cases.docx

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Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 113236 March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs.COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.

QUISUMBING, J.:

This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CA-G.R. CV No. 29546, which affirmed the judgment 2 of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestone's complaint for damages.

The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:

. . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central Bank of the Philippines, and among its activities, accepts savings and time deposits. Said defendant had as one of its client-depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca maintaining a special savings account with the defendant, the latter authorized and allowed withdrawals of funds therefrom through the medium of special withdrawal slips. These are supplied by the defendant to Fojas-Arca.

In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement" (Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products.

On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-Arca purchased on credit Firestone products from plaintiff with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal slips drawn upon the defendant. In turn, these were deposited by the plaintiff with its current account with the Citibank. All of them were honored and paid by the defendant. This singular circumstance made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal slips drawn upon the defendant would be equally sufficiently funded.

Relying on such confidence and belief and as a direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its products.

On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to plaintiff the corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit:

DATEWITHDRAWAL

SLIP NO.AMOUNT

June 15, 1978 42127 P1,198,092.80

July 15, 1978 42128 940,190.00

Aug. 15, 1978 42129 880,000.00

Sep. 15, 1978 42130 981,500.00

These were likewise deposited by plaintiff in its current account with Citibank and in turn the Citibank forwarded it [sic] to the defendant for payment and collection, as it had done in respect of the previous special withdrawal slips. Out of these four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by the defendant in October 1978. Because of the absence for a long period coupled with the fact that defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's belief was all the more strengthened that the other withdrawal slips were likewise sufficiently funded, and that it had received full value and payment of Fojas-Arca's credit purchased then outstanding at the time. On this basis, plaintiff was induced to continue extending to Fojas-Arca further purchase on credit of its products as per agreement (Exh. "B").

However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited plaintiff's account for the total sum of P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendant's gross negligence.

On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction of the damages suffered by it. And due to defendant's refusal to pay plaintiff's claim, plaintiff has been constrained to file this complaint, thereby compelling plaintiff to incur litigation expenses and attorney's fees which amount are recoverable from the defendant.

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Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved; Vehemently, it was denied by defendant that the special withdrawal slips were honored and treated as if it were checks, the truth being that when the special withdrawal slips were received by defendant, it only verified whether or not the signatures therein were authentic, and whether or not the deposit level in the passbook concurred with the savings ledger, and whether or not the deposit is sufficient to cover the withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then plaintiff has to blame itself for being grossly negligent in treating the withdrawal slips as check when it is clearly stated therein that the withdrawal slips are non-negotiable; that defendant is not a privy to any of the transactions between Fojas-Arca and plaintiff for which reason defendant is not duty bound to notify nor give notice of anything to plaintiff. If at first defendant had given notice to plaintiff it is merely an extension of usual bank courtesy to a prospective client; that defendant is only dealing with its depositor Fojas-Arca and not the plaintiff. In summation, defendant categorically stated that plaintiff has no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).3

Petitioner's complaint4 for a sum of money and damages with the Regional Trial Court of Pasay City, Branch 113, docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant.

Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank was liable for damages under Article 21765 in relation to Articles 196 and 207 of the Civil Code. As noted by the CA, petitioner alleged the following tortious acts on the part of private respondent: 1) the acceptance and payment of the special withdrawal slips without the presentation of the depositor's passbook thereby giving the impression that the withdrawal slips are instruments payable upon presentment; 2) giving the special withdrawal slips the general appearance of checks; and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor two of the four special withdrawal slips.

On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and affirmed the judgment of the trial court. According to the appellate court, respondent bank notified the depositor to present the passbook whenever it received a collection note from another bank, belying petitioner's claim that respondent bank was negligent in not requiring a passbook under the subject transaction. The appellate court also found that the special withdrawal slips in question were not purposely given the appearance of checks, contrary to petitioner's assertions, and thus should not have been mistaken for checks. Lastly, the appellate court ruled that the respondent bank was under no obligation to inform petitioner of the dishonor of the

special withdrawal slips, for to do so would have been a violation of the law on the secrecy of bank deposits.

Hence, the instant petition, alleging the following assignment of error:

25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any fault or negligence regarding the dishonor, or in failing to give fair and timely advice of the dishonor, of the twointermediate LDB Slips and in failing to award damages to Firestone pursuant to Article 2176 of the New Civil Code.8

The issue for our consideration is whether or not respondent bank should be held liable for damages suffered by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.

The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires from the former with special withdrawal slips drawn upon Fojas-Arca's special savings account with respondent bank. Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioner's current account, then presented the slips for payment to respondent bank. It was at this point that the bone of contention arose.

On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of Fojas-Arca's funds on deposit. That information came about six months from the time Fojas-Arca purchased tires from petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from petitioner's account, causing the alleged pecuniary damage subject of petitioner's cause of action.

At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable.9 Hence, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case.10 Petitioner itself concedes this point.11 Thus, respondent bank was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments. It could not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving checks.

In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had honored and paid the previous withdrawal slips, automatically credited petitioner's current account with the amount of the subject withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It presumed that the withdrawal slips were "good."

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It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money.12 The withdrawal slips in question lacked this character.

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only of a few hundred pesos or of millions of pesos.13 The fact that the other withdrawal slips were honored and paid by respondent bank was no license for Citibank to presume that subsequent slips would be honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care.14

In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or representative, who indicates therein the current account number to which the deposit is to be credited, the name of the depositor or current account holder, the date of the deposit, and the amount of the deposit either in cash or in check.15

The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank — and petitioner as account-holder — must bear the risks attendant to the acceptance of these instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted mistake.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ ., concur.

Footnotes

1 Rollo, pp. 27-34.

2 Id. at 44-48.

3 Id. at 27-30.

4 Id. at 35-43.

5 ARTICLE 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

6 ARTICLE 19. The local civil registrar shall require the payment of the fees prescribed by law or regulations before the issuance of the marriage license. No other sum shall be collected in the nature of a fee or tax of any kind for the issuance of said license. It shall, however, be issued free of charge to indigent parties, that is, those who have no visible means of income or whose income is insufficient for their subsistence, a fact established by their affidavit or by their oath before the local civil registrar.

7 ARTICLE 20. The license shall be valid in any part of the Philippines for a period of one hundred twenty days from the date of issue, and shall be deemed automatically cancelled at the expiration of said period if the contracting parties have not made use of it. The expiry date shall be stamped in bold characters on the face of every license issued.

8 Rollo, p. 13.

9 Id. at 19; Petition, paragraph 34, subparagraph B.

10 NEGOTIABLE INSTRUMENTS LAW — ACT NO. 2031

SECTION 89. To whom notice of dishonor must be given. — Except as otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharge.

SECTION 103. Where parties reside in same place. — Where the person giving and the person to receive notice reside in the same place, notice must be given within the following times:

(a) If given at the place of business of the person to receive notice, it must be given before the close of business hours the day following;

(b) If given at his residence, it must be given before the usual hours of rest on the day following;

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(c) If sent by mail, it must be deposited in the post-office in time to reach him in usual course on the day following.

SECTION 104. Where parties reside in different places. — Where the person giving and the person to receive notice reside in different places, the notice must be given within the following times:

(a) If sent by mail, it must be deposited in the post-office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter;

(b) If given otherwise than through the post-office, then within the time that notice would have been received in due course of mail if it had been deposited in the post-office within the time specified in the last subdivision.

11 Supra, note 9.

12 Traders Royal Bank vs. Court of Appeals, 269 SCRA 15, 26 (1997).

13 Philippine National Bank vs. Court of Appeals, 315 SCRA 309, 314-315 (1999).

14 Philippine Bank of Commerce vs. Court of Appeals, 269 SCRA 695, 708-709 (1997).

15 Id. at 699.


Manila

SECOND DIVISION

G.R. NO. 191404 July 5, 2010

EUMELIA R. MITRA, Petitioner, vs.PEOPLE OF THE PHILIPPINES and FELICISIMO S. TARCELO, Respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the July 31, 2009 Decision1and the February 11, 2010 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 31740. The subject decision and resolution affirmed the August 22, 2007 Decision of the Regional Trial Court, Branch 2, Batangas City (RTC) which, in turn, affirmed the May 21, 2007 Decision of the Municipal Trial Court in Cities, Branch 2, Batangas City (MTCC).

THE FACTS:

Petitioner Eumelia R. Mitra (Mitra) was the Treasurer, and Florencio L. Cabrera, Jr. (now deceased) was the President, of Lucky Nine Credit Corporation (LNCC), a corporation engaged in money lending activities.

Between 1996 and 1999, private respondent Felicisimo S. Tarcelo (Tarcelo) invested money in LNCC. As the usual practice in money placement transactions, Tarcelo was issued checks equivalent to the amounts he invested plus the interest on his investments. The following checks, signed by Mitra and Cabrera, were issued by LNCC to Tarcelo.2

Bank Date Issued Date of Check Amount Check No.Security Bank

September 15, 1998 January 15, 1999 P 3,125.00 0000045804

-do- September 15, 1998 January 15, 1999 125,000.00 0000045805-do- September 20, 1998 January 20, 1999 2,500.00 0000045809-do- September 20, 1998 January 20, 1999 100,000.00 0000045810-do- September 30, 1998 January 30, 1999 5,000.00 0000045814

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-do- September 30, 1998 January 30, 1999 200,000.00 0000045815-do- October 3, 1998 February 3, 1999 2,500.00 0000045875-do- October 3, 1998 February 3, 1999 100,000.00 0000045876-do- November 17, 1998 February17, 1999 5,000.00 0000046061-do- November 17, 1998 March 17, 1999 5,000.00 0000046062-do- November 17, 1998 March 17, 1999 200,000.00 0000046063-do- November 19, 1998 January 19, 1999 2,500.00 0000046065-do- November 19, 1998 February19, 1999 2,500.00 0000046066-do- November 19, 1998 March 19, 1999 2,500.00 0000046067-do- November 19, 1998 March 19, 1999 100,000.00 0000046068-do- November 20, 1998 January 20, 1999 10,000.00 0000046070-do- November 20, 1998 February 20, 1999 10,000.00 0000046071-do- November 20, 1998 March 20, 1999 10,000.00 0000046072-do- November 20, 1998 March 20, 1999 10,000.00 0000046073-do- November 30, 1998 January 30, 1999 2,500.00 0000046075-do- November 30, 1998 February 28, 1999 2,500.00 0000046076-do- November 30, 1998 March 30, 1999 2,500.00 0000046077-do- November 30, 1998 March 30, 1999 100,000.00 0000046078

When Tarcelo presented these checks for payment, they were dishonored for the reason "account closed." Tarcelo made several oral demands on LNCC for the payment of these checks but he was frustrated. Constrained, in 2002, he caused the filing of seven informations for violation of Batas Pambansa Blg. 22 (BP 22) in the total amount of P925,000.00 with the MTCC in Batangas City.3

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After trial on the merits, the MTCC found Mitra and Cabrera guilty of the charges. The fallo of the May 21, 2007 MTCC Decision4 reads:

WHEREFORE, foregoing premises considered, the accused FLORENCIO I. CABRERA, JR., and EUMELIA R. MITRA are hereby found guilty of the offense of violation of Batas Pambansa Bilang 22 and are hereby ORDERED to respectively pay the following fines for each violation and with subsidiary imprisonment in all cases, in case of insolvency:

1. Criminal Case No. 43637 - P200,000.00







Said accused, nevertheless, are adjudged civilly liable and are ordered to pay, in solidum, private complainant Felicisimo S. Tarcelo the amount of NINE HUNDRED TWENTY FIVE THOUSAND PESOS (P925,000.000).

SO ORDERED.

Mitra and Cabrera appealed to the Batangas RTC contending that: they signed the seven checks in blank with no name of the payee, no amount stated and no date of maturity; they did not know when and to whom those checks would be issued; the seven checks were only among those in one or two booklets of checks they were made to sign at that time; and that they signed the checks so as not to delay the transactions of LNCC because they did not regularly hold office there.5

The RTC affirmed the MTCC decision and later denied their motion for reconsideration. Meanwhile, Cabrera died. Mitra alone filed this petition for review6 claiming, among others, that there was no proper service of the notice of dishonor on her. The Court of Appeals dismissed her petition for lack of merit.

Mitra is now before this Court on a petition for review and submits these issues:

1. WHETHER OR NOT THE ELEMENTS OF VIOLATION OF BATAS PAMBANSA BILANG 22 MUST BE PROVED BEYOND REASONABLE DOUBT AS AGAINST THE CORPORATION WHO OWNS THE CURRENT ACCOUNT WHERE THE SUBJECT CHECKS WERE DRAWN BEFORE LIABILITY ATTACHES TO THE SIGNATORIES.

2. WHETHER OR NOT THERE IS PROPER SERVICE OF NOTICE OF DISHONOR AND DEMAND TO PAY TO THE PETITIONER AND THE LATE FLORENCIO CABRERA, JR.

The Court denies the petition.

A check is a negotiable instrument that serves as a substitute for money and as a convenient form of payment in financial transactions and obligations. The use of checks as payment allows commercial and banking transactions to proceed without the actual handling of money, thus, doing away with the need to physically count bills and coins whenever payment is made. It permits commercial and banking transactions to be carried out quickly and efficiently. But the convenience afforded by checks is damaged

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by unfunded checks that adversely affect confidence in our commercial and banking activities, and ultimately injure public interest.

BP 22 or the Bouncing Checks Law was enacted for the specific purpose of addressing the problem of the continued issuance and circulation of unfunded checks by irresponsible persons. To stem the harm caused by these bouncing checks to the community, BP 22 considers the mere act of issuing an unfunded check as an offense not only against property but also against public order.7 The purpose of BP 22 in declaring the mere issuance of a bouncing check as malum prohibitum is to punish the offender in order to deter him and others from committing the offense, to isolate him from society, to reform and rehabilitate him, and to maintain social order.8The penalty is stiff. BP 22 imposes the penalty of imprisonment for at least 30 days or a fine of up to double the amount of the check or both imprisonment and fine.

Specifically, BP 22 provides:

SECTION 1. Checks Without Sufficient Funds. - Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and imprisonment at the discretion of the court.

The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act.

SECTION 2. Evidence of Knowledge of Insufficient Funds. - The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee.

Mitra posits in this petition that before the signatory to a bouncing corporate check can be held liable, all the elements of the crime of violation of BP 22 must first be proven against the corporation. The corporation must first be declared to have committed the violation before the liability attaches to the signatories of the checks.9

The Court finds Itself unable to agree with Mitra's posture. The third paragraph of Section 1 of BP 22 reads: "Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act." This provision recognizes the reality that a corporation can only act through its officers. Hence, its wording is unequivocal and mandatory - that the person who actually signed the corporate check shall be held liable for a violation of BP 22. This provision does not contain any condition, qualification or limitation.

In the case of Llamado v. Court of Appeals,10 the Court ruled that the accused was liable on the unfunded corporate check which he signed as treasurer of the corporation. He could not invoke his lack of involvement in the negotiation for the transaction as a defense because BP 22 punishes the mere issuance of a bouncing check, not the purpose for which the check was issued or in consideration of the terms and conditions relating to its issuance. In this case, Mitra signed the LNCC checks as treasurer. Following Llamado, she must then be held liable for violating BP 22.

Another essential element of a violation of BP 22 is the drawer's knowledge that he has insufficient funds or credit with the drawee bank to cover his check. Because this involves a state of mind that is difficult to establish, BP 22 creates the prima facie presumption that once the check is dishonored, the drawer of the check gains knowledge of the insufficiency, unless within five banking days from receipt of the notice of dishonor, the drawer pays the holder of the check or makes arrangements with the drawee bank for the payment of the check. The service of the notice of dishonor gives the drawer the opportunity to make good the check within those five days to avert his prosecution for violating BP 22.

Mitra alleges that there was no proper service on her of the notice of dishonor and, so, an essential element of the offense is missing. This contention raises a factual issue that is not proper for review. It is not the function of the Court to re-examine the finding of facts of the Court of Appeals. Our review is limited to errors of law and cannot touch errors of facts unless the petitioner shows that the trial court overlooked facts or circumstances that warrant a different disposition of the case11 or that the findings of fact have no basis on record. Hence, with respect to the issue of the propriety of service on Mitra of the notice of dishonor, the Court gives full faith and credit to the consistent findings of the MTCC, the RTC and the CA.

The defense postulated that there was no demand served upon the accused, said denial deserves scant consideration. Positive allegation of the prosecution that a demand letter

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was served upon the accused prevails over the denial made by the accused. Though, having denied that there was no demand letter served on April 10, 2000, however, the prosecution positively alleged and proved that the questioned demand letter was served upon the accused on April 10, 2000, that was at the time they were attending Court hearing before Branch I of this Court. In fact, the prosecution had submitted a Certification issued by the other Branch of this Court certifying the fact that the accused were present during the April 10, 2010 hearing. With such straightforward and categorical testimony of the witness, the Court believes that the prosecution has achieved what was dismally lacking in the three (3) cases of Betty King, Victor Ting and Caras - evidence of the receipt by the accused of the demand letter sent to her. The Court accepts the prosecution's narrative that the accused refused to sign the same to evidence their receipt thereof. To require the prosecution to produce the signature of the accused on said demand letter would be imposing an undue hardship on it. As well, actual receipt acknowledgment is not and has never been required of the prosecution either by law or jurisprudence.12 [emphasis supplied]

With the notice of dishonor duly served and disregarded, there arose the presumption that Mitra and Cabrera knew that there were insufficient funds to cover the checks upon their presentment for payment. In fact, the account was already closed.

To reiterate the elements of a violation of BP 22 as contained in the above-quoted provision, a violation exists where:

1. a person makes or draws and issues a check to apply on account or for value;

2. 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 full payment of the check upon its presentment; and

3. the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. 13

There is no dispute that Mitra signed the checks and that the bank dishonored the checks because the account had been closed. Notice of dishonor was properly given, but Mitra failed to pay the checks or make arrangements for their payment within five days from notice. With all the above elements duly proven, Mitra cannot escape the civil and criminal liabilities that BP 22 imposes for its breach.14

WHEREFORE, the July 31, 2009 Decision and the February 11, 2010 Resolution of the Court of Appeals in CA-G.R. CR No. 31740 are hereby AFFIRMED.

SO ORDERED.

JOSE CATRAL MENDOZAAssociate Justice

WE CONCUR:

ANTONIO T. CARPIOAssociate Justice

Chairperson

ANTONIO EDUARDO B. NACHURAAssociate Justice

DIOSDADO M. PERALTAAssociate Justice

ROBERTO A. ABADAssociate Justice

A T T E S T A T I O N

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

ANTONIO T. CARPIOAssociate JusticeChairperson, Second Division

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

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

RENATO C. CORONAChief Justice

Footnotes1 Penned by Associate Justice Bienvenido L. Reyes with Associate Justice Isaias P. Dicdican and Associate Justice Marlene Gonzales-Sison concurring.2 Complaint-Affidavits, Rollo, pp. 109-115.

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3 Id. at 116-129.4 Id. at 130-134.5 Id. at 143.6 Id. at 75-105.7 Lozano v. Martinez, 230 Phil. 406, 428 (1986).8 Rosario v. Co, G.R. No. 133608, August 26, 2008, 563 SCRA 239, 253.9 Rollo, p. 47.10 337 Phil. 153, 160 (1997).11 American Home Assurance Company v. Chua, 368 Phil. 555, 569 (1999).12 Rollo, p. 133.13 Rigor v. People, 485 Phil. 125, 139 (2004).

14 In Gosiaco v. Ching, G.R. No. 173807, April 16, 2009, 585 SCRA 471, 483, we held an accused corporate officer free from civil liability for the corporate debt after the lower court acquitted the accused of criminal liability under BP 22. Note that this is a totally different case from the present case as the issue here is both criminal and civil liability.


Manila

THIRD DIVISION

G.R. No. 176664 July 21, 2008

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.SPOUSES REYNALDO AND VICTORIA ROYECA, Respondents.

D E C I S I O N

NACHURA, J.:

Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals (CA) Decision1 dated July 12, 2006, and Resolution2 dated February 13, 2007, which dismissed its complaint for replevin and damages and granted the respondents’ counterclaim for damages.

The case stems from the following undisputed facts:

On August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed and delivered to Toyota Shaw, Inc. a Promissory Note3 for P577,008.00 payable in 48 equal monthly installments of P12,021.00, with a maturity date of August 18, 1997. The Promissory Note provides for a penalty of 3% for every month or fraction of a month that an installment remains unpaid.

To secure the payment of said Promissory Note, respondents executed a Chattel Mortgage4 in favor of Toyota over a certain motor vehicle, more particularly described as follows:

<p>Make and Type 1993 Toyota Corolla 1.3 XL

Motor No. 2E-2649879

Serial No. EE100-9512571

Color D.B. Gray Met.

Toyota, with notice to respondents, executed a Deed of Assignment5 transferring all its rights, title, and interest in the Chattel Mortgage to Far East Bank and Trust Company (FEBTC).

Claiming that the respondents failed to pay four (4) monthly amortizations covering the period from May 18, 1997 to August 18, 1997, FEBTC sent a formal demand to respondents on March 14, 2000 asking for the payment thereof, plus penalty.6 The respondents refused to pay on the ground that they had already paid their obligation to FEBTC.

On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the respondents with the Metropolitan Trial Court (MeTC) of Manila praying for the delivery of the vehicle, with an alternative prayer for the payment of P48,084.00 plus interest and/or late payment charges at the rate of 36% per annum from May 18, 1997 until fully paid. The complaint likewise prayed for the payment of P24,462.73 as attorney’s fees, liquidated damages, bonding fees and other expenses incurred in the seizure of the vehicle. The complaint was later amended to substitute BPI as plaintiff when it merged with and absorbed FEBTC.7

In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto Financing Department of FEBTC eight (8) postdated checks in different amounts totaling P97,281.78. The Acknowledgment Receipt,8which they attached to the Answer, showed that FEBTC received the following checks:

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DATE BANK CHECK NO. AMOUNT

26 May 97 Landbank #610945 P13,824.15

6 June 97 Head Office #610946 12,381.63

30 May 97 FEBTC#17A00-11550P

12,021.00

15 June 97 Shaw Blvd.#17A00-11549P

12,021.00

30 June 97 "#17A00-11551P

12,021.00

18 June 97 Landbank #610947 11,671.00

18 July 97 Head Office #610948 11,671.00

18 August 97

#610949 11,671.00

The respondents further averred that they did not receive any notice from the drawee banks or from FEBTC that these checks were dishonored. They explained that, considering this and the fact that the checks were issued three years ago, they believed in good faith that their obligation had already been fully paid. They alleged that the complaint is frivolous and plainly vexatious. They then prayed that they be awarded moral and exemplary damages, attorney’s fees and costs of suit.9

During trial, Mr. Vicente Magpusao testified that he had been connected with FEBTC since 1994 and had assumed the position of Account Analyst since its merger with BPI. He admitted that they had, in fact, received the eight checks from the respondents. However, two of these checks (Landbank Check No. 0610947 and FEBTC Check No. 17A00-11551P) amounting to P23,692.00 were dishonored. He recalled that the remaining two checks were not deposited anymore due to the previous dishonor of the two checks. He said that after deducting these payments, the total outstanding balance of the obligation was P48,084.00, which represented the last four monthly installments.

On February 23, 2005, the MeTC dismissed the case and granted the respondents’ counterclaim for damages, thus:

WHEREFORE, judgment is hereby rendered dismissing the complaint for lack of cause of action, and on the counterclaim, plaintiff is ordered to indemnify the defendants as follows:

a) The sum of PhP30,000.00 as and by way of moral damages;

b) The sum of PhP30,000.00 as and by way of exemplary damages;

c) The sum of PhP20,000.00 as and by way of attorney’s fees; and

d) To pay the costs of the suit.

SO ORDERED.10

On appeal, the Regional Trial Court (RTC) set aside the MeTC Decision and ordered the respondents to pay the amount claimed by the petitioner. The dispositive portion of its Decision11 dated August 11, 2005 reads:

WHEREFORE, premises considered, the Decision of the Metropolitan Trial Court, Branch 9 dated February 23, 2005 is REVERSED and a new one entered directing the defendants-appellees to pay the plaintiff-appellant, jointly and severally,

1. The sum of P48,084.00 plus interest and/or late payment charges thereon at the rate of 36% per annum from May 18, 1997 until fully paid;

2. The sum of P10,000.00 as attorney’s fees; and

3. The costs of suit.

SO ORDERED.12

The RTC denied the respondents’ motion for reconsideration.13

The respondents elevated the case to the Court of Appeals (CA) through a petition for review. They succeeded in obtaining a favorable judgment when the CA set aside the RTC’s Decision and reinstated the MeTC’s Decision on July 12, 2006.14 On February 13, 2007, the CA denied the petitioner’s motion for reconsideration.15

The issues submitted for resolution in this petition for review are as follows:

I. WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE FULL PAYMENT OF THEIR OBLIGATION AS ONE OF THEIR AFFIRMATIVE DEFENSES.

II. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES PAYMENT.

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III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES.16

The petitioner insists that the respondents did not sufficiently prove the alleged payment. It avers that, under the law and existing jurisprudence, delivery of checks does not constitute payment. It points out that this principle stands despite the fact that there was no notice of dishonor of the two checks and the demand to pay was made three years after default.

On the other hand, the respondents postulate that they have established payment of the amount being claimed by the petitioner and, unless the petitioner proves that the checks have been dishonored, they should not be made liable to pay the obligation again.17

The petition is partly meritorious.

In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence, or evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.18 Thus, the party, whether plaintiff or defendant, who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment. For the plaintiff, the burden to prove its positive assertions never parts. For the defendant, an affirmative defense is one which is not a denial of an essential ingredient in the plaintiff’s cause of action, but one which, if established, will be a good defense – i.e. an "avoidance" of the claim.19

In Jimenez v. NLRC,20 cited by both the RTC and the CA, the Court elucidated on who, between the plaintiff and defendant, has the burden to prove the affirmative defense of payment:

As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment.

When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the creditor. Where the debtor introduces some evidence of payment, the burden of going forward with the evidence - as distinct from the general burden of proof - shifts to the creditor, who is then under a duty of producing some evidence to show non-payment.21

In applying these principles, the CA and the RTC, however, arrived at different conclusions. While both agreed that the respondents had the burden of proof to establish payment, the two courts did not agree on whether the respondents were able to present sufficient evidence of payment — enough to shift the burden of evidence to the petitioner. The RTC found that the respondents failed to discharge this burden because they did not introduce evidence of payment, considering that mere delivery of checks does not constitute payment.22 On the other hand, the CA concluded that the respondents introduced sufficient evidence of payment, as opposed to the petitioner, which failed to produce evidence that the checks were in fact dishonored. It noted that the petitioner could have easily presented the dishonored checks or the advice of dishonor and required respondents to replace the dishonored checks but none was presented. Further, the CA remarked that it is absurd for a bank, such as petitioner, to demand payment of a failed amortization only after three years from the due date.

The divergence in this conflict of opinions can be narrowed down to the issue of whether the Acknowledgment Receipt was sufficient proof of payment. As correctly observed by the RTC, this is only proof that respondents delivered eight checks in payment of the amount due. Apparently, this will not suffice to establish actual payment.

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment.23 Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.24

To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks.1avvphi1

Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim.25

To stress, the obligation to prove that the checks were not dishonored, but were in fact encashed, fell upon the respondents who would benefit from such fact. That payment was effected through the eight checks was the respondents’ affirmative allegation that they had to establish with legal certainty. If the petitioner were seeking to enforce liability

11

upon the check, the burden to prove that a notice of dishonor was properly given would have devolved upon it.26 The fact is that the petitioner’s cause of action was based on the original obligation as evidenced by the Promissory Note and the Chattel Mortgage, and not on the checks issued in payment thereof.

Further, it should be noted that the petitioner, as payee, did not have a legal obligation to inform the respondents of the dishonor of the checks. A notice of dishonor is required only to preserve the right of the payee to recover on the check. It preserves the liability of the drawer and the indorsers on the check. Otherwise, if the payee fails to give notice to them, they are discharged from their liability thereon, and the payee is precluded from enforcing payment on the check. The respondents, therefore, cannot fault the petitioner for not notifying them of the non-payment of the checks because whatever rights were transgressed by such omission belonged only to the petitioner.

In all, we find that the evidence at hand preponderates in favor of the petitioner. The petitioner’s possession of the documents pertaining to the obligation strongly buttresses its claim that the obligation has not been extinguished. The creditor’s possession of the evidence of debt is proof that the debt has not been discharged by payment.27 A promissory note in the hands of the creditor is a proof of indebtedness rather than proof of payment.28 In an action for replevin by a mortgagee, it is prima facie evidence that the promissory note has not been paid.29Likewise, an uncanceled mortgage in the possession of the mortgagee gives rise to the presumption that the mortgage debt is unpaid.30

Finally, the respondents posit that the petitioner’s claim is barred by laches since it has been three years since the checks were issued. We do not agree. Laches is a recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches cannot, as a rule, abate a collection suit filed within the prescriptive period mandated by the New Civil Code.31 The petitioner’s action was filed within the ten-year prescriptive period provided under Article 1144 of the New Civil Code. Hence, there is no room for the application of laches.

Nonetheless, the Court cannot ignore what the respondents have consistently raised — that they were not notified of the non-payment of the checks. Reasonable banking practice and prudence dictates that, when a check given to a creditor bank in payment of an obligation is dishonored, the bank should immediately return it to the debtor and demand its replacement or payment lest it causes any prejudice to the drawer. In light of this and the fact that the obligation has been partially paid, we deem it just and equitable to reduce the 3% per month penalty charge as stipulated in the Promissory Note to 12% per annum.32 Although a court is not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit, as long as they contravene no law, morals, good customs, public order or public policy, a stipulated penalty, nevertheless,

may be equitably reduced by the courts if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with.33

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated July 12, 2006, and Resolution dated February 13, 2007, are REVERSED and SET ASIDE. The Decision of the Regional Trial Court, dated August 11, 2005, is REINSTATED with the MODIFICATION that respondents are ordered to deliver the possession of the subject vehicle, or in the alternative, pay the petitioner P48,084.00 plus late penalty charges/interest thereon at the rate of 12% per annum from May 18, 1997 until fully paid.

SO ORDERED.

ANTONIO EDUARDO B. NACHURAAssociate Justice

WE CONCUR:

LEONARDO A. QUISUMBING*

Associate Justice

CONSUELO YNARES-SANTIAGOAssociate Justice

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

RUBEN T. REYESAssociate Justice

A T T E S T A T I O N

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

CONSUELO YNARES-SANTIAGOAssociate JusticeChairperson, Third Division

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

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

12

REYNATO S. PUNOChief Justice

Footnotes* In lieu of Associate Justice Minita V. Chico-Nazario, per Special Order No. 508 dated June 25, 2008.1 Penned by Associate Justice Eliezer R. de los Santos, with Associate Justices Fernanda Lampas-Peralta and Myrna Dimaranan Vidal concurring; rollo, pp. 25-31.2 Rollo, p. 33.3 Id. at 37.4 Id. at 42-45.5 Id. at 39.6 Id. at 58.7 Id. at 46-49.8 Id. at 56.9 Id. at 53.10 Id at 62-63.11 Id. at 64-73.12 Id. at 73.13 Id. at 11.14 Id. at 31.15 Id. at 33.16 Id. at 15.17 Id. at 124.18 Encinas v. National Bookstore, Inc., G.R. No. 162704, November 19, 2004, 443 SCRA 293, 302.19 DBP Pool of Accredited Insurance Companies v. Radio Mindanao Network, Inc., G.R. No. 147039, January 27, 2006, 480 SCRA 314, 322-323.20 326 Phil. 89 (1996).21 Id. at 95.22 Rollo, p. 72.23 Abalos v. Macatangay, Jr., G.R. No. 155043, September 30, 2004, 439 SCRA 649, 659.24 Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 49188, January 30, 1990, 181 SCRA 557, 568.25 Asian Transmission Corporation v. Canlubang Sugar Estates, 457 Phil. 260, 290 (2003).26 See Negotiable Instruments Law, Sec. 89.27 Redmond v. Hughes, 135 N.Y.S. 843, 151 App. Div. 99 (1912).

28 Biala v. Court of Appeals, G.R. No. 43503, October 31, 1990, 191 SCRA 50, 59.29 Heagney v. J. I. Case Threshing Mach. Co., 99 N.W. 260 (1904).30 Guerin v. Cassidy, 38 NJ Super 454, 119 A2d 780 (1956); Beattie v. Meeker, 149 N.Y.S. 453 (1914).31 Agra v. Philippine National Bank, 368 Phil. 829 (1999).32 Article 1229 of the Civil Code authorizes the judge to equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor.33 Ligutan v. Court of Appeals, 427 Phil. 42, 51 (2002).


Manila

EN BANC

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

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant, vs.MAURICIO A. SORIANO, ET AL., defendant-appellees.

Marcial Esposo for plaintiff-appellant.

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

DIZON, J.:

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

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon. After the postal teller had made out money ordersnumbered 124685, 124687-124695, Montinola offered to pay for them with a private checks were not generally

13

accepted in payment of money orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola managed to leave building with his own check and the ten(10) money orders without the knowledge of the teller.

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

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

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

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

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

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

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting from the said Bank's clearing account the sum of P200.00 represented by postal money order No. 124688, or in the

alternative indemnify the plaintiff in the same amount with interest at 8-½% per annum from September 27, 1961, which is the rate of interest being paid by plaintiff on its overdraft account;

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

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

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

WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice given to the Bank of America on September 27, 1961, deducting from said Bank's clearing account the sum of P200.00 representing the amount of postal money order No. 124688, or in the alternative, to indemnify the plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-½% per annum from September 27, 1961 until fully paid; without any pronouncement as to cost and attorney's fees.

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

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

It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this reason, ours are generally construed in accordance with the construction given in the United States to their own postal statutes, in the absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United States is that postal money orders are not negotiable instruments

14

(Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit.

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

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

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

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

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

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

Castro and Makasiar, JJ., took no part.


Manila

THIRD DIVISION

G.R. No. 45125 April 22, 1991

LORETA SERRANO, petitioner, vs.COURT OF APPEALS and LONG LIFE PAWNSHOP, INC., respondents.

Cecilio D. Ignacio for petitioner.Hildawa & Gomez for private respondent.

R E S O L U T I O N

FELICIANO, J.:

Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00 from Niceta Ribaya. On 21 March 1968, petitioner, then in need of money, instructed her private secretary, Josefina Rocco, to pawn the jewelry. Josefina Rocco went to private respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the jewelry for P22,000.00 with its principal owner and General Manager, Yu An Kiong, and then absconded with said amount and the pawn ticket. The pawnshop ticket issued to Josefina Rocco stipulated that it was redeemable "on presentation by the bearer."

Three (3) months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket issued by private respondent was being offered for sale. They told Niceta the ticket probably covered jewelry once owned by the latter which jewelry had been pawned by one Josefina Rocco. Suspecting that it was the same jewelry she had sold to petitioner, Niceta informed the latter of this offer and suggested that petitioner go to the Long Life pawnshop to check the matter out. Petitioner claims she went to private respondent pawnshop, verified that indeed her missing jewelry was pledged there and

15

told Yu An Kiong not to permit anyone to redeem the jewelry because she was the lawful owner thereof. Petitioner claims that Yu An Kiong agreed.

On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first for qualified theft and later changed to estafa was subsequently filed against Josefina Rocco. On the same date, Detective Corporal Oswaldo Mateo of the Manila Police also claims to have gone to the pawnshop, showed Yu An Kiong petitioner's report and left the latter a note asking him to hold the jewelry and notify the police in case some one should redeem the same. The next day, on 10 July 1968, Yu An Kiong permitted one Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to redeem the jewelry.

On 4 October 1968, petitioner filed a complaint with the then Court of First Instance of Manila for damages against private respondent Long Life for failure to hold the jewelry and for allowing its redemption without first notifying petitioner or the police. After trial, the trial judge, Hon. Luis B. Reyes, rendered a decision in favor of petitioner, awarding her P26,500.00 as actual damages, with legal interest thereon from the date of the filing of the complaint, P2,000.00 as attorney's fees, and the costs of the suit.

Judge L.B. Reyes' decision was reversed on appeal and the complaint dismissed by the public respondent Court of Appeals in a Decision promulgated on 26 September 1976.

The Court of Appeals gave credence to Yu An Kiong's testimony that neither petitioner nor Detective Mateo ever apprised him of the misappropriation of petitioner's loan, or obtained a commitment from him not to permit redemption of the jewelry, prior to 10 July 1968. Yu An Kiong claims to have become aware of the loan's misappropriation only on 16 August 1968 when a subpoena duces tecum was served by the Manila Fiscal's Office requiring him to bring the record of the pledge in connection with the preliminary investigation of the estafa charge against Josefina Rocco. Consequently, the appellate court ruled, there could have been no negligence, much less a grave one amounting to bad faith, imputable to Yu An Kiong as the basis for an award of damages.

In this Petition for Review, petitioner seeks reversal of the Public respondent's findings relating to the credibility of witnesses and the restoration of the trial court's decision.

Deliberating on the present Petition for Review, the Court considers that the public respondent Court of Appeals committed reversible error in rendering its questioned Decision.

It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity to observe the demeanor of witnesses while giving testimony which may indicate their candor or lack thereof.1 While the Supreme Court

ordinarily does not rule on the issue of credibility of witnesses, that being a question of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions on questions of fact and the credibility of witnesses.2

The Court of Appeals rejected what it considered to be the incredible testimony of petitioner and Detective Mateo. It faulted petitioner for failing to report to the police authorities the loss of her jewelry immediately on 21 March 1968 when Josefina Rocco failed to return to her either the loan proceeds or the jewelry. But it must be noted that Josefina Rocco simply disappeared without a trace on said date. Petitioner had no way of knowing if Josefina had misappropriated her jewelry, or had first pledged the jewelry as instructed and then misappropriated the proceeds of the loan. In the latter case, which was in fact what had occurred, petitioner could have had no idea as to the identity of the pawnbroker. Moreover, this Court has several times recognized that different people may have diverse reasons for failing to report promptly to the police their having been victimized by some criminal or fraudulent scheme and that such failure does not by itself render their subsequent testimony unworthy of credence.3

The Court of Appeals also found it hard to believe that Detective Mateo had failed to obtain a written acknowledgment from Yu An Kiong of the receipt of the note as corroboration for his testimony. However, absent evidence that it was an established practice for police officers to obtain such acknowledgment in situations like the one here, it is difficult to see why Detective Mateo's behavior should be considered unbelievable. On the other hand, as the trial court pointed out, it would not have been sensible for Detective Mateo to leave a note reminding Yu An Kiong to hold unto the jewelry if the latter had in fact then told the policeman that the jewelry had already been redeemed.

The public respondent apparently believed petitioner had failed to establish her ownership of the jewelry pledged by Josefina Rocco, such failure purportedly engendering doubt that Tomasa de Leon may have redeemed jewelry different from that owned by petitioner. This is curious and untenable because the record on appeal indicates that Yu An Kiong had admitted in his answer and memorandum before the trial court that he received pledged jewelry from Josefina Rocco and, in his memorandum, that such jewelry had been entrusted to Josefina by petitioner as the latter's employer. It is clear from these judicial admissions that he considered petitioner to have been the true owner of the jewelry.

Finally, the Court of Appeals did not believe petitioner's testimony because of a claimed material inconsistency therein.1âwphi1 On direct examination, petitioner said she "immediately" went to the private respondent's establishment upon being informed by Niceta Ribaya of the possible whereabouts of her jewelry. On cross-examination, she said she went to the establishment "a few days later." If this is an inconsistency, it relates to an unimportant

16

detail. What is clear is that in any event, petitioner testified that she went to the respondent's pawnshop to meet Yu An Kiong and notify him of the misappropriation before anyone had redeemed the jewelry.

We must also note that the Court of Appeals apparently over-looked a fact of substance which did not escape the attention of the trial court. Petitioner's version of events was corroborated by Police Detective Mateo and by Niceta Ribaya. These were two (2) individuals who had nothing to gain from the outcome of the case. Certainly, their disinterested testimony should have been accorded more probative weight than the negative, uncorroborated and self-serving testimony of Yu An Kiong, which presented a diametrically opposed version of events calculated to show that in permitting redemption of the jewelry, he was acting in good faith.4

The testimony of Detective Mateo was moreover supported by the presumption that he had acted in the regular performance of his official duty as a police officer, a presumption that Yu An Kiong did not try to rebut.

This being a civil case, it was enough for petitioner to show, by a preponderance of evidence, that her version of events did in fact occur. We agree with the trial court that this burden of proof had been discharged by petitioner because her evidence was direct and more credible and persuasive than that propounded by Yu An Kiong,5 and corroborated by disinterested witnesses.

Turning to the substantive legal rights and duties of the parties, we believe and so hold that, having been notified by petitioner and the police that jewelry pawned to it was either stolen or involved in an embezzlement of the proceeds of the pledge, private respondent pawnbroker became duty bound to hold the things pledged and to give notice to petitioner and the police of any effort to redeem them. Such a duty was imposed by Article 21 of the Civil Code.6 The circumstance that the pawn ticket stated that the pawn was redeemable by the bearer, did not dissolve that duty. The pawn ticket was not a negotiable instrument under the Negotiable Instruments Law nor a negotiable document of title under Articles 1507 et seq. of the Civil Code. If the third person Tomasa de Leon, who redeemed the things pledged a day after petitioner and the police had notified Long Life, claimed to be owner thereof, the prudent recourse of the pawnbroker was to file an interpleader suit, impleading both petitioner and Tomasa de Leon. The respondent pawnbroker was, of course, entitled to demand payment of the loan extended on the security of the pledge before surrendering the jewelry, upon the assumption that it had given the loan in good faith and was not a "fence" for stolen articles and had not conspired with the faithless Josefina Rocco or with Tomasa de Leon. Respondent pawnbroker acted in reckless disregard of that duty in the instant case and must bear the consequences, without prejudice to its right to recover damages from Josefina Rocco.

The trial court correctly held that private respondent was liable to petitioner for actual damages which corresponded to the difference in the value of the jewelry (P48,500.00) and the amount of the loan (P22,000.00), or the sum of P26,500.00. Petitioner is entitled to collect the balance of the value of the jewelry, corresponding to the amount of the loan, in an appropriate action against Josefina Rocco. Private respondent Long Life in turn is entitled to seek reimbursement from Josefina Rocco of the amount of the damages it must pay to petitioner.

ACCORDINGLY, the Petition is GRANTED. The Decision of the Court of Appeals dated 23 September 1976 is hereby REVERSED and SET ASIDE. The Decision of the Court of First Instance dated 22 May 1970 is hereby REINSTATED in toto. No pronouncement as to costs.

Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

Footnotes

1 Vda. de Alberto v. Court of Appeals, 173 SCRA 436 (1989).

2 Robleza v. Court of Appeals, 174 SCRA 354 (1989).

3 E.g., People v. Pacabes, 137 SCRA 158 (1985); People vs. Coronado, 145 SCRA 250 (1986).

4 Vda. de Alberto v. Court of Appeals, supra.

5 Stronghold Insurance Co., Inc. v. Court of Appeals, 173 SCRA 619 (1989).

6 Article 21 of the Civil Code provides:

Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

The problems exemplified in this case are now addressed by P.D. No. 114 entitled the "Pawnshop Regulation Act," dated 29 January 1973. Section 13 of this statute grants the pawner an automatic grace period of ninety (90) days from the date of maturity of the obligation, within which to redeem the pawn by payment of the principal of the debt with interest,

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principal and interest being compounded at the time the obligation matured. Under Section 15 of the same statute, the pawnbroker is expressly forbidden to sell or otherwise dispose of things received in pawn or pledge to anyone other than the pawner, except at public auction, under the control and direction of a licensed auctioneer, and then only after publication of notice in at least two (2) daily newspapers during the week preceding the date of such public auction sale. Section 14 expressly requires the pawnbroker to notify the pawner of the date, hour and place of the sale.

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