[G.R. No. 141278. March 23, 2004] MICHAEL A. OSMEA, petitioner, vs. CITIBANK, N.A., ASSOCIATED BANK and FRANK TAN, respondents.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 49529 which affirmed in toto the Decision[2] of the Regional Trial Court of Makati City, Branch 38, in Civil Case No. 91-538.

As culled from the records, the appeal at bench stemmed from the following factual backdrop:

On February 22, 1991, the petitioner filed with the Regional Trial Court of Makati an action for damages against the respondents Citibank, N.A. and Associated Bank.[3] The case was docketed as Civil Case No. 91-538. The complaint materially alleged that, on or about August 25, 1989, the petitioner purchased from the Citibank Managers Check No. 20-015301 (the check for brevity) in the amount of P1,545,000 payable to respondent Frank Tan; the petitioner later received information that the aforesaid managers check was deposited with the respondent Associated Bank, Rosario Branch, to the account of a certain Julius Dizon under Savings Account No. 19877; the clearing and/or payment by the respondents of the check to an improper party and the absence of any indorsement by the payee thereof, respondent Frank Tan, is a clear violation of the respondents obligations under the Negotiable Instruments Law and standard banking practice; considering that the petitioners intended payee for the check, the respondent Frank Tan, did not receive the value thereof, the petitioner demanded from the respondents Citibank and the Associated Bank the payment or reimbursement of the value of the check; the respondents, however, obstinately refused to heed his repeated demands for payment and/or reimbursement of the amount of the check; hence, the petitioner was compelled to file this complaint praying for the restitution of the amount of the check, and for moral damages and attorneys fees.

On June 17, 1991, the petitioner, with leave of court, filed an Amended Complaint [4] impleading Frank Tan as an additional defendant. The petitioner averred therein that the check was purchased by him as a demand loan to respondent Frank Tan. Since apparently respondent Frank Tan did not receive the proceeds of the check, the petitioner might have no right to collect from respondent Frank Tan and is consequently left with no recourse but to seek payment or reimbursement from either or both respondents Citibank and/or Associated Bank.

In its answer to the amended complaint,[5] the respondent Associated Bank alleged that the petitioner was not the real party-in-interest but respondent Frank Tan who was the payee of the check.  The respondent also maintained that the check was deposited to the account of respondent Frank Tan, a.k.a. Julius Dizon, through its Ayala Head Office and was credited to the savings account of Julius Dizon; the Ayala office confirmed with the Rosario Branch that the account of Julius Dizon is also in reality that of respondent Frank Tan; it never committed any violation of its duties and responsibilities as the proceeds of the check went and was credited to respondent Frank Tan, a.k.a. Julius Dizon; the petitioners affirmative allegation of non-payment to the payee is self-serving; as such, the petitioners claim for damages is baseless, unfounded and without legal basis.

On the other hand, the respondent Citibank, in answer to the amended complaint,[6] alleged that the payment of the check was made by it in due course and in the exercise of its regular banking function. Since a managers check is normally purchased in favor of a third party, the identity of whom in most cases is unknown to the issuing bank, its only responsibility when paying the check was to examine the genuineness of the check. It had no way of ascertaining the genuineness of the signature of the payee respondent Frank Tan who was a total stranger to it. If at all, the petitioner had a cause of action only against the respondent Associated Bank which, as depository or collecting bank, was obliged to make sure that the check in question was properly endorsed by the payee. It is not expected of the respondent Citibank to ascertain the genuineness of the indorsement of the payee or even the lack of indorsement by him, most especially when the check was presented for payment with the respondent Associated Banks guaranteeing all prior indorsements or lack thereof.

On March 16, 1992, the trial court declared Frank Tan in default for failure to file his answer. [7] On June 10, 1992, the pre-trial conference was concluded without the parties reaching an amicable settlement.[8] Hence, trial on the merits ensued.

After evaluating the evidence adduced by the parties, the trial court resolved that the preponderance of evidence supports the claim of the petitioner as against respondent Frank Tan only but not against respondents Banks. Hence, on February 21, 1995, the trial court rendered judgment in favor of the petitioner and against respondent Frank Tan. The complaints against the respondents Banks were dismissed. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered as follows :

1. Ordering defendant Frank Tan to pay plaintiff Michael Osmea the amount of One Million Five Hundred Forty-Five Thousand (P1,545,000.00) Pesos, Philippine Currency, with interest thereon at 12% per annum from January 1990, date of extra-judicial demand until the full amount is paid;

2. Dismissing the complaint against defendants Citibank and Associated Bank;

3. Dismissing the counter-claims and the cross-claim of Citibank against Associated Bank for lack of merit.

With costs against defendant Frank Tan.[9]

The petitioner appealed the decision,[10] while respondent Frank Tan did not. On November 26, 1999, the appellate court rendered judgment affirming in toto the decision of the trial court. Aggrieved, the petitioner assailed the decision in his petition at bar.

The petitioner contends that:

I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND ASSOCIATED BANK LIABLE TO PETITIONER FOR THE ENCASHMENT OF CITIBANK MANAGERS CHECK NO. 20015301 BY JULIUS DIZON.

II. RESPONDENT COURT ERRED IN HOLDING THAT FRANK TAN AND JULIUS DIZON ARE ONE AND THE SAME PERSON.

III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN ONLY TO ASSOCIATED BANK AND WAS NOT BINDING ON PETITIONER.[11]

The petition is denied.

The petitioner asserts that the check was payable to the order of respondent Tan. However, the respondent Associated Bank ordered the check to be deposited to the account of one Julius Dizon, although the check was not endorsed by respondent Tan. As Julius Dizon was not a holder of the check in due course, he could not validly negotiate the check. The latter was not even a transferee in due course because respondent Tan, the payee, did not endorse the said check. The position of the respondent Bank is akin to that of a bank accepting a check for deposit wherein the signature of the payee or endorsee has been forged.

The contention of the petitioner does not hold water.

The fact of the matter is that the check was endorsed by Julius Dizon and was deposited and credited to Savings Account No. 19877 with the respondent Associated Bank. But the evidence on record shows that the said account was in the name of Frank Tan Guan Leng, which is the Chinese name of the respondent Frank Tan, who also uses the alias Julius Dizon. As correctly ruled by the Court of Appeals:

On the other hand, Associated satisfactorily proved that Tan is using and is also known by his alias of Julius Dizon. He signed the Agreement On Bills Purchased (Exh. 1) and Continuing Suretyship Agreement (Exh. 2) both acknowledged on January 16, 1989, where his full name is stated to be FRANK Tan Guan Leng (aka JULIUS DIZON). Exh. 1 also refers to his Account No. SA#19877, the very same account to which the P1,545,000.00 from the managers check was deposited. Osmea countered that such use of an alias is illegal. That is but an irrelevant casuistry that does not detract from the fact that the payee Tan as Julius Dizon has encashed and deposited the P1,545,000.00.[12]

The respondent Associated Bank presented preponderant evidence to support its assertion that respondent Tan, the payee of the check, did receive the proceeds of the check. It adduced evidence that Julius Dizon and Frank Tan are one and the same person. Respondent Tan was a regular and trusted client or depositor of the respondent Associated Bank in its branch at Rosario, Binondo, Manila. As such, respondent Tan was allowed to maintain two (2) savings accounts therein.[13] The first is Savings Account No. 20161-3 under his name Frank Tan.[14] The other is Savings Account No. 19877 under his assumed Filipino name Julius Dizon,[15] to which account the check was deposited in the instant case. Both witnesses for the respondent Associated Bank, Oscar Luna (signature verifier) and Luz Lagrimas (new accounts clerk), testified that respondent Tan was using the alias Julius Dizon, and that both names referred to one and the same person, as Frank Tan himself regularly transacted business at the bank under both names.[16] This is also evidenced by the Agreement on Bills Purchased[17]and the Continuing Suretyship Agreement[18] executed between Frank Tan and the respondent Associated Bank on January 16, 1989. Frank Tans name appears in said document as FRANK TAN GUAN LENG (a.k.a. JULIUS DIZON).[19] The same documentary evidence also made reference to Savings Account No. 19877,[20] the very same account to which the check was deposited and the entire P1,545,000 was credited. Additionally, Citibank Check No. 075713[21] which was presented by the petitioner to prove one of the loans previously extended to respondent Tan showed that the endorsement of respondent Tan at the dorsal side thereof [22] is strikingly similar to the signatures of Frank Tan appearing in said agreements.

By seeking to recover the loan from respondent Tan, the petitioner admitted that respondent Tan received the amount of the check. This apprehension was not without any basis at all, for after the petitioner attempted to communicate with respondent Tan on January or February 1990, demanding payment for the loan, respondent Tan became elusive of the petitioner.[23]As a matter of fact, respondent Tan did not file his answer to the amended complaint and was never seen or heard of by the petitioner.[24] Besides, if it were really a fact that respondent Tan did not receive the proceeds of the check, he could himself have initiated the instant complaint against respondents Banks, or in the remotest possibility, joined the petitioner in pursuing the instant claim.

The petitioner initially sought to recover from the respondents Banks the amount of P1,545,000 corresponding to the loan obtained by respondent Tan from him, obviously because respondent Tan had no intent to pay the amount. The petitioner alleges that the respondents Banks were negligent in paying the amount to a certain Julius Dizon, in relation to the pertinent provisions of the Negotiable Instruments Law, without the proper indorsement of the payee, Frank Tan. The petitioner cites the ruling of the Court in Associated Bank v. Court of Appeals,[25]in which we outlined the respective responsibilities and liabilities of a drawee bank, such as the respondent Citibank, and a collecting bank, such as the defendant Associated Bank, in the event that payment of a check to a person not designated as the payee, or who is not a holder in due course, had been made. However, the ruling of the Court therein does not apply to the present case for, as has been amply demonstrated, the petitioner failed to establish that the proceeds of the check was indeed wrongfully paid by the respondents Banks to a person other than the intended payee. In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case.[26]

Moreover, the chain of events following the purported delivery of the check to respondent Tan renders even more dubious the petitioners claim that respondent Tan had not received the proceeds of the check. Thus, the petitioner never bothered to find out from the said respondent whether the latter received the check from his messenger. And if it were to be supposed that respondent Tan did not receive the check, given that his need for the money was urgent, it strains credulity that respondent Tan never even made an effort to get in touch with the petitioner to inform the latter that he did not receive the check as agreed upon, and to inquire why the check had not been delivered to him. The petitioner and respondent Tan saw each other during social gatherings but they never took the chance to discuss details on the loan or the check.[27] Their actuations are not those to be usually expected of friends of 15 years who, as the petitioner would want to impress upon this Court, were transacting business on the basis of confidence.[28] In fact, the first time that the petitioner attempted to communicate with respondent Tan was on January or February 1990, almost five or six months after the expected delivery of the check, for the purpose of demanding payment for the loan. And it was only on that occasion that respondent Tan, as the petitioner insinuates, informed him that he (Frank Tan) had not received the proceeds of the check and refused to pay his loan.[29] All told, the petitioners allegation that respondent Tan did not receive the proceeds of the check[30] is belied by the evidence on record and attendant circumstances.

Conversely, the records would disclose that even the petitioner himself had misgivings about the truthfulness of his allegation that respondent Tan did not receive the amount of the check. This is made

implicit by respondent Tans being made a party-defendant to the case when the petitioner filed his amended complaint. In his memorandum in the case below, the petitioner averred inter alia that:

The amount of P1,545,000.00 is sought to be recovered from:

1. Frank Tan for his failure to pay the loan extended by plaintiff; and

2. Associated Bank and Citibank for having accepted for deposit and/or paid the Citibank managers check despite the absence of any signature/endorsement by the named payee, Frank Tan.

The claim of the petitioner that respondent Tans use of an alias is illegal does not detract a whit from the fact that respondent Tan had been credited by the respondent Associated Bank for the amount of the check. Respondent Tan did not appeal the decision of the RTC.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision dated November 26, 1999 of the Court of Appeals in CA-G.R. CV No. 49529 is hereby AFFIRMED. Costs against the petitioner.

METROPOLITAN BANK & TRUST COMPANY, petitioner, vs.COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.

G.R. No. 88866          February, 18, 1991Cruz, J.:

.CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of thewarrants. 3

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and conditions on the deposit slips allowing Metrobank to charge back any amount erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings would not have allowed the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that to all appearances belonged to the depositor, who could therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were subject to clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's identity or of the genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling — more than one and a half million pesos (and this was 1979). There was no reason why it should not have waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such clearance — and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed Golden Savings to withdraw — not once, not twice, but thrice — from the uncleared treasury warrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the lapse of one week." 8 For a bank with its long experience, this explanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the deposit slips through which the treasury warrants were deposited by Golden Savings with its Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent, assuming no responsibility beyond care in selecting correspondents,  and until such time as actual payment shall have come into possession of this bank, the right is reserved to charge back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks drawn on local banks and bankers and their branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason. (Emphasis supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden Savings and give it the right to "charge back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of contractual stipulations and became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the depositor, in signing the deposit slip, does so only to identify himself and not to agree to the conditions set forth in the given permit at the back of the deposit slip. We do not have to rule on this

matter at this time. At any rate, the Court feels that even if the deposit slip were considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light of the circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or less rigor by the courts, according to whether the agency was or was not for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may have been no express clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing Golden Savings to withdraw from its account not only once or even twice but three times. The total withdrawal was in excess of its original balance before the treasury warrants were deposited, which only added to its belief that the treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There would have been no need for it to wait until the warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the supposed dishonor of the warrants was not communicated to Golden Savings before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager and the auditor of the drawer corporation, has not been established. 9 This was the finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court of Appeals: 10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive and convincing evidence. This was not done in the present case.

A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to the following requirements:

(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.

x x x           x x x          x x x

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury warrant is not within the scope of the negotiable instrument law. For one thing, the document bearing on its face the words "payable from the appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not unconditional and does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel this case is inapplicable to the present controversy.1âwphi1 That case involved checks whereas this case involves treasury warrants. Golden Savings never represented that the warrants were negotiable but signed them only for the purpose of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent in accepting the checks without question from one Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon, if any, after the debit.

SO ORDERED.

Facts:            Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later, however, “exasperated” over Floria repeated inquiries and also as an accommodation for a “valued” client Metrobank decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings.

Issue:1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the amount

withdraws to make up with the deficit as a result of the dishonored treasury warrants.2. Whether or not treasury warrants are negotiable instruments

Held:            No. Metrobank is negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw. Without such assurance, Golden Savings would not have allowed the withdrawals. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that all appearances belonged to the depositor, who could therefore withdraw it anytime and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit.Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were genuine and in all respects what they purport to be,” in accordance with Sec. 66 of NIL. The simple reason that NIL is not applicable to non negotiable instruments, treasury warrants.                       No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay is unconditional though coupled with: 1st, an indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or 2nd, a statement of the transaction which give rise to the instrument. But an order to promise to pay out of particular fund is not unconditional. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay “not conditional” and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of NIL is applicable in the case at bar.

Caltex (Philippines) Inc. vs. CA

GR 97753, 10 August 1992-negotiability

FACTS:Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of one Mr. Angel dela Cruz who deposited with the bank P1.12 million.  Dela Cruz delivered the CTDs to  Caltex in connection with his purchase of fuel products from the latter.  Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs.  When Caltex presented said CTDs for verification with the bank and formally informed the bank of its decision to preterminate the same, the bank rejected Caltex’ claim and demand as Caltex failed to furnish copies of certain requested documents.  In 1983, dela Cruz’ loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed a complaint which was dismissed on the ground that the subject certificates of deposit are non-negotiable.

ISSUE:Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.

RULING:The CTDs in question are negotiable instruments as they meet the requirements of the law for negotiability as provided for in Section 1 of the Negotiable Instruments Law.  The documents provide that the amounts deposited shall be repayable to the depositor. And according to the document, the depositor 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.  However, petitioner cannot recover on the CTDs.   Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and dela Cruz, as ultimately ascertained, requires both delivery and indorsement.  In this case, there was no indorsement as  the CTDs were delivered not as payment but only as a security for dela Cruz' fuel purchases.

**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.  The CTDs in question are negotiable instruments as they meet the requirements of the law for negotiability as provided for in Section 1 of the Negotiable Instruments Law.  The documents provide that the amounts deposited shall be repayable to the depositor. And according to the document, the depositor 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.

TRADERS ROYAL BANK V. CA  269 SCRA 15

FACTS:

Filriters through a Detached Agreement   transferred   ownership to Philfinance a Central Bank Certificate

of Indebtedness.  It was only through one of its  officers by which the CBCI was conveyed without

authorization from  the  company.    Petitioner  and  Philfinance  later  entered  into  a Repurchase  

agreement,   on   which   petitioner   bought   the   CBCI   from Philfinance.  The latter agreed to

repurchase the CBCI but failed to do so. When the petitioner tried to have it registered in its name in the

CB, the latter didn't want to recognize the transfer.

   

 ISSUE: W/N the CBCI is a negotiable instrument

HELD:

The  CBCI  is  not  a  negotiable  instrument. The  instrument  provides  for  a promise to pay the registered

owner Filriters.  Very clearly, the instrument was  only  payable  to  Filriters. It  lacked  the  words  of 

negotiability  which should  have  served  as  an  expression  of  the  consent  that  the  instrument may be

transferred by negotiation. 

 

The  language  of  negotiability  which  characterize  a  negotiable  paper  as  a credit  instrument  is  its 

freedom  to  circulate  as  a  substitute  for  money. Hence, freedom of negotiability is the touchstone

relating to the protection of holders in due course, and the freedom of negotiability is the foundation for 

the  protection,  which  the  law  throws  around  a  holder  in  due  course. This freedom in   negotiability

is   totally   absent in a   certificate of indebtedness  as  it  merely  acknowledges  to  pay  a  sum  of 

money  to  a specified person or entity for a period of time. 

 

The  transfer  of  the  instrument  from  Philfinance  to  TRB  was  merely  an assignment, and is not

governed by the negotiable instruments law.    The pertinent  question  then  is—was  the  transfer  of  the 

CBCI  from  Filriters  to Philfinance  and  subsequently  from  Philfinance  to  TRB, in accord  with existing

law, so as to entitle TRB to have the CBCI registered in its name with  the  Central  Bank?  Clearly  shown 

in  the  record  is  the  fact  that Philfinance’s  title  over  CBCI  is  defective  since  it  acquired  the 

instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer  was  for 

‘value  received‘,  there  was  really  no  consideration involved.  What  happened  was  Philfinance 

merely  borrowed  CBCI  from Filriters,  a  sister  corporation.  Thus,  for  lack  of  any  consideration,  the

assignment made is a complete nullity.  Furthermore, the transfer wasn't in conformity  with  the 

regulations  set  by  the  CB. Giving  more  credence  to rule that there was no valid transfer or assignment

to petitioner.   

G.R. No. L-2516             September 25, 1950

ANG TEK LIAN, petitioner, vs.THE COURT OF APPEALS, respondent.

Laurel, Sabido, Almario and Laurel for petitioner.Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for respondent.

BENGZON, J.:

For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First Instance of Manila. The Court of Appeals affirmed the verdict.

It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November 16, 1946, the check Exhibits A upon the China Banking Corporation for the sum of P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong in exchange for money which the latter handed in act. On November 18, 1946, the next business day, the check was presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335 only.

The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16, 1946, appellant went to his (complainant's) office, at 1217 Herran, Paco, Manila, and asked him to exchange Exhibit A — which he (appellant) then brought with him — with cash alleging that he needed badly the sum of P4,000 represented by the check, but could not withdraw it from the bank, it being then already closed; that in view of this request and relying upon appellant's assurance that he had sufficient funds in the blank to meet Exhibit A, and because they used to borrow money from each other, even before the war, and appellant owns a hotel and restaurant known as the North Bay Hotel, said complainant delivered to him,

on the same date, the sum of P4,000 in cash; that despite repeated efforts to notify him that the check had been dishonored by the bank, appellant could not be located any-where, until he was summoned in the City Fiscal's Office in view of the complaint for estafa filed in connection therewith; and that appellant has not paid as yet the amount of the check, or any part thereof."

Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for decision is whether under the facts found, estafa had been accomplished.

Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling committed "By post dating a check, or issuing such check in payment of an obligation the offender knowing that at the time he had no funds in the bank, or the funds deposited by him in the bank were not sufficient to cover the amount of the check, and without informing the payee of such circumstances".

We believe that under this provision of law Ang Tek Lian was properly held liable. In this connection, it must be stated that, as explained in People vs. Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated check or an ordinary check to accomplish the deceit.

It is argued, however, that as the check had been made payable to "cash" and had not been endorsed by Ang Tek Lian, the defendant is not guilty of the offense charged. Based on the proposition that "by uniform practice of all banks in the Philippines a check so drawn is invariably dishonored," the following line of reasoning is advanced in support of the argument:

. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from the appellant, he did so with full knowledge that it would be dishonored upon presentment. In that sense, the appellant could not be said to have acted fraudulently because the complainant, in so accepting the check as it was drawn, must be considered, by every rational consideration, to have done so fully aware of the risk he was running thereby." (Brief for the appellant, p. 11.)

We are not aware of the uniformity of such practice. Instances have undoubtedly occurred wherein the Bank required the indorsement of the drawer before honoring a check payable to "cash." But cases there are too, where no such requirement had been made . It depends upon the circumstances of each transaction.

Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a check payable to bearer, and the bank may pay it to the person presenting it for payment without the drawer's indorsement.

A check payable to the order of cash is a bearer instrument. Bacal vs. National City Bank of New York (1933), 146 Misc., 732; 262 N. Y. S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N. Y. S., 831; Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d), 818. See also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.

Where a check is made payable to the order of "cash", the word cash "does not purport to be the name of any person", and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement. . . . (Zollmann, Banks and Banking, Permanent Edition, Vol. 6, p. 494.)

Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand identification and /or assurance against possible complications, — for instance, (a) forgery of drawer's signature, (b) loss of the check by the rightful owner, (c) raising of the amount payable, etc. The bank may therefore require, for its protection, that the indorsement of the drawer — or of some other person known to it — be obtained. But where the Bank is satisfied of the identity and /or the economic standing of the bearer who tenders the check for collection, it will pay the instrument without further question; and it would incur no liability to the drawer in thus acting.

A check payable to bearer is authority for payment to holder. Where a check is in the ordinary form, and is payable to bearer, so that no indorsement is required, a bank, to which it is presented for

payment, need not have the holder identified, and is not negligent in falling to do so. . . . (Michie on Banks and Banking, Permanent Edition, Vol. 5, p. 343.)

. . . Consequently, a drawee bank to which a bearer check is presented for payment need not necessarily have the holder identified and ordinarily may not be charged with negligence in failing to do so. See Opinions 6C:2 and 6C:3 If the bank has no reasonable cause for suspecting any irregularity, it will be protected in paying a bearer check, "no matter what facts unknown to it may have occurred prior to the presentment." 1 Morse, Banks and Banking, sec. 393.

Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is entirely reasonable for the bank to insist that holder give satisfactory proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)

Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally unconnected with its dishonor. The Court of Appeals declared that it was returned unsatisfied because the drawer had insufficient funds — not because the drawer's indorsement was lacking.

Wherefore, there being no question as to the correctness of the penalty imposed on the appellant, the writ ofcertiorari is denied and the decision of the Court of Appeals is hereby affirmed, with costs.

Facts:            Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking Corporation payable to the order of “cash”. He delivered it toLee Hua Hong in exchange for money. The check was presented by Lee Hua hong to the drawee bank for payment, but it w3as dishonored for insufficiency of funds. With this, Ang Tek Lian was convicted of estafa.

Issue:            Whether or not the check issued by Ang Tek Lian that is payable to the order to “cash” and not have been indorsed by Ang Tek Lian, making him not guilty for the crime of estafa.

Held:            No.Under Sec. 9 of NIL a check drawn payable to the order of “cash” is a check payable to bearer and the bank may pay it to the person presenting it for payment without the drawer’s indorsement. However, if the bank is not sure of the bearer’s identity or financial solvency, it has the right to demand identification or assurance against possible complication, such as forgery of drawer’s signature, loss of the check by the rightful owner, raising of the amount payable, etc. But where the bank is satisfied of the identity or economic standing of the bearer who tenders the check for collection, it will pay the instrument without further question; and it would incur no liability to the drawer in thus acting.

Philippine National Bank vs. Manila Oil Refining & By-Products Company, Inc. [GR L-18103, 8 June 1922] First Division, Malcolm (J): 6 concur

Facts: On 8 May 1920, the manager and the treasurer of the Manila Oil Refining & By-Products Company, Inc,. executed and delivered to the Philippine National Bank (PNB), a written instrument reading as follows: "RENEWAL. P61,000.00 MANILA, P.I., May 8, 1920. On demand after date we promise to pay to the order of the Philippine National Bank sixty-one thousand only pesos at Philippine National Bank, Manila, P.I. Without defalcation, value received; and do hereby authorize any attorney in the Philippine Islands, in case this note be not paid at maturity, to appear in my name and confess judgment for the above sum with interest, cost of suit and attorney's fees of ten (10) per cent for collection, a release of all errors and waiver of all rights to inquisition and appeal, and to the benefit of all laws exempting property, real or personal, from levy or sale. Value received. No. —— Due —— MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) VICENTE SOTELO, Manager. MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) RAFAEL LOPEZ. Treasurer." The Manila Oil Refining & By-Products Company, Inc. failed to pay the promissory note on demand. PNB brought action in the Court of First Instance of Manila, to recover P61,000, the amount of the note, together with interest and costs. Mr. Elias N. Recto, an attorney associated with PNB, entered his appearance in representation of Manila Oil, and filed a motion confessing judgment. Manila Oil, however, in

a sworn declaration, objected strongly to the unsolicited representation of attorney Recto. Later, attorney Antonio Gonzalez appeared for Manila Oil and filed a demurrer, and when this was overruled, presented an answer. The trial judge rendered judgment on the motion of attorney Recto in the terms of the complaint. In the Supreme Court, the question of first impression raised in the case concerns the validity in this jurisdiction of a provision in a promissory note whereby in case the same is not paid at maturity, the maker authorizes any attorney to appear and confess judgment thereon for the principal amount, with interest, costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and all property exemptions.

Issue [1]: Whether the Negotiable Instruments Law (Act No. 2031) expressly recognized judgment notes, enforceable under the regular procedure.

Held [1]: The Negotiable Instruments Law, in section 5, provides that "The negotiable character of an instrument otherwise negotiable is not affected by a provision which (b) Authorizes confession of judgment if the instrument be not paid at maturity"; but this provision of law cannot be taken to sanction judgments by confession, because it is a portion of a uniform law which merely provides that, in jurisdictions where judgments notes are recognized, such clauses shall not affect the negotiable character of the instrument. Moreover, the same section of the Negotiable Instruments Law concludes with these words: "But nothing in this section shall validate any provision or stipulation otherwise illegal."

Issue [2]: Whether provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in Philippine jurisdiction by implication.

Held [2]: Judgments by confession as appeared at common law were considered an amicable, easy, and cheap way to settle and secure debts. They are quick remedy serve to save the court's time. Time also save time and money of the litigants and the government the expenses that a long litigation entails. In one sense, instruments of this character may be considered as special agreements, with power to enter up judgments on them, binding the parties to the result as they themselves viewed it. On the other hand, are disadvantages to the commercial world which outweigh the considerations just mentioned. Such warrants of attorney are void as against public policy, because they enlarge the field for fraud, because under these instruments the promissor bargains away his right to a day in court, and because the effect of the instrument is to strike down the right of appeal accorded by statute. The recognition of such form of obligation would bring about a complete reorganization of commercial customs and practices, with reference to short-term obligations. It can readily be seen that judgment notes, instead of resulting to the advantage of commercial life the Philippines might be the source of abuse and oppression, and make the courts involuntary parties thereto. If the bank has a meritorious case, the judgment is ultimately certain in the courts. The Court is of the opinion thus that warrants of attorney to confess judgment are not authorized nor contemplated by Philippine law; and that provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in this jurisdiction by implication and should only be considered as valid when given express legislative sanction.

Evangelista vs. Mercator Finance Corp. [GR 148864, 21 August 2003] Third Division, Puno (J): 2 concur, 2 on official leave

Facts: Spouses Eduardo B. Evangelista and Epifania C. Evangelista filed a complaint for annulment of titles against Mercator Finance Corp. Lydia P. Salazar, Lamecs Realty and Development Corporation, and the Register of Deeds of Bulacan. The spouses Evangelista claimed being the registered owners of 5 parcels of land contained in the Real Estate Mortgage executed by them and Embassy Farms, Inc. They alleged that they executed the Real Estate Mortgage in favor of Mercator only as officers of Embassy Farms. They did not receive the proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they contended that the mortgage was without any consideration as to them since they did not personally obtain any loan or credit accommodations. There being no principal obligation on which the mortgage rests, the real estate mortgage is void. With the void mortgage, they assailed the validity of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same parcels of land to Lydia P. Salazar, and the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development Corporation. Mercator admitted that the spouses Evangelista were the owners of the subject parcels of land. It, however, contended that on 16 February 1982, the spouses executed a Mortgage in favor of Mercator for and in consideration of certain loans, and/or other forms of credit accommodations obtained from the Mortgagee (Mercator) amounting to P844,625.78 and to secure the payment of the same and those others that the Mortgagee may extend to the mortgagor. It contended that since the spouses and Embassy Farms signed the promissory note as co-

makers, aside from the Continuing Suretyship Agreement subsequently executed to guarantee the indebtedness of Embassy Farms, and the succeeding promissory notes[8] restructuring the loan, then the spouses are jointly and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are valid. Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the validity of the title of Mercator. Lamecs admitted the prior ownership of the spouses of the subject parcels of land, but alleged that they are the present registered owner. Salazar and Lamecs likewise assailed the long silence and inaction by the spouses as it was only after a lapse of almost 10 years from the foreclosure of the property and the subsequent sales that they made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches. After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of damages, there is no factual issue to be litigated. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the promissory note, the continuing suretyship agreement and the subsequent promissory notes restructuring the loan, hence, there is no genuine issue regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the complaint must be dismissed. The spouses opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue, there is a need for a full-blown trial. The RTC granted the motion for summary judgment and dismissed the complaint. The spouses’ motion for reconsideration was denied for lack of merit. Thus, the spouses went up to the Court of Appeals, but again were unsuccessful. A motion for reconsideration by the spouses was likewise denied for lack of merit. The spouses filed the Petition for Review on Certiorari. The spouses allege, inter alia, that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form, then the ambiguity should be resolved against it.

Issue: Whether the spouses are solidarily liable with Embassy Farms, in light of the promissory note signed by them.

Held: The promissory note and the Continuing Suretyship Agreement prove that the spouses are solidary obligors with Embassy Farms. The promissory notes subsequently executed by the spouses and Embassy Farms, restructuring their loan, likewise prove that the spouses are solidarily liable with Embassy Farms. The spouses allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form, then the ambiguity should be resolved against it. Courts can interpret a contract only if there is doubt in its letter. But, an examination of the promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states that "Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: (g) Where an instrument containing the word 'I promise to pay' is signed by two or more persons, they are deemed to be jointly and severally liable thereon." Further, even if the spouses intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal. The spouses cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. Having executed the suretyship agreement, there can be no dispute on the personal liability of the spouses.