Full Text Comm Law 3

8/12/2019 Full Text Comm Law 3

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G.R. No. 74451 May 25, 1988

EQUITABLE BANKING CORPORATION, petitioner,

vs.

THE HONORABLE INTERMEDIATE APPELLATE COURT and THE

EDWARD J. NELL CO., respondents.

William R. Veto for petitioner.

Pelaez, Adriano & Gregorio for respondents.

MELENCIO-HERRERA,J.:

In this Petition for Review on certiorari petitioner, Equitable Banking

Corporation, prays that the adverse judgment against it rendered by

respondent Appellate Court, 1dated 4 October 1985, and its

majority Resolution, dated 28 April 1986, denying petitioner's

Motion for Reconsideration, 2be annulled and set aside.

The facts pertinent to this Petition, as summarized by the Trial Court

and adopted by reference by Respondent Appellate Court,

emanated from the case entitled "Edward J. Nell Co. vs. Liberato V.

Casals, Casville Enterprises, Inc., and Equitable Banking Corporation"

of the Court of First Instance of Rizal (Civil Case No. 25112), andread:

From the evidence submitted by the parties, the

Court finds that sometime in 1975 defendant

Liberato Casals went to plaintiff Edward J. Nell

Company and told its senior sales engineer, Amado

Claustro that he was interested in buying one of the

plaintiff's garrett skidders. Plaintiff was a dealer of

machineries, equipment and supplies. Defendant

Casals represented himself as the majority

stockholder, president and general manager of

Casville Enterprises, Inc., a firm engaged in the large

scale production, procurement and processing of

logs and lumber products, which had a plywood

plant in Sta. Ana, Metro Manila.

After defendant Casals talked with plaintiff's sales

engineer, he was referred to plaintiffs executive

vice-president, Apolonio Javier, for negotiation in

connection with the manner of payment. When

Javier asked for cash payment for the skidders,

defendant Casals informed him that his corporation,

defendant Casville Enterprises, Inc., had a credit line

with defendant Equitable Banking Corporation.Apparently, impressed with this assertion, Javier

agreed to have the skidders paid by way of a

domestic letter of credit which defendant Casals

promised to open in plaintiffs favor, in lieu of cash

payment. Accordingly, on December 22, 1975,

defendant Casville, through its president, defendant

Casals, ordered from plaintiff two units of garrett

skidders ...

The purchase order for the garrett skidders bearingNo. 0051 and dated December 22, 1975 (Exhibit

"A") contained the following terms and conditions:

Two (2) units GARRETT Skidders Model 30A

complete as basically described in the bulletin

PRICE: F.O.B. dock


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Manila P485,000.00/unit

For two (2) units P970,000.00

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

TERMS: By irrevocable domestic letter of credit to

be issued in favor of THE EDWARD J. NELL CO. or

ORDER payable in thirty six (36) months and will be

opened within ninety (90) days after date of

shipment. at first installment will be due one

hundred eighty (180) days after date of shipment.

Interest-14% per annum (Exhibit A)

xxx xxx xxx

... in a letter dated April 21, 1976, defendants Casals

and Casville requested from plaintiff the delivery of

one (1) unit of the bidders, complete with tools and

cables, to Cagayan de Oro, on or before Saturday,

April 24,1976, on board a Lorenzo shipping vessel,

with the information that an irrevocable Domestic

Letter of Credit would be opened in plaintiff's favor

on or before June 30, 1976 under the terms and

conditions agreed upon (Exhibit "B")

On May 3, 1976, in compliance with defendant

Casvile's recognition request, plaintiff shipped to

Cagayan de Oro City a Garrett skidder. Plaintiff paid

the shipping cost in the amount of P10,640.00

because of the verbal assurance of defendant

Casville that it would be covered by the letter of

credit soon to be opened.

xxx xxx xxx

On July 15, 1976, defendant Casals handed to

plaintiff a check in the amount of P300,000.00

postdated August 4, 1976, which was followed by

another check of same date. Plaintiff considered

these checks either as partial payment for the

skidder that was already delivered to Cagayan de

Oro or as reimbursement for the marginal deposit

that plaintiff was supposed to pay.

In a letter dated August 3, 1976 (Exhibit "C"),

defendants Casville informed the plaintiff that their

application for a letter of credit for the payment of

the Garrett skidders had been approved by the

Equitable Banking Corporation. However, thedefendants said that they would need the sum of

P300,000.00 to stand as collateral or marginal

deposit in favor of Equitable Banking Corporation

and an additional amount of P100,000.00, also in

favor of Equitable Banking Corporation, to clear the

title of the Estrada property belonging to defendant

Casals which had been approved as security for the

trust receipts to be issued by the bank, covering the

above-mentioned equipment.

Although the marginal deposit was supposed to be

produced by defendant Casville Enterprises, plaintiff

agreed to advance the necessary amount in order

to facilitate the transaction. Accordingly, on August

5,1976, plaintiff issued a check in the amount of

P400,000.00 (Exhibit "2") drawn against the First

National City Bank and made payable to the order


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of Equitable Banking Corporation and with the

following notation or memorandum:

a/c of Casville Enterprises Inc. for

Marginal deposit and payment of

balance on Estrada Property to be

used as security for trust receipt for

opening L/C of Garrett Skidders in

favor of the Edward J. Nell Co." Said

check together with the cash

disbursement voucher (Exhibit "2-

A") containing the explanation:

Payment for marginal deposit and

other expenses re opening of L/C

for account of Casville Ent..

A covering letter (Exhibit "3") was also sent and

when the three documents were presented to

Severino Santos, executive vice president of

defendant bank, Santos did not accept them

because the terms and conditions required by the

bank for the opening of the letter of credit had not

yet been agreed on.

On August 9, 1976, defendant Casville wrote thebank applying for two letters of credit to cover its

purchase from plaintiff of two Garrett skidders,

under the following terms and conditions:

a) On sight Letter of Credit for P485,000.00; b) One

36 months Letter of Credit for P606,000.00; c)

P300,000.00 CASH marginal deposit1 d) Real Estate

Collateral to secure the Trust Receipts; e) We shall

chattel mortgage the equipments purchased even

after payment of the first L/C as additional security

for the balance of the second L/C and f) Other

conditions you deem necessary to protect the

interest of the bank."

In a letter dated August 11, 1976 (Exhibit "D-l"),

defendant bank replied stating that it was ready to

open the letters of credit upon defendant's

compliance of the following terms and conditions:

c) 30% cash margin deposit; d) Acceptable Real

Estate Collateral to secure the Trust Receipts; e)

Chattel Mortgage on the equipment; and Ashville f)

Other terms and conditions that our bank may

impose.

Defendant Casville sent a copy of the foregoing

letter to the plaintiff enclosing three postdated

checks. In said letter, plaintiff was informed of the

requirements imposed by the defendant bank

pointing out that the "cash marginal required under

paragraph (c) is 30% of Pl,091,000.00 or

P327,300.00 plus another P100,000.00 to clean up

the Estrada property or a total of P427,300.00" and

that the check covering said amount should bemade payable "to the Order of EQUITABLE

BANKING CORPORATION for the account of Casville

Enterprises Inc." Defendant Casville also stated that

the three (3) enclosed postdated checks were

intended as replacement of the checks that were

previously issued to plaintiff to secure the sum of

P427,300.00 that plaintiff would advance to

defendant bank for the account of defendant


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Casville. All the new checks were postdated

November 19, 1976 and drawn in the sum of

Pl45,500.00 (Exhibit "F"), P181,800.00 (Exhibit "G")

and P100,000.00 (Exhibit "H").

On the same occasion, defendant Casals delivered

to plaintiff TCT No. 11891 of the Register of Deeds

of Quezon City and TCT No. 50851 of the Register of

Deeds of Rizal covering two pieces of real estate

properties.

Subsequently, Cesar Umali, plaintiffs credit and

collection manager, accompanied by a

representative of defendant Casville, went to see

Severino Santos to find out the status of the credit

line being sought by defendant Casville. Santosassured Umali that the letters of credit would be

opened as soon as the requirements imposed by

defendant bank in its letter dated August 11, 1976

had been complied with by defendant Casville.

On August 16, 1976, plaintiff issued a check for

P427,300.00, payable to the "order of EQUITABLE

BANKING CORPORATION A/C CASVILLE

ENTERPRISES, INC." and drawn against the first

National City Bank (Exhibit "E-l"). The check did notcontain the notation found in the previous check

issued by the plaintiff (Exhibit "2") but the

substance of said notation was reproduced in a

covering letter dated August 16,1976 that went

with the check (Exhibit "E"). Both

the check and the covering letter were sent to

defendant bank through defendant Casals. Plaintiff

entrusted the delivery of the check and the latter to

defendant Casals because it believed that no one,

including defendant Casals, could encash the same

as it was made payable to the defendant bank

alone. Besides, defendant Casals was known to the

bank as the one following up the application for the

letters of credit.

Upon receiving the check for P427,300.00 entrusted

to him by plaintiff defendant Casals immediately

deposited it with the defendant bank and the bank

teller accepted the same for deposit in defendant

Casville's checking account. After depositing said

check, defendant Casville, acting through defendant

Casals, then withdrew all the amount deposited.

Meanwhile, upon their presentation forencashment, plaintiff discovered that the three

checks (Exhibits "F, "G" and "H") in the total amount

of P427,300.00, that were issued by defendant

Casville as collateral were all dishonored for having

been drawn against a closed account.

As defendant Casville failed to pay its obligation to

defendant bank, the latter foreclosed the mortgage

executed by defendant Casville on the Estrada

property which was sold in a public auction sale to athird party.

Plaintiff allowed some time before following up the

application for the letters of credit knowing that it

took time to process the same. However, when the

three checks issued to it by defendant Casville were

dishonored, plaintiff became apprehensive and sent

Umali on November 29, 1976, to inquire about the


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status of the application for the letters of credit.

When plaintiff was informed that no letters of

credit were opened by the defendant bank in its

favor and then discovered that defendant Casville

had in the meanwhile withdrawn the entire amount

of P427,300.00, without paying its obligation to the

bank plaintiff filed the instant action.

While the the instant case was being tried,

defendants Casals and Casville assigned the garrett

skidder to plaintiff which credited in favor of

defendants the amount of P450,000.00, as partial

satisfaction of plaintiff's claim against them.

Defendants Casals and Casville hardly disputed their

liability to plaintiff. Not only did they show lack ofinterest in disputing plaintiff's claim by not

appearing in most of the hearings, but they also

assigned to plaintiff the garrett skidder which is an

action of clear recognition of their liability.

What is left for the Court to determine, therefore, is

only the liability of defendant bank to plaintiff.

xxx xxx xxx

Resolving that issue, the Trial Court rendered judgment, affirmed by

Respondent Court in toto, the pertinent portion of which reads:

xxx xxx xxx

Defendants Casals and Casville Enterprises and

Equitable Banking Corporation are ordered to pay

plaintiff, jointly and severally, the sum of

P427,300.00, representing the amount of plaintiff's

check which defendant bank erroneously credited

to the account of defendant Casville and which

defendants Casal and Casville misappropriated, with

12% interest thereon from April 5, 1977, until the

said sum is fully paid.

Defendant Equitable Banking Corporation is

ordered to pay plaintiff attorney's fees in the sum of

P25,000.00 .

Proportionate cost against all the defendants.

SO ORDERED.

The crucial issue to resolve is whether or not petitioner EquitableBanking Corporation (briefly, the Bank) is liable to private

respondent Edward J. Nell Co. (NELL, for short) for the value of the

second check issued by NELL, Exhibit "E-l," which was made payable

to the order of EQUITABLE Ashville BANIUNG

CORPORATION A/C OF CASVILLE ENTERPRISES INC.

and which the Bank teller credited to the account of Casville.

The Trial Court found that the amount of the second check hadbeen erroneously credited to the Casville account; held the Bank

liable for the mistake of its employees; and ordered the Bank to pay

NELL the value of the check in the sum of P427,300.00, with legal

interest. Explained the Trial Court:

The Court finds that the check in question was

payable only to the defendant bank and to no one

else. Although the words "A/C OF CASVILLE


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ENTERPRISES INC. "appear on the face of the check

after or under the name of defendant bank, the

payee was still the latter. The addition of said words

did not in any way make Casville Enterprises, Inc.

the Payee of the instrument for the words merely

indicated for whose account or in connection with

what account the check was issued by the plaintiff.

Indeed, the bank teller who received it was fully

aware that the check was not negotiable since he

stamped thereon the words "NON-NEGOTIABLE For

Payee's Account Only" and "NON-NEGOTIABLE

TELLER NO. 4, August 17,1976 EQUITABLE BANKING

CORPORATION.

But said teller should have exercised moreprudence in the handling of Id check because it was

not made out in the usual manner. The addition of

the words A/C OF CASVILLE ENTERPRISES INC."

should have placed the teller on guard and he

should have clarified the matter with his superiors.

Instead of doing so, however, the teller decided to

rely on his own judgment and at the risk of making

a wrong decision, credited the entire amount in the

name of defendant Casville although the latter was

not the payee named in the check. Such mistakewas crucial and was, without doubt, the proximate

cause of plaintiffs defraudation.

xxx xxx xxx

Respondent Appellate Court upheld the above conclusions stating in

addition:

1) The appellee made the subject check payable to

appellant's order, for the account of Casville

Enterprises, Inc. In the light of the other facts, the

directive was for the appellant bank to apply the

value of the check as payment for the letter of

credit which Casville Enterprises, Inc. had previously

applied for in favor of the appellee (Exhibit D-1, p.

5). The issuance of the subject check was precisely

to meet the bank's prior requirement of payment

before issuing the letter of credit previously applied

for by Casville Enterprises in favor of the appellee;

xxx xxx xxx

We disagree.

1) The subject check was equivocal and patently ambiguous. By

making the check read:

Pay to the EQUITABLE BANKING CORPORATION

Order of A/C OF CASVILLE ENTERPRISES, INC.

the payee ceased to be indicated with reasonable certainty in

contravention of Section 8 of the Negotiable Instruments Law.3As

worded, it could be accepted as deposit to the account of the party

named after the symbols "A/C," or payable to the Bank as trustee,or as an agent, for Casville Enterprises, Inc., with the latter being the

ultimate beneficiary. That ambiguity is to be

taken contraproferentemthat is, construed against NELL who

caused the ambiguity and could have also avoided it by the exercise

of a little more care. Thus, Article 1377 of the Civil Code, provides:


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Art. 1377. The interpretation of obscure words or

stipulations in a contract shall not favor the party

who caused the obscurity.

2) Contrary to the finding of respondent Appellate Court, the

subject check was, initially, not non-negotiable. Neither was it a

crossed check. The rubber-stamping transversall on the face of the

subject check of the words "Non-negotiable for Payee's Account

Only" between two (2) parallel lines, and "Non-negotiable, Teller-

No. 4, August 17, 1976," separately boxed, was made only by the

Bank teller in accordance with customary bank practice, and not by

NELL as the drawer of the check, and simply meant that thereafter

the same check could no longer be negotiated.

3) NELL's own acts and omissions in connection with the drawing,

issuance and delivery of the 16 August 1976 check, Exhibit "E-l," andits implicit trust in Casals, were the proximate cause of its own

defraudation: (a) The original check of 5 August 1976, Exhibit "2,"

was payable to the order solely of "Equitable Banking Corporation."

NELL changed the payee in the subject check, Exhibit "E", however,

to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.,"

upon Casals request. NELL also eliminated both the cash

disbursement voucher accompanying the check which read:

Payment for marginal deposit and other expense re

opening of L/C for account of Casville Enterprises.

and the memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit

and payment of balance on Estrada Property to be

used as security for trust receipt for opening L/C of

Garrett Skidders in favor of the Edward Ashville J

Nell Co.

Evidencing the real nature of the transaction was merely a separate

covering letter, dated 16 August 1976, which Casals, sinisterly

enough, suppressed from the Bank officials and teller.

(b) NELL entrusted the subject check and its covering letter, Exhibit

"E," to Casals who, obviously, had his own antagonistic interests to

promote. Thus it was that Casals did not purposely present the

subject check to the Executive Vice-President of the Bank, who was

aware of the negotiations regarding the Letter of Credit, and who

had rejected the previous check, Exhibit "2," including its three

documents because the terms and conditions required by the Bank

for the opening of the Letter of Credit had not yet been agreed on.

(c) NELL was extremely accommodating to Casals. Thus, to facilitate

the sales transaction, NELL even advanced the marginal deposit for

the garrett skidder. It is, indeed, abnormal for the seller of goods,the price of which is to be covered by a letter of credit, to advance

the marginal deposit for the same.

(d) NELL had received three (3) postdated checks all dated 16

November, 1976 from Casvine to secure the subject check and had

accepted the deposit with it of two (2) titles of real properties as

collateral for said postdated checks. Thus, NELL was erroneously

confident that its interests were sufficiently protected. Never had it

suspected that those postdated checks would be dishonored, nor

that the subject check would be util ized by Casals for a purposeother than for opening the letter of credit.

In the last analysis, it was NELL's own acts, which put it into the

power of Casals and Casville Enterprises to perpetuate the fraud

against it and, consequently, it must bear the loss (Blondeau, et al.,

vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and

Shanghai Banking Corporation, 89 Phil. 780 [1951]; Republic of the


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Philippines vs. Equitable Banking Corporation, L-15895, January

30,1964, 10 SCRA 8).

... As between two innocent persons, one of whom

must suffer the consequence of a breach of trust,

the one who made it possible by his act of

confidence must bear the loss.

WHEREFORE, the Petition is granted and the Decision of respondent

Appellate Court, dated 4 October 1985, and its majority Resolution,

dated 28 April 1986, denying petitioner's Motion for

Reconsideration, are hereby SET ASIDE. The Decision of the then

Court of First Instance of Rizal, Branch XI. is modified in that

petitioner Equitable Banking Corporation is absolved from any and

all liabilities to the private respondent, Edward J. Nell Company, and

the Amended Complaint against petitioner bank is hereby ordereddismissed. No costs.

SO ORDERED.

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

Padilla, J., took no part.

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, Hofilea & Guingona for private.

REGALADO,J.:

This petition for review on certiorariimpugns and seeks the reversal

of the decision promulgated by respondent court on March 8, 1991

in CA-G.R. CV No. 236151affirming with modifications, the earlier

decision of the Regional Trial Court of Manila, Branch XLII,2which

dismissed the complaint filed therein by herein petitioner against

respondent bank.

The undisputed background of this case, as found by the court a

quo and adopted by respondent court, appears of record:

1. On various dates, defendant, a commercial

banking institution, through its Sucat Branch issued280 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);

CTDCTD

DatesSerial Nos.QuantityAmount

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


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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 saiddepositor 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'sExhibits 282-561).

5. On March 25, 1982, Angel dela Cruz negotiated

and obtained a loan from defendant bank in the

amount of Eight Hundred Seventy Five Thousand

Pesos (P875,000.00). On the same date, said

depositor executed a notarized Deed of Assignment

of Time Deposit (Exhibit 562) which stated, among

others, that he (de la Cruz) surrenders to defendant

bank "full control of the indicated time deposits

from and after date" of the assignment and further

authorizes said bank to pre-terminate, set-off and

"apply the said time deposits to the payment of

whatever amount or amounts may be due" on the

loan upon its maturity (TSN, February 9, 1987, pp.

60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit

Manager of plaintiff Caltex (Phils.) Inc., went to the

defendant bank's Sucat branch and presented for

verification the CTDs declared lost by Angel dela

Cruz alleging that the same were delivered to

herein plaintiff "as security for purchases made with

Caltex Philippines, Inc." by said depositor (TSN,February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a

letter (Defendant's Exhibit 563) from herein plaintiff

formally informing it of its possession of the CTDs in

question and of its decision to pre-terminate the

same.

8. On December 8, 1982, plaintiff was requested by

herein defendant to furnish the former "a copy ofthe 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.


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10. Accordingly, defendant bank rejected the

plaintiff's demand and claim for payment of the

value of the CTDs in a letter dated February 7, 1983

(Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with

the defendant bank matured and fell due and on

August 5, 1983, the latter set-off and applied the

time deposits in question to the payment of the

matured loan (TSN, February 9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the

instant complaint, praying that defendant bank be

ordered to pay it the aggregate value of the

certificates of time deposit of P1,120,000.00 plus

accrued interest and compounded interest thereinat 16%per annum, moral and exemplary damages

as well as attorney's fees.

After trial, the court a quorendered 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 clearlynegotiable 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 hasdeposited in this Bank the sum

of PESOS: FOUR THOUSAND ONLY,

SECURITY BANK SUCAT OFFICE

P4,000 & 00 CTS Pesos, Philippine

Currency, repayable to said

depositor 731 days. after date,

upon presentation and surrender of

this certificate, with interest at the

rate of 16% per centper annum.

(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES5

Respondent court ruled that the CTDs in question are non-

negotiable instruments, nationalizing as follows:


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. . . While it may be true that the word "bearer"

appears rather boldly in the CTDs issued, it is

important to note that after the word "BEARER"

stamped on the space provided supposedly for the

name of the depositor, the words "has deposited" a

certain amount follows. The document further

provides that the amount deposited shall be

"repayable to said depositor" on the period

indicated. Therefore, the text of the instrument(s)

themselves manifest with clarity that they are

payable, not to whoever purports to be the

"bearer" but only to the specified person indicated

therein, the depositor. In effect, the appellee bank

acknowledges its depositor Angel dela Cruz as the

person who made the deposit and further engages

itself to pay said depositor the amount indicatedthereon 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, youare 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) theamount.

Atty. Calida:

q And no other person or entity or

company, Mr. Witness?

witness:


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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. 10While the writing may be read in the light of

surrounding circumstances in order to more perfectly understand

the intent and meaning of the parties, yet as they have constituted

the writing to be the only outward and visible expression of their

meaning, no other words are to be added to it or substituted in itsstead. 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 notprivy 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, del ivered 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


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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 personmaking 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 assecurity, 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 therein17

praying, among others,

that petitioner, as plaintiff, be required to aver with sufficient

definiteness or particularity (a) the due date or dates ofpayment 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 aspayment 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 transactionbetween the parties is to be

determined by their intention,

regardless of what language was

used or what the form of the

transfer was. If it was intended to

secure the payment of money, it

must be construed as a pledge; but

if there was some other intention, it

is not a pledge. However, even

though a transfer, if regarded byitself, 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


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14

to a creditor, even if sufficient on its

face to make an absolute

conveyance, should be treated as a

pledge if the debt continues in

inexistence and is not discharged by

the transfer, and that accordingly

the use of the terms ordinarily

importing conveyance of absolute

ownership will not be given that

effect in such a transaction if they

are also commonly used in pledges

and mortgages and therefore do

not unqualifiedly indicate a transfer

of absolute ownership, in the

absence of clear and unambiguous

language or other circumstancesexcluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the

question. Under the Negotiable Instruments Law, an instrument is

negotiated when it is transferred from one person to another in

such a manner as to constitute the transferee the holder

thereof,21

and a holder may be the payee or indorsee of a bill or

note, who is in possession of it, or the bearer thereof.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 whichsituation, for obvious reasons, mere delivery of the bearer CTDs

would have sufficed. Here, the delivery thereof only as security for

the purchases of Angel de la Cruz (and we even disregard the fact

that the amount involved was not disclosed) could at the most

constitute petitioner only as a holder for value by reason of his lien.

Accordingly, a negotiation for such purpose cannot be effected by

mere delivery of the instrument since, necessarily, the terms

thereof and the subsequent disposition of such security, in the

event of non-payment of the principal obligation, must be

contractually provided for.

The pertinent law on this point is that where the holder has a lien

on the instrument arising from contract, he is deemed a holder for

value to the extent of his lien. 23As such holder of collateral

security, he would be a pledgee but the requirements therefor and

the effects thereof, not being provided for by the Negotiable

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 a description of the thing pledged

and the date of the pledge do not appear in a public

instrument.

Aside from the fact that the CTDs were only delivered but not

indorsed, the factual findings of respondent court quoted at the

start of this opinion show that petitioner failed to produce any

document evidencing any contract of pledge or guaranteeagreement between it and Angel de la Cruz.

25Consequently, the

mere delivery of the CTDs did not legally vest in petitioner any right

effective against and binding upon respondent bank. The

requirement under Article 2096 aforementioned is not a mere rule

of adjective law prescribing the mode whereby proof may be made

of the date of a pledge contract, but a rule of substantive law

prescribing a condition without which the execution of a pledge

contract cannot affect third persons adversely.26


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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 public instrument which could

affect or bind private respondent. Necessarily, therefore, asbetween petitioner and respondent bank, the latter has definitely

the better right over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into

the question of whether or not private respondent observed the

requirements of the law in the case of lost negotiable instruments

and the issuance of replacement certificates therefor, on the

ground that petitioner failed to raised that issue in the lower

court.28

On this matter, we uphold respondent court's finding that the

aspect of alleged negligence of private respondent was not included

in the stipulation of the parties and in the statement of issues

submitted by them to the trial court.29The issues agreed upon by

them for resolution in this case are:

1. Whether or not the CTDs as worded are

negotiable instruments.

2. Whether or not defendant could legally apply the

amount covered by the CTDs against the depositor's

loan by virtue of the assignment (Annex "C").

3. Whether or not there was legal compensation or

set off involving the amount covered by the CTDs

and the depositor's outstanding account with

defendant, if any.

4. Whether or not plaintiff could compel defendant

to preterminate the CTDs before the maturity date

provided therein.

5. Whether or not plaintiff is entitled to the

proceeds of the CTDs.

6. Whether or not the parties can recover damages,

attorney's fees and litigation expenses from each

other.

As respondent court correctly observed, with appropriate citation of

some doctrinal authorities, the foregoing enumeration does not

include the issue of negligence on the part of respondent bank. An

issue raised for the first time on appeal and not raised timely in the

proceedings in the lower court is barred by estoppel.30

Questions

raised on appeal must be within the issues framed by the partiesand, consequently, issues not raised in the trial court cannot be

raised for the first time on appeal.31

Pre-trial is primarily intended to make certain that all issues

necessary to the disposition of a case are properly raised. Thus, to

obviate the element of surprise, parties are expected to disclose at

a pre-trial conference all issues of law and fact which they intend to

raise at the trial, except such as may involve privileged or


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16

impeaching matters. The determination of issues at a pre-trial

conference bars the consideration of other questions on appeal.32

To accept petitioner's suggestion that respondent bank's supposed

negligence may be considered encompassed by the issues on its

right to preterminate and receive the proceeds of the CTDs would

be tantamount to saying that petitioner could raise on appeal any

issue. We agree with private respondent that the broad ultimate

issue of petitioner's entitlement to the proceeds of the questioned

certificates can be premised on a multitude of other legal reasons

and causes of action, of which respondent bank's supposed

negligence is only one. Hence, petitioner's submission, if accepted,

would render a pre-trial delimitation of issues a useless exercise.33

Still, even assuming arguendothat said issue of negligence was

raised in the court below, petitioner still cannot have the odds in itsfavor. 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, mayapply to the judge or

court of competent jurisdiction, asking that theprincipal, 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. 34The 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 refuseto issue a replacement of the instrument. Significantly, none of the

provisions cited by petitioner categorically restricts or prohibits the

issuance a duplicate or replacement instrument sans compliance

with the procedure outlined therein, and none establishes a

mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition

is DENIEDand the appealed decision is hereby AFFIRMED.

SO ORDERED.

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

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,

vs.

SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON


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17

TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and

PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents.

Yngson & Associates for petitioner.

Henry A. Reyes & Associates for Samso Tung & Asian Industrial

Plastic Corporation.

Eduardo G. Castelo for Sima Wei.

Monsod, Tamargo & Associates for Producers Bank.

Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR.,J.:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for

brevity) filed a complaint for a sum of money against respondents

Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung,

Asian Industrial Plastic Corporation (Plastic Corporation for short)

and the Producers Bank of the Philippines, on two causes of action:

(1) To enforce payment of the balance of

P1,032,450.02 on a promissory note executed byrespondent Sima Wei on June 9, 1983; and

(2) To enforce payment of two checks executed by

Sima Wei, payable to petitioner, and drawn against

the China Banking Corporation, to pay the balance

due on the promissory note.

Except for Lee Kian Huat, defendants filed their separate Motions to

Dismiss alleging a common ground that the complaint states no

cause of action. The trial court granted the defendants' Motions to

Dismiss. The Court of Appeals affirmed this decision, *to which the

petitioner Bank, represented by its Legal Liquidator, filed this

Petition for Review by Certiorari, assigning the following as the

alleged errors of the Court of Appeals:1

(1) THE COURT OF APPEALS ERRED IN HOLDING

THAT THE PLAINTIFF-PETITIONER HAS NO CAUSE OF

ACTION AGAINST DEFENDANTS-RESPONDENTS

HEREIN.

(2) THE COURT OF APPEALS ERRED IN HOLDING

THAT SECTION 13, RULE 3 OF THE REVISED RULES

OF COURT ON ALTERNATIVE DEFENDANTS IS NOTAPPLICABLE TO HEREIN DEFENDANTS-

RESPONDENTS.

The antecedent facts of this case are as follows:

In consideration for a loan extended by petitioner Bank to

respondent Sima Wei, the latter executed and delivered to the

former a promissory note, engaging to pay the petitioner Bank or

order the amount of P1,820,000.00 on or before June 24, 1983 with

interest at 32%per annum. Sima Wei made partial payments on thenote, leaving a balance of P1,032,450.02. On November 18, 1983,

Sima Wei issued two crossed checks payable to petitioner Bank

drawn against China Banking Corporation, bearing respectively the

serial numbers 384934, for the amount of P550,000.00 and 384935,

for the amount of P500,000.00. The said checks were allegedly

issued in full settlement of the drawer's account evidenced by the

promissory note. These two checks were not del ivered to the

petitioner-payee or to any of its authorized representatives. For


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18

reasons not shown, these checks came into the possession of

respondent Lee Kian Huat, who deposited the checks without the

petitioner-payee's indorsement (forged or otherwise) to the

account of respondent Plastic Corporation, at the Balintawak

branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch

Manager of the Balintawak branch of Producers Bank, relying on the

assurance of respondent Samson Tung, President of Plastic

Corporation, that the transaction was legal and regular, instructed

the cashier of Producers Bank to accept the checks for deposit and

to credit them to the account of said Plastic Corporation, inspite of

the fact that the checks were crossed and payable to petitioner

Bank and bore no indorsement of the latter. Hence, petitioner filed

the complaint as aforestated.

The main issue before Us is whether petitioner Bank has a cause of

action against any or all of the defendants, in the alternative orotherwise.

A cause of action is defined as an act or omission of one party in

violation of the legal right or rights of another. The essential

elements are: (1) legal right of the plaintiff; (2) correlative obligation

of the defendant; and (3) an act or omission of the defendant in

violation of said legal right.2

The normal parties to a check are the drawer, the payee and the

drawee bank. Courts have long recognized the business custom ofusing printed checks where blanks are provided for the date of

issuance, the name of the payee, the amount payable and the

drawer's signature. All the drawer has to do when he wishes to

issue a check is to properly fill up the blanks and sign it. However,

the mere fact that he has done these does not give rise to any

liability on his part, until and unless the check is delivered to the

payee or his representative. A negotiable instrument, of which a

check is, is not only a written evidence of a contract right but is also

a species of property. Just as a deed to a piece of land must be

delivered in order to convey title to the grantee, so must a

negotiable instrument be delivered to the payee in order to

evidence its existence as a binding contract. Section 16 of the

Negotiable Instruments Law, which governs checks, provides in

part:

Every contract on a negotiable instrument is

incomplete and revocable until delivery of the

instrument for the purpose of giving effect thereto.

. . .

Thus, the payee of a negotiable instrument acquires no interest

with respect thereto until its delivery to him.3Delivery of an

instrument means transfer of possession, actual or constructive,

from one person to another.4Without the initial delivery of theinstrument from the drawer to the payee, there can be no liability

on the instrument. Moreover, such delivery must be intended to

give effect to the instrument.

The allegations of the petitioner in the original complaint show that

the two (2) China Bank checks, numbered 384934 and 384935, were

not delivered to the payee, the petitioner herein. Without the

delivery of said checks to petitioner-payee, the former did not

acquire any right or interest therein and cannot therefore assert any

cause of action,founded on said checks, whether against the drawerSima Wei or against the Producers Bank or any of the other

respondents.

In the original complaint, petitioner Bank, as plaintiff, sued

respondent Sima Wei on the promissory note, and the alternative

defendants, including Sima Wei, on the two checks. On appeal from

the orders of dismissal of the Regional Trial Court, petitioner Bank

alleged that its cause of action was not based on collecting the sum


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19

of money evidenced by the negotiable instruments stated but

on quasi-delicta claim for damages on the ground of fraudulent

acts and evident bad faith of the alternative respondents. This was

clearly an attempt by the petitioner Bank to change not only the

theory of its case but the basis of his cause of action. It is well-

settled that a party cannot change his theory on appeal, as thiswould in effect deprive the other party of his day in court.

5

Notwithstanding the above, it does not necessarily follow that the

drawer Sima Wei is freed from liability to petitioner Bank under the

loan evidenced by the promissory note agreed to by her. Her

allegation that she has paid the balance of her loan with the two

checks payable to petitioner Bank has no merit for, as We have

earlier explained, these checks were never delivered to petitioner

Bank. And even granting, without admitting, that there was delivery

to petitioner Bank, the delivery of checks in payment of anobligation does not constitute payment unless they are cashed or

their value is impaired through the fault of the creditor.6

None of

these exceptions were alleged by respondent Sima Wei.

Therefore, unless respondent Sima Wei proves that she has been

relieved from liability on the promissory note by some other cause,

petitioner Bank has a right of action against her for the balance due

thereon.

However, insofar as the other respondents are concerned,petitioner Bank has no privity with them. Since petitioner Bank

never received the checks on which it based its action against said

respondents, it never owned them (the checks) nor did it acquire

any interest therein. Thus, anything which the respondents may

have done with respect to said checks could not have prejudiced

petitioner Bank. It had no right or interest in the checks which could

have been violated by said respondents. Petitioner Bank has

therefore no cause of action against said respondents, in the

alternative or otherwise. If at all, it is Sima Wei, the drawer, who

would have a cause of action against her

co-respondents, if the allegations in the complaint are found to be

true.

With respect to the second assignment of error raised by petitioner

Bank regarding the applicability of Section 13, Rule 3 of the Rules of

Court, We find it unnecessary to discuss the same in view of Our

finding that the petitioner Bank did not acquire any right or interest

in the checks due to lack of delivery. It therefore has no cause of

action against the respondents, in the alternative or otherwise.

In the light of the foregoing, the judgment of the Court of Appeals

dismissing the petitioner's complaint is AFFIRMED insofar as the

second cause of action is concerned. On the first cause of action,

the case is REMANDED to the trial court for a trial on the merits,consistent with this decision, in order to determine whether

respondent Sima Wei is liable to the Development Bank of Rizal for

any amount under the promissory note allegedly signed by her.

SO ORDERED.

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

G.R. No. L-4388 August 13, 1952

PHILIPPINE NATIONAL BANK,petitioner,

vs.

BENITO SEETO,respondent.

Ramon B. de los Reyes for petitioner.

Montano A. Ortiz for respondent.

LABRADOR,J.:


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20

On March 13, 1948, respondent Benito Seeto called at the branch of

the Philippine National Bank, petitioner herein, at Surigao, and

presented a check, No. A-21096, in the amount of P5,000 dated at

Cebu on March 10, 1948, payable to cash or bearer, and drawn by

one Gan Yek Kiao against the Cebu branch of the Philippine National

Bank of Communications. After consultation with the employees ofthe branch, Seeto made a general and unqualified indorsement of

the check, and petitioner's agency accepted it and paid respondent

the amount of P5,000 therefor. The check was mailed to petitioner's

Cebu branch on March 20, 1948, and was presented to the drawee

bank for payment on April 9, 1948, but the check was dishonored

for "insufficient funds." So the check was returned to petitioner's

Surigao agency, and upon receipt thereof by it on April 14, 1948,

said branch immediately sent a letter to the respondent herein

demanding immediate refund of in the value of the check. A second

communication of the same tenor was sent on April 26, 1948, towhich respondent answered asking that plaintiff's contemplated

suit be deferred while he was making inquiries about the reasons

for the dishonor of the check. Thereafter, respondent refused to

make the refund demanded, claiming that at the time of the

negotiation o the check the drawer had sufficient funds in the

drawee bank, and that the petitioner's Surigao agency not delayed

to forward the check until the drawer's funds were exhausted, the

same would have been paid.

Thereupon petitioner presented a complaint in the Court of FirstInstance of Surigao, alleging that respondent Benito Seeto gave

assurance to petitioner's agency in Surigao that the drawer of the

check had sufficient funds with the drawee bank, and that upon

these assurances petitioner's agency delivered the P5,000 to the

respondent after the latter had made a general and unqualified

indorsement thereon. Respondent denied having made the alleged

assurances. Upon this issue petitioner submitted two witnesses at

the time of the trial, who testified that it was not the practice of

petitioner's agency to cash out of town checks, and that the check

was cashed because of the assurances given by the respondent that

the drawer had sufficient funds, and that he (respondent) would

refund the amount paid by petitioner's agency in case the check is

dishonored. Respondent denied having given the assurances. The

trial court found notwithstanding respondent's denial to thecontrary, that the respondent made an undertaking to refund the

amount of the checks in the event of dishonor. In support of this

finding it found that as the drawee bank is not in Cebu, it was

impossible for petitioner's agency to make an independent

verification of the drawer's solvency, and must have taken

precautions to protect itself against loss by requiring the

respondent to give assurances that he would return the amount of

the check in the case of nonpayment. It also found that there was

no unreasonable delay in the presentation of the check, and,

therefore, rendered judgment sentencing respondent to refund theamount he had received for the check.

On appeal to the Court of Appeals, this court held that petitioner

was guilty of unreasonably retaining and with-holding the check,

and that the delay in the presentment for payment was inexcusable,

so that respondent was thereby discharged from liability. It also

held that parol evidence is incompetent to show that one signing of

a check as indorser is merely a surety or guarantor, rejecting the

evidence adduced at the trial court about the respondent's

assurance and promise to refund. It, therefore, reversed thejudgment of the trial court and dismissed the complaint, with costs.

Against this judgment an appeal by certiorari has been brought to

this Court, petitioner Philippine National Bank contending that the

Court of Appeals erred in applying sections 143 and 144 of the

Negotiable Instruments Law and declaring respondent Benito Seeto

discharged of his liability as indorser of the check, and in not

admitting parol evidence to show that respondent made oral

assurances to refund the value of the check in case of dishonor.


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In support of petitioner's first assignment of error, it is argued that

inasmuch as a check need not to be presented for acceptance,

unlike a bill of exchange as required by Section 143, Section 144 of

the law is not applicable to the case at bar but Section 84, which

provides:

SEC. 84. Liability of person secondarily liable, when

instrument dishonored. Subject to the provisions of this

Act, when the instrument is dishonored by nonpayment, as

immediate right of recourse to all parties secondarily liable

thereon accrues to the holder.

It is true that Section 143 and 144 of the law are not applicable,

because these are provisions having to do with the presentation of

a bill of exchange for acceptance, and are not applicable to a check,

as to which presentment for acceptance is not required.

It is also true that Section 84 is applicable, but its application is

subject to the condition imposed by Section 186, to the effect that

the check must be presented for payment within a reasonable time

after its issue.

SEC. 186. Within what time a check must be presented.

A check must be presented for payment within a reasonable

time after its issue or the drawer will be discharged from

liability thereon to the extent of the loss caused by thedelay.

Counsel for the petitioner, however, argues that inasmuch as the

above section expressly provides for the discharge of the drawer

from liability to the extent of the loss caused by the delay, and, on

the other hand, it is silent as to the liability of the indorser, the

latter may not be considered discharged from liability by reason of

the delay in the presentment of payment under the general

principle inclusio unius est exclusion alterius. We find no reason nor

merit in the argument. The silence of Section 186 as to the indorser

is due to the fact that his discharge is already expressly covered by

the provision of Section 84, the indorser being a person secondarily

liable on the instrument. The reason for the difference between the

liability of the indorser and that of the drawer in case of dishonor isthat the drawer is not probably or necessarily prejudiced thereby,

while an indorser is, actually or by legal presumption.

Innumerable decisions have already been rendered in the state

courts of the United States to the effect that although the drawer of

a check is discharged only to the extent of loss caused by

unreasonable delay in presentment, an indorser is wholly

discharged thereby irrespective of any question of loss or injury. (

Swift & Co. vs. Miller, 62 Ind. App. 312, 113 N.E. 447, cited in

Brannan's Negotiable Instruments Law, p. 1134, Nuzum vs.Sheppard, 87 W. Va. 243, 104 S.E. 587, 11 A.L.R. 1024, Ibid.)

The proposition maintained in the reported case (Nuzum vs.

Sheppard., ante. 1024) that the indorser of a check, unlike

the drawer, is relieved of liability thereon by an

unreasonable delay in presenting the same for payment,

whether or not he is injured by the delay, is supported by

the great weight of authority, (Cases cited.)

The Court, in Gough v. Staats(N.Y.) supra, says: "Upon thequestion of due diligence to charge an indorser, whether he

has been prejudiced or not by the delay is perfectly

immaterial. It is not inquired into. The law presumes he has

been prejudiced." According to the Court in Caroll v.

Sweet(1891) 128 N.Y. 19, 13 L.R.A. 43, 27 N.E. 763,

"presentment to due time as fixed by the law merchant was

a condition upon performance of which the liability of the

defendant, as indorser, depended, and this delay was not


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excused, although the drawer of the check had no funds, or

was insolvent, or because presentment would not been

unavailing as a means of procuring payment." Only where

there is affirmative proof that the indorser knew when he

cashed the check that there would be no funds in the bank

to meet it can the rule be avoided. Otherwise, the failure topresent the check in due course of payment will discharge

the indorser even though such presentment would have

been unavailing. Start v. Tupper(Vt.) supra. (11 A.L.R.

Annotation, pp. 1028-1029.)

We have been unable to find any authority sustaining the

proposition that an indorser of a check is not discharged from

liability for an unreasonable delay in presentation for payment. This

is contrary to the essential nature and character of negotiable

instruments their negotiability. They are supposed to be passedon with promptness in the ordinary course of business transactions;

not to be retained or kept for such time as the holder may want,

otherwise the smooth flow of commercial transactions would be

hindered.

There seems to be an intimation in the decision appealed from that

inasmuch as the check was drawn payable elsewhere than at the

place of business of the drawer, it must be presented for

acceptance or negotiable within a reasonable time, and upon failure

to do so the drawer and all indorsers thereof are dischargedpursuant to Section 144 of the law. Against this insinuation the

petitioner argues that the application of sections 143 and 144 is not

proper, and that it may not be presumed that the check in question

was not drawn and executed in Cebu, the residence or place of

business of the drawer. There is no evidence at all as to the place

where the check was drawn. However, we have already pointed out

above that neither Section 143 nor Section 144 is applicable. But

our ruling that respondent was discharged upon the dishonor of the

check is based on Sections 84 and 186, the latter expressly requiring

that a check must be presented for payment within a reasonable

time after issue.

It is not claimed by the petitioner on this appeal that the conclusion

of the Court of Appeals that there was unreasonable delay in the

presentation of the check for payment at the drawee bank is

erroneous. The petitioner concedes the correctness of this

conclusion, although for purposes of argument merely. We find that

the conclusion is correct. The fact, admitted by the witnesses for

the petitioner, the checks for the drawer issued subsequent to

March 13, 1948, drawn against the same bank and cashed at the

same Surigao agency, were not dishonored positively shows that

the drawer had enough funds when he issued the check in question,

and that had it not been for the unreasonable delay in its

presentation for payment, the petitioner herein would have beenable to receive payment therefor. The check is dated March 10, and

was cashed by the petitioner's agency on March 13, 1948. It was not

mailed until seven days thereafter, i.e., on March 20, 1948, or ten

days after issue. No excuse was given for this delay. Assuming that it

took one week, or say ten days, or until March 30, for the check to

reach Cebu, neither can there be any excuse for not presenting it for

payment at the drawee bank until April 9, 1948, or 10 days after it

reached Cebu. We, therefore, find no reason for disturbing the

conclusion of the Court of Appeals that there was unreasonable

delay in the presentation of the check for payment at the drawee

bank, and that is a consequence thereof, the indorser, respondent

herein, was thereby discharged.

With respect to the second assignment of error, petitioner argues

that the verbal assurances given by the respondent to the

employees of the bank that he was ready to refund the amount if

the check should be dishonored by the drawee bank is a collateral

agreement, separate and distinct from the indorsement, by virtue of


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which petitioner herein was induced to cash the check, and,

therefore, admissible as an exception that the parol evidence rule.

Petitioners contention in this respect is not entirely unfounded. In

the case of Tan Machan vs. De La Trinidad, et al., 4 Phil., 684, this

court held that parol evidence is admissible to show that parties

signing as principals merely did so as sureties. In the case of Roblesvs. Lizarraga Hermanos, 50 Phil., 387, it was also held by this court

that parol evidence is admissible to prove "an independent

thereof." (Ibid., p. 395.) In Philips vs. Preston, 5 How. (U.S.) 278, 12

L. ed, 152, the Supreme Court of the United States held that any

prior or contemporaneous conversation in connection with a note

or its indorsement, may be proved by parol evidence. And Wigmore

states that "an extrinsic agreement between indorser and indorsee

which cannot be embodied in the instrument without impairing its

credit is provable by parol." (9 Wigmore 148, section 2445 [3].) If,

therefore, the supposed assurances that the drawer had funds andthat the respondent herein would refund the amount of the check if

the drawer had no funds, were the considerations or reasons that

induced the branch agency of the petitioners to go out of its

ordinary practice of not cashing out of town checks and accept the

check and to pay its face value, the same would be provable by

parol, provided, of course, that the assurances or inducements

offered would not vary, alter, or destroy the obligations attached by

law to the indorsement.

We find, however, that the supposed assurances of refund in case

of dishonor of the check are precisely the ordinary obligations of an

indorser, and these obligations are, under the law, considered

discharged by an unreasonable delay in the presentation of the

check for payment.

SEC. 66. Liability of general indorser. . . . .

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. (Emphasis ours.)

There was no express obligation assumed by the respondent herein

that the drawer would always have funds, or that he (the indorser)

would refund the amount of the check even if there was delay in its

presentation, so that while the Court of Appeals may have

committed an error in disregarding the evidence submitted by

petitioner at the trial of the assurances made by respondent herein

at the time of the negotiation of the check, such error was without

prejudice, because the supposed assurances given were part of his

obligations as an indorser, which were discharged by theunreasonable delay in the presentation of the check for payment.

The judgment appealed from is, therefore, affirmed, with costs

against the petitioner.

Paras, C.J., Feria, Bengzon, Padilla, Tuason, Montemayor and

Bautista Angelo, JJ.,concur.

March 3, 1906


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G.R. No. 1904

FRANCISCO GONZALEZ QUIROS,plaintiff-appellee,

vs.

CARLOS PALANCA TAN-GUINLAY,defendant-appellant.

Chicote, Miranda and Sierra for appellant.

Joaquin R. Serra for appellee.

WILLARD,J.:

The plaintiff brought this action to recover the sum of 10,217.75

pesos, the value of goods sold by him to the defendant, and the

sum of 64,984.89 pesos, as damages caused to plaintiff by the

failure of the defendant to pay for the goods at the time agreed

upon. The defendant in his answer denied all the allegations of the

complaint, and further, alleged the pendency of another action for

the same cause; a counterclaim to the amount of 40,000 pesos, for

damages suffered by the defendant by reason of an attachment

wrongfully secured by the plaintiff in 1893; and a further

counterclaim for damages caused by reason of a prosecution

for estafa instituted against him maliciously by the plaintiff. The

court below ordered judgment in favor of the plaintiff for the value

of the goods sold and delivered to the defendant, with interest

thereon. He sustained the first counterclaim of the defendant, and

assessed the damages suffered by the defendant by reason of the


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attachment referred to in the answer, at 6,347.75 pesos. The other

defenses and counterclaims of the defendant the court held not to

have been proven, and final judgment was entered for the plaintiff

and against the defendant for 10,000 pesos and costs. Both parties

have appealed from the judgment.

(1) It is claimed by the defendant that there is no evidence to show

the value of the goods sold by the plaintiff to the defendant, and

that the documents introduced for the purpose of proving the value

were not properly received. It is not necessary to pass upon the

question as to the admissibility of this evidence, since the plaintiff,

testifying at the trial, stated that the value of the goods so sold by

him to the defendant was the amount which the court named in its

judgment.

(2) The goods referred to in the complaint were sold to the

defendant in two parcels. The value of the first lot was 2,235.95

pesos. For the purpose of paying this sum the defendant delivered

to the plaintiff a bill of exchange for 2,700 pesos, purporting to be

drawn by Juan Vy-Teco to the order of Chua-Sengco on Lucio Icaza.

When this bill of exchange was delivered to the plaintiff by the

defendant, and apparently accepted by Lucio Icaza. By the terms of

the acceptance the bill of exchange was payable on the 26th of


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December, 1893. The plaintiff took the bill of exchange and paid the

defendant in cash the difference between 2,700 pesos and the

value of the goods sold, 2,235.95 pesos. At the maturity of the

acceptance Icaza refused to pay the bil l of exchange, on the ground

that his signature thereto was a forgery, and nothing was ever

realized thereon. The plaintiff neglected to have the bill of exchange

protested for this nonpayment. The defendant claims that the court

committed an error in ordering judgment for the full value of the

goods sold, inasmuch as the plaintiff, by reason of his failure to

protest the bill of exchange, must suffer the loss occasioned by its

nonpayment. This contention, we thin, should be sustained. Article

1170 of the Civil Code is as follows:

Payments of debts of money shall be made in the specie stipulated

and, should it not be possible to deliver the specie, then in legal

silver or gold coin current in Spain.

The delivery of promissory notes to order or drafts of other

commercial paper shall only produce the effects of payment when

collected or when, by the fault of the creditor, their value has been

affected.


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In the meantime the action arising form the original obligation shall

be suspended.

We have already held, in the case of Compaia General de Tabacos

vs. Molina[[1]](No. 2091, 3 Off. Gaz., 678) that this section applies

both to mercantile documents executed by the debtors themselves,

and to those executed by third persons and delivered by the debtor

to the creditor. The bill of exchange in this case comes within the

second class, and by the terms of the second paragraph of article

1170 it must be considered as a payment of the debt, inasmuch as

its value has been affected by the fault of the creditor (the plaintiff)

in failing to have the bill of exchange protested for nonpayment.

There should be deducted, therefore, from the sum allowed the

plaintiff, 2,235.95 pesos.

(3) In order to prove the first special defense set out by the

defendant in his answer, viz, the pendency of another suit for the

same cause of action, he presented in evidence a certified copy of a

complaint presented in 1895 by the plaintiff against the defendant.

No evidence was presented to show that the complaint had ever

been answered. Under the former practice there was no lis

pendens until the defendant had answered the complaint, and

although it appears that various proceedings were taken in this suit
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relating to the attachment of the goods of the defendant, yet it

nowhere appears that the defendant ever answered the complaint.

This assignment of error can not, therefore, be sustained.

(4) In December, 1893, the plaintiff procured an attachment of the

defendant's goods. This attachment was dissolved in 1897, and

judgment ordered in favor of the defendant and against the plaintiff

for damages suffered by the defendant by reason of the

attachment. No proceedings were ever had to assess the damages

until the defendant presented his counterclaim in the present case.

It appears from the evidence that the goods of the defendant were

seized under the plaintiff's attachment upon the 5th of December,

18933; that upon the 28th of January, 1894, the same goods were

again attached in a suit by Germann & Co. against this defendant.

What became of the goods does not appear, although there are

indications that they were sold upon the attachment secured by

Germann & Co. Under these circumstances the plaintiff can not be

held responsible for the value of the goods. His responsibility would

be limited to the damages suffered by the goods while they were

held under his own attachment from the 5th day of December,

1893, until the 28th day of January, 1894, and for the time elapsing

after the 28th of January he would incur certain responsibility in

connection with Germann & Co., but under the evidence in the case


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there is no ground for holding that he is responsible for the value of

the goods. There was no evidence to show how much the goods had

been damaged, if at all, while they were in the possession of the

plaintiff, nor was there any evidence to show how much they had

been damaged after the 28th of January, and while they were

subject to both attachments. The only evidence in regard to

damages which the defendant offered was evidence relating to the

value of the goods when they were seized under the plaintiff's

attachment. As we have said, that is not the measure of damages in

this case, and the defendant having failed to prove any other kind of

damages, the decision of the court below allowing him the sum of

6,347 pesos as damages, can not be sustained.

(5) In 1894 the plaintiff presented a criminal complaint against the

defendant for estafa, by reason whereof the defendant was

arrested and kept in confinement for nearly two years and half. He

was released by an order or the United States military authorities

on the 13th of April, 1899, but there does not appear in the record

any order issued by any court authorizing this release. On the 27th

of November, 1900, the plaintiff presented another criminal

complaint forestafaagainst the defendant, based upon the same


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facts as was the first one. This complaint was later dismissed by the

court, and the defendant discharged from custody, Article 326 of

the Penal Code provides, as we have held in the case of United

States vs. Agustina Barrera[[2]](3 Off. Gaz., 411), that no prosecution

for a false accusation or complaint in a criminal case can be

commenced unless the judge, in dismissing the first complaint,

orders a complaint to be filed against the complaining witness for

false accusation. The judgment dismissing the complaint against this

defendant contained no such provision. We hold that this article

applies not only to a criminal proceeding against the complaining

witness, but also to civil proceedings, and that no action to recover

damages in a civil suit can be maintained by the person arrested

against the person presenting the complaint, unless in the order

acquitting the person arrested the judge certifies that the complaint

was malicious, as required by said article 326. The defendant in this

case, therefore, is not entitle to recover any damages by reason of

the criminal prosecution against him.

This disposes of all the errors assigned by the defendant.

(6) The plaintiff also appealed, and claims that he is entitled to

recover 60,000 pesos as damages which he suffered by reason of

the nonpayment by the defendant of the amount due for goods sold
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to him by the plaintiff, saying that if the defendant had paid for the

good as he agreed to do, the plaintiff could, by using the money so

paid, have made 60,000 pesos in his business. This claim is based

upon article 1101 of the Civil Code, which is as follows:

Those who in fulfilling their obligations are guilty of fraud,

negligence, or delay, and those who in any manner whatsoever act

in contravention of the stipulations of the same, shall be subject to

indemnify for the losses and damages caused thereby.

Plaintiff says that the defendant in refusing to pay for these goods

acted in a fraudulent manner. We do not think this article is at all

applicable to the case at bar. Damages may be recovered under this

article when the obliga

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