necessary proceedings ondishonor be duly taken, he will pay the amount thereof to the

holder or to any subsequent indorser who may be compelled to

pay it. . . .

Finally, Section 66 provides:

Section 66. Liability of general indorser . — Every indorser who

indorses without qualification, warrants to all subsequent holders

in due course:

xxx xxx xxx

And in addition, he engages that, on due presentment, it shall be

accepted or paid, or both, as the case may be, according to its

tenor, and that if it be dishonored and the necessary proceedings

on dishonor be duly taken, he will pay the amount thereof to the

holder, or to any subsequent indorser who may be compelled to

pay it.


Section 59. — Who is deemed holder in due course. — Every

holder is deemed prima facie to be a holder in due course; . . .

See Also Fossum v. Fernandez Hermanos, 44 Phil. 713 (1923).

5 Section 24, Negotiable Instruments Law, supra; A similarprovision is found in Article 1354, Civil Code of the Philippines:

Art. 1354. Although the cause is not stated in the contract, it is

presumed that it exists and is lawful, unless the debtor proves the

contrary.

Also Penaco v. Ruaya, 110 SCRA 46 (1981).

6 See generally Cuyugan v. Santos, 34 Phil. 100 (1916); Tolentino

v. Gonzales, 50 Phil. 558 (1927).




SUPREME COURT

Manila

EN BANC

G.R. No. 110782 September 25, 1998

IRMA IDOS, petitioner,

vs.

COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

QUISUMBING, J.:

Before this Court is the petition for review of the Decision of respondent Court of

Appeals 1 dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her

conviction as well as the sentence imposed on her by the Regional Trial Court of

Malolos, Bulacan, in Criminal Case No. 1395-M-88 2 as follows:

WHEREFORE . . . the (c)ourt finds the accused Irma Idos guiltybeyond reasonable doubt and is hereby sentenced to suffer the

penalty of imprisonment of six (6) months and to pay a fine of

P135,000.00 and to pay private complainant Eddie Alarilla the

amount of the check in question of P135,000.00 at 12% interest

from the time of the filing of the (i)nformation (August 10, 1988)

until said amount has been fully paid.

Elevated from the Third Division 3 of this Court, the case was accepted for

resolution en banc on the initial impression that here, a constitutional question

might be involved. 4 It was opined that petitioner's sentence, particularly six months'

imprisonment, might be in violation of the constitutional guarantee against

imprisonment for non-payment of a debt. 5

A careful consideration of the issues presented in the petition as well as the

comments thereon and the findings of fact by the courts below in the light of

applicable laws and precedents convinces us, however, that the constitutional

dimension need not be reached in order to resolve those issues adequately. For, as

herein discussed, the merits of the petition could be determined without delving into

aspects of the cited constitutional guarantee vis-a-vis provisions of the Bouncing

Checks Law (Batas Pambansa Blg. 22). There being no necessity therefor, we lay

aside discussions of the constitutional challenge to said law in deciding this petition.

The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning.

Her accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the

complainant below, Eddie Alarilla.

As narrated by the Court of Appeals, the background of this case is as follows:

The complainant Eddie Alarilla supplied chemicals and rawhide to

the accused-appellant Irma L. Idos for use in the latter's business

of manufacturing leather. In 1985, he joined the accused-

appellant's business and formed with her a partnership under the

style "Tagumpay Manufacturing," with offices in Bulacan and Cebu

City.

However, the partnership was short lived. In January, 1986 the

parties agreed to terminate their partnership. Upon liquidation of

the business the partnership had as of May 1986 receivables andstocks worth P1,800,000.00. The complainant's share of the assets

was P900,000.00 to pay for which the accused-appellant issued

the following postdated checks, all drawn against Metrobank

Branch in Mandaue, Cebu:

CHECK NO. DATE AMOUNT

1) 103110295 8-15-86 P135,828.87

2) 103110294 P135,828.87

3) 103115490 9-30-86 P135,828.87

4) 103115491 10-30-86 P126,656.01

The complainant was able to encash the first, second, and fourth

checks, but the third check (Exh. A) which is the subject of this

case, was dishonored on October 14, 1986 for insufficiency of

funds. The complainant demanded payment from the accused-

appellant but the latter failed to pay. Accordingly, on December

18, 1986, through counsel, he made a formal demand for

payment. (Exh. B) In a letter dated January 2, 1987, the accused-

appellant denied liability. She claimed that the check had been

given upon demand of complainant in May 1986 only as

"assurance" of his share in the assets of the partnership and that it

was not supposed to be deposited until the stocks had been sold.

Complainant then filed his complaint in the Office of the Provincial

Fiscal of Bulacan which on August 22, 1988 filed an information for

violation of BP Blg. 22 against accused-appellant.

Complainant danied that the checks issued to him by accused-

appellant were subject to the disposition of the stocks and the

collection of receivables of the business. But the accused-

appellant insisted that the complainant had known that the checks

were to be funded from the proceeds of the sale of the stocks and

the collection of receivables. She claimed that the complainant

himself asked for the checks because he did not want to continue

in the tannery business and had no use for a share of the stocks.

(TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12,16, 20, Feb. 14, 1990; id, p. 14, June 4, 1990).



On February 15, 1992, the trial court rendered judgment finding

the accused-appellant guilty of the crime charged. The accused-

appellant's motion for annulment of the decision and for

reconsideration was denied by the trial court in its order dated

April 12, 1991. 6

Herein respondent court thereafter affirmed on appeal the decision of the trial court.

Petitioner timely moved for a reconsideration, but this was subsequently denied by

respondent court in its Resolution 7 dated June 11, 1993. Petitioner has now

appealed to us by way of a petition for certiorari under Rule 45 of the Rules of Court.

During the pendency of this petition, this Court by a resolutions 8 dated August 30,

1993, took note of the compromise agreement executed between the parties,

regarding the civil aspect of the case, as manifested by petitioner in a Motion to

Render Judgment based on Compromise Agreement9 filed on August 5, 1993. After

submission of the Comment 10 by the Solicitor General, and the Reply 11 by

petitioner, this case was deemed submitted for decision.

Contending that the Court of Appeals erred in its affirmance of the trial court's

decision, petitioner cites the following reasons to justify the review of her case:

1. The Honorable Court of Appeals has decided

against the innocence of the accused based on

mere probabilities which, on the contrary, should

have warranted her acquittal on reasonable

doubt. Even then, the conclusion of the trial

court is contrary to the evidence on record,

including private complainant's judicial

admission that there was no consideration for

the check.

2 The Honorable Court of Appeals has confused

and merged into one the legal concepts of

dissolution, liquidation and termination of a

partnership and on the basis of such

misconception of the law, disregarded the fact of

absence of consideration of the check andconvicted the accused.

3 While this appeal was pending, the parties

submitted for the approval of the Honorable

Court a compromise agreement on the civil

liability. The accused humbly submits that this

supervening event, which by its terms puts to

rest any doubt the Court of Appeals had

entertained against the defense of lack of

consideration, should have a legal effect

favorable to the accused, considering that the

dishonored check constitutes a private

transaction between partners which does notinvolve the public interest, and considering

further that the offense is not one involving

moral turpitude.

4 The Honorable Court of Appeals failed to

appreciate the fact that the accused had warned

private complainant that the check was not

sufficiently funded, which should have

exonerated the accused pursuant to the ruling in

the recent case of Magno vs. Court of Appeals,

210 SCRA 471, which calls for a more flexibleand less rigid application of the Bouncing Checks

law. 12

For a thorough consideration of the merits of petitioner's appeal, we find pertinent

and decisive the following issues:

1. Whether respondent court erred in holding that the subject check was issued by

petitioner to apply on account or for value, that is, as part of the consideration of a

"buy-out" of said complainant's interest in the partnership, and not merely as a

commitment on petitioner's part to return the investment share of complainant,

along with any profit pertaining to said share, in the partnership.

2. Whether the respondent court erred in concluding that petitioner issued the

subject check knowing at the time of issue that she did not have sufficient funds in

or credit with the drawee bank and without communicating this fact of insufficiency

of funds to the complainant.

Both inquiries boil down into one ultimate issue: Did the respondent court err in

affirming the trial court's judgment that she violated Batas Pambansa Blg. 22?

Considering that penal statutes are strictly construed against the state and liberally

in favor of the accused, it bears stressing that for an act to be punishable under the

B.P. 22, it "must come clearly within both the spirit and the letter of the

statue. 13 Otherwise, the act has to be declared outside the law's ambit and a plea of

innocence by the accused must be sustained.

The relevant provisions of B.P. 22 state that:

Sec. 1. Checks without sufficient funds. — Any person who makes

or draws and issues any check to apply on account or for

value, knowing at the time of issue that he does not have

sufficient funds in or credit with the drawee bank for the payment

of such check in full upon its presentment , which check is

subsequently dishonored by the drawee bank for insufficiency of

funds or credit or would have been dishonored for the same

reason had not the drawer, without any valid reason, ordered the

bank to stop payment, shall be punished by imprisonment of not

less than thirty days but not more than one (1) year or by a fine of

not less than but not more than double the amount of the check

which fine shall in no case exceed Two hundred thousand pesos, orboth such fine and imprisonment at the discretion of the court.



The same penalty shall be imposed upon any person who having

sufficient funds in or credit with the drawee bank when he makes

or draws and issues a check, shall fail to keep sufficient funds or to

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

presented within a period of ninety (90) days from the date

appearing thereon, for which reason it is dishonored by the drawee

bank.

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

person or persons who actually signed the check in behalf of suchdrawer shall be liable under this Act.

Sec. 2. Evidence of knowledge of insufficient funds. — The making,

drawing and issuance of a check payment of which is refused by

the drawee because of insufficient funds in or credit with such

bank, when presented within ninety (90) days from the date of the

check, shall be prima facie evidence of knowledge of such

insufficiency of funds or credit unless such maker or drawer pays

the holder thereof the amount due thereon or makes

arrangements for payment in full by the drawee of such check

within five (5) banking days after receiving notice that such check

has not been paid by the drawee. (Emphasis supplied)

As decided by this Court, the elements of the offense penalized under B.P. 22, are as

follows: "(1) the making, drawing and issuance of any check to apply to account or

for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue

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

of such check in full upon its presentment; and (3) subsequent dishonor of the check

by the drawee bank for insufficiency of funds or credit or dishonor for the same

reason had not the drawer, without any valid cause, ordered the bank to stop

payment. 14

In the present case, with regard to the first issue, evidence on record would show

that the subject check was to be funded from receivables to be collected and goods

to be sold by the partnership, and only when such collection and sale were

realized. 15 Thus, there is sufficient basis for the assertion that the petitioner issued

the subject check (Metrobank Check No. 103115490 dated October 30, 1986, in the

amount of P135,828.87) to evidence only complainant's share or interest in the

partnership, or at best, to show her commitment that when receivables are collected

and goods are sold, she would give to private complainant the net amount due him

representing his interest in the partnership. It did not involve a debt of or any

account due and payable by the petitioner.

Two facts stand out. Firstly, three of four checks were properly encashed by

complainant; only one (the third) was not. But eventually even this one was

redeemed by petitioner. Secondly, even private complainant admitted that there

was no consideration whatsoever for the issuance of the check, whose funding was

dependent on future sales of goods and receipts of payment of account receivables.

Now, it could not be denied that though the parties — petitioner and complainant —had agreed to dissolve the partnership, such ageement did not automatically put an

end to the partnership, since they still had to sell the goods on hand and collect the

receivables from debtors. In short, they were still in the process of "winding up" the

affairs of the partnership, when the check in question was issued.

Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2)

winding-up; and (3) termination. These stages are distinguished, to wit:

(1) Dissolution Defined

Dissolution is the change in

the relation of the partners

caused by any partner ceasing

to be associated in the

carrying on of the business

(Art. 1828). It is that point of

time the time the partners

cease to carry on the business

tonether. (Citation omitted).

(2) Winding Up Defined

Winding up is the process of

settling business affairs of

dissolution.

(NOTE: Examples of winding

up: the paying of previous

obligations; the collecting of

assets previously demandable;

even new business if needed

to wind up, as the contracting

with a demolition company for

the demolition of the garage

used in a "used car"

partnership.)

(3) Termination Defined

Termination is the point in time after all the partnership affairs have been wound

up. 16 [Citation omitted] (Emphasis supplied).

These final stages in the life of a partnership are recognized under the Civil Code

that explicitly declares that upon dissolution, the partnership is not terminated, to

wit:

Art 1828. The dissolution of a partnership is the change in the

relation of the partners caused by any partner ceasing to be

associated in the carrying on as distinguished from the winding up

of the business.



Art. 1829. On dissolution the partnership is not terminated, but

continues until the winding up of partnership affairs is completed.

(Emphasis supplied.)

The best evidence of the existence of the partnership, which was not yet terminated

(though in the winding up stage), were the unsold goods and uncollected

receivables, which were presented to the trial court. Since the partnership has not

been terminated, the petitioner and private complainant remained as co-partners.

The check was thus issued by the petitioner to complainant, as would a partner to

another, and not as payment from a debtor to a creditor.

The more tenable view, one in favor of the accused, is that the check was issued

merely to evidence the complainant's share in the partnership property, or to assure

the latter that he would receive in time his due share therein. The alternative view

that the check was in consideration of a "buy out" is but a theory, favorable to the

complainant, but lacking support in the record; and must necessarily be discarded.

For there is nothing on record which even slightly suggest that petitioner ever

became interested in acquiring, much less keeping, the shares of the complainant.

What is very clear therefrom is that the petitioner exerted her best efforts to sell the

remaining goods and to collect the receivables of the partnership, in order to come

up with the amount necessary to satisfy the value of complainant's interest in the

partnership at the dissolution thereof. To go by accepted custom of the trade, we are

more inclined to the view that the subject check was issued merely to evidence

complainant's interest in the partnership. Thus, we are persuaded that the check

was not intended to apply on account or for value; rather it should be deemed as

having been drawn without consideration at the time of issue.

Absent the first element of the offense penalized under B.P. 22, which is "the

making, drawing and issuance of any check to apply on account or for value",

petitioner's issuance of the subject check was not an act contemplated in nor made

punishable by said statute.

As to the second issue, the Solicitor General contends that under the Bouncing

Checks Law, the elements of deceit and damage are not essential or required to

constitute a violation thereof. In his view, the only essential element is the

knowledge on the part of the maker or drawer of the check of the insufficiency of his/her funds at the time of the issuance of said check.

The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a

special offense punishable by law. "Malice or intent in issuing the worthless check is

immaterial, the offense being malum

prohibitum," 17 so goes the argument for the public respondents.

But of course this could not be an absolute proposition without descending to

absurdity. For if a check were issued by a kidnap victim to a kidnapper for ransom, it

would be absurd to hold the drawer liable under B.P. 22, if the check is dishonored

and unpaid. That would go against public policy and common sense.

Public respondents further contend that "since petitioner issued the check in favor of complainant. Alarilla and when notified that it was returned for insufficiency of

funds, failed to make good the check, then petitioner is liable for violation of B.P.

22.18 Again, this matter could not be all that simple. For while "the maker's

knowledge of the insufficiency of funds is legally presumed from the dishonor of his

checks for insufficiency of funds, 19 this presumption is rebuttable.

In the instant case, there is only a prima facie presumption which did not preclude

the presentation of contrary evidence. 20In fact, such contrary evidence on two

points could be gleaned from the record concerning (1) lack of actual knowledge of

insufficiency of funds; and (2) lack of adequate notice of dishonor.

Noteworthy for the defense, knowledge of insufficiency of funds or credit in the

drawee bank for the payment of a check upon its presentment is an essential

element of the offense. 21 It must be proved, particularly where the prima

facie presumption of the existence of this element has been rebutted. The prima

facie presumption arising from the fact of drawing, issuing or making a check, the

payment of which was subsequently refused for insufficiency of funds is, moreover,

not sufficient proof of guilt by the issuer.

In the case of Nieva v. Court of Appeals, 22 it was held that the subsequent dishonor

of the subject check issued by accused merely engendered the prima

facie presumption that she knew of the insufficiency of funds, but did not render the

accused automatically guilty under B.P. 22. 23

The prosecution has a duty to prove all the elements of the crime,

including the acts that give rise to the prima facie presumption;

petitioner, on the other hand, has a right to rebut the prima

faciepresumption. Therefore, if such knowledge of insufficiency of

funds is proven to be actually absent or non-existent, the accused

should not be held liable for the offense defined under the first

paragraph of Section 1 of B.P. 22. Although the offense charged is

a malum prohibitum, the prosecution is not thereby excused from

its responsibility of proving beyond reasonable doubt all the

elements of the offense, one of which is knowledge of the

insufficiency of funds.

Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing

the check, be shown that he knows at the time of issue, that he does not havesufficient funds in or credit with the drawee bank for the payment of such check in

full upon its presentment.

In the case at bar, as earlier discussed, petitioner issued the check merely to

evidence the proportionate share of complainant in the partnership assets upon its

dissolution. Payment of that share in the partnership was conditioned on the

subsequent realization of profits from the unsold goods and collection of the

receivables of the firm. This condition must be satisfied or complied with before the

complainant can actually "encash" the check. The reason for the condition is that

petitioner has no independent means to satisfy or discharge the complainant's

share, other than by the future sale and collection of the partnership assets. Thus,

prior to the selling of the goods and collecting of the receivables, the complainant

could not, as of yet, demand his proportionate share in the business. This situationwould hold true until after the winding up, and subsequent termination of the



partnership. For only then, when the goods were already sold and receivables paid

that cash money could be availed of by the erstwhile partners.

Complainant did not present any evidence that petitioner signed and issued four

checks actually knowing that funds therefor would be insufficient at the time

complainant would present them to the drawee bank. For it was uncertain at the

time of issuance of the checks whether the unsold goods would have been sold, or

whether the receivables would have been collected by the time the checks would be

encashed. As it turned out, three were fully funded when presented to the bank; the

remaining one was settled only later on.

Since petitioner issued these four checks without actual knowledge of the

insufficiency of funds, she could not be held liable under B.P. 22 when one was not

honored right away. For it is basic doctrine that penal statutes such as B.P. 22 "must

be construed with such strictness as to carefully safeguard the rights of the

defendant . . ." 24 The element of knowledge of insufficiency of funds has to be

proved by the prosecution; absent said proof, petitioner could not be held criminally

liable under that law. Moreover, the presumption of prima facie knowledge of such

insufficiency in this case was actually rebutted by petitioner's evidence.

Further, we find that the prosecution also failed to prove adequate notice of dishonor

of the subject check on petitioner's part, thus precluding any finding of prima

facie evidence of knowledge of insufficiency of funds. There is no proof that notice of

dishonor was actually sent by the complainant or by the drawee bank to the

petitioner. On this point, the record is bereft of evidence to the contrary.

But in fact, while the subject check initially bounced, it was later made good by

petitioner. In addition, the terms of the parties' compromise agreement, entered into

during the pendency of this case, effectively invalidates the allegation of failure to

pay or to make arrangement for the payment of the check in full. Verily, said

compromise agreement constitutes an arrangement for the payment in full of the

subject check.

The absence of notice of dishonor is crucial in the present case. As held by this Court

in prior cases:

Because no notice of dishonor was actually sent to and receivedby the petitioner, the prima facie presumption that she knew

about the insufficiency of funds cannot apply. Section 2 of B.P. 22

clearly provides that this presumption arises not from the mere

fact of drawing, making and issuing a bum check; there must also

be a showing that, within five banking days from receipt of the

notice of dishonor, such maker or drawer failed to pay the holder

of the check the amount due thereon or to make arrangement for

its payment in full by the drawee of such check. 25 [Emphasis

supplied.]

The absence of a notice of dishonor necessarily deprives an

accused an opportunity to preclude a criminal prosecution.

Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to

demand — and the basic postulates of fairness require — that the

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

her the opportunity to avert prosecution under

B.P. 26

Further, what militates strongly against public respondents' stand is the fact that

petitioner repeatedly notified the complainant of the insufficiency of funds.

Instructive is the following pronouncement of this Court in Magno v. Court of

Appeals:

Furthermore, the element of "knowing at the time of issue that he

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

for the payment of such check in full upon its presentment, which

check is subsequently dishonored by the drawee bank for

insufficiency of funds or credit or would have been dishonored for

the same reason . . ." is inversely applied in this case. From the

very beginning. petitioner never hid the fact that he did not have

the funds with which to put up the warranty deposit and as a

matter of fact, he openly intimated this to the vital conduit of the

transaction, Joey Gomez, to whom petitioner was introduced by

Mrs. Teng. It would have been different if this predicament was not

communicated to all the parties he dealt with regarding the lease

agreement the financing or which was covered by L.S. Finance

Management. " 27

In the instant case, petitioner intimated to private complainant the possibility that

funds might be insufficient to cover the subject check, due to the fact that the

partnership's goods were yet to be sold and receivables yet to be collected.

As Magno had well observed:

For all intents and purposes, the law was devised to safeguard the

interest of the banking system and the legitimate public checking

account user. It did not intend to shelter or favor nor encourage

users of the system to enrich themselves through manipulations

and circumvention of the noble purpose and objective of the law.

Least should it be used also as a means of jeopardizing honest-to-goodness transactions with some color of "get-rich" scheme to the

prejudice of well-meaning businessmen who are the pillars of

society.

xxx xxx xxx

Thus, it behooves upon a court of law that in applying the

punishment imposed upon the accused, the objective of

retribution of a wronged society, should be directed against the

"actual and potential wrongdoers". In the instant case, there is no

doubt that petitioner's four (4) checks were used to collateralize

an accommodation, and not to cover the receipt of an actual

"account or credit for value" as this was absent, and thereforepetitioner should not be punished for mere issuance of the checks



in question. Following the aforecited theory, in petitioner's stead

the "potential wrongdoer," whose operation could be a menace to

society, should not be glorified by convicting the petitioner. 28

Under the circumstances obtaining in this case, we find the petitioner to have issued

the check in good faith, with every intention of abiding by her commitment to

return, as soon as able, the investments of complainant in the partnership.

Evidently, petitioner issued the check with benign considerations in mind, and not

for the purpose of committing fraud, deceit, or violating public policy.

To recapitulate, we find the petition impressed with merit. Petitioner may not be held

liable for violation of B.P. 22 for the following reasons: (1) the subject check was not

made, drawn and issued by petitioner in exchange for value received as to qualify it

as a check on account or for value; (2) there is no sufficient basis to conclude that

petitioner, at the time of issue of the check, had actual knowledge of the

insufficiency of funds; and (3) there was no notice of dishonor of said check actually

served on petitioner, thereby depriving her of the opportunity to pay or make

arrangements for the payment of the check, to avoid criminal prosecution.

Having resolved the foregoing principal issues, and finding the petition meritorious,

we no longer need to pass upon the validity and legality or necessity of the

purported compromise agreement on civil liability between the petitioner and the

complainant.

WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER

ACQUITTED. The Decision of the respondent Court of Appeals in CA-G.R. CR No.

11960 is hereby REVERSED and the Decision of Regional Trial Court in Criminal Case

No. 1395-M-88 is hereby SET ASIDE.

NO COSTS.

SO ORDERED.

Narvasa, C.J., Regalado, Davide, J r., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan,

Panganiban, Martinez and Purisima, JJ ., concur.

Mendoza, J., took no part.

Footnotes

1 Rollo, pp. 44-53; Third Division, composed of J. Vicente V.

Mendoza, ponente; and JJ. Jorge S. Imperial and Quirino P. Abad

Santos, Jr.

2 Records, p. 161; Judge Candido R. Belmonte, ponente.

3 Composed of J. Hilario G. Davide, Jr., Chairman, JJ. Josue N.

Bellosillo, Santiago M. Katipunan, Jose C. Vitug and Regino C.

Hermosisima, Jr., ponente.

4 Resolution En Banc, February 10, 1998.

5 Constitution, Art. III, Sec. 20.

6 Rollo, pp. 44-46.

7 Rollo, p. 55-56.

8 Rollo, p.14.

9 Rollo, pp. 10-13.

10 Rollo, pp. 65-79. This was signed by Solicitor General Raul I.

Goco, Assistant Solicitor General Edgardo L. Kilayko, and Associate

Solicitor Maria Liza L. Young.

11 Rollo, pp. 85-92.

12 Rollo, pp. 19-20. All caps in the original. See G.R. No. 96132,

Magno v. CA, June 26, 1992.

13 Lina Lim Lao vs. Court of Appeals and the People of the

Philippines, G.R. No. 119178, p. 12, June 20, 1997, per

Panganiban, J., citing Agpalo, Ruben E., Statutory Constructionm p.

208, (1990).

14 Ibid., p. 131; citing Navarro vs. Court of Appeals, 234 SCRA

639, 643-644 (1994); citing People vs. Laggui, 171 SCRA 305

(1989). See also Reyes, Luis B., The Revised Penal Code, Criminal

Law, Book Two, p. 700 (1993).

Justice Luis B. Reyes, enumerates the elements of the said offense,

thus:

1. That a person makes or

draws and issues any check.

2 That the check is made or

drawn and issued to apply onaccount or for value.

3. That the person who makes

or draws and issues the check

knows at the time of issue that

he does not have sufficient

funds in or credit with the

drawee bank for the payment

of such check in full upon its

presentment.

4. That the check is

subsequently dishonored bythe drawee bank for



insufficiency of funds or credit,

or would have been

dishonored for the same

reason had not the drawer,

without any valid reason,

ordered the bank to stop

payment.

15 TSN, February 14, 1990, pp. 30 and 35; TSN, June 4, 1990,

p.14.

16 Paras, Civil Code of the Philippines, Vol. V. 7th., p. 516.

17 Comment, pp. 6-7; rollo, pp. 70-71.

18 Ibid., p. 7; Rollo, p. 71.

19 Supra, footnote no. 13 at pp. 14-15; citing People v. Laggui, 171

SCRA 305 (1989); Meras v. Hon. Auxencio C. Dacuycuy, 181 SCRA

1 (1990).

20 Ibid., p. 25.

21 Ibid., p. 15; citing Reyes, Luis B. The Revised Penal Code,Criminal Law, Book Two p. 700 (1993).See also Nitafan G., Notes

and Comments on the Bouncing Checks Law (B.P. Bldg. 22), p. 62,

(1995); Antonio Nieva vs. Court of Appeals, G.R. Nos. 95796-97,

May 2, 1997.

22 G.R. Nos. 95796-97, May 2, 1997.

23 Ibid., p. 16.

24 Ibid., p. 22; citing Alfredo L. Azarcon vs. Sandiganbayan, et . al.,

G.R. No. 116033, p. 19, February 26, 1997.

25 Ibid., p. 27.

26 Ibid., p. 28.

27 210 SCRA 471, 482 (1992).

28 Ibid., pp. 478-479.




SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 84220 March 25, 1992

BENJAMIN RODRIGUEZ, petitioner,

vs.

COURT OF APPEALS, and HADJI ESMAYATEN LUCMAN, respondents.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the decision of the Court of Appeals

affirming a decision of the trial court which allowed Hadji Esmayaten Lucman as

assignee to collect from Benjamin Uy Rodriguez, an indebtedness owed to the

assignor, a Hongkong corporation.

The antecedent facts of the case are as follows:

Petitioner Rodriguez alias Uy Tian Kiu is a businessman from Cebu City whose

business, includes the importation of various commodities from Hongkong which he

occasionally ordered from Allied Overseas Commercial Co., Ltd., a Hongkong

corporation. The Managing Director of Allied Overseas Commercial Co., Ltd. is Lin

Ping Huang, a close friend of private respondent Lucman.

Petitioner Rodriguez, as a result of business transactions with the Hongkong

Corporation, accumulated an indebtedness owed to Allied Overseas in the amount of

HK $418,729.60 which had at that time in 1968 an exchange value of P540,553.00.

Upon demand for payment by the Hongkong Corporation, the petitioner issued a

pay-to-cash check dated September 11, 1970 covering the indebtedness. The checkwas, however, dishonored for lack of funds, the account having been closed two

months earlier.

Subsequently, the Allied Overseas Commercial Co., Ltd., through its Managing

Director, Lin Ping Huang, assigned its credit to the private respondent. The contract

was evidenced by a Deed of Assignment (Exhs. "B-2" and "B-3") duly executed

before Philippine Consular officials in Hongkong. It reads:

That WE, the ALLIED OVERSEAS COMMERCIAL CO., LTD., a

commercial association duly organized and registered in the

company's registry of the Crown Colony of Hongkong with offices

at No. 5-7 Des Voeux Road, West, 1st Floor, Hongkong,

represented in this instance by its Managing Director dulyauthorized by a Board resolution, for and in consideration of HK$ 1

and other valuable considerations, have on this date assigned,

ceded, transferred and conveyed by way of irrevocable

assignment and transferred to Hadji Esmayaten Lucman, Esq., of

legal age, Filipino citizen, and a resident of No. 95-I, A. Lake St.,

San Juan, Province of Rizal, Republic of the Philippines, our

outstanding and collectible credit due and owing us by and from

Benjamin Uy Rodriguez alias Uy Tian Kiu of Cebu City, Republic of

the Philippines, in the total amount of HK$ 418,729.60 or its

equivalent in the Philippine Currency, for said Hadji Esmayaten

Lucman to collect and secure from the aforesaid debtor, BenjaminUy Rodriguez alias Uy Tian Kiu the aforesaid amount in any

manner, including court proceedings if necessary, in accordance

with the provisions of existing laws in the jurisdiction of the

Republic of the Philippines.

We, as creditors assignors of the aforesaid debt, have on this date

notified formally the debtor named herein of this full assignment

of the aforesaid credit. (Orig. record, p. 11)

The assignee filed an action to collect the indebtedness. On March 4, 1985, the trial

court rendered a decision in favor of the private respondent. The dispositive portion

of the Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff

and against defendant, sentencing the latter to pay the former the

following sums:

(a) P450,553.00 representing defendant's outstanding account to

plaintiff's assignor, with interest thereon at twelve per cent

(12%) per annum from the time of the filing of the complaint on

February 4, 1971 until fully paid:

(b) P500,000.00 as actual damages;

(c) P100,000.00 as moral damages;

(d) The further sum equivalent to ten (10%) per cent of all theforegoing sums as attorney's fees and costs of litigation.

Costs against the defendant.

SO ORDERED. (pp. 142-143, Orig. Rec.)

Benjamin Rodriguez appealed the decision to the Court of Appeals and assigned the

following as errors committed by the trial court:

1 Plaintiff is not the real party-in-interest and is therefore, without legal capacity to

sue;

2 The obligation does not exist or has not been sufficiently proven to exist;



3 Venue is improperly laid.

After carefully evaluating the evidence presented by the parties, the Court of

Appeals rendered the questioned decision dismissing the appeal for lack of merit.

Benjamin Rodriguez filed a motion for reconsideration which was denied by the

appellate court which stated that the arguments submitted in support of the motion

were a mere rehash of the arguments in the Appellant's Brief.

The petitioner is now before us questioning the decision of the Court of Appeals. He

specifically relies on the following as bases for his petition:

I. That the judgment in the criminal case cannot be given in evidence in the civil

action.

II. That the decision of the Court of Appeals is not in accord with Article 1301 of the

New Civil Code which requires consent to subrogation; and

III. That the award of damages is excessive.

We find the petition devoid of merit.

The petitioner alleges that the only evidence presented by private respondent was

the decision of the Court of Appeals in the case of People v. Lucman (CA G.R. No.

21365-CR) for falsification of commercial document. The case was filed by thepetitioner before the Regional Trial Court of Cebu while the civil case filed by Lucman

in the Regional Trial Court of Pasig was in progress.

The Regional Trial Court of Cebu convicted Lucman but on appeal, the Court of

Appeals acquitted him on the basis of its finding that complainant Rodriguez had

indeed an unpaid balance which was sufficiently established by evidence.

The decision in the criminal case was only one of the pieces of evidence relied upon

by the respondent court. The petitioner is giving undue weight to this particular

item.

It is clear from the records, both testimonial and documentary that the obligation

exists. The documents, all testified to by private respondent Lucman as well as otherwitnesses had sufficiently proven that Rodriguez had an unpaid balance from

previous transaction with Allied Overseas Commercial Co., Ltd. which arose from the

importation of the 800 bales of Hessian sacks.

The unpaid balance was evidenced by a record of transactions between Allied

Overseas Co., Ltd. and Ben Rodriguez. The statement of account was sent to the

petitioner on September 30, 1968 and the receipt portion was duly signed by him

and returned. (Exh. "E-3" and "E-3A")

If the importation was made in the name of Madipo Mercantile this was pursuant to

the petitioner's request that his importations be carried out in the names of different

companies. This explains the shipment made to Madipo, a business firm owned by

Wilfredo Tiu, a brother-in-law of Rodriguez. However, the exchange of cables

regarding the importation clearly indicates that Rodriguez was the real importer

(Exh. "L", "M", "M-1", "M-2", and "M-3")

The authenticity of the above cable communications has not been impugned by the

petitioner.

Lucman also took the witness stand and identified numerous documents consisting

of Purchase Orders, Bills of Lading, Delivery Receipts, and other evidences of the

purchase of a barge and other goods by the petitioner from Allied Overseas

Commercial Co., Ltd. Hueng Huan Yuen Sabio, Assistant to the General Manager and

in-charge of shipping of Allied Overseas Commercial Co., Ltd., further testified to the

same transactions.

We have no doubt from the records that the obligation actually existed.

Anent petitioner's second point, we find no merit in his contention that there was

subrogation instead of an assignment of credit.

The basis of the complaint is not a deed of subrogation but an assignment of credit

whereby the private respondent became the owner, not the subrogee of the credit

since the assignment was supported by HK$ 1.00 and other valuable considerations.

The case is one of the assignment of credit and not subrogation. In subrogation, the

third party pays the obligation of the debtor to the creditor with the latter's consent.As a consequence, the paying third party steps into the shoes of the original creditor

as subrogee of the latter.

An assignment of credit, on the other hand, is the process of transferring the right of

the assignor to the assignee who would then have the right to proceed against the

debtor. The assignment may be done either gratuitously or onerously, in which case,

the assignment has an effect similar to that of a sale (p. 235, Civil Code of the

Philippines, Annotated, Vol. V, Paras, 1982 ed.; Nyco Sales Corp. vs. BA Finance

Corp., G.R. No. 71694, August 16, 1991).

The petitioner further contends that the consent of the debtor is essential to the

subrogation. Since there was no consent on his part, then he allegedly is not bound.

Again, we find for the respondent. The questioned deed of assignment is neither one

of the subrogation nor a power of attorney as the petitioner alleges. The deed of

assignment clearly states that the private respondent became an assignee and,

therefore, he became the only party entitled to collect the indebtedness. As a result

of the Deed of Assignment, the plaintiff acquired all rights of the assignor including

the right to sue in his own name as the legal assignee. Moreover, in assignment, the

debtor's consent is not essential for the validity of the assignment (Art. 1624 in

relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of

the payment he might make (Article 1626, Civil Code).

Article 1626 also shows that payment of an obligation which is already existing does

not depend on the consent of the debtor. It, in effect, mandates that such payment

of the existing obligation shall already be made to the new creditor from the timethe debtor acquires knowledge of the assignment of the obligation.



The law is clear that the debtor had the obligation to pay and should have paid from

the date of notice whether or not he consented.

We have ruled in Sison & Sison v. Yap Tico and Avanceña, 37 Phil. 587 [1918] that

definitely, consent is not necessary in order that assignment may fully produce legal

effects. Hence, the duty to pay does not depend on the consent of the debtor.

Otherwise, all creditors would be prevented from assigning their credits because of

the possibility of the debtors' refusal to give consent.

What the law requires in an assignment of credit is not the consent of the debtor but

merely notice to him. A creditor may, therefore, validly assign his credit and its

accessories without the debtor's consent (National Investment and Development Co.

v. De los Angeles, 40 SCRA 489 [1971]). The purpose of the notice is only to inform

the debtor that from the date of the assignment, payment should be made to the

assignee and not to the original creditor.

The fact that the deed of assignment empowered the assignee to collect the credit

originally owing to the foreign corporation does not make the assignee a mere

attorney-in-fact.

The case of Ngo Tian Tian Tek and Ngo Hay v. Philippine Education Co., 78 Phil. 271

[1947] is in point:

When a chose, capable of legal assignment is assigned absolutelyto one, but the assignment is made for purpose of collection, the

legal title thereto vests, in the assignee, and it is no concern of the

debtor that the equitable title is in another and payment to the

assignee discharges the debtor.

The petitioner further assails the consideration given for the deed of assignment

which is stated as "HK$ 1.00 and other valuable considerations."

A valuable considerations, however small or nominal if given or stipulated in good

faith is, in the absence of fraud, sufficient. A stipulation in consideration of $1 is just

as effectual and valuable a consideration as a larger sum stipulated for or paid

(Penaco v. Ruaya, 110 SCRA 46 [1981]; Ascalon vs. Court of Appeals, 158 SCRA 542,

[1988]). It is not clear what considerations led to the assignment but they must havebeen sufficiently valuable to the assignor in view of the amount involved.

Hence, by virtue of the deed of assignment whose existence and legality remains

unrebutted, the respondent acquired all the rights of the assignor including the right

to sue in his own name as the legal assignee. The contract was not executed merely

to enable the foreign corporation to sue in the Philippines because even without the

assignment, the foreign corporation can also sue in the Philippines for isolated

transactions even if not licensed to engage in business in this country.

Lastly, the petitioner asserts that the award of damages was excessive there being

no finding to justify the amounts.

We find the amounts equitable except for the award of P500,000.00 as actualdamages in addition to the P450,553.00 indebtedness. The records do not contain

the factual basis for such an award. Thus, we agree with the petitioner that it is not

justifiable to award that amount.

All premises considered, we find for the private respondent. We should also add that

the case has dragged on 21 years since its filing with the then Court of First Instance

of Pasig, Rizal on February 4, 1971, due to the numerous dilatory tactics of the

petitioner. The delay has obviously created an injustice on the part of private

respondent not fully compensated by the payment of interests.

Furthermore, it is well-settled that the jurisdiction of the Supreme Court is confined

to a review of questions of law, except where the findings of facts of the appellate

court are not supported by the record or are so glaringly erroneous as to constitute a

serious abuse of discretion. (Cañete v. Court of Appeals, 171 SCRA 13 [1989]).

The findings of the fact of the trial court being adequately supported by

documentary as well as testimonial evidence and affirmed by the Court of Appeals,

are conclusive on the Supreme Court unless they fall within a few well-defined

exceptions. No such exception is shown in this case.

ACCORDINGLY, the petition is hereby DISMISSED. The decision of the Court of

Appeals dated October 22, 1987 and its resolution dated June 16, 1988 are

AFFIRMED with the modification that the award of additional actual damages in the

amount of P500,000.00 is deleted.

SO ORDERED.

Bidin and Romero, JJ., concur.

Davide, Jr., J., took no part.

Feliciano, J., is on leave.




SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-31831 April 28, 1983

JESUS PINEDA, petitioner,

vs.

JOSE V. DELA RAMA and COURT OF APPEALS, respondents.

Rosauro Alvarez for petitioner.

Arturo Zialcita for respondents.

GUTIERREZ, JR., J.:

This is a petition to review on certiorari a decision of the Court of Appeals which

declared petitioner Jesus Pineda liable on his promissory note for P9,300.00 and

directed him to pay attorney's fees of P400.00 to private respondent, Jose V. dela

Rama.

Dela Rama is a practising lawyer whose services were retained by Pineda for the

purpose of making representations with the chairman and general manager of the

National Rice and Corn Administration (NARIC) to stop or delay the institution of

criminal charges against Pineda who allegedly misappropriated 11,000 cavans of

palay deposited at his ricemill in Concepcion, Tarlac. The NARIC general manager

was allegedly an intimate friend of Dela Rama.

According to Dela Rama, petitioner Pineda has used up all his funds to buy a big

hacienda in Mindoro and, therefore, borrowed the P9,300.00 subject of his complaint

for collection. In addition to filling the suit to collect the loan evidenced by the

matured promissory note, Dela Rama also sued to collect P5,000.00 attorney's fees

for legal services rendered as Pineda's counsel in the case being investigated byNARIC.

The Court of First Instance of Manila decided Civil Case No. 45762 in favor of

petitioner Pineda. The court believed the evidence of Pineda that he signed the

promissory note for P9,300.00 only because Dela Rama had told him that this

amount had already been advanced to grease the palms of the 'Chairman and

General Manager of NARIC in order to save Pineda from criminal prosecution.

The court stated:

xxx xxx xxx

... The Court, after hearing the testimonies of the witness and

examining the exhibits in question, finds that Exhibit A proves that

the defendant himself did not receive the amount stated therein,

because according to said exhibit that amount was advanced by

the plaintiff in connection with the defendant's case, entirely

contradicting the testimony of the plaintiff himself, who stated in

open Court that he gave the amount in cash in two installments to

the defendant. The Court is more inclined to believe the contents

of Exhibit A, than the testimony of the plaintiff. On this particular

matter, the defendant has established that the plaintiff made him

believe that he was giving money to the authorities of the NARIC

to grease their palms to suspend the prosecution of the defendant,but the defendant, upon inquiry, found out that none of the

authorities has received that amount, and there was no case that

was ever contemplated to be filed against him. It clearly follows,

therefore, that the amount involved in this Exhibit A was

imaginary. It was given to the defendant, not to somebody else.

The purpose for which the amount was intended was illegal.

However, the Court believes that plaintiff was able to get from the

defendant the amount of P3,000.00 on October 7, as shown by the

check issued by the defendant, Exhibit 2, and the letter, Exhibit 7,

was antedated October 6, as per plaintiff's wishes to show that

defendant was indebted for P3,000.00 when, as a matter of fact,

such amount was produced in order to grease the palms of the

NARIC officials for withholding an imaginary criminal case. Such

amount was never given to such officials nor was there any

contemplated case against the defendant. The purpose for which

such amount was intended was indeed illegal.

The trial court rendered judgment as follows:

WHEREFORE, the Court finds by a preponderance of evidence that

the amount of P9,300.00 evidenced by Exhibit A was not received

by the defendant, nor given to any party for the defendant's

benefit.Consequently, the plaintiff has no right to recover said

amount. The amount of P3,000.00 was given by the defendant to

grease the palms of the NARIC officials. The purpose was illegal,

null and void. Besides, it was not given at all, nor was it true thatthere was a contemplated case against the defendant. Such

amount should be returned to the defendant. The services

rendered by the plaintiff to the defendant is worth only P400.00,

taking into consideration that the plaintiff received an air-

conditioner and six sacks of rice. The court orders that the plaintiff

should return to the defendant the amount of P3,000.00, minus

P400.00 plus costs.

The Court of Appeals reversed the decision of the trial court on a finding that Pineda,

being a person of more than average intelligence, astute in business, and wise in

the ways of men would not "sign any document or paper with his name unless he

was fully aware of the contents and important thereof, knowing as he must have

known that the language and practices of business and of trade and commerce callto account every careless or thoughtless word or deed."



The appellate court stated:

No rule is more fundamental and by men of honor and goodwill

more dearly cherished, than that which declares that obligations

arising from contracts have the force of law between the

contracting parties and should be complied with in good faith.

Corollary to and in furtherance of this principle, Section 24 of the

Negotiable instruments Law (Act No. 2031) explicitly provides that

every negotiable instrument is deemed prima facie to have been

issued for a valuable consideration, and every person whose

signature appears thereon to have become a party thereto for

value.

We find this petition meritorious.

The Court of Appeals relied on the efficacy of the promissory note for its decision,

citing Section 24 of the Negotiable Instruments Law which reads:

SECTION 24. Presumption of consideration.—Every negotiable

instrument is deemed prima facie to have been issued for a

valuable consideration; and every person whose signature appears

thereon to have become a party thereto for value.

The Court of Appeals' reliance on the above provision is misplaced. The presumptionthat a negotiable instrument is issued for a valuable consideration is only puma

facie. It can be rebutted by proof to the contrary. (Bank of the Philippine Islands v.

Laguna Coconut Oil Co. et al., 48 Phil. 5).

According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on

two occasions five days apart - first loan for P5,000.00 and second loan for

P4,300.00, both given in cash. He also alleged that previously he loaned P3,000.00

but Pineda paid this other loan two days afterward.

These allegations of Dela Rama are belied by the promissory note itself. The second

sentence of the note reads - "This represents the cash advances made by him in

connection with my case for which he is my attorney-in- law."

The terms of the note sustain the version of Pineda that he signed the P9,300.00

promissory note because he believed Dela Rama's story that these amounts had

already been advanced by Dela Rama and given as gifts for NARIC officials.

Dela Rama himself admits that Pineda engaged his services to delay by one month

the filing of the NARIC case against Pineda while the latter was trying to work out an

amicable settlement. There is no question that Dela Rama was indeed a close friend

of then NARIC Administrator Jose Rodriquez having worked with him in the Philippine

consulate at Hongkong and that Dela Rama made what he calls "proper

representations" with Rodriguez and with other NARIC officials in connection with the

investigation of the criminal charges against Pineda.

We agree with the trial court which believed Pineda. It is indeed unusual for a lawyerto lend money to his client whom he had known for only three months, with no

security for the loan and on interest. Dela Rama testified that he did not even know

what Pineda was going to do with the money he borrowed from him. The petitioner

had just purchased a hacienda in Mindoro for P210,000.00, owned sugar and rice

lands in Tarlac of around 800 hectares, and had P60,000.00 deposits in three banks

when he executed the note. It is more logical to believe that Pineda would not

borrow P5,000.00 and P4,300.00 five days apart from a man whom he calls a "fixer"

and whom he had known for only three months.

There is no dispute that an air-conditioning unit valued at P1,250.00 was purchased

by Pineda's son and given to Dela Rama although the latter claims he paid

P1,250.00 for the unit when he received it. Pineda, however, alleged that he gave

the air-conditioning unit because Dela Rama told him that Dr. Rodriguez was asking

for one air-conditioning machine of 1.5 horsepower for the latter's NARIC office.

Pineda further testified that six cavans of first class rice also intended for the NARIC

Chairman and General Manager, together with the airconditioning unit, never

reached Dr. Rodriguez but were kept by the lawyer.

Considering the foregoing, we agree with the trial court that the promissory note

was executed for an illegal consideration. Articles 1409 and 1412 of the Civil Code in

part, provide:

Art. 1409. The following contracts are inexistent and void from the

beginning:

(1) Those whose cause, object or purpose is contrary to law,

morals, good customs, public order and public policy;

xxx xxx xxx

Art. 1412. If the act in which the unlawful or forbidden cause

consists does not constitute a criminal offense, the following rules

shall be observed:

(1) When the fault is on the part of both contracting parties,

neither may recover what he has given by virtue of the contract,

or demand the performance of the other's undertaking.

xxx xxx xxx

Whether or not the supposed cash advances reached their destination is of no

moment. The consideration for the promissory note - to influence public officers in

the performance of their duties - is contrary to law and public policy. The promissory

note is void ab initio and no cause of action for the collection cases can arise from it.

WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The complaint and

the counterclaim in Civil Case No. 45762 are both DISMISSED.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur.




SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 93048 March 3, 1994

BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,vs.

THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC., respondents.

Teresita Gandiongco Oledan for petitioner.

Acaban & Sabado for private respondent.

NOCON, J.:

For our review is the decision of the Court of Appeals in the case entitled "State

Investment House, Inc. v. Bataan Cigar & Cigarette Factory Inc.,"1

affirming thedecision of the Regional Trial Court 2 in a complaint filed by the State Investment

House, Inc. (hereinafter referred to as SIHI) for collection on three unpaid checks

issued by Bataan Cigar & Cigarette Factory, Inc. (hereinafter referred to as BCCFI).

The foregoing decisions unanimously ruled in favor of SIHI, the private respondent in

this case.

Emanating from the records are the following facts. Petitioner, Bataan Cigar &

Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of

cigarettes, engaged one of its suppliers, King Tim Pua George (herein after referred

to as George King), to deliver 2,000 bales of tobacco leaf starting October 1978. In

consideration thereof, BCCFI, on July 13, 1978 issued crossed checks post dated

sometime in March 1979 in the total amount of P820,000.00. 3

Relying on the supplier's representation that he would complete delivery within

three months from December 5, 1978, petitioner agreed to purchase additional

2,500 bales of tobacco leaves, despite the supplier's failure to deliver in accordance

with their earlier agreement. Again petitioner issued post dated crossed checks in

the total amount of P1,100,000.00, payable sometime in September 1979. 4

During these times, George King was simultaneously dealing with private

respondent SIHI. On July 19, 1978, he sold at a discount check TCBT

551826 5 bearing an amount of P164,000.00, post dated March 31, 1979, drawn by

petitioner, naming George King as payee to SIHI. On December 19 and 26, 1978, he

again sold to respondent checks TCBT Nos. 608967 & 608968, 6 both in the amount

of P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by

petitioner in favor of George King.

In as much as George King failed to deliver the bales of tobacco leaf as agreed

despite petitioner's demand, BCCFI issued on March 30, 1979, a stop payment order

on all checks payable to George King, including check TCBT 551826. Subsequently,

stop payment was also ordered on checks TCBT Nos. 608967 & 608968 on

September 14 & 28, 1979, respectively, due to George King's failure to deliver the

tobacco leaves.

Efforts of SIHI to collect from BCCFI having failed, it instituted the present case,

naming only BCCFI as party defendant. The trial court pronounced SIHI as having a

valid claim being a holder in due course. It further said that the non-inclusion of King

Tim Pua George as party defendant is immaterial in this case, since he, as payee, is

not an indispensable party.

The main issue then is whether SIHI, a second indorser, a holder of crossed checks,

is a holder in due course, to be able to collect from the drawer, BCCFI.

The Negotiable Instruments Law states what constitutes a holder in due course,

thus:

Sec. 52 — A holder in due course is a holder who has taken the

instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and

without notice that it had been previously dishonored, if such was

the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of

any infirmity in the instrument or defect in the title of the person

negotiating it.

Section 59 of the NIL further states that every holder is deemed prima facie a holder

in due course. However, when it is shown that the title of any person who has

negotiated the instrument was defective, the burden is on the holder to prove thathe or some person under whom he claims, acquired the title as holder in due course.

The facts in this present case are on all fours to the case of State Investment House,

Inc. (the very respondent in this case) v. Intermediate Appellate Court 7 wherein we

made a discourse on the effects of crossing of checks.

As preliminary, a check is defined by law as a bill of exchange drawn on a bank

payable on demand. 8 There are a variety of checks, the more popular of which are

the memorandum check, cashier's check, traveler's check and crossed check.

Crossed check is one where two parallel lines are drawn across its face or across a

corner thereof. It may be crossed generally or specially.

A check is crossed specially when the name of a particular banker or a company iswritten between the parallel lines drawn. It is crossed generally when only the words



"and company" are written or nothing is written at all between the parallel lines. It

may be issued so that the presentment can be made only by a bank. Veritably the

Negotiable Instruments Law (NIL) does not mention "crossed checks," although

Article 541 9 of the Code of Commerce refers to such instruments.

According to commentators, the negotiability of a check is not affected by its being

crossed, whether specially or generally. It may legally be negotiated from one

person to another as long as the one who encashes the check with the drawee bank

is another bank, or if it is specially crossed, by the bank mentioned between the

parallel lines. 10 This is specially true in England where the Negotiable Instrument

Law originated.

In the Philippine business setting, however, we used to be beset with bouncing

checks, forging of checks, and so forth that banks have become quite guarded in

encashing checks, particularly those which name a specific payee. Unless one is a

valued client, a bank will not even accept second indorsements on checks.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced

that crossing of a check should have the following effects: (a) the check may not be

encashed but only deposited in the bank; (b) the check may be negotiated only

once — to one who has an account with a bank; (c) and the act of crossing the check

serves as warning to the holder that the check has been issued for a definite

purpose so that he must inquire if he has received the check pursuant to that

purpose, otherwise, he is not a holder in due course. 11

The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New

Sikatuna Wood Industries, Inc. also sold at a discount to SIHI three post dated

crossed checks, issued by Anita Peña Chua naming as payee New Sikatuna Wood

Industries, Inc. Ruling that SIHI was not a holder in due course, we then said:

The three checks in the case at bar had been crossed generally

and issued payable to New Sikatuna Wood Industries, Inc. which

could only mean that the drawer had intended the same for

deposit only by the rightful person, i.e. the payee named therein.

Apparently, it was not the payee who presented the same for

payment and therefore, there was no proper presentment, and the

liability did not attach to the drawer. Thus, in the absence of duepresentment, the drawer did not become liable. Consequently, no

right of recourse is available to petitioner (SIHI) against the drawer

of the subject checks, private respondent wife (Anita), considering

that petitioner is not the proper party authorized to make

presentment of the checks in question.

xxx xxx xxx

That the subject checks had been issued subject to the condition

that private respondents (Anita and her husband) on due date

would make the back up deposit for said checks but which

condition apparently was not made, thus resulting in the non-

consummation of the loan intended to be granted by privaterespondents to New Sikatuna Wood Industries, Inc., constitutes a

good defense against petitioner who is not a holder in due

course. 12

It is then settled that crossing of checks should put the holder on inquiry and upon

him devolves the duty to ascertain the indorser's title to the check or the nature of

his possession. Failing in this respect, the holder is declared guilty of gross

negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the

Negotiable Instruments Law, 13 and as such the consensus of authority is to the

effect that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is

to George King. Because, really, the checks were issued with the intention that

George King would supply BCCFI with the bales of tobacco leaf. There being failure of

consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be

obliged to pay the checks.

The foregoing does not mean, however, that respondent could not recover from the

checks. The only disadvantage of a holder who is not a holder in due course is that

the instrument is subject to defenses as if it were

non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in

this case, George King.

WHEREFORE, finding that the court a quo erred in the application of law, the instant

petition is hereby GRANTED. The decision of the Regional Trial Court as affirmed bythe Court of Appeals is hereby REVERSED. Cost against private respondent.

SO ORDERED.

Narvasa, C.J., Regalado and Puno, JJ., concur.

Padilla, J., took no part.

#Footnotes

1 CA-G.R. CV No. 03032, Justice Jorge R. Coquia, ponente, Justices Josue N. Bellosillo and Venancio D. Aldecoa, Jr., concurring,

November 13, 1987.

2 Judge Agusto E. Villarin, presiding, Branch XL, National Capital

Region, Manila.

3 Exhibit "1", Folder of Exhibits, p. 11.

4 Exhibit "4", Folder of Exhibits, p. 14.

5 Annex "A", Folder of Exhibits, p. 3.

6 Annexes "B" and "C", Folder of Exhibits, pp. 4-5.



7 G.R. No. 72764, 175 SCRA 310.

8 Sec. 185, Negotiable Instruments Law.

9 Article 541 -- The maker of any legal holder of a check shall be

entitled to indicate therein that it be paid to a certain banker or

institution, which he shall do by writing across the face the name

of said banker or institution, or only the words "and company".

10 CAMPOS AND LOPEZ-CAMPOS, Negotiable Instruments Law, p.

574-575; AGBAYANI, AGUEDO, Commercial Laws of the Philippines,Vol. 1, 1987 Ed., p. 446.

11 Ocampo v. Gatchalian, G.R. No. L-15126, 3 SCRA 603 (1961);

Associated Bank v. Court of Appeals, G.R. No. 89802, 208 SCRA

465; SIHI v. IAC, supra.

12 Id. at pp. 316-317.

13 quoted supra.

14 Chan Wan v. Tan Kim and Chen So, L-15380, 109 Phil., 706

(1960); SIHI v. IAC, supra.




SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,vs.

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

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision

promulgated by respondent court on March 8, 1991 in CA-G.R. CV No.23615 1 affirming with modifications, the earlier decision of the Regional Trial Court

of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein

petitioner against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted

by respondent court, appears of record:

1. On various dates, defendant, a commercial banking institution,

through its Sucat Branch issued 280 certificates of time deposit

(CTDs) in favor of one Angel dela Cruz who deposited with herein

defendant the aggregate amount of P1,120,000.00, as follows:

(Joint Partial Stipulation of Facts and Statement of Issues, Original

Records, p. 207; Defendant's Exhibits 1 to 280);

CTD CTD

Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000

2 Mar. 82 74701 to 74740 40 160,000

4 Mar. 82 90127 to 90146 20 80,000

5 Mar. 82 74797 to 94800 4 16,000

5 Mar. 82 89965 to 89986 22 88,000

5 Mar. 82 70147 to 90150 4 16,000

8 Mar. 82 90001 to 90020 20 80,000

9 Mar. 82 90023 to 90050 28 112,000

9 Mar. 82 89991 to 90000 10 40,000

9 Mar. 82 90251 to 90272 22 88,000

——— ————

Total 280 P1,120,000

===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to

herein plaintiff in connection with his purchased of fuel products

from the latter (Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo

Tiangco, the Sucat Branch Manger, that he lost all the certificates

of time deposit in dispute. Mr. Tiangco advised said depositor to

execute and submit a notarized Affidavit of Loss, as required by

defendant bank's procedure, if he desired replacement of said lost

CTDs (TSN, February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to

defendant bank the required Affidavit of Loss (Defendant's Exhibit

281). On the basis of said affidavit of loss, 280 replacement CTDs

were issued in favor of said depositor (Defendant's Exhibits 282-

561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a

loan from defendant bank in the amount of Eight Hundred SeventyFive Thousand Pesos (P875,000.00). On the same date, said

depositor executed a notarized Deed of Assignment of Time

Deposit (Exhibit 562) which stated, among others, that he (de la

Cruz) surrenders to defendant bank "full control of the indicated

time deposits from and after date" of the assignment and further

authorizes said bank to pre-terminate, set-off and "apply the said

time deposits to the payment of whatever amount or amounts

may be due" on the loan upon its maturity (TSN, February 9, 1987,

pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of

plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat

branch and presented for verification the CTDs declared lost byAngel dela Cruz alleging that the same were delivered to herein

plaintiff "as security for purchases made with Caltex Philippines,

Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter

(Defendant's Exhibit 563) from herein plaintiff formally informing it

of its possession of the CTDs in question and of its decision to pre-

terminate the same.

8. On December 8, 1982, plaintiff was requested by herein

defendant to furnish the former "a copy of the document

evidencing the guarantee agreement with Mr. Angel dela Cruz" as

well as "the details of Mr. Angel dela Cruz" obligation against



which plaintiff proposed to apply the time deposits (Defendant's

Exhibit 564).

9. No copy of the requested documents was furnished herein

defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand

and claim for payment of the value of the CTDs in a letter dated

February 7, 1983 (Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendantbank matured and fell due and on August 5, 1983, the latter set-

off and applied the time deposits in question to the payment of

the matured loan (TSN, February 9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint,

praying that defendant bank be ordered to pay it the aggregate

value of the certificates of time deposit of P1,120,000.00 plus

accrued interest and compounded interest therein at 16% per

annum, moral and exemplary damages as well as attorney's fees.

After trial, the court a quo rendered its decision dismissing the

instant complaint. 3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of

the complaint, hence this petition wherein petitioner faults respondent court in

ruling (1) that the subject certificates of deposit are non-negotiable despite being

clearly negotiable instruments; (2) that petitioner did not become a holder in due

course of the said certificates of deposit; and (3) in disregarding the pertinent

provisions of the Code of Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a

better understanding of the issues involved in this recourse.

SECURITY BANK AND TRUST COMPANY

6778 Ayala Ave., Makati No. 90101

Metro Manila, Philippines

SUCAT OFFICEP 4,000.00

CERTIFICATE OF DEPOSIT

Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited

in this Bank the sum of PESOS: FOUR THOUSAND

ONLY, SECURITY BANK SUCAT OFFICE P4,000 &

00 CTS Pesos, Philippine Currency, repayable tosaid depositor 731 days. after date, upon

presentation and surrender of this certificate,

with interest at the rate of 16% per cent per

annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

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

. . . While it may be true that the word "bearer" appears rather

boldly in the CTDs issued, it is important to note that after the

word "BEARER" stamped on the space provided supposedly for the

name of the depositor, the words "has deposited" a certain

amount follows. The document further provides that the amount

deposited shall be "repayable to said depositor" on the period

indicated. Therefore, the text of the instrument(s) themselves

manifest with clarity that they are payable, not to whoever

purports to be the "bearer" but only to the specified person

indicated therein, the depositor. In effect, the appellee bank

acknowledges its depositor Angel dela Cruz as the person whomade the deposit and further engages itself to pay said depositor

the amount indicated thereon at the stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in

question are negotiable instruments. Section 1 Act No. 2031, otherwise known as

the Negotiable Instruments Law, enumerates the requisites for an instrument to

become negotiable, viz :

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

(b) Must contain an unconditional promise or order to pay a sum

certain in money;

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

future time;

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

(e) Where the instrument is addressed to a drawee, he must be

named or otherwise indicated therein with reasonable certainty.

The CTDs in question undoubtedly meet the requirements of the law for

negotiability. The parties' bone of contention is with regard to requisite (d) set forth

above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way

back in 1982, testified in open court that the depositor reffered to in the CTDs is no

other than Mr. Angel de la Cruz.



xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that

per books of the bank, the depositor referred

(sic) in these certificates states that it was Angel

dela Cruz?

witness:

a Yes, your Honor, and we have the record to

show that Angel dela Cruz was the one who

cause (sic) the amount.

Atty. Calida:

q And no other person or entity or company, Mr.

Witness?

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in

all of these certificates of time deposit insofar as

the bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

On this score, the accepted rule is that the negotiability or non-negotiability of an

instrument is determined from the writing, that is, from the face of the instrument

itself. 9 In the construction of a bill or note, the intention of the parties is to control, if

it can be legally ascertained. 10 While the writing may be read in the light of

surrounding circumstances in order to more perfectly understand the intent and

meaning of the parties, yet as they have constituted the writing to be the only

outward and visible expression of their meaning, no other words are to be added to

it or substituted in its stead. The duty of the court in such case is to ascertain, not

what the parties may have secretly intended as contradistinguished from what their

words express, but what is the meaning of the words they have used. What the

parties meant must be determined by what they said. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The

documents provide that the amounts deposited shall be repayable to the depositor.

And who, according to the document, is the depositor? It is the "bearer." The

documents do not say that the depositor is Angel de la Cruz and that the amounts

deposited are repayable specifically to him. Rather, the amounts are to be repayable

to the bearer of the documents or, for that matter, whosoever may be the bearer at

the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la

Cruz only, it could have with facility so expressed that fact in clear and categorical

terms in the documents, instead of having the word "BEARER" stamped on the

space provided for the name of the depositor in each CTD. On the wordings of the

documents, therefore, the amounts deposited are repayable to whoever may be the

bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la

Cruz is the depositor "insofar as the bank is concerned," but obviously other parties

not privy to the transaction between them would not be in a position to know that

the depositor is not the bearer stated in the CTDs. Hence, the situation would

require any party dealing with the CTDs to go behind the plain import of what is

written thereon to unravel the agreement of the parties thereto through

facts aliunde. This need for resort to extrinsic evidence is what is sought to be

avoided by the Negotiable Instruments Law and calls for the application of the

elementary rule that the interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time,

the answer is in the negative. The records reveal that Angel de la Cruz, whom

petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs

amounting to P1,120,000.00 to petitioner without informing respondent bank thereof

at any time. Unfortunately for petitioner, although the CTDs are bearer instruments,

a valid negotiation thereof for the true purpose and agreement between it and De la

Cruz, as ultimately ascertained, requires both delivery and indorsement. For,

although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it

as a security for De la Cruz' purchases of its fuel products. Any doubt as to whether

the CTDs were delivered as payment for the fuel products or as a security has been

dissipated and resolved in favor of the latter by petitioner's own authorized and

responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q.

Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were

negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"

(Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations

notwithstanding. Under the doctrine of estoppel, an admission or representation is

rendered conclusive upon the person making it, and cannot be denied or disproved

as against the person relying thereon. 14 A party may not go back on his own acts

and representations to the prejudice of the other party who relied upon them. 15 In

the law of evidence, whenever a party has, by his own declaration, act, or omission,

intentionally and deliberately led another to believe a particular thing true, and to

act upon such belief, he cannot, in any litigation arising out of such declaration, act,

or omission, be permitted to falsify it. 16



If it were true that the CTDs were delivered as payment and not as security,

petitioner's credit manager could have easily said so, instead of using the words "to

guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant

in the court below, moved for a bill of particularity therein 17 praying, among others,

that petitioner, as plaintiff, be required to aver with sufficient definiteness or

particularity (a) the due date or dates of payment of the alleged indebtedness of

Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that

the CTDs were delivered to it by De la Cruz as payment of the latter's alleged

indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the

receipt prayed for, it could have proved, if such truly was the fact, that the CTDs

were delivered as payment and not as security. Having opposed the motion,

petitioner now labors under the presumption that evidence willfully suppressed

would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty

Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:

. . . Adverting again to the Court's pronouncements in Lopez,

supra, we quote therefrom:

The character of the transaction between the

parties is to be determined by their intention,

regardless of what language was used or what

the form of the transfer was. If it was intended tosecure the payment of money, it must be

construed as a pledge; but if there was some

other intention, it is not a pledge. However, even

though a transfer, if regarded by itself, appears

to have been absolute, its object and character

might still be qualified and explained by

contemporaneous writing declaring it to have

been a deposit of the property as collateral

security. It has been said that a transfer of

property by the debtor to a creditor, even if

sufficient on its face to make an absolute

conveyance, should be treated as a pledge if the

debt continues in inexistence and is notdischarged by the transfer, and that accordingly

the use of the terms ordinarily importing

conveyance of absolute ownership will not be

given that effect in such a transaction if they are

also commonly used in pledges and mortgages

and therefore do not unqualifiedly indicate a

transfer of absolute ownership, in the absence of

clear and unambiguous language or other

circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under

the Negotiable Instruments Law, an instrument is negotiated when it is transferred

from one person to another in such a manner as to constitute the transferee theholder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is

in possession of it, or the bearer thereof. 22 In the present case, however, there was

no negotiation in the sense of a transfer of the legal title to the CTDs in favor of

petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs

would have sufficed. Here, the delivery thereof only as security for the purchases of

Angel de la Cruz (and we even disregard the fact that the amount involved was not

disclosed) could at the most constitute petitioner only as a holder for value by

reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by

mere delivery of the instrument since, necessarily, the terms thereof and the

subsequent disposition of such security, in the event of non-payment of the principal

obligation, must be contractually provided for.

The pertinent law on this point is that where the holder has a lien on the instrument

arising from contract, he is deemed a holder for value to the extent of his lien. 23 As

such holder of collateral security, he would be a pledgee but the requirements

therefor and the effects thereof, not being provided for by the Negotiable

Instruments Law, shall be governed by the Civil Code provisions on pledge of

incorporeal rights, 24 which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable

instruments, . . . may also be pledged. The instrument proving the

right pledged shall be delivered to the creditor, and if negotiable,

must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if adescription of the thing pledged and the date of the pledge do not

appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual

findings of respondent court quoted at the start of this opinion show that petitioner

failed to produce any document evidencing any contract of pledge or guarantee

agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of

the CTDs did not legally vest in petitioner any right effective against and binding

upon respondent bank. The requirement under Article 2096 aforementioned is not a

mere rule of adjective law prescribing the mode whereby proof may be made of the

date of a pledge contract, but a rule of substantive law prescribing a condition

without which the execution of a pledge contract cannot affect third persons

adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of

respondent bank was embodied in a public instrument. 27 With regard to this other

mode of transfer, the Civil Code specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no

effect as against third persons, unless it appears in a public

instrument, or the instrument is recorded in the Registry of

Property in case the assignment involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily,

petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved

the amount of its credit or the extent of its lien nor the execution of any publicinstrument which could affect or bind private respondent. Necessarily, therefore, as



between petitioner and respondent bank, the latter has definitely the better right

over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of

whether or not private respondent observed the requirements of the law in the case

of lost negotiable instruments and the issuance of replacement certificates therefor,

on the ground that petitioner failed to raised that issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged

negligence of private respondent was not included in the stipulation of the parties

and in the statement of issues submitted by them to the trial court.29 The issuesagreed upon by them for resolution in this case are:

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

2. Whether or not defendant could legally apply the amount

covered by the CTDs against the depositor's loan by virtue of the

assignment (Annex "C").

3. Whether or not there was legal compensation or set off

involving the amount covered by the CTDs and the depositor's

outstanding account with defendant, if any.

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

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

6. Whether or not the parties can recover damages, attorney's

fees and litigation expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal

authorities, the foregoing enumeration does not include the issue of negligence on

the part of respondent bank. An issue raised for the first time on appeal and not

raised timely in the proceedings in the lower court is barred by

estoppel. 30 Questions raised on appeal must be within the issues framed by the

parties and, consequently, issues not raised in the trial court cannot be raised forthe first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the

disposition of a case are properly raised. Thus, to obviate the element of surprise,

parties are expected to disclose at a pre-trial conference all issues of law and fact

which they intend to raise at the trial, except such as may involve privileged or

impeaching matters. The determination of issues at a pre-trial conference bars the

consideration of other questions on appeal.32

To accept petitioner's suggestion that respondent bank's supposed negligence may

be considered encompassed by the issues on its right to preterminate and receive

the proceeds of the CTDs would be tantamount to saying that petitioner could raise

on appeal any issue. We agree with private respondent that the broad ultimate issueof petitioner's entitlement to the proceeds of the questioned certificates can be

premised on a multitude of other legal reasons and causes of action, of which

respondent bank's supposed negligence is only one. Hence, petitioner's submission,

if accepted, would render a pre-trial delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court

below, petitioner still cannot have the odds in its favor. A close scrutiny of the

provisions of the Code of Commerce laying down the rules to be followed in case of

lost instruments payable to bearer, which it invokes, will reveal that said provisions,

even assuming their applicability to the CTDs in the case at bar, are merely

permissive and not mandatory. The very first article cited by petitioner speaks for

itself.

Art 548. The dispossessed owner , no matter for what cause it may

be, may apply to the judge or court of competent jurisdiction,

asking that the principal, interest or dividends due or about to

become due, be not paid a third person, as well as in order to

prevent the ownership of the instrument that a duplicate be issued

him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but

discretionary on the part of the "dispossessed owner" to apply to the judge or court

of competent jurisdiction for the issuance of a duplicate of the lost instrument.Where the provision reads "may," this word shows that it is not mandatory but

discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an

auxiliary verb indicating liberty, opportunity, permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the

Code of Commerce, on which petitioner seeks to anchor respondent bank's

supposed negligence, merely established, on the one hand, a right of recourse in

favor of a dispossessed owner or holder of a bearer instrument so that he may

obtain a duplicate of the same, and, on the other, an option in favor of the party

liable thereon who, for some valid ground, may elect to refuse to issue a

replacement of the instrument. Significantly, none of the provisions cited by

petitioner categorically restricts or prohibits the issuance a duplicate or replacement

instrument sans compliance with the procedure outlined therein, and noneestablishes a mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and

the appealed decision is hereby AFFIRMED.

SO ORDERED.

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

Footnotes



1 Per Justice Segundino G. Chua, with the concurrence of Justices

Santiago M. Kapunan and Luis L. Victor.

2 Judge Ramon Mabutas, Jr., presiding; Rollo, 64-88.

3 Rollo, 24-26.

4 Ibid., 12.

5 Exhibit A, Documentary Evidence for the Plaintiff, 8.

6 Rollo, 28.

7 TSN, February 9, 1987, 46-47.

8 Ibid., id., 152-153.

9 11 Am. Jur. 2d, Bills and Notes, 79.

10 Ibid., 86.

11 Ibid., 87-88.

12 Art. 1377, Civil Code.

13 Exhibit 563, Documentary Evidence for the Defendant, 442;

Original Record, 211.

14 Panay Electric Co., Inc. vs. Court of Appeals, et al., 174 SCRA

500 (1989).

15 Philippine National Bank vs. Intermediate Appellate Court, et

al., 189 SCRA 680 (1990).

16 Section 2(a), Rule 131, Rules of Court.

17 Original Record, 152.

18 Ibid., 154.

19 Section 3(e), Rule 131, Rules of Court.

20 174 SCRA 295 (1989), jointly decided with Overseas Bank of

Manila vs. Court of Appeals, et al., G.R. No. 60907.

21 Sec. 30, Act No. 2031.

22 Sec. 191, id.

23 Sec. 27, id.; see also Art. 2118, Civil Code.

24 Commentaries and Jurisprudence on the Philippine Commercial

Laws, T.C. Martin, 1985 Rev. Ed., Vol. I, 134; Art. 18, Civil Code;

Sec. 196, Act No. 2031.

25 Rollo, 25.

26 Tec Bi & Co. vs. Chartered Bank of India, Australia and China,

41 Phil. 596 (1916); Ocejo, Perez & Co. vs. The International

Banking Corporation, 37 Phil. 631 (1918); Te Pate vs. Ingersoll, 43

Phil. 394 (1922).

27 Rollo, 25.

28 Ibid., 15.

29 Joint Partial Stipulation of Facts and Statement of Issues, dated

November 27, 1984; Original Record, 209.

30 Mejorada vs. Municipal Council of Dipolog, 52 SCRA 451 (1973).

31 Sec. 18, Rule 46, Rules of Court; Garcia, et al. vs. Court of

Appeals, et al., 102 SCRA 597 (1981); Matienzo vs. Servidad, 107

SCRA 276 (1981); Aguinaldo Industries Corporation, etc. vs.

Commissioner of Internal Revenue, et al., 112 SCRA 136 (1982);Dulos Realty & Development Corporation vs. Court of Appeals, et

al., 157 SCRA 425 (1988).

32 Bergado vs. Court of Appeals, et al., 173 SCRA 497 (1989).

33 Rollo, 58.

34 U.S. vs. Sanchez, 13 Phil. 336 (1909); Capati vs. Ocampo, 113

SCRA 794 (1982).

35 Luna vs. Abaya, 86 Phil. 472 (1950).

36 Philippine Law Dictionary, F.B. Moreno, Third Edition, 590.

37 Rollo, 59.




SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 80599 September 15, 1989

ERNESTINA CRISOLOGO-JOSE, petitioner,vs.

COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as

Vice-President for Sales of Mover Enterprises, Inc., respondents.

Melquiades P. de Leon for petitioner.

Rogelio A. Ajes for private respondent.

REGALADO, J.:

Petitioner seeks the annulment of the decision1

of respondent Court of Appeals,promulgated on September 8, 1987, which reversed the decision of the trial

Court 2 dismissing the complaint for consignation filed by therein plaintiff Ricardo S.

Santos, Jr.

The parties are substantially agreed on the following facts as found by both lower

courts:

In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of

Mover Enterprises, Inc. in-charge of marketing and sales; and the

president of the said corporation was Atty. Oscar Z. Benares. On

April 30, 1980, Atty. Benares, in accommodation of his clients, the

spouses Jaime and Clarita Ong, issued Check No. 093553 drawn

against Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I') payable to defendant Ernestina Crisologo-

Jose. Since the check was under the account of Mover Enterprises,

Inc., the same was to be signed by its president, Atty. Oscar Z.

Benares, and the treasurer of the said corporation. However, since

at that time, the treasurer of Mover Enterprises was not available,

Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to

sign the aforesaid chEck as an alternate story. Plaintiff Ricardo S.

Santos, Jr. did sign the check.

It appears that the check (Exh. '1') was issued to defendant

Ernestina Crisologo-Jose in consideration of the waiver or quitclaim

by said defendant over a certain property which the Government

Service Insurance System (GSIS) agreed to sell to the clients of

Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the

understanding that upon approval by the GSIS of the compromise

agreement with the spouses Ong, the check will be encashed

accordingly. However, since the compromise agreement was not

approved within the expected period of time, the aforesaid check

for P45,000.00 (Exh. '1') was replaced by Atty. Benares with

another Traders Royal Bank cheek bearing No. 379299 dated

August 10, 1980, in the same amount of P45,000.00 (Exhs. 'A' and

'2'), also payable to the defendant Jose. This replacement check

was also signed by Atty. Oscar Z. Benares and by the plaintiff

Ricardo S. Santos, Jr. When defendant deposited this replacement

check (Exhs. 'A' and '2') with her account at Family Savings Bank,

Mayon Branch, it was dishonored for insufficiency of funds. A

subsequent redepositing of the said check was likewise dishonored

by the bank for the same reason. Hence, defendant through

counsel was constrained to file a criminal complaint for violation of

Batas Pambansa Blg. 22 with the Quezon City Fiscal's Office

against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr.

The investigating Assistant City Fiscal, Alfonso Llamas, accordingly

filed an amended information with the court charging both Oscar

Benares and Ricardo S. Santos, Jr., for violation of Batas Pambansa

Blg. 22 docketed as Criminal Case No. Q-14867 of then Court of

First Instance of Rizal, Quezon City.

Meanwhile, during the preliminary investigation of the criminalcharge against Benares and the plaintiff herein, before Assistant

City Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr.

tendered cashier's check No. CC 160152 for P45,000.00 dated

April 10, 1981 to the defendant Ernestina Crisologo-Jose, the

complainant in that criminal case. The defendant refused to

receive the cashier's check in payment of the dishonored check in

the amount of P45,000.00. Hence, plaintiff encashed the aforesaid

cashier's check and subsequently deposited said amount of

P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D'

and 'E'). Incidentally, the cashier's check adverted to above was

purchased by Atty. Oscar Z. Benares and given to the plaintiff

herein to be applied in payment of the dishonored check. 3

After trial, the court a quo, holding that it was "not persuaded to believe that

consignation referred to in Article 1256 of the Civil Code is applicable to this case,"

rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. 4

As earlier stated, respondent court reversed and set aside said judgment of

dismissal and revived the complaint for consignation, directing the trial court to give

due course thereto.

Hence, the instant petition, the assignment of errors wherein are prefatorily stated

and discussed seriatim.

1. Petitioner contends that respondent Court of Appeals erred in

holding that private respondent, one of the signatories of thecheck issued under the account of Mover Enterprises, Inc., is an



accommodation party under the Negotiable Instruments Law and a

debtor of petitioner to the extent of the amount of said check.

Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc.

and not private respondent who merely signed the check in question in a

representative capacity, that is, as vice-president of said corporation, hence he is

not liable thereon under the Negotiable Instruments Law.

The pertinent provision of said law referred to provides:

Sec. 29. Liability of accommodation party an accommodationparty is one who has signed the instrument as maker, drawer,

acceptor, or indorser, without receiving value therefor, and for the

purpose of lending his name to some other person. Such a person

is liable on the instrument to a holder for value, notwithstanding

such holder, at the time of taking the instrument, knew him to be

only an accommodation party.

Consequently, to be considered an accommodation party, a person must (1) be a

party to the instrument, signing as maker, drawer, acceptor, or indorser, (2) not

receive value therefor, and (3) sign for the purpose of lending his name for the

credit of some other person.

Based on the foregoing requisites, it is not a valid defense that the accommodationparty did not receive any valuable consideration when he executed the instrument.

From the standpoint of contract law, he differs from the ordinary concept of a debtor

therein in the sense that he has not received any valuable consideration for the

instrument he signs. Nevertheless, he is liable to a holder for value as if the contract

was not for accommodation 5in whatever capacity such accommodation party

signed the instrument, whether primarily or secondarily. Thus, it has been held that

in lending his name to the accommodated party, the accommodation party is in

effect a surety for the latter. 6

Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this

case, as petitioner suggests, the inevitable question is whether or not it may be held

liable on the accommodation instrument, that is, the check issued in favor of herein

petitioner.

We hold in the negative.

The aforequoted provision of the Negotiable Instruments Law which holds an

accommodation party liable on the instrument to a holder for value, although such

holder at the time of taking the instrument knew him to be only an accommodation

party, does not include nor apply to corporations which are accommodation

parties. 7 This is because the issue or indorsement of negotiable paper by a

corporation without consideration and for the accommodation of another is ultra

vires. 8 Hence, one who has taken the instrument with knowledge of the

accommodation nature thereof cannot recover against a corporation where it is only

an accommodation party. If the form of the instrument, or the nature of the

transaction, is such as to charge the indorsee with knowledge that the issue or

indorsement of the instrument by the corporation is for the accommodation of

another, he cannot recover against the corporation thereon. 9

By way of exception, an officer or agent of a corporation shall have the power to

execute or indorse a negotiable paper in the name of the corporation for the

accommodation of a third person only if specifically authorized to do

so. 10 Corollarily, corporate officers, such as the president and vice-president, have

no power to execute for mere accommodation a negotiable instrument of the

corporation for their individual debts or transactions arising from or in relation to

matters in which the corporation has no legitimate concern. Since such

accommodation paper cannot thus be enforced against the corporation, especiallysince it is not involved in any aspect of the corporate business or operations, the

inescapable conclusion in law and in logic is that the signatories thereof shall be

personally liable therefor, as well as the consequences arising from their acts in

connection therewith.

The instant case falls squarely within the purview of the aforesaid decisional rules. If

we indulge petitioner in her aforesaid postulation, then she is effectively barred from

recovering from Mover Enterprises, Inc. the value of the check. Be that as it may,

petitioner is not without recourse.

The fact that for lack of capacity the corporation is not bound by an accommodation

paper does not thereby absolve, but should render personally liable, the signatories

of said instrument where the facts show that the accommodation involved was fortheir personal account, undertaking or purpose and the creditor was aware thereof.

Petitioner, as hereinbefore explained, was evidently charged with the knowledge

that the cheek was issued at the instance and for the personal account of Atty.

Benares who merely prevailed upon respondent Santos to act as co-signatory in

accordance with the arrangement of the corporation with its depository bank. That it

was a personal undertaking of said corporate officers was apparent to petitioner by

reason of her personal involvement in the financial arrangement and the fact that,

while it was the corporation's check which was issued to her for the amount

involved, she actually had no transaction directly with said corporation.

There should be no legal obstacle, therefore, to petitioner's claims being directed

personally against Atty. Oscar Z. Benares and respondent Ricardo S. Santos, Jr.,president and vice-president, respectively, of Mover Enterprises, Inc.

2. On her second assignment of error, petitioner argues that the

Court of Appeals erred in holding that the consignation of the sum

of P45,000.00, made by private respondent after his tender of

payment was refused by petitioner, was proper under Article 1256

of the Civil Code.

Petitioner's submission is that no creditor-debtor relationship exists between the

parties, hence consignation is not proper. Concomitantly, this argument was

premised on the assumption that private respondent Santos is not an

accommodation party.



As previously discussed, however, respondent Santos is an accommodation party

and is, therefore, liable for the value of the check. The fact that he was only a co-

signatory does not detract from his personal liability. A co-maker or co-drawer under

the circumstances in this case is as much an accommodation party as the other co-

signatory or, for that matter, as a lone signatory in an accommodation instrument.

Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect

a co-surety for the accommodated party with whom he and his co-signatory, as the

other co-surety, assume solidary liability ex lege for the debt involved. With the

dishonor of the check, there was created a debtor-creditor relationship, as between

Atty. Benares and respondent Santos, on the one hand, and petitioner, on the other.

This circumstance enables respondent Santos to resort to an action of consignation

where his tender of payment had been refused by petitioner.

We interpose the caveat , however, that by holding that the remedy of consignation

is proper under the given circumstances, we do not thereby rule that all the

operative facts for consignation which would produce the effect of payment are

present in this case. Those are factual issues that are not clear in the records before

us and which are for the Regional Trial Court of Quezon City to ascertain in Civil Case

No. Q-33160, for which reason it has advisedly been directed by respondent court to

give due course to the complaint for consignation, and which would be subject to

such issues or claims as may be raised by defendant and the counterclaim filed

therein which is hereby ordered similarly revived.

3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the Regional Trial Court of Quezon City filed against

private respondent for violation of Batas Pambansa Blg. 22, by

holding that no criminal liability had yet attached to private

respondent when he deposited with the court the amount of

P45,000.00 is the final plaint of petitioner.

We sustain petitioner on this score.

Indeed, respondent court went beyond the ratiocination called for in the appeal to it

in CA-G.R. CV. No. 05464. In its own decision therein, it declared that " (t)he lone

issue dwells in the question of whether an accommodation party can validly consign

the amount of the debt due with the court after his tender of payment was refused

by the creditor." Yet, from the commercial and civil law aspects determinative of saidissue, it digressed into the merits of the aforesaid Criminal Case No. Q-14867, thus:

Section 2 of B.P. 22 establishes the prima facie evidence of

knowledge of such insufficiency of funds or credit. Thus, the

making, drawing and issuance of a check, payment of which is

refused by the drawee because of insufficient funds in or credit

with such bank is prima facie evidence of knowledge of

insufficiency of funds or credit, when the check is presented within

90 days from the date of the check.

It will be noted that the last part of Section 2 of B.P. 22 provides

that the element of knowledge of insufficiency of funds or credit is

not present and, therefore, the crime does not exist, when thedrawer pays the holder the amount due or makes arrangements

for payment in full by the drawee of such check within five (5)

banking days after receiving notice that such check has not been

paid by the drawee.

Based on the foregoing consideration, this Court finds that the

plaintiff-appellant acted within Ms legal rights when he consigned

the amount of P45,000.00 on August 14, 1981, between August 7,

1981, the date when plaintiff-appellant receive (sic) the notice of

non-payment, and August 14, 1981, the date when the debt due

was deposited with the Clerk of Court (a Saturday and a Sunday

which are not banking days) intervened. The fifth banking day fellon August 14, 1981. Hence, no criminal liability has yet attached

to plaintiff-appellant when he deposited the amount of P45,000.00

with the Court a quo on August 14, 1981. 11

That said observations made in the civil case at bar and the intrusion into the merits

of the criminal case pending in another court are improper do not have to be

belabored. In the latter case, the criminal trial court has to grapple with such factual

issues as, for instance, whether or not the period of five banking days had expired,

in the process determining whether notice of dishonor should be reckoned from any

prior notice if any has been given or from receipt by private respondents of the

subpoena therein with supporting affidavits, if any, or from the first day of actual

preliminary investigation; and whether there was a justification for not making the

requisite arrangements for payment in full of such check by the drawee bank withinthe said period. These are matters alien to the present controversy on tender and

consignation of payment, where no such period and its legal effects are involved.

These are aside from the considerations that the disputed period involved in the

criminal case is only a presumptive rule, juris tantum at that, to determine whether

or not there was knowledge of insufficiency of funds in or credit with the drawee

bank; that payment of civil liability is not a mode for extinguishment of criminal

liability; and that the requisite quantum of evidence in the two types of cases are

not the same.

To repeat, the foregoing matters are properly addressed to the trial court in Criminal

Case No. Q-14867, the resolution of which should not be interfered with by

respondent Court of Appeals at the present posture of said case, much lesspreempted by the inappropriate and unnecessary holdings in the aforequoted

portion of the decision of said respondent court. Consequently, we modify the

decision of respondent court in CA-G.R. CV No. 05464 by setting aside and declaring

without force and effect its pronouncements and findings insofar as the merits of

Criminal Case No. Q-14867 and the liability of the accused therein are concerned.

WHEREFORE, subject to the aforesaid modifications, the judgment of respondent

Court of Appeals is AFFIRMED.

SO ORDERED.

Paras, Padilla and Sarmiento, JJ ., concur.

Melencio-Herrera J., took no part.



Footnotes

1 Penned by Justice Justo P. Torres, Jr. and concurred in by

Associate Justices Leonor Ines Luciano and Oscar M. Herrera; Rollo,

18.

2 Civil Case No. Q-33160, Regional Trial Court of Quezon City,

Branch XCVI.

3 Rollo, 19-20.

4 Rollo, 18.

5 Ang Tiong vs. Ting, et al., 22 SCRA 713 (1968).

6 Philipine Bank of Commerce vs. Aruego, 102 SCRA 530 (1981).

7 11 C.J.S. 309.

8 14A C.J. 732.

9 Oppenheim vs. Simon Reigel Cigar Co., 90 N.Y.S. 355, cited in 11C.J.S. 309.

10 In re Wrentham Mfg. Co., 2 Low. 119; Hall vs. Auburn Turnp. Co.,

27 Cal. 255, cited in 14A C.J. 461.

11 Rollo, 21-22.




SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 146511 September 5, 2007

TOMAS ANG, petitioner,

vs.

ASSOCIATED BANK AND ANTONIO ANG ENG LIONG, respondents.

D E C I S I O N

AZCUNA, J.:

This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to

review the October 9, 2000 Decision1 and December 26, 2000 Resolution2 of the

Court of Appeals in CA-G.R. CV No. 53413 which reversed and set aside the January

5, 1996 Decision3 of the Regional Trial Court, Branch 16, Davao City, in Civil Case No.

20,299-90, dismissing the complaint filed by respondents for collection of a sum of

money.

On August 28, 1990, respondent Associated Bank (formerly Associated BankingCorporation and now known as United Overseas Bank Philippines) filed a collection

suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2)

promissory notes that they executed as principal debtor and co-maker, respectively.

In the Complaint,4 respondent Bank alleged that on October 3 and 9, 1978, the

defendants obtained a loan ofP50,000, evidenced by a promissory note bearing PN-

No. DVO-78-382, and P30,000, evidenced by a promissory note bearing PN-No. DVO-

78-390. As agreed, the loan would be payable, jointly and severally, on January 31,

1979 and December 8, 1978, respectively. In addition, subsequent amendments5 to

the promissory notes as well as the disclosure statements6 stipulated that the loan

would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty

charge per month from due date until fully paid, and attorney's fees equivalent to

20% of the outstanding obligation.

Despite repeated demands for payment, the latest of which were on September 13,

1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang,

respectively, respondent Bank claimed that the defendants failed and refused to

settle their obligation, resulting in a total indebtedness of P539,638.96 as of July 31,

1990, broken down as follows:

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

Outstanding Balance P50,000.00

Add Past due charges for 4,199 days (from

01-31-79 to 07-31-90)

Past due charges for 4,253 days (from

12-8-78 to 07-31-90)

14% Interest P203,538.98

2% Service Charge P11,663.89

12% Overdue Charge P 69,983.34

Total P285,186.21

Less: Charges paid P 500.00

Amount Due P334,686.21

In his Answer,7 Antonio Ang Eng Liong only admitted to have secured a loan

amounting to P80,000. He pleaded though that the bank "be ordered to submit a

more reasonable computation" considering that there had been "no correct and

reasonable statement of account" sent to him by the bank, which was allegedly

collecting excessive interest, penalty charges, and attorney's fees despite

knowledge that his business was destroyed by fire, hence, he had no source of

income for several years.

For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-

claim.8 He interposed the affirmative defenses that: the bank is not the real party in

interest as it is not the holder of the promissory notes, much less a holder for valueor a holder in due course; the bank knew that he did not receive any valuable

consideration for affixing his signatures on the notes but merely lent his name as an

accommodation party; he accepted the promissory notes in blank, with only the

printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it

was the bank which completed the notes upon the orders, instructions, or

representations of his co-defendant; PN-No. DVO-78-382 was completed in excess of

or contrary to the authority given by him to his co-defendant who represented that

he would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-390

was procured through fraudulent means when his co-defendant claimed that his first

loan did not push through; the promissory notes did not indicate in what capacity he

was intended to be bound; the bank granted his co-defendant successive extensions

of time within which to pay, without his (Tomas Ang) knowledge and consent; the

bank imposed new and additional stipulations on interest, penalties, servicescharges and attorney's fees more onerous than the terms of the notes, without his

knowledge and consent, in the absence of legal and factual basis and in violation of

the Usury Law; the bank caused the inclusion in the promissory notes of stipulations

such as waiver of presentment for payment and notice of dishonor which are against

public policy; and the notes had been impaired since they were never presented for

payment and demands were made only several years after they fell due when his

co-defendant could no longer pay them.

Regarding his counterclaim, Tomas Ang argued that by reason of the bank's acts or

omissions, it should be held liable for the amount of P50,000 for attorney's fees and

expenses of litigation. Furthermore, on his cross-claim against Antonio Ang Eng

Liong, he averred that he should be reimbursed by his co-defendant any and all

sums that he may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 formoral and exemplary damages, and attorney's fees, respectively.

http://www.lawphil.net/judjuris/juri2007/sep2007/gr_146511_2007.html






















In its Reply,9 respondent Bank countered that it is the real party in interest and is the

holder of the notes since the Associated Banking Corporation and Associated

Citizens Bank are its predecessors-in-interest. The fact that Tomas Ang never

received any moneys in consideration of the two (2) loans and that such was known

to the bank are immaterial because, as an accommodation maker, he is considered

as a solidary debtor who is primarily liable for the payment of the promissory notes.

Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that

absence or failure of consideration is not a matter of defense; neither is the fact that

the holder knew him to be only an accommodation party.

Respondent Bank likewise retorted that the promissory notes were completely filledup at the time of their delivery. Assuming that such was not the case, Sec. 14 of the

NIL provides that the bank has the prima facie authority to complete the blank form.

Moreover, it is presumed that one who has signed as a maker acted with care and

had signed the document with full knowledge of its content. The bank noted that

Tomas Ang is a prominent businessman in Davao City who has been engaged in the

auto parts business for several years, hence, certainly he is not so naïve as to sign

the notes without knowing or bothering to verify the amounts of the loans covered

by them. Further, he is already in estoppel since despite receipt of several demand

letters there was not a single protest raised by him that he signed for only one note

in the amount of P30,000.

It was denied by the bank that there were extensions of time for payment accorded

to Antonio Ang Eng Liong. Granting that such were the case, it said that the samewould not relieve Tomas Ang from liability as he would still be liable for the whole

obligation less the share of his co-debtor who received the extended term.

The bank also asserted that there were no additional or new stipulations imposed

other than those agreed upon. The penalty charge, service charge, and attorney's

fees were reflected in the amendments to the promissory notes and disclosure

statements. Reference to the Usury Law was misplaced as usury is legally non-

existent; at present, interest can be charged depending on the agreement of the

lender and the borrower.

Lastly, the bank contended that the provisions on presentment for payment and

notice of dishonor were expressly waived by Tomas Ang and that such waiver is not

against public policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there iseven no necessity therefor since being a solidary debtor he is absolutely required to

pay and primarily liable on both promissory notes.

On October 19, 1990, the trial court issued a preliminary pre-trial order directing the

parties to submit their respective pre-trial guide.10 When Antonio Ang Eng Liong

failed to submit his brief, the bank filed an ex-partemotion to declare him in

default.11 Per Order of November 23, 1990, the court granted the motion and set

the ex-parte hearing for the presentation of the bank's evidence.12 Despite Tomas

Ang's motion13 to modify the Order so as to exclude or cancel the ex-parte hearing

based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of the

Revised Rules on Civil Procedure), the hearing nonetheless proceeded.14

Eventually, a decision15

was rendered by the trial court on February 21, 1991. For hissupposed bad faith and obstinate refusal despite several demands from the bank,

Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14%

interest per annum and 2% service charge per annum. The overdue penalty charge

and attorney's fees were, however, reduced for being excessive, thus:

WHEREFORE, judgment is rendered against defendant Antonio Ang Eng

Liong and in favor of plaintiff, ordering the former to pay the latter:

On the first cause of action:

1) the amount of P50,000.00 representing the principal obligation

with 14% interest per annum from June 27, 1983 with 2% servicecharge and 6% overdue penalty charges per annum until fully

paid;

2) P11,663.89 as accrued service charge; and

3) P34,991.67 as accrued overdue penalty charge.

On the second cause of action:

1) the amount of P50,000.00 (sic) representing the principal

account with 14% interest from June 27, 1983 with 2% service

charge and 6% overdue penalty charges per annum until fully

paid;

2) P7,088.34 representing accrued service charge;

3) P21,265.00 as accrued overdue penalty charge;

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

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

costs.

SO ORDERED.16

The decision became final and executory as no appeal was taken therefrom. Upon

the bank's ex-parte motion, the court accordingly issued a writ of execution on April

5, 1991.17

Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank

and Tomas Ang,18 who, in turn, filed a Motion to Dismiss19 on the ground of lack of

jurisdiction over the case in view of the alleged finality of the February 21, 1991

Decision. He contended that Sec. 4, Rule 18 of the old Rules sanctions only one

judgment in case of several defendants, one of whom is declared in default.

Moreover, in his Supplemental Motion to Dismiss,20 Tomas Ang maintained that he is

released from his obligation as a solidary guarantor and accommodation party

because, by the bank's actions, he is now precluded from asserting his cross-claim

against Antonio Ang Eng Liong, upon whom a final and executory judgment had

already been issued.







































The court denied the motion as well as the motion for reconsideration

thereon.21 Tomas Ang subsequently filed a petition for certiorari and prohibition

before this Court, which, however, resolved to refer the same to the Court of

Appeals.22 In accordance with the prayer of Tomas Ang, the appellate court

promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which

annulled and set aside the portion of the Order dated November 23, 1990 setting

the ex-parte presentation of the bank's evidence against Antonio Ang Eng Liong, the

Decision dated February 21, 1991 rendered against him based on such evidence,

and the Writ of Execution issued on April 5, 1991.23

Trial then ensued between the bank and Tomas Ang. Upon the latter's motion duringthe pre-trial conference, Antonio Ang Eng Liong was again declared in default for his

failure to answer the cross-claim within the reglementary period.24

When Tomas Ang was about to present evidence in his behalf, he filed a Motion for

Production of Documents,25reasoning:

x x x

2. That corroborative to, and/or preparatory or incident to his testimony[,]

there is [a] need for him to examine original records in the custody and

possession of plaintiff, viz:

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

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

382;

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

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

390;

e. Statement or Record of Account with the Associated Banking

Corporation or its successor, of Antonio Ang in CA No. 470 (cf. Exh.

O) including bank records, withdrawal slips, notices, other papersand relevant dates relative to the overdraft of Antonio Eng Liong in

CA No. 470;

f. Loan Applications of Antonio Ang Eng Liong or borrower relative

to PN Nos. DVO-78-382 and DVO-78-390 (supra);

g. Other supporting papers and documents submitted by Antonio

Ang Eng Liong relative to his loan application vis-à-vis PN. Nos.

DVO-78-382 and DVO-78-390 such as financial statements, income

tax returns, etc. as required by the Central Bank or bank rules and

regulations.

3. That the above matters are very material to the defenses of defendant

Tomas Ang, viz:

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

in blank.

- The real borrower is Antonio Ang Eng Liong which fact is known

to the bank.

- That the PAYEE not being a holder in due course and knowing

that defendant Tomas Ang is merely an accommodation party, the

latter may raise against such payee or holder or successor-in-

interest (of the notes) PERSONAL and EQUITABLE DEFENSES such

as FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application of [Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in

delaying collection despite Eng Liong's OVERDRAFT in C.A. No.

470, etc.26

In its Order dated May 16, 1994,27 the court denied the motion stating that the

promissory notes and the disclosure statements have already been shown to and

inspected by Tomas Ang during the trial, as in fact he has already copies of the

same; the Statements or Records of Account of Antonio Ang Eng Liong in CA No.

470, relative to his overdraft, are immaterial since, pursuant to the previous ruling of

the court, he is being sued for the notes and not for the overdraft which is personal

to Antonio Ang Eng Liong; and besides its non-existence in the bank's records, there

would be legal obstacle for the production and inspection of the income tax return of

Antonio Ang Eng Liong if done without his consent.

When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang

filed a petition for certiorariand prohibition with application for preliminary injunction

and restraining order before the Court of Appeals docketed as CA G.R. SP No.

34840.28 On August 17, 1994, however, the Court of Appeals denied the issuance of

a Temporary Restraining Order.29

Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have

waived his right to present evidence for failure to appear during the pendency of his

petition before the Court of Appeals, the trial court decided to continue with the

hearing of the case.30

After the trial, Tomas Ang offered in evidence several documents, which included acopy of the Trust Agreement between the Republic of the Philippines and the Asset

Privatization Trust, as certified by the notary public, and news clippings from the

Manila Bulletin dated May 18, 1994 and May 30, 1994.31 All the documentary

exhibits were admitted for failure of the bank to submit its comment to the formal

offer.32 Thereafter, Tomas Ang elected to withdraw his petition in CA G.R. SP No.

34840 before the Court of Appeals, which was then granted.33

On January 5, 1996, the trial court rendered judgment against the bank, dismissing

the complaint for lack of cause of action.34 It held that:

Exh. "9" and its [sub-markings], the Trust Agreement dated 27 February

1987 for the defense shows that: the Associated Bank as of June 30, 1986

is one of DBP's or Development Bank of the [Philippines'] non-performingaccounts for transfer; on February 27, 1987 through Deeds of Transfer









































executed by and between the Philippine National Bank and Development

Bank of the Philippines and the National Government, both financial

institutions assigned, transferred and conveyed their non-performing assets

to the National Government; the National Government in turn and as

TRUSTOR, transferred, conveyed and assigned by way of trust unto the

Asset Privatization Trust said non-performing assets, [which] took title to

and possession of, [to] conserve, provisionally manage and dispose[,] of

said assets identified for privatization or disposition; one of the powers and

duties of the APT with respect to trust properties consisting of receivables is

to handle the administration, collection and enforcement of the receivables;

to bring suit to enforce payment of the obligations or any installmentthereof or to settle or compromise any of such obligations, or any other

claim or demand which the government may have against any person or

persons[.]

The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994,

Exh. "9-A", "9-B", "9-C", and "9-D", show that the Monetary Board of the

Bangko Sentral ng Pilipinas approved the rehabilitation plan of the

Associated Bank. One main feature of the rehabilitation plan included the

financial assistance for the bank by the Philippine Deposit Insurance

Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945

billion subject to a buy-back arrangement over a 10 year period. The PDIC

had approved of the rehab scheme, which included the purchase of AB's

bad loans worth P1.86 at 25% discount. This will then be paid by AB withina 10-year period plus a yield comparable to the prevailing market rates x x

x.

Based then on the evidence presented by the defendant Tomas Ang, it

would readily appear that at the time this suit for Sum of Money was filed

which was on August [28], 1990, the notes were held by the Asset

Privatization Trust by virtue of the Deeds of Transfer and Trust Agreement,

which was empowered to bring suit to enforce payment of the obligations.

Consequently, defendant Tomas Ang has sufficiently established that

plaintiff at the time this suit was filed was not the holder of the notes to

warrant the dismissal of the complaint.35

Respondent Bank then elevated the case to the Court of Appeals. In the appellant'sbrief captioned,"ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG

LIONG and TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee," the

following errors were alleged:

I.

THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG

ENG LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-

APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTER'S

DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS.

II.

THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANT'S

COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE

COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR JUDICIAL

NOTICE.36

The bank stressed that it has established the causes of action outlined in its

Complaint by a preponderance of evidence. As regards the Deed of Transfer and

Trust Agreement, it contended that the same were never authenticated by any

witness in the course of the trial; the Agreement, which was not even legible, did not

mention the promissory notes subject of the Complaint; the bank is not a party to

the Agreement, which showed that it was between the Government of thePhilippines, acting through the Committee on Privatization represented by the

Secretary of Finance as trustor and the Asset Privatization Trust, which was created

by virtue of Proclamation No. 50; and the Agreement did not reflect the signatures of

the contracting parties. Lastly, the bank averred that the news items appearing in

the Manila Bulletin could not be the subject of judicial notice since they were

completely hearsay in character.37

On October 9, 2000, the Court of Appeals reversed and set aside the trial court's

ruling. The dispositive portion of the Decision38 reads:

WHEREFORE, premises considered, the Decision of the Regional Trial Court

of Davao City, Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED

AND SET ASIDE and another one entered ordering defendant-appellee Tomas Ang to pay plaintiff-appellant Associated Bank the following:

1. P50,000.00 representing the principal amount of the loan under PN-No.

DVO-78-382 plus 14% interest thereon per annum computed from January

31, 1979 until the full amount thereof is paid;

2. P30,000.00 representing the principal amount of the loan under PN-No.

DVO-78-390 plus 14% interest thereon per annum computed from

December 8, 1978 until the full amount thereof is paid;

All other claims of the plaintiff-appellant are DISMISSED for lack of legal

basis. Defendant-appellee's counterclaim is likewise DISMISSED for lack of

legal and factual bases.

No pronouncement as to costs.

SO ORDERED.39

The appellate court disregarded the bank's first assigned error for being "irrelevant

in the final determination of the case" and found its second assigned error as "not

meritorious." Instead, it posed for resolution the issue of whether the trial court

erred in dismissing the complaint for collection of sum of money for lack of cause of

action as the bank was said to be not the "holder" of the notes at the time the

collection case was filed.

In answering the lone issue, the Court of Appeals held that the bank is a "holder"

under Sec. 191 of the NIL. It concluded that despite the execution of the Deeds of















Transfer and Trust Agreement, the Asset Privatization Trust cannot be declared as

the "holder" of the subject promissory notes for the reason that it is neither the

payee or indorsee of the notes in possession thereof nor is it the bearer of said

notes. The Court of Appeals observed that the bank, as the payee, did not indorse

the notes to the Asset Privatization Trust despite the execution of the Deeds of

Transfer and Trust Agreement and that the notes continued to remain with the bank

until the institution of the collection suit.

With the bank as the "holder" of the promissory notes, the Court of Appeals held

that Tomas Ang is accountable therefor in his capacity as an accommodation party.

Citing Sec. 29 of the NIL, he is liable to the bank in spite of the latter's knowledge, atthe time of taking the notes, that he is only an accommodation party. Moreover, as a

co-maker who agreed to be jointly and severally liable on the promissory notes,

Tomas Ang cannot validly set up the defense that he did not receive any

consideration therefor as the fact that the loan was granted to the principal debtor

already constitutes a sufficient consideration.

Further, the Court of Appeals agreed with the bank that the experience of Tomas

Ang in business rendered it implausible that he would just sign the promissory notes

as a co-maker without even checking the real amount of the debt to be incurred, or

that he merely acted on the belief that the first loan application was cancelled.

According to the appellate court, it is apparent that he was negligent in falling for

the alibi of Antonio Ang Eng Liong and such fact would not serve to exonerate him

from his responsibility under the notes.

Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty

and overdue charges as well as attorney's fees on the ground that the promissory

notes made no mention of such charges/fees.

In his motion for reconsideration,40 Tomas Ang raised for the first time the assigned

errors as follows:

x x x

2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang

has recently discovered that upon the filing of the complaint on August 28,

1990, under the jurisdictional rule laid down in BP Blg. 129, appellant bankfraudulently failed to specify the amount of compounded interest at 14%

per annum, service charges at 2% per annum and overdue penalty charges

at 12% per annum in the prayer of the complaint as of the time of its filing,

paying a total of only P640.00(!!!) as filing and court docket fees although

the total sum involved as of that time was P647,566.75 including 20%

attorney's fees. In fact, the stated interest in the body of the complaint

alone amount to P328,373.39 (which is

actually compounded and capitalized) in both causes of action and the total

service and overdue penalties and charges and attorney's fees further

amount to P239,193.36 in both causes of action, as of July 31, 1990, the

time of filing of the complaint. Significantly, appellant fraudulently misled

the Court, describing the 14% imposition as interest , when in fact the

same was capitalized as principal by appellant bank every month to earnmore interest, as stated in the notes. In view thereof, the trial court never

acquired jurisdiction over the case and the same may not be now corrected

by the filing of deficiency fees because the causes of action had already

prescribed and more importantly, the jurisdiction of the Municipal Trial

Court had been increased to P100,000.00 in principal claims last March 20,

1999, pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and

section 31, Book I of the 1987 Administrative Code. In other words, as of

today, jurisdiction over the subject falls within the exclusive jurisdiction of

the MTC, particularly if the bank foregoes capitalization of the stipulated

interest.

3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TOAPPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT

WHICH LEFT OUT TOMAS ANG'S CROSS-CLAIM AGAINST ENG LIONG

(BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL AND

EXECUTORY, AS AGAINST ENG LIONG. Accordingly, Tomas Ang's right of

subrogation against Ang Eng Liong, expressed in his cross-claim, is now

SEVERAL TIMES foreclosed because of the fault or negligence of appellant

bank since 1979 up to its insistence of an ex-parte trial, and now when it

failed to serve notice of appeal and appellant's brief upon him. Accordingly,

appellee Tomas Ang should be released from his suretyship obligation

pursuant to Art. 2080 of the Civil Code. The above is related to the issues

above-stated.

4) This Court may have erred in ADDING or ASSIGNING its own bill of errorfor the benefit of appellant bank which defrauded the judiciary by the

payment of deficient docket fees.41

Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals

denied the motion in its Resolution dated December 26, 2000.42

Petitioner now submits the following issues for resolution:

1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner

Tomas Ang as accommodation maker or surety because of the failure of

[private] respondent bank to serve its notice of appeal upon the principal

debtor, respondent Eng Liong?

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

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

raising its own issue?

4. Are petitioner's other real and personal defenses such as successive

extensions coupled with fraudulent collusion to hide Eng Liong's default,

the payee's grant of additional burdens, coupled with the insolvency of the

principal debtor, and the defense of incomplete but delivered instrument,

meritorious?43

Petitioner allegedly learned after the promulgation of the Court of Appeals' decision

that, pursuant to the parties' agreement on the compounding of interest with the

principal amount (per month in case of default), the interest on the promissory notes













as of July 31, 1990 should have been only P81,647.22 for PN No. DVO-78-382

(instead ofP203,538.98) and P49,618.33 for PN No. DVO-78-390 (instead

of P125,334.41) while the principal debt as of said date should increase

to P647,566.75 (instead of P539,638.96). He submits that the bank carefully and

shrewdly hid the fact by describing the amounts as interest instead of being part of

either the principal or penalty in order to pay a lesser amount of docket fees.

According to him, the total fees that should have been paid at the time of the filing

of the complaint on August 28, 1990 was P2,216.30 and not P614.00 or a shortage

of 71%. Petitioner contends that the bank may not now pay the deficiency because

the last demand letter sent to him was dated September 9, 1986, or more than

twenty years have elapsed such that prescription had already set in. Consequently,the bank's claim must be dismissed as the trial court loses jurisdiction over the case.

Petitioner also argues that the Court of Appeals should not have assigned its own

error and raised it as an issue of the case, contending that no question should be

entertained on appeal unless it has been advanced in the court below or is within

the issues made by the parties in the pleadings. At any rate, he opines that the

appellate court's decision that the bank is the real party in interest because it is the

payee named in the note or the holder thereof is too simplistic since: (1) the power

and control of Asset Privatization Trust over the bank are clear from the explicit

terms of the duly certified trust documents and deeds of transfer and are confirmed

by the newspaper clippings; (2) even under P.D. No. 902-A or the General Banking

Act, where a corporation or a bank is under receivership, conservation or

rehabilitation, it is only the representative (liquidator, receiver, trustee orconservator) who may properly act for said entity, and, in this case, the bank was

held by Asset Privatization Trust as trustee; and (3) it is not entirely accurate to say

that the payee who has not indorsed the notes in all cases is the real party in

interest because the rights of the payee may be subject of an assignment of

incorporeal rights under Articles 1624 and 1625 of the Civil Code.

Lastly, petitioner maintains that when respondent Bank served its notice of appeal

and appellant's brief only on him, it rendered the judgment of the trial court final

and executory with respect to Antonio Ang Eng Liong, which, in effect, released him

(Antonio Ang Eng Liong) from any and all liability under the promissory notes and,

thereby, foreclosed petitioner's cross-claims. By such act, the bank, even if it be the

"holder" of the promissory notes, allegedly discharged a simple contract for the

payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented asurety like petitioner from being subrogated in the shoes of his principal (Article

2080, Civil Code), and impaired the notes, producing the effect of payment (Article

1249, Civil Code).

The petition is unmeritorious.

Procedurally, it is well within the authority of the Court of Appeals to raise, if it

deems proper under the circumstances obtaining, error/s not assigned on an

appealed case. In Mendoza v. Bautista,44 this Court recognized the broad

discretionary power of an appellate court to waive the lack of proper assignment of

errors and to consider errors not assigned, thus:

As a rule, no issue may be raised on appeal unless it has been broughtbefore the lower tribunal for its consideration. Higher courts are precluded

from entertaining matters neither alleged in the pleadings nor raised during

the proceedings below, but ventilated for the first time only in a motion for

reconsideration or on appeal.

However, as with most procedural rules, this maxim is subject to

exceptions. Indeed, our rules recognize the broad discretionary power of an

appellate court to waive the lack of proper assignment of errors and to

consider errors not assigned. Section 8 of Rule 51 of the Rules of Court

provides:

SEC. 8. Questions that may be decided. — No error which does not affectthe jurisdiction over the subject matter or the validity of the judgment

appealed from or the proceedings therein will be considered, unless stated

in the assignment of errors, or closely related to or dependent on an

assigned error and properly argued in the brief, save as the court may pass

upon plain errors and clerical errors.

Thus, an appellate court is clothed with ample authority to review rulings

even if they are not assigned as errors in the appeal in these instances: (a)

grounds not assigned as errors but affecting jurisdiction over the subject

matter; (b) matters not assigned as errors on appeal but are evidently plain

or clerical errors within contemplation of law; (c) matters not assigned as

errors on appeal but consideration of which is necessary in arriving at a just

decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters not specifically

assigned as errors on appeal but raised in the trial court and are matters of

record having some bearing on the issue submitted which the parties failed

to raise or which the lower court ignored; (e) matters not assigned as errors

on appeal but closely related to an error assigned; and (f) matters not

assigned as errors on appeal but upon which the determination of a

question properly assigned is dependent. (Citations omitted)45

To the Court's mind, even if the Court of Appeals regarded petitioner's two assigned

errors as "irrelevant" and "not meritorious," the issue of whether the trial court erred

in dismissing the complaint for collection of sum of money for lack of cause of action

(on the ground that the bank was not the "holder" of the notes at the time of the

filing of the action) is in reality closely related to and determinant of the resolutionof whether the lower court correctly ruled in not holding Antonio Ang Eng Liong and

petitioner Tomas Ang liable to the bank on their unpaid loans despite documentary

exhibits allegedly proving their obligations and in dismissing the complaint based on

newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on

this point.

Now, the more relevant question is: who is the real party in interest at the time of

the institution of the complaint, is it the bank or the Asset Privatization Trust?

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

proper.

Taking into account the imperative need of formally launching a program for therationalization of the government corporate sector, then President Corazon C.








Aquino issued Proclamation No. 5046 on December 8, 1986. As one of the twin

cornerstones of the program was to establish the privatization of a good number of

government corporations, the proclamation created the Asset Privatization Trust,

which would, for the benefit of the National Government, take title to and possession

of, conserve, provisionally manage and dispose of transferred assets that were

identified for privatization or disposition.47

In accordance with the provisions of Section 2348 of the proclamation, then President

Aquino subsequently issued Administrative Order No. 14 on February 3, 1987, which

approved the identification of and transfer to the National Government of certain

assets (consisting of loans, equity investments, accrued interest receivables,acquired assets and other assets) and liabilities (consisting of deposits, borrowings,

other liabilities and contingent guarantees) of the Development Bank of the

Philippines (DBP) and the Philippine National Bank (PNB). The transfer of assets was

implemented through a Deed of Transfer executed on February 27, 1987 between

the National Government, on one hand, and the DBP and PNB, on the other. In turn,

the National Government designated the Asset Privatization Trust to act as its

trustee through a Trust Agreement, whereby the non-performing accounts of DBP

and PNB, including, among others, the DBP's equity with respondent Bank, were

entrusted to the Asset Privatization Trust.49 As provided for in the Agreement, among

the powers and duties of the Asset Privatization Trust with respect to the trust

properties consisting of receivables was to handle their administration and collection

by bringing suit to enforce payment of the obligations or any installment thereof or

settling or compromising any of such obligations or any other claim or demandwhich the Government may have against any person or persons, and to do all acts,

institute all proceedings, and to exercise all other rights, powers, and privileges of

ownership that an absolute owner of the properties would otherwise have the right

to do.50

Incidentally, the existence of the Asset Privatization Trust would have expired five

(5) years from the date of issuance of Proclamation No. 50.51 However, its original

term was extended from December 8, 1991 up to August 31, 1992,52 and again from

December 31, 1993 until June 30, 1995,53 and then from July 1, 1995 up to

December 31, 1999,54 and further from January 1, 2000 until December 31,

2000.55 Thenceforth, the Privatization and Management Office was established and

took over, among others, the powers, duties and functions of the Asset Privatization

Trust under the proclamation.56

Based on the above backdrop, respondent Bank does not appear to be the real party

in interest when it instituted the collection suit on August 28, 1990 against Antonio

Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was filed in the

trial court, it was the Asset Privatization Trust which had the authority to enforce its

claims against both debtors. In fact, during the pre-trial conference, Atty. Roderick

Orallo, counsel for the bank, openly admitted that it was under the trusteeship of

the Asset Privatization Trust.57 The Asset Privatization Trust, which should have been

represented by the Office of the Government Corporate Counsel, had the authority

to file and prosecute the case.

The foregoing notwithstanding, this Court can not, at present, readily subscribe to

petitioner's insistence that the case must be dismissed. Significantly, it standswithout refute, both in the pleadings as well as in the evidence presented during the

trial and up to the time this case reached the Court, that the issue had been

rendered moot with the occurrence of a supervening event – the "buy-back" of the

bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-

acquisition from the Asset Privatization Trust when the case was still pending in the

lower court, the bank reclaimed its real and actual interest over the unpaid

promissory notes; hence, it could rightfully qualify as a "holder"58 thereof under the

NIL.

Notably, Section 29 of the NIL defines an accommodation party as a person "who

has signed the instrument as maker, drawer, acceptor, or indorser, without receiving

value therefor, and for the purpose of lending his name to some other person." Asgleaned from the text, an accommodation party is one who meets all the three

requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer,

acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign

for the purpose of lending his name or credit to some other person.59An

accommodation party lends his name to enable the accommodated party to obtain

credit or to raise money; he receives no part of the consideration for the instrument

but assumes liability to the other party/ies thereto.60 The accommodation party is

liable on the instrument to a holder for value even though the holder, at the time of

taking the instrument, knew him or her to be merely an accommodation party, as if

the contract was not for accommodation.61

As petitioner acknowledged it to be, the relation between an accommodation party

and the accommodated party is one of principal and surety – the accommodationparty being the surety.62 As such, he is deemed an original promisor and debtor from

the beginning;63 he is considered in law as the same party as the debtor in relation

to whatever is adjudged touching the obligation of the latter since their liabilities are

interwoven as to be inseparable.64 Although a contract of suretyship is in essence

accessory or collateral to a valid principal obligation, the surety's liability to the

creditor is immediate, primary and absolute; he is directly and equally bound with

the principal.65 As an equivalent of a regular party to the undertaking, a surety

becomes liable to the debt and duty of the principal obligor even without possessing

a direct or personal interest in the obligations nor does he receive any benefit

therefrom.66

Contrary to petitioner's adamant stand, however, Article 208067 of the Civil Code

does not apply in a contract of suretyship.68

Art. 2047 of the Civil Code states that if a person binds himself solidarily with the principal debtor, the provisions of Section

4, Chapter 3, Title I, Book IV of the Civil Code must be observed. Accordingly,

Articles 1207 up to 1222 of the Code (on joint and solidary obligations) shall govern

the relationship of petitioner with the bank.

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

Petitioner also argues that the dismissal of the complaint against Naybe,

the principal debtor, and against Pantanosas, his co-maker, constituted a

release of his obligation, especially because the dismissal of the case

against Pantanosas was upon the motion of private respondent itself. He

cites as basis for his argument, Article 2080 of the Civil Code which

provides that:






































































"The guarantors, even though they be solidary, are released from their

obligation whenever by come act of the creditor, they cannot be

subrogated to the rights, mortgages, and preferences of the latter."

It is to be noted, however, that petitioner signed the promissory note as a

solidary co-maker and not as a guarantor. This is patent even from the first

sentence of the promissory note which states as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and

SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at

its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with

interest x x x at the rate of SIXTEEN (16) per cent per annum until fully

paid."

A solidary or joint and several obligation is one in which each debtor is

liable for the entire obligation, and each creditor is entitled to demand the

whole obligation. On the other hand, Article 2047 of the Civil Code states:

"By guaranty a person, called the guarantor, binds himself to the creditor to

fulfill the obligation of the principal debtor in case the latter should fail to

do so.

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

the contract is called a suretyship." (Italics supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the

liability of a guarantor is different from that of a solidary debtor. Thus,

Tolentino explains:

"A guarantor who binds himself in solidum with the principal debtor under

the provisions of the second paragraph does not become a solidary co-

debtor to all intents and purposes. There is a difference between a solidary

co-debtor, and a fiador in solidum (surety). The later, outside of the liability

he assumes to pay the debt before the property of the principal debtor has

been exhausted, retains all the other rights, actions and benefits whichpertain to him by reason of rights of the fiansa; while a solidary co-debtor

has no other rights than those bestowed upon him in Section 4, Chapter 3,

title I, Book IV of the Civil Code."

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint

and several obligations. Under Art. 1207 thereof, when there are two or

more debtors in one and the same obligation, the presumption is that

obligation is joint so that each of the debtors is liable only for a

proportionate part of the debt. There is a solidarily liability only when the

obligation expressly so states, when the law so provides or when the nature

of the obligation so requires.

Because the promissory note involved in this case expressly states that the

three signatories therein are jointly and severally liable, any one, some or all

of them may be proceeded against for the entire obligation. The choice is

left to the solidary creditor to determine against whom he will enforce

collection. (Citations omitted)70

In the instant case, petitioner agreed to be "jointly and severally" liable under the

two promissory notes that he co-signed with Antonio Ang Eng Liong as the principal

debtor. This being so, it is completely immaterial if the bank would opt to proceed

only against petitioner or Antonio Ang Eng Liong or both of them since the law

confers upon the creditor the prerogative to choose whether to enforce the entire

obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an

accommodation party, may seek reimbursement from Antonio Ang Eng Liong, beingthe party accommodated.71

It is plainly mistaken for petitioner to say that just because the bank failed to serve

the notice of appeal and appellant's brief to Antonio Ang Eng Liong, the trial court's

judgment, in effect, became final and executory as against the latter and, thereby,

bars his (petitioner's) cross-claims against him: First , although no notice of appeal

and appellant's brief were served to Antonio Ang Eng Liong, he was nonetheless

impleaded in the case since his name appeared in the caption of both the notice and

the brief as one of the defendants-appellees;72 Second, despite including in the

caption of the appellee's brief his co-debtor as one of the defendants-appellees,

petitioner did not also serve him a copy thereof;73 Third, in the caption of the Court

of Appeals' decision, Antonio Ang Eng Liong was expressly named as one of the

defendants-appellees;74 and Fourth, it was only in his motion for reconsiderationfrom the adverse judgment of the Court of Appeals that petitioner belatedly chose to

serve notice to the counsel of his co-defendant-appellee.75

Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his "special

appearance" through counsel, that the Court of Appeals, much less this Court,

already lacked jurisdiction over his person or over the subject matter relating to him

because he was not a party in CA-G.R. CV No. 53413. Stress must be laid of the fact

that he had twice put himself in default – one, in not filing a pre-trial brief and

another, in not filing his answer to petitioner's cross-claims. As a matter of course,

Antonio Ang Eng Liong, being a party declared in default, already waived his right to

take part in the trial proceedings and had to contend with the judgment rendered by

the court based on the evidence presented by the bank and petitioner. Moreover,

even without considering these default judgments, Antonio Ang Eng Liong evencategorically admitted having secured a loan totaling P80,000. In his Answer to the

complaint, he did not deny such liability but merely pleaded that the bank "be

ordered to submit a more reasonable computation" instead of collecting excessive

interest, penalty charges, and attorney's fees. For failing to tender an i ssue and in

not denying the material allegations stated in the complaint, a judgment on the

pleadings76 would have also been proper since not a single issue was generated by

the Answer he filed.

As the promissory notes were not discharged or impaired through any act or

omission of the bank, Sections 119 (d)77 and 12278 of the NIL as well as Art. 124979 of

the Civil Code would necessarily find no application. Again, neither was petitioner's

right of reimbursement barred nor was the bank's right to proceed against Antonio

Ang Eng Liong expressly renounced by the omission to serve notice of appeal andappellant's brief to a party already declared in default.





























Consequently, in issuing the two promissory notes, petitioner as accommodating

party warranted to the holder in due course that he would pay the same according

to its tenor.80 It is no defense to state on his part that he did not receive any value

therefor81 because the phrase "without receiving value therefor" used in Sec. 29 of

the NIL means "without receiving value by virtue of the instrument" and not as it is

apparently supposed to mean, "without receiving payment for lending his

name."82 Stated differently, when a third person advances the face value of the note

to the accommodated party at the time of its creation, the consideration for the note

as regards its maker is the money advanced to the accommodated party. It is

enough that value was given for the note at the time of its creation.83 As in the

instant case, a sum of money was received by virtue of the notes, hence, it isimmaterial so far as the bank is concerned whether one of the signers, particularly

petitioner, has or has not received anything in payment of the use of his name.84

Under the law, upon the maturity of the note, a surety may pay the debt, demand

the collateral security, if there be any, and dispose of it to his benefit, or, if

applicable, subrogate himself in the place of the creditor with the right to enforce

the guaranty against the other signers of the note for the reimbursement of what he

is entitled to recover from them.85 Regrettably, none of these were prudently done

by petitioner. When he was first notified by the bank sometime in 1982 regarding his

accountabilities under the promissory notes, he lackadaisically relied on Antonio Ang

Eng Liong, who represented that he would take care of the matter, instead of

directly communicating with the bank for its settlement.86 Thus, petitioner cannot

now claim that he was prejudiced by the supposed "extension of time" given by thebank to his co-debtor.

Furthermore, since the liability of an accommodation party remains not

only primary but also unconditional to a holder for value, even if the accommodated

party receives an extension of the period for payment without the consent of the

accommodation party, the latter is still liable for the whole obligation and such

extension does not release him because as far as a holder for value is concerned, he

is a solidary co-debtor.87 In Clark v. Sellner ,88this Court held:

x x x The mere delay of the creditor in enforcing the guaranty has not by

any means impaired his action against the defendant. It should not be lost

sight of that the defendant's signature on the note is an assurance to the

creditor that the collateral guaranty will remain good, and that otherwise,he, the defendant, will be personally responsible for the payment.

True, that if the creditor had done any act whereby the guaranty was

impaired in its value, or discharged, such an act would have wholly or

partially released the surety; but it must be born in mind that it is a

recognized doctrine in the matter of suretyship that with respect to the

surety, the creditor is under no obligation to display any diligence in the

enforcement of his rights as a creditor. His mere inaction indulgence,

passiveness, or delay in proceeding against the principal debtor, or the fact

that he did not enforce the guaranty or apply on the payment of such funds

as were available, constitute no defense at all for the surety, unless the

contract expressly requires diligence and promptness on the part of the

creditor, which is not the case in the present action. There is in somedecisions a tendency toward holding that the creditor's laches may

discharge the surety, meaning by laches a negligent forbearance. This

theory, however, is not generally accepted and the courts almost

universally consider it essentially inconsistent with the relation of the

parties to the note. (21 R.C.L., 1032-1034)89

Neither can petitioner benefit from the alleged "insolvency" of Antonio Ang Eng

Liong for want of clear and convincing evidence proving the same. Assuming it to be

true, he also did not exercise diligence in demanding security to protect himself from

the danger thereof in the event that he (petitioner) would eventually be sued by the

bank. Further, whether petitioner may or may not obtain security from Antonio Ang

Eng Liong cannot in any manner affect his liability to the bank; the said remedy is amatter of concern exclusively between themselves as accommodation party and

accommodated party. The fact that petitioner stands only as a surety in relation to

Antonio Ang Eng Liong is immaterial to the claim of the bank and does not a whit

diminish nor defeat the rights of the latter as a holder for value. To sanction his

theory is to give unwarranted legal recognition to the patent absurdity of a situation

where a co-maker, when sued on an instrument by a holder in due course and for

value, can escape liability by the convenient expedient of interposing the defense

that he is a merely an accommodation party.90

In sum, as regards the other issues and errors alleged in this petition, the Court

notes that these were the very same questions of fact raised on appeal before the

Court of Appeals, although at times couched in different terms and explained more

lengthily in the petition. Suffice it to say that the same, being factual, have beensatisfactorily passed upon and considered both by the trial and appellate courts. It is

doctrinal that only errors of law and not of fact are reviewable by this Court in

petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the

most cogent and compelling reason, it is not our function under the rule to examine,

evaluate or weigh the probative value of the evidence presented by the parties all

over again.91

WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of

the Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition

is DENIED for lack of merit.

No costs.

SO ORDERED.

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

Footnotes

1 Penned by Associate Justice Martin S. Villarama, Jr., with Associate Justices

Romeo J. Callejo, Sr. (now retired Supreme Court Associate Justice) and Juan

Q. Enriquez, Jr. concurring.

2 CA Rollo, p. 137.



































3 Penned by Judge Romeo D. Marasigan.

4 Records, pp. 1-5.

5 Id. at 500, 563.

6 Id. at 501, 564.

7 Id. at 14-16.

8

Id. at 20-26.

9 Id. at 32-46.

10 Id. at 27-28.

11 Id. at 59-60.

12 Id. at 62.

13 Id. at 64-66.

14 Id. at 72-73.

15 Id. at 84-86.

16 Id. at 86.

17 Id. at 88-90, 144.

18 Id. at 91.

19 Id. at 92-94.

20 Id. at 95-96.

21 Id. at 119-120, 123-127, 140.

22 Id. at 152.

23 Id. at 164-170.

24 TSN, January 18, 1993, p. 2

25 Records, pp. 223-226.

26 Id. at 223-224.

27 Id. at 234-235.

28 Id. at 236-240, 247, 250-275.

29 Id. at 350.

30 Id. at 358, 395, 401-402.

31 Id. at 450, 529-542, 560-561; Exhibit "9" and its sub-markings.

32 Id. at 487.

33 Rollo, p. 182.

34

Records, pp. 490-493.

35 Id. at 492-493.

36 CA Rollo, p. 23.

37 Id. at 27-30.

38 Id. at 79-84.

39 Id. at 83.

40 Id. at 89-133.

41 Id. at 90-91.

42 Id. at 137.

43 Rollo, pp. 33-34.

44 G.R. No. 143666, March 18, 2005, 453 SCRA 691.

45 Id. at 702-703.

46 PROCLAIMING AND LAUNCHING A PROGRAM FOR THE EXPEDITIOUS

DISPOSITION AND PRIVATIZATION OF CERTAIN GOVERNMENT

CORPORATIONS AND/OR THE ASSETS THEREOF AND CREATING THE

COMMITTEE ON PRIVATIZATION AND THE ASSET PRIVATIZATION TRUST.

47 Sec. 3, Art. II and Sec. 9, Art. III of Proclamation No. 50. In addition, the

term "assets" is defined under Sec. 2 (1) of the Proclamation as:

1) Assets shall include (i) receivables and other obligations due to

government institutions under credit, lease, indemnity and other

agreements together with all collateral security and other rights

(including but not limited to rights in relation to shares of stock in

corporations such as voting rights as well as rights to appoint

directors of corporations or otherwise engage in the management

thereof) granted to such institutions by contract or operation of

law to secure or enforce the right of payment of such obligations;

(ii) real and personal property of any kind owned or held by the











































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government institutions, including shares of stock in corporations,

obtained by such government institutions, whether directly or

indirectly, through foreclosure or other means, in settlement of

such obligations; (iii) shares of stock and other investments held

by government institutions; and (iv) the government institutions

themselves, whether as parent or subsidiary corporations.

48 Sec. 23 of the Proclamation reads:

SEC. 23. Mechanics of Transfer of Assets. – As soon as practicable,

but not later than six months from the date of the issuance of thisProclamation, the President, acting through the Committee on

Privatization, shall identify such assets of government institutions

as appropriate for privatization and divestment in an appropriate

instrument describing such assets or identifying the loan or other

transactions giving rise to the receivables, obligations and other

property constituting assets to be transferred.

The Committee shall, from the list of assets deemed appropriate

for divestment, identify assets to be transferred to the Trust or to

be referred to the government institutions in an appropriate

instrument, which upon execution by the Committee shall

constitute as the operative act of transfer or referral of the assets

described therein, and the Trust or the government institution maythereupon proceed with the divestment in accordance with the

provisions of this Proclamation and guidelines issued by the

Committee.

Nothing in this Proclamation shall:

(1) Affect the rights of the National Government to pursue

the enforcement of any claim of a government institution

in respect of or in relation to any asset transferred

hereunder;

(2) In relation to any debt hereby assigned and

transferred to the National Government of which agovernment institution is the original creditor, give rise to

any novation or requirement to obtain the consent of the

debtor; and

(3) In relation to any share of stock or any interest

therein, give rise to any claim by any other stockholder

for enforcement of rights of pre-emption or of first refusal

or other similar rights, the provision of any law to the

contrary notwithstanding.

Where the contractual rights of creditors of any of the government

institutions involved may be affected by the exercise of the

Committee or the Trust of the powers granted herein, the

Committee or the Trust shall see to it that such rights are not

impaired.

49 Records, pp. 529-533, 543.

50 Id. at 530.

51 Sec. 9, Art. III of Proclamation No. 50.

52 Sec. 1 of Republic Act (R.A.) No. 7181.

53 Sec. 1 of R.A. No. 7661.

54 Sec. 1 of R.A. No. 7886.

55 Sec. 1 of R.A. No. 8758.

56 Sec. 2, Art. III of Executive Order No. 323, Series of 2000.

57 TSN, January 18, 1993, p. 7.

58 A "Holder" is defined under Sec. 191 of the NIL, as:

"Holder" means the payee or indorsee of a bill or note, who is in possession

of it, or the bearer thereof.

59 Lim v. Saban, G.R. No. 163720, December 16, 2004, 447 SCRA 232, 244

and Crisologo-Jose v. Court of Appeals, G.R. No. 80599, September 15,

1989, 177 SCRA 594, 598.

60 Spouses Gardose v. Tarroza, 352 Phil. 797, 807 (1998) citing Philippine

Bank of Commerce v. Aruego, G.R. Nos. L-25836-37, January 31, 1981, 102

SCRA 530, 539-540.

61 Lim v. Saban, supra at 244; Garcia v. Llamas, G.R. No. 154127, December

8, 2003, 417 SCRA 292, 304-305; Spouses Gardose v. Tarroza, supra at

807; Travel-On, Inc. v. Court of Appeals, G.R. No. 56169, June 26, 1992, 210

SCRA 351, 357; and Ang Tiong v. Ting, 130 Phil. 741, 744 (1968).

62 Garcia v. Llamas, supra at 305; Agro Conglomerates, Inc. v. Court of

Appeals, 401 Phil. 644, 654- 655 (2000); Spouses Gardose v. Tarroza, supra

at 807; Caneda, Jr. v. Court of Appeals, G.R. No. 81322, February 5, 1990,

181 SCRA 762, 772; Crisologo-Jose v. Court of Appeals, supra at 598;

Prudencio v. Court of Appeals, 227 Phil. 7, 12 (1986); and Philippine Bank of

Commerce v. Aruego, supra at 539.

63 Garcia v. Llamas, supra at 305.

64 Trade & Investment Development Corp. v. Roblett Industrial Construction

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65 International Finance Corporation v. Imperial Textile Mills, Inc. , G.R. No.

160324, November 15, 2005, 475 SCRA 149, 160; Trade & Investment

Development Corp. v. Roblett Industrial Construction Corp., id. at 531;

Garcia v. Llamas, supra at 305; Agro Conglomerates, Inc. v. Court of

Appeals, supra at 655; and Philippine Bank of Commerce v. Aruego, supra

at 540.

66 International Finance Corporation v. Imperial Textile Mills, Inc., id. at 160-

161 and Trade & Investment Development Corp. v. Roblett Industrial

Construction Corp., id. at 531.

67 Art. 2080 of the Civil Code provides:

Art. 2080. The guarantors, even though they be solidary, are released from

their obligation whenever by some act of the creditor they cannot be

subrogated to the rights, mortgages, and preferences of the latter.

68 E. Zobel, Inc. v. Court of Appeals, 352 Phil. 608, 618 (1998); Inciong, Jr. v.

Court of Appeals, 327 Phil. 364, 372-373 (1996); and Bicol Savings & Loan

Association v. Guinhawa, G.R. No. 62415, August 20, 1990,188 SCRA 642,

647.

69 327 Phil. 364 (1996).

70 Id. at 372-374.

71 Lim v. Saban, supra at 244; Agro Conglomerates, Inc. v. Court of Appeals,

supra at 654; and Caneda, Jr. v. Court of Appeals, supra at 772.

72 CA Rollo, p. 21.

73 Id. at 40, 75.

74 Id. at 79.

75 Id. at 133.

76 Sec. 1, Rule 34 of the 1997 Revised Rules on Civil Procedure states:

Section 1. Judgment on the pleadings. – Where an answer fails to

tender an issue, or otherwise admits the material allegations of

the adverse party's pleading, the court may, on motion of that

party, direct judgment on such pleading. However, in actions for

declaration of nullity or annulment of marriage or for legal

separation, the material facts alleged in the complaint shall always

be proved.

77 Sec. 119 of the NIL provides:

SECTION 119. Instrument; how discharged. – A negotiable

instrument is discharged:

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

debtor;

(b.) By payment in due course by the party accommodated, where

the instrument is made or accepted for his accommodation;

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

(d.) By any other act which will discharge a simple contract

for the payment of money;

(e.) When the principal debtor becomes the holder of the

instrument at or after maturity in his own right. (Emphasis ours)

78 Sec. 122 of the NIL states:

SECTION 122. Renunciation by holder. – The holder may expressly

renounce his rights against any party to the instrument before, at,

or after its maturity. An absolute and unconditional renunciation of

his rights against the principal debtor made at or after the

maturity of the instrument discharges the instrument. But a

renunciation does not affect the rights of a holder in due course

without notice. A renunciation must be in writing unless the

instrument is delivered up to the person primarily liable thereon.

79 Art. 1249 of the Civil Code provides:

Art. 1249. The payment of debts in money shall be made in the

currency stipulated, and if it is not possible to deliver such

currency, then in the currency which is legal tender in the

Philippines.

The delivery of promissory notes payable to order, or bills of

exchange or other mercantile documents shall produce the effect

of payment only when they have been cashed, or when through

the fault of the creditor they have been impaired . (Emphasis

ours)

80 Travel-On, Inc. v. Court of Appeals, supra at 357.

81 Caneda, Jr. v. Court of Appeals, supra at 772; Crisologo-Jose v. Court of

Appeals, supra at 598; and Ang Tiong v. Ting, supra at 744.

82 Clark v. Sellner, 42 Phil. 384, 386 (1921).

83 Caneda, Jr. v. Court of Appeals, supra at 772.

84 Clark v. Sellner, supra at 386.

85 Id. at 386-387.










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86 TSN, February 21, 1995, p. 27 and TSN, April 4, 1995, p. 15.

87 Prudencio v. Court of Appeals, supra at 12-13.

88 42 Phil. 384 (1921).

89 Id. at 387-388.

90 Ang Tiong v. Ting, supra at 744.

91

Batangas State University v. Bonifacio, G.R. No. 167762, December 15,2005, 478 SCRA 142, 147-148 and Local Superior of the Servants of Charity

(Guanellians), Inc. v. Jody King Construction & Development

Corporation, G.R. No. 141715, October 12, 2005, 472 SCRA 445, 451.










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