G.R. No. L-15126 November 30, 1961

VICENTE R. DE OCAMPO & CO., plaintiff-appellee, vs. ANITA GATCHALIAN, ET AL., defendants-appellants.

Vicente Formoso, Jr. for plaintiff-appellee. Reyes and Pangalañgan for defendants-appellants.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila, Hon. Conrado M. Velasquez, presiding, sentencing the defendants to pay the plaintiff the sum of P600, with legal interest from September 10, 1953 until paid, and to pay the costs.

The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by defendant Anita C. Gatchalian. The complaint sets forth the check and alleges that plaintiff received it in payment of the indebtedness of one Matilde Gonzales; that upon receipt of said check, plaintiff gave Matilde Gonzales P158.25, the difference between the face value of the check and Matilde Gonzales' indebtedness. The defendants admit the execution of the check but they allege in their answer, as affirmative defense, that it was issued subject to a condition, which was not fulfilled, and that plaintiff was guilty of gross negligence in not taking steps to protect itself.

At the time of the trial, the parties submitted a stipulation of facts, which reads as follows:

Plaintiff and defendants through their respective undersigned attorney's respectfully submit the following Agreed Stipulation of Facts;

First. — That on or about 8 September 1953, in the evening, defendant Anita C. Gatchalian who was then interested in looking for a car for the use of her husband and the family, was shown and offered a car by Manuel Gonzales who was accompanied by Emil Fajardo, the latter being personally known to defendant Anita C. Gatchalian;

Second. — That Manuel Gonzales represented to defend Anita C. Gatchalian that he was duly authorized by the owner of the car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish said sale, but which facts were not known to plaintiff;

Third. — That defendant Anita C. Gatchalian, finding the price of the car quoted by Manuel Gonzales to her satisfaction, requested Manuel Gonzales to bring the car the day following together with the certificate of registration of the car, so that her husband would be able to see same; that on this request of defendant Anita C. Gatchalian, Manuel Gonzales advised her that the owner of the car will not be willing to give the certificate of registration unless there is a showing that the party interested in the purchase of said car is ready and willing to make such purchase and that for this purpose Manuel Gonzales requested defendant Anita C. Gatchalian to give him (Manuel Gonzales) a check which will be shown to the owner as evidence of buyer's good faith in the intention to purchase the said car, the said check to be for safekeeping only of Manuel Gonzales and to be returned to defendant Anita C. Gatchalian the following day when Manuel Gonzales brings the car and the certificate of registration, but which facts were not known to plaintiff;

Fourth. — That relying on these representations of Manuel Gonzales and with his assurance that said check will be only for safekeeping and which will be returned to said defendant the following day when the car and its certificate of registration will be brought by Manuel Gonzales to defendants, but which facts were not known to plaintiff, defendant Anita C. Gatchalian drew and issued a check, Exh. "B"; that Manuel Gonzales executed and issued a receipt for said check, Exh. "1";

Fifth. — That on the failure of Manuel Gonzales to appear the day following and on his failure to bring the car and its certificate of registration and to return the check, Exh. "B", on the following day as previously agreed upon, defendant Anita C. Gatchalian issued a "Stop Payment Order" on the check, Exh. "3", with the drawee bank. Said "Stop Payment Order" was issued without previous notice on plaintiff not being know to defendant, Anita C. Gatchalian and who furthermore had no reason to know check was given to plaintiff;

Sixth. — That defendants, both or either of them, did not know personally Manuel Gonzales or any member of his family at any time prior to September 1953, but that defendant Hipolito Gatchalian is personally acquainted with V. R. de Ocampo;

Seventh. — That defendants, both or either of them, had no arrangements or agreement with the Ocampo Clinic at any time prior to, on or after 9 September 1953 for the hospitalization of the wife of Manuel Gonzales and neither or both of said defendants had assumed, expressly or impliedly, with the Ocampo Clinic, the obligation of Manuel Gonzales or his wife for the hospitalization of the latter;

Eight. — That defendants, both or either of them, had no obligation or liability, directly or indirectly with the Ocampo Clinic before, or on 9 September 1953;

Ninth. — That Manuel Gonzales having received the check Exh. "B" from defendant Anita C. Gatchalian under the representations and conditions herein above specified, delivered the same to the Ocampo Clinic, in payment of the fees and expenses arising from the hospitalization of his wife;

Tenth. — That plaintiff for and in consideration of fees and expenses of hospitalization and the release of the wife of Manuel Gonzales from its hospital, accepted said check, applying P441.75 (Exhibit "A") thereof to payment of said fees and expenses and delivering to Manuel Gonzales the amount of P158.25 (as per receipt, Exhibit "D") representing the balance on the amount of the said check, Exh. "B";

Eleventh. — That the acts of acceptance of the check and application of its proceeds in the manner specified above were made without previous inquiry by plaintiff from defendants:

Twelfth. — That plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila, a complaint for estafa against Manuel Gonzales based on and arising from the acts of said Manuel Gonzales in paying his obligations with plaintiff and receiving the cash balance of the check, Exh. "B" and that said complaint was subsequently dropped;

Thirteenth. — That the exhibits mentioned in this stipulation and the other exhibits submitted previously, be considered as parts of this stipulation, without necessity of formally offering them in evidence;

WHEREFORE, it is most respectfully prayed that this agreed stipulation of facts be admitted and that the parties hereto be given fifteen days from today within which to submit simultaneously their memorandum to discuss the issues of law arising from the facts, reserving to either party the right to submit reply memorandum, if necessary, within ten days from receipt of their main memoranda. (pp. 21-25, Defendant's Record on Appeal).

No other evidence was submitted and upon said stipulation the court rendered the judgment already alluded above.

In their appeal defendants-appellants contend that the check is not a negotiable instrument, under the facts and circumstances stated in the stipulation of facts, and that plaintiff is not a holder in due course. In support of the first contention, it is argued that defendant Gatchalian had no intention to transfer her property in the instrument as it was for safekeeping merely and, therefore, there was no delivery required by law (Section 16, Negotiable Instruments Law); that assuming for the sake of argument that delivery was not for safekeeping merely, delivery was conditional and the condition was not fulfilled.

In support of the contention that plaintiff-appellee is not a holder in due course, the appellant argues that plaintiff-appellee cannot be a holder in due course because there was no negotiation prior to plaintiff-appellee's acquiring the possession of the check; that a holder in due course presupposes a prior party from whose hands negotiation proceeded, and in the case at bar, plaintiff-appellee is the payee, the maker and the payee being original parties. It is also claimed that the plaintiff-appellee is not a holder in due course because it acquired the check with notice of defect in the title of the holder, Manuel Gonzales, and because under the circumstances stated in the stipulation of facts there were circumstances that brought suspicion about Gonzales' possession and negotiation, which circumstances should have placed the plaintiff-appellee under the duty, to inquire into the title of the holder. The circumstances are as follows:

The check is not a personal check of Manuel Gonzales. (Paragraph Ninth, Stipulation of Facts). Plaintiff could have inquired why a person would use the check of another to pay his own debt. Furthermore, plaintiff had the "means of knowledge" inasmuch as defendant Hipolito Gatchalian is personally acquainted with V. R. de Ocampo (Paragraph Sixth, Stipulation of Facts.).

The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales and Dr. V. R. de Ocampo (Paragraph Sixth, Stipulation of Facts).

The maker is not in any manner obligated to Ocampo Clinic nor to Manuel Gonzales. (Par. 7, Stipulation of Facts.)

The check could not have been intended to pay the hospital fees which amounted only to P441.75. The check is in the amount of P600.00, which is in excess of the amount due plaintiff. (Par. 10, Stipulation of Facts).

It was necessary for plaintiff to give Manuel Gonzales change in the sum P158.25 (Par. 10, Stipulation of Facts). Since Manuel Gonzales is the party obliged to pay, plaintiff should have been more cautious and wary in accepting a piece of paper and disbursing cold cash.

The check is payable to bearer. Hence, any person who holds it should have been subjected to inquiries. EVEN IN A BANK, CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM THE BEARER. The same inquiries should have been made by plaintiff. (Defendants-appellants' brief, pp. 52-53)

Answering the first contention of appellant, counsel for plaintiff-appellee argues that in accordance with the best authority on the Negotiable Instruments Law, plaintiff-appellee may be considered as a holder in due course, citing Brannan's Negotiable Instruments Law, 6th edition, page 252. On this issue Brannan holds that a payee may be a holder in due course and says that to this effect is the greater weight of authority, thus:

Whether the payee may be a holder in due course under the N. I. L., as he was at common law, is a question upon which the courts are in serious conflict. There can be no doubt that a proper interpretation of the act read as a whole leads to the conclusion that a payee may be a holder in due course under any circumstance in which he meets the requirements of Sec. 52.

The argument of Professor Brannan in an earlier edition of this work has never been successfully answered and is here repeated.

Section 191 defines "holder" as the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. Sec. 52 defendants defines a holder in due course as "a holder who has taken the instrument under the following conditions: 1. That it is complete and regular on its face. 2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact. 3. That he took it in good faith and for value. 4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."

Since "holder", as defined in sec. 191, includes a payee who is in possession the word holder in the first clause of sec. 52 and in the second subsection may be replaced by the definition in sec. 191 so as to read "a holder in due course is a payee or indorsee who is in possession," etc. (Brannan's on Negotiable Instruments Law, 6th ed., p. 543).

The first argument of the defendants-appellants, therefore, depends upon whether or not the plaintiff-appellee is a holder in due course. If it is such a holder in due course, it is immaterial that it was the payee and an immediate party to the instrument.

The other contention of the plaintiff is that there has been no negotiation of the instrument, because the drawer did not deliver the instrument to Manuel Gonzales with the intention of negotiating the same, or for the purpose of giving effect thereto, for as the stipulation of facts declares the check was to remain in the possession Manuel Gonzales, and was not to be negotiated, but was to serve merely as evidence of good faith of defendants in their desire to purchase the car being sold to them. Admitting that such was the intention of the drawer of the check when she delivered it to Manuel Gonzales, it was no fault of the plaintiff-appellee drawee if Manuel Gonzales delivered the check or negotiated it. As the check was payable to the plaintiff-appellee, and was entrusted to Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales was a delivery by the drawer to his own agent; in other words,

Manuel Gonzales was the agent of the drawer Anita Gatchalian insofar as the possession of the check is concerned. So, when the agent of drawer Manuel Gonzales negotiated the check with the intention of getting its value from plaintiff-appellee, negotiation took place through no fault of the plaintiff-appellee, unless it can be shown that the plaintiff-appellee should be considered as having notice of the defect in the possession of the holder Manuel Gonzales. Our resolution of this issue leads us to a consideration of the last question presented by the appellants, i.e., whether the plaintiff-appellee may be considered as a holder in due course.

Section 52, Negotiable Instruments Law, defines holder in due course, thus:

A holder in due course is a holder who has taken the instrument under the following conditions:

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

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;

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

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances under which the check was delivered to Manuel Gonzales, but we agree with the defendants-appellants that the circumstances indicated by them in their briefs, such as the fact that appellants had no obligation or liability to the Ocampo Clinic; that the amount of the check did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not be converted into cash — all these circumstances should have put the plaintiff-appellee to inquiry as to the why and wherefore of the possession of the check by Manuel Gonzales, and why he used it to pay Matilde's account. It was payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check was or the nature of his possession. Having failed in this respect, we must declare that plaintiff-appellee was guilty of gross neglect in not finding out the nature of the title and possession of Manuel Gonzales, amounting to legal absence of good faith, and it may not be considered as a holder of the check in good faith. To such effect is the consensus of authority.

In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to bad faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the defendant had notice that there was something wrong about his assignor's acquisition of title, although he did not have notice of the particular wrong that was committed. Paika v. Perry, 225 Mass. 563, 114 N.E. 830.

It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is not necessary that he should know the particulars or even the nature of the fraud, since all that is required is knowledge of such facts that his action in taking the note amounted bad faith. Ozark Motor Co. v. Horton (Mo. App.), 196 S.W. 395. Accord. Davis v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.

Liberty bonds stolen from the plaintiff were brought by the thief, a boy fifteen years old, less than five feet tall, immature in appearance and bearing on his face the stamp a degenerate, to the defendants' clerk for sale. The boy stated that they belonged to his mother. The defendants paid the boy for the bonds without any further inquiry. Held, the plaintiff could recover the value of the bonds. The term 'bad faith' does not necessarily involve furtive motives, but means bad faith in a commercial sense. The manner in which the defendants conducted their Liberty Loan department provided an easy way for thieves to dispose of their plunder. It was a case of "no questions asked." Although gross negligence does not of itself constitute bad faith, it is evidence from which bad faith may be inferred. The circumstances thrust the duty upon the defendants to make further inquiries and they had no right to shut their eyes deliberately to obvious facts. Morris v. Muir, 111 Misc. Rep. 739, 181 N.Y. Supp. 913, affd. in memo., 191 App. Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's Negotiable Instruments Law, 6th ed.).

The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should not be allowed to recover the value of the check. Let

us now examine the express provisions of the Negotiable Instruments Law pertinent to the matter to find if our ruling conforms thereto. Section 52 (c) provides that a holder in due course is one who takes the instrument "in good faith and for value;" Section 59, "that every holder is deemed prima facie to be a holder in due course;" and Section 52 (d), that in order that one may be a holder in due course it is necessary that "at the time the instrument was negotiated to him "he had no notice of any . . . defect in the title of the person negotiating it;" and lastly Section 59, that every holder is deemed prima facieto be a holder in due course.

In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course does not apply because there was a defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. On the other hand, the stipulation of facts indicated by the appellants in their brief, like the fact that the drawer had no account with the payee; that the holder did not show or tell the payee why he had the check in his possession and why he was using it for the payment of his own personal account — show that holder's title was defective or suspicious, to say the least. As holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in holder's title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist. And having presented no evidence that it acquired the check in good faith, it (payee) cannot be considered as a holder in due course. In other words, under the circumstances of the case, instead of the presumption that payee was a holder in good faith, the fact is that it acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. The burden was, therefore, placed upon it to show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith.

The rule applicable to the case at bar is that described in the case of Howard National Bank v. Wilson, et al., 96 Vt. 438, 120 At. 889, 894, where the Supreme Court of Vermont made the following disquisition:

Prior to the Negotiable Instruments Act, two distinct lines of cases had developed in this country. The first had its origin in Gill v. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rule was distinctly laid down by the court of King's Bench that the purchaser of negotiable paper must exercise reasonable prudence and caution, and that, if the circumstances were such as ought to have excited the suspicion of a prudent and careful man, and he made no inquiry, he did not stand in the legal position of a bona fide holder. The rule was adopted by the courts of this country generally and seem to have become a fixed rule in the law of negotiable paper. Later in Goodman v. Harvey, 4 A. & E. 870, 31 E. C. L. 381, the English court abandoned its former position and adopted the rule that nothing short of actual bad faith or fraud in the purchaser would deprive him of the character of a bona fide purchaser and let in defenses existing between prior parties, that no circumstances of suspicion merely, or want of proper caution in the purchaser, would have this effect, and that even gross negligence would have no effect, except as evidence tending to establish bad faith or fraud. Some of the American courts adhered to the earlier rule, while others followed the change inaugurated in Goodman v. Harvey. The question was before this court in Roth v. Colvin, 32 Vt. 125, and, on full consideration of the question, a rule was adopted in harmony with that announced in Gill v. Cubitt, which has been adhered to in subsequent cases, including those cited above. Stated briefly, one line of cases including our own had adopted the test of the reasonably prudent man and the other that of actual good faith. It would seem that it was the intent of the Negotiable Instruments Act to harmonize this disagreement by adopting the latter test. That such is the view generally accepted by the courts appears from a recent review of the cases concerning what constitutes notice of defect. Brannan on Neg. Ins. Law, 187-201. To effectuate the general purpose of the act to make uniform the Negotiable Instruments Law of those states which should enact it, we are constrained to hold (contrary to the rule adopted in our former decisions) that negligence on the part of the plaintiff, or suspicious circumstances sufficient to put a prudent man on inquiry, will not of themselves prevent a recovery, but are to be considered merely as evidence bearing on the question of bad faith. See G. L. 3113, 3172, where such a course is required in construing other uniform acts.

It comes to this then: When the case has taken such shape that the plaintiff is called upon to prove himself a holder in due course to be entitled to recover, he is required to establish the conditions entitling him to standing as such, including good faith in taking the instrument. It devolves upon him to disclose the facts and circumstances attending the transfer, from which good or bad faith in the transaction may be inferred.

In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why the holder had the check and used it to

pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that it actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith, hence we are forced to the conclusion that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a holder in due course thereof.

For the foregoing considerations, the decision appealed from should be, as it is hereby, reversed, and the defendants are absolved from the complaint. With costs against plaintiff-appellee.

G.R. No. 138074 August 15, 2003

CELY YANG, Petitioner, vs. HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., EQUITABLE BANKING CORPORATION, PREM CHANDIRAMANI and FERNANDO DAVID, Respondents.

D E C I S I O N

QUISUMBING, J.:

For review on certiorari is the decision1 of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398, which affirmed with modification the joint decision of the Regional Trial Court (RTC) of Pasay City, Branch 117, dated July 4, 1995, in Civil Cases Nos. 54792 and 5492.3 The trial court dismissed the complaint against herein respondents Far East Bank & Trust Company (FEBTC), Equitable Banking Corporation (Equitable), and Philippine Commercial International Bank (PCIB) and ruled in favor of respondent Fernando David as to the proceeds of the two cashier’s checks, including the earnings thereof pendente lite. Petitioner Cely Yang was ordered to pay David moral damages of P100,000.00 and attorney’s fees also in the amount of P100,000.00.

The facts of this case are not disputed, to wit:

On or before December 22, 1987, petitioner Cely Yang and private respondent Prem Chandiramani entered into an agreement whereby the latter was to give Yang a PCIB manager’s check in the amount of P4.2 million in exchange for two (2) of Yang’s manager’s checks, each in the amount of P2.087 million, both payable to the order of private respondent Fernando David. Yang and Chandiramani agreed that the difference of P26,000.00 in the exchange would be their profit to be divided equally between them.

Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB FCDU Account No. 4195-01165-2, which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong.

Accordingly, on December 22, 1987, Yang procured the following:

a) Equitable Cashier’s Check No. CCPS 14-009467 in the sum of P2,087,000.00, dated December 22, 1987, payable to the order of Fernando David;

b) FEBTC Cashier’s Check No. 287078, in the amount of P2,087,000.00, dated December 22, 1987, likewise payable to the order of Fernando David; and

c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00, dated December 22, 1987, payable to PCIB FCDU Account No. 4195-01165-2.

At about one o’clock in the afternoon of the same day, Yang gave the aforementioned cashier’s checks and dollar drafts to her business associate, Albert Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala Avenue, Makati City, Metro Manila where he would turn over Yang’s cashier’s checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB manager’s check in the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange.

Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashier’s checks and the dollar draft bought by petitioner. Ranigo reported the alleged loss of the checks and the dollar draft to Liong at half past four in the afternoon of December 22, 1987. Liong, in turn, informed Yang, and the loss was then reported to the police.

It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said instruments, without delivering

the exchange consideration consisting of the PCIB manager’s check and the Hang Seng Bank dollar draft.

At three o’clock in the afternoon or some two (2) hours after Chandiramani and Ranigo were to meet in Makati City, Chandiramani delivered to respondent Fernando David at China Banking Corporation branch in San Fernando City, Pampanga, the following: (a) FEBTC Cashier’s Check No. 287078, dated December 22, 1987, in the sum of P2.087 million; and (b) Equitable Cashier’s Check No. CCPS 14-009467, dated December 22, 1987, also in the amount of P2.087 million. In exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the savings account of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas, who held FCDU Account No. 124 with the United Coconut Planters Bank branch in Greenhills, San Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn upon the Chemical Bank, New York for US$200,000.00 in PCIB FCDU Account No. 4195-01165-2 on the same date.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both banks complied with her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus enabling the holder of PCIB FCDU Account No. 4195-01165-2 to receive the amount of US$200,000.00.

On December 28, 1987, herein petitioner Yang lodged a Complaint4 for injunction and damages against Equitable, Chandiramani, and David, with prayer for a temporary restraining order, with the Regional Trial Court of Pasay City. The Complaint was docketed as Civil Case No. 5479. The Complaint was subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million, with interest thereon until fully paid.5

On January 12, 1988, Yang filed a separate case for injunction and damages, with prayer for a writ of preliminary injunction against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case No. 5492. This complaint was later amended to include a prayer that defendants therein return to Yang the amount of P2.087 million, the value of FEBTC Dollar Draft No. 4771, with interest at 18% annually until fully paid.6

On February 9, 1988, upon the filing of a bond by Yang, the trial court issued a writ of preliminary injunction in Civil Case No. 5479. A writ of preliminary injunction was subsequently issued in Civil Case No. 5492 also.

Meanwhile, herein respondent David moved for dismissal of the cases against him and for reconsideration of the Orders granting the writ of preliminary injunction, but these motions were denied. David then elevated the matter to the Court of Appeals in a special civil action for certiorari docketed as CA-G.R. SP No. 14843, which was dismissed by the appellate court.

As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two cases were consolidated. The trial court then conducted pre-trial and trial of the two cases, but the proceedings had to be suspended after a fire gutted the Pasay City Hall and destroyed the records of the courts.

After the records were reconstituted, the proceedings resumed and the parties agreed that the money in dispute be invested in Treasury Bills to be awarded in favor of the prevailing side. It was also agreed by the parties to limit the issues at the trial to the following:

1. Who, between David and Yang, is legally entitled to the proceeds of Equitable Banking Corporation (EBC) Cashier’s Check No. CCPS 14-009467 in the sum of P2,087,000.00 dated December 22, 1987, and Far East Bank and Trust Company (FEBTC) Cashier’s Check No. 287078 in the sum of P2,087,000.00 dated December 22, 1987, together with the earnings derived therefrom pendente lite?

2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the encashment of FEBTC Dollar Draft No. 4771, in the sum of US$200,000.00 plus interest thereon despite the stop payment order of Cely Yang?7

On July 4, 1995, the trial court handed down its decision in Civil Cases Nos. 5479 and 5492, to wit:

WHEREFORE, the Court renders judgment in favor of defendant Fernando David against the plaintiff Cely Yang and declaring the former entitled to the proceeds of the two (2) cashier’s checks, together with the earnings derived therefrom pendente lite; ordering the plaintiff to pay the defendant Fernando David moral damages in the amount of P100,000.00; attorney’s fees in the amount of P100,000.00 and to pay the costs. The complaint against Far East Bank and Trust Company (FEBTC), Philippine Commercial International

Bank (PCIB) and Equitable Banking Corporation (EBC) is dismissed. The decision is without prejudice to whatever action plaintiff Cely Yang will file against defendant Prem Chandiramani for reimbursement of the amounts received by him from defendant Fernando David.

SO ORDERED.8

In finding for David, the trial court ratiocinated:

The evidence shows that defendant David was a holder in due course for the reason that the cashier’s checks were complete on their face when they were negotiated to him. They were not yet overdue when he became the holder thereof and he had no notice that said checks were previously dishonored; he took the cashier’s checks in good faith and for value. He parted some $200,000.00 for the two (2) cashier’s checks which were given to defendant Chandiramani; he had also no notice of any infirmity in the cashier’s checks or defect in the title of the drawer. As a matter of fact, he asked the manager of the China Banking Corporation to inquire as to the genuineness of the cashier’s checks (tsn, February 5, 1988, p. 21, September 20, 1991, pp. 13-14). Another proof that defendant David is a holder in due course is the fact that the stop payment order on [the] FEBTC cashier’s check was lifted upon his inquiry at the head office (tsn, September 20, 1991, pp. 24-25). The apparent reason for lifting the stop payment order was because of the fact that FEBTC realized that the checks were not actually lost but indeed reached the payee defendant David.9

Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its Order of September 20, 1995.

In the belief that the trial court misunderstood the concept of a holder in due course and misapprehended the factual milieu, Yang seasonably filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 52398.

On March 25, 1999, the appellate court decided CA-G.R. CV No. 52398 in this wise:

WHEREFORE, this court AFFIRMS the judgment of the lower court with modification and hereby orders the plaintiff-appellant to pay defendant-appellant PCIB the amount of Twenty-Five Thousand Pesos (P25,000.00).

SO ORDERED.10

In affirming the trial court’s judgment with respect to herein respondent David, the appellate court found that:

In this case, defendant-appellee had taken the necessary precautions to verify, through his bank, China Banking Corporation, the genuineness of whether (sic) the cashier’s checks he received from Chandiramani. As no stop payment order was made yet (at) the time of the inquiry, defendant-appellee had no notice of what had transpired earlier between the plaintiff-appellant and Chandiramani. All he knew was that the checks were issued to Chandiramani with whom he was he had (sic) a transaction. Further on, David received the checks in question in due course because Chandiramani, who at the time the checks were delivered to David, was acting as Yang’s agent.

David had no notice, real or constructive, cogent for him to make further inquiry as to any infirmity in the instrument(s) and defect of title of the holder. To mandate that each holder inquire about every aspect on how the instrument came about will unduly impede commercial transactions, Although negotiable instruments do not constitute legal tender, they often take the place of money as a means of payment.

The mere fact that David and Chandiramani knew one another for a long time is not sufficient to establish that they connived with each other to defraud Yang. There was no concrete proof presented by Yang to support her theory.11

The appellate court awarded P25,000.00 in attorney’s fees to PCIB as it found the action filed by Yang against said bank to be "clearly unfounded and baseless." Since PCIB was compelled to litigate to protect itself, then it was entitled under Article 220812 of the Civil Code to attorney’s fees and litigation expenses.

Hence, the instant recourse wherein petitioner submits the following issues for resolution:

a - WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY PETITIONER;

b - WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI AND FERNANDO DAVID IS

LEGITIMATE OR A SCHEME BY BOTH PRIVATE RESPONDENTS TO SWINDLE PETITIONER;

c - WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00 OR JUST A FRACTION OF THE AMOUNT REPRESENTING HIS SHARE OF THE LOOT;

d - WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE ENTITLED TO DAMAGES AND ATTORNEY’S FEES.13

At the outset, we must stress that this is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure. It is basic that in petitions for review under Rule 45, the jurisdiction of this Court is limited to reviewing questions of law, questions of fact are not entertained absent a showing that the factual findings complained of are totally devoid of support in the record or are glaringly erroneous.14 Given the facts in the instant case, despite petitioner’s formulation, we find that the following are the pertinent issues to be resolved:

a) Whether the Court of Appeals erred in holding herein respondent Fernando David to be a holder in due course; and

b) Whether the appellate court committed a reversible error in awarding damages and attorney’s fees to David and PCIB.

On the first issue, petitioner Yang contends that private respondent Fernando David is not a holder in due course of the checks in question. While it is true that he was named the payee thereof, David failed to inquire from Chandiramani about how the latter acquired possession of said checks. Given his failure to do so, it cannot be said that David was unaware of any defect or infirmity in the title of Chandiramani to the checks at the time of their negotiation. Moreover, inasmuch as the checks were crossed, then David should have, pursuant to our ruling inBataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA 643, been put on guard that the checks were issued for a definite purpose and accordingly, made inquiries to determine if he received the checks pursuant to that purpose. His failure to do so negates the finding in the proceedings below that he was a holder in due course.

Finally, the petitioner argues that there is no showing whatsoever that David gave Chandiramani any consideration of value in exchange for the aforementioned checks.

Private respondent Fernando David counters that the evidence on record shows that when he received the checks, he verified their genuineness with his bank, and only after said verification did he deposit them. David stresses that he had no notice of previous dishonor or any infirmity that would have aroused his suspicions, the instruments being complete and regular upon their face. David stresses that the checks in question were cashier’s checks. From the very nature of cashier’s checks, it is highly unlikely that he would have suspected that something was amiss. David also stresses negotiable instruments are presumed to have been issued for valuable consideration, and he who alleges otherwise must controvert the presumption with sufficient evidence. The petitioner failed to discharge this burden, according to David. He points out that the checks were delivered to him as the payee, and he took them as holder and payee thereof. Clearly, he concludes, he should be deemed to be their holder in due course.

We shall now resolve the first issue.

Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law,15meaning a "payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof."

In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains the view that a payee may be a holder in due course.16 Hence, the presumption that he is a prima facieholder in due course applies in his favor. However, said presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the checks under the conditions provided for in Section 5217 of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in David’s case, otherwise he cannot be deemed a holder in due course.

We find that the petitioner’s challenge to David’s status as a holder in due course hinges on two arguments: (1) the lack of proof to show that David tendered any valuable consideration for the disputed checks; and (2) David’s failure to inquire from Chandiramani as to how the latter acquired possession of the checks, thus resulting in David’s intentional ignorance tantamount to bad faith. In sum, petitioner posits that the last two requisites of Section 52 are missing, thereby preventing David from being considered a holder in due

course. Unfortunately for the petitioner, her arguments on this score are less than meritorious and far from persuasive.

First, with respect to consideration, Section 2418 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration19 or for value.20 Thus, the law itself creates a presumption in David’s favor that he gave valuable consideration for the checks in question. In alleging otherwise, the petitioner has the onus to prove that David got hold of the checks absent said consideration. In other words, the petitioner must present convincing evidence to overthrow the presumption. Our scrutiny of the records, however, shows that the petitioner failed to discharge her burden of proof. The petitioner’s averment that David did not give valuable consideration when he took possession of the checks is unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found that David did not receive the checks gratis, but instead gave Chandiramani US$360,000.00 as consideration for the said instruments. Factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court; they carry great weight when the factual findings of the trial court are affirmed by the appellate court.21

Second, petitioner fails to point any circumstance which should have put David on inquiry as to the why and wherefore of the possession of the checks by Chandiramani. David was not privy to the transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a separate dealing in which it was precisely Chandiramani’s duty to deliver the checks to David as payee. The evidence shows that Chandiramani performed said task to the letter. Petitioner admits that David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the genuineness of the checks and only accepted the same after being assured that there was nothing wrong with said checks. At that time, David was not aware of any "stop payment" order. Under these circumstances, David thus had no obligation to ascertain from Chandiramani what the nature of the latter’s title to the checks was, if any, or the nature of his possession. Thus, we cannot hold him guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Chandiramani’s acquisition or possession of the checks. David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent any knowledge on his part that the action in taking the instruments amounted to bad faith.22

Belatedly, and we say belatedly since petitioner did not raise this matter in the proceedings below, petitioner now claims that David should have been put on alert as the instruments in question were crossed checks. Pursuant toBataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, David should at least have inquired as to whether he was acquiring said checks for the purpose for which they were issued, according to petitioner’s submission.

Petitioner’s reliance on the Bataan Cigar case, however, is misplaced. The facts in the present case are not on all fours with Bataan Cigar. In the latter case, the crossed checks were negotiated and sold at a discount by the payee, while in the instant case, the payee did not negotiate further the checks in question but promptly deposited them in his bank account.

The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce23makes reference to such instruments. Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and not converted into cash.24 The effects of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by the payee knowingly violated the avowed intention of crossing the check. Thus, in accepting the cross checks and paying cash for them, despite the warning of the crossing, the subsequent holder could not be considered in good faith and thus, not a holder in due course. Our ruling in Bataan Cigar reiterates that in De Ocampo & Co. v. Gatchalian.25

The factual circumstances in De Ocampo and in Bataan Cigar are not present in this case. For here, there is no dispute that the crossed checks were delivered and duly deposited by David, the payee named therein, in his bank account. In other words, the purpose behind the crossing of the checks was satisfied by the payee.

Proceeding to the issue of damages, petitioner merely argues that respondents David and PCIB are not entitled to damages, attorney’s fees, and costs of suit as both acted in bad faith towards her, as shown by her version of the facts which gave rise to the instant case.

Respondent David counters that he was maliciously and unceremoniously dragged into this suit for reasons which have nothing to do with him at all, but which arose from petitioner’s failure to receive her share of the profit promised her by Chandiramani.1âwphi1 Moreover, in filing this suit which has lasted for over a decade now, the petitioner deprived David of the rightful enjoyment of the two checks, to which he is entitled, under the law,

compelled him to hire the services of counsel to vindicate his rights, and subjected him to social humiliation and besmirched reputation, thus harming his standing as a person of good repute in the business community of Pampanga. David thus contends that it is but proper that moral damages, attorney’s fees, and costs of suit be awarded him.

For its part, respondent PCIB stresses that it was established by both the trial court and the appellate court that it was needlessly dragged into this case. Hence, no error was committed by the appellate court in declaring PCIB entitled to attorney’s fees as it was compelled to litigate to protect itself.

We have thoroughly perused the records of this case and find no reason to disagree with the finding of the trial court, as affirmed by the appellate court, that:

[D]efendant David is entitled to [the] award of moral damages as he has been needlessly and unceremoniously dragged into this case which should have been brought only between the plaintiff and defendant Chandiramani.26

A careful reading of the findings of facts made by both the trial court and appellate court clearly shows that the petitioner, in including David as a party in these proceedings, is barking up the wrong tree. It is apparent from the factual findings that David had no dealings with the petitioner and was not privy to the agreement of the latter with Chandiramani. Moreover, any loss which the petitioner incurred was apparently due to the acts or omissions of Chandiramani, and hence, her recourse should have been against him and not against David. By needlessly dragging David into this case all because he and Chandiramani knew each other, the petitioner not only unduly delayed David from obtaining the value of the checks, but also caused him anxiety and injured his business reputation while waiting for its outcome. Recall that under Article 221727 of the Civil Code, moral damages include mental anguish, serious anxiety, besmirched reputation, wounded feelings, social humiliation, and similar injury. Hence, we find the award of moral damages to be in order.

The appellate court likewise found that like David, PCIB was dragged into this case on unfounded and baseless grounds. Both were thus compelled to litigate to protect their interests, which makes an award of attorney’s fees justified under Article 2208 (2)28 of the Civil Code. Hence, we rule that the award of attorney’s fees to David and PCIB was proper.

WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398 is AFFIRMED. Costs against the petitioner.

SO ORDERED.

G.R. No. 70145 November 13, 1986

MARCELO A. MESINA, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M. GONONG, in his capacity as Judge of Regional Trial Court — Manila (Branch VIII), JOSE GO, and ALBERT UY, respondents.

PARAS, J.:

This is an appeal by certiorari from the decision of the then Intermediate Appellate Court (IAC for short), now the Court of Appeals (CA) in AC-G.R. S.P. 04710, dated Jan. 22, 1985, which dismissed the petition for certiorari and prohibition filed by Marcelo A. Mesina against the trial court in Civil Case No. 84-22515. Said case (an Interpleader) was filed by Associated Bank against Jose Go and Marcelo A. Mesina regarding their conflicting claims over Associated Bank Cashier's Check No. 011302 for P800,000.00, dated December 29, 1983.

Briefly, the facts and statement of the case are as follows:

Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's Check No. 011302 for P800,000.00. Unfortunately, Jose Go left said check on the top of the desk of the bank manager when he left the bank. The bank manager entrusted the check for safekeeping to a bank official, a certain Albert Uy, who had then a visitor in the person of Alexander Lim. Uy had to answer a phone call on a nearby telephone after which he proceeded to the men's room. When he returned to his desk, his visitor Lim was already gone. When Jose Go inquired for his cashier's check from Albert Uy, the check was not in his folder and nowhere to be found. The latter advised Jose Go to go to the bank to accomplish a "STOP PAYMENT" order, which suggestion Jose Go immediately followed. He also executed an affidavit of loss. Albert Uy went to the police to report the loss of the check, pointing to the person of Alexander Lim as the one who could shed light on it.

The records of the police show that Associated Bank received the lost check for clearing on December 31, 1983, coming from Prudential Bank, Escolta Branch. The check was immediately dishonored by Associated Bank by sending it back to Prudential Bank, with the words "Payment Stopped" stamped on it. However, the same was again returned to Associated Bank on January 4, 1984 and for the second time it was dishonored. Several days later, respondent Associated Bank received a letter, dated January 9, 1984, from a certain Atty. Lorenzo Navarro demanding payment on the cashier's check in question, which was being held by his client. He however refused to reveal the name of his client and threatened to sue, if payment is not made. Respondent bank, in its letter, dated January 20, 1984, replied saying the check belonged to Jose Go who lost it in the bank and is laying claim to it.

On February 1, 1984, police sent a letter to the Manager of the Prudential Bank, Escolta Branch, requesting assistance in Identifying the person who tried to encash the check but said bank refused saying that it had to protect its client's interest and the Identity could only be revealed with the client's conformity. Unsure of what to do on the matter, respondent Associated Bank on February 2, 1984 filed an action for Interpleader naming as respondent, Jose Go and one John Doe, Atty. Navarro's then unnamed client. On even date, respondent bank received summons and copy of the complaint for damages of a certain Marcelo A. Mesina from the Regional Trial Court (RTC) of Caloocan City filed on January 23, 1984 bearing the number C-11139. Respondent bank moved to amend its complaint, having been notified for the first time of the name of Atty. Navarro's client and substituted Marcelo A. Mesina for John Doe. Simultaneously, respondent bank, thru representative Albert Uy, informed Cpl. Gimao of the Western Police District that the lost check of Jose Go is in the possession of Marcelo Mesina, herein petitioner. When Cpl. Gimao went to Marcelo Mesina to ask how he came to possess the check, he said it was paid to him by Alexander Lim in a "certain transaction" but refused to elucidate further. An information for theft (Annex J) was instituted against Alexander Lim and the corresponding warrant for his arrest was issued (Annex 6-A) which up to the date of the filing of this instant petition remains unserved because of Alexander Lim's successful evation thereof.

Meanwhile, Jose Go filed his answer on February 24, 1984 in the Interpleader Case and moved to participate as intervenor in the complain for damages. Albert Uy filed a motion of intervention and answer in the complaint for Interpleader. On the Scheduled date of pretrial conference inthe interpleader case, it was disclosed that the "John Doe" impleaded as one of the defendants is actually petitioner Marcelo A. Mesina. Petitioner instead of filing his answer to the complaint in the interpleader filed on May 17, 1984 an Omnibus Motion to Dismiss Ex Abudante Cautela alleging lack of jurisdiction in view of the absence of an order to litigate, failure to state a cause of action and lack of personality to sue. Respondent bank in the other civil case (CC-11139) for damages moved to dismiss suit in view of the existence already of the Interpleader case.

The trial court in the interpleader case issued an order dated July 13, 1984, denying the motion to dismiss of petitioner Mesina and ruling that respondent bank's complaint sufficiently pleaded a cause of action for itnerpleader. Petitioner filed his motion for reconsideration which was denied by the trial court on September 26, 1984. Upon motion for respondent Jose Go dated October 31, 1984, respondent judge issued an order on November 6, 1984, declaring petitioner in default since his period to answer has already expirecd and set the ex-parte presentation of respondent bank's evidence on November 7, 1984.

Petitioner Mesina filed a petition for certioari with preliminary injunction with IAC to set aside 1) order of respondent court denying his omnibus Motion to Dismiss 2) order of 3) the order of default against him.

On January 22, 1985, IAC rendered its decision dimissing the petition for certiorari. Petitioner Mesina filed his Motion for Reconsideration which was also denied by the same court in its resolution dated February 18, 1985.

Meanwhile, on same date (February 18, 1985), the trial court in Civil Case #84-22515 (Interpleader) rendered a decisio, the dispositive portion reading as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering plaintiff Associate Bank to replace Cashier's Check No. 011302 in favor of Jose Go or its cas equivalent with legal rate of itnerest from date of complaint, and with costs of suit against the latter.

SO ORDERED.

On March 29, 1985, the trial court in Civil Case No. C-11139, for damages, issued an order, the pertinent portion of which states:

The records of this case show that on August 20, 1984 proceedings in this case was (were) ordered suspended because the main issue

in Civil Case No. 84-22515 and in this instant case are the same which is: who between Marcelo Mesina and Jose Go is entitled to payment of Associated Bank's Cashier's Check No. CC-011302? Said issue having been resolved already in Civil casde No. 84-22515, really this instant case has become moot and academic.

WHEREFORE, in view of the foregoing, the motion sholud be as it is hereby granted and this case is ordered dismissed.

In view of the foregoing ruling no more action should be taken on the "Motion For Reconsideration (of the order admitting the Intervention)" dated June 21, 1984 as well as the Motion For Reconsideration dated September 10, 1984.

SO ORDERED.

Petitioner now comes to Us, alleging that:

1. IAC erred in ruling that a cashier's check can be countermanded even in the hands of a holder in due course.

2. IAC erred in countenancing the filing and maintenance of an interpleader suit by a party who had earlier been sued on the same claim.

3. IAC erred in upholding the trial court's order declaring petitioner as in default when there was no proper order for him to plead in the interpleader complaint.

4. IAC went beyond the scope of its certiorari jurisdiction by making findings of facts in advance of trial.

Petitioner now interposes the following prayer:

1. Reverse the decision of the IAC, dated January 22, 1985 and set aside the February 18, 1985 resolution denying the Motion for Reconsideration.

2. Annul the orders of respondent Judge of RTC Manila giving due course to the interpleader suit and declaring petitioner in default.

Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes and effects of a cashier's check such as 1) it cannot be countermanded in the hands of a holder in due course and 2) a cashier's check is a bill of exchange drawn by the bank against itself-are general principles which cannot be aptly applied to the case at bar, without considering other things. Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value as shown by the established facts of the case. Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was passed to him. He had therefore notice of the defect of his title over the check from the start. The holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. If a payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the respondent bank would, of course, have the right to refuse payment of the check when presented by the payee, since respondent bank was aware of the facts surrounding the loss of the check in question. Moreover, there is no similarity in the cases cited by petitioner since respondent bank did not issue the cashier's check in payment of its obligation. Jose Go bought it from respondent bank for purposes of transferring his funds from respondent bank to another bank near his establishment realizing that carrying money in this form is safer than if it were in cash. The check was Jose Go's property when it was misplaced or stolen, hence he stopped its payment. At the outset, respondent bank knew it was Jose Go's check and no one else since Go had not paid or indorsed it to anyone. The bank was therefore liable to nobody on the check but Jose Go. The bank had no intention to issue it to petitioner but only to buyer Jose Go. When payment on it was therefore stopped, respondent bank was not the one who did it but Jose Go, the owner of the check. Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money it represents and he is therefore the drawer and the drawee in the same manner as if he has a current account and he issued a check against it; and from the moment said cashier's check was lost and/or stolen no one outside of Jose Go can be termed a holder in due course because Jose Go had not indorsed it in due course. The check in question suffers from the infirmity of not having been properly negotiated and for value by respondent Jose Go who as already been said is the real owner of said instrument.

In his second assignment of error, petitioner stubbornly insists that there is no showing of conflicting claims and interpleader is out of the question. There is enough evidence to establish the contrary. Considering the aforementioned facts and circumstances, respondent bank merely took the necessary precaution not to make a mistake as to whom to pay and therefore interpleader was its proper remedy. It has been shown that the interpleader

suit was filed by respondent bank because petitioner and Jose Go were both laying their claims on the check, petitioner asking payment thereon and Jose Go as the purchaser or owner. The allegation of petitioner that respondent bank had effectively relieved itself of its primary liability under the check by simply filing a complaint for interpleader is belied by the willingness of respondent bank to issue a certificate of time deposit in the amount of P800,000 representing the cashier's check in question in the name of the Clerk of Court of Manila to be awarded to whoever wig be found by the court as validly entitled to it. Said validity will depend on the strength of the parties' respective rights and titles thereto. Bank filed the interpleader suit not because petitioner sued it but because petitioner is laying claim to the same check that Go is claiming. On the very day that the bank instituted the case in interpleader, it was not aware of any suit for damages filed by petitioner against it as supported by the fact that the interpleader case was first entitled Associated Bank vs. Jose Go and John Doe, but later on changed to Marcelo A. Mesina for John Doe when his name became known to respondent bank.

In his third assignment of error, petitioner assails the then respondent IAC in upholding the trial court's order declaring petitioner in default when there was no proper order for him to plead in the interpleader case. Again, such contention is untenable. The trial court issued an order, compelling petitioner and respondent Jose Go to file their Answers setting forth their respective claims. Subsequently, a Pre-Trial Conference was set with notice to parties to submit position papers. Petitioner argues in his memorandum that this order requiring petitioner to file his answer was issued without jurisdiction alleging that since he is presumably a holder in due course and for value, how can he be compelled to litigate against Jose Go who is not even a party to the check? Such argument is trite and ridiculous if we have to consider that neither his name or Jose Go's name appears on the check. Following such line of argument, petitioner is not a party to the check either and therefore has no valid claim to the Check. Furthermore, the Order of the trial court requiring the parties to file their answers is to all intents and purposes an order to interplead, substantially and essentially and therefore in compliance with the provisions of Rule 63 of the Rules of Court. What else is the purpose of a law suit but to litigate?

The records of the case show that respondent bank had to resort to details in support of its action for Interpleader. Before it resorted to Interpleader, respondent bank took an precautionary and necessary measures to bring out the truth. On the other hand, petitioner concealed the circumstances known to him and now that private respondent bank brought these circumstances out in court (which eventually rendered its decision in the light of these facts), petitioner charges it with "gratuitous excursions into these non-issues." Respondent IAC cannot rule on whether respondent RTC committed an abuse of discretion or not, without being apprised of the facts and reasons why respondent Associated Bank instituted the Interpleader case. Both parties were given an opportunity to present their sides. Petitioner chose to withhold substantial facts. Respondents were not forbidden to present their side-this is the purpose of the Comment of respondent to the petition. IAC decided the question by considering both the facts submitted by petitioner and those given by respondents. IAC did not act therefore beyond the scope of the remedy sought in the petition.

WHEREFORE, finding that the instant petition is merely dilatory, the same is hereby denied and the assailed orders of the respondent court are hereby AFFIRMED in toto.

SO ORDERED.

G.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner, vs. NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

D E C I S I O N

BRION, J.:

Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 82301. The appellate court affirmed the decision of the Regional Trial Court (RTC) of Quezon City, Branch 77, dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin Patrimonio and

ordering him to pay respondent Octavio Marasigan III (Marasigan) the sum of P200,000.00.

The Factual Background

The facts of the case, as shown by the records, are briefly summarized below.

The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and shows related to basketball. Petitioner was already then a decorated professional basketball player while Gutierrez was a well-known sports columnist.

In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam Dunk. Although signed, these checks had no payee’s name, date or amount. The blank checks were entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to and approval by the petitioner. According to petitioner, the arrangement was made so that he could verify the validity of the payment and make the proper arrangements to fund the account.

In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the petitioner’s former teammate), to secure a loan in the amount of P200,000.00 on the excuse that the petitioner needed the money for the construction of his house. In addition to the payment of the principal, Gutierrez assured Marasigan that he would be paid an interest of 5% per month from March to May 1994.

After much contemplation and taking into account his relationship with the petitioner and Gutierrez, Marasigan acceded to Gutierrez’ request and gave him P200,000.00 sometime in February 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and the amount of "P200,000.00". The upper right portion of the check corresponding to the date was also filled out with the words "May 23, 1994" but the petitioner contended that the same was not written by Gutierrez.

On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED." It was later revealed that petitioner’s account with the bank had been closed since May 28, 1993.

Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the petitioner asking for the payment of P200,000.00, but his demands likewise went unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816.

On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan. He completely denied authorizing the loan or the check’s negotiation, and asserted that he was not privy to the parties’ loan agreement.

Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22, 1997,Gutierrez was declared in default.

The Ruling of the RTC

The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in issuing the pre-signed blank checks, had the intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez not to negotiate or issue the check without his approval. While under Section 14 of the Negotiable Instruments Law Gutierrez had the prima facie authority to complete the checks by filling up the blanks therein, the RTC ruled that he deliberately violated petitioner’s specific instructions and took advantage of the trust reposed in him by the latter.

Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the petitioner’s complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the face value of the check with a right to claim reimbursement from Gutierrez.

The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in due course. He contended that when Marasigan received the check, he knew that the same was without a date, and hence, incomplete. He also alleged that the loan was actually between Marasigan and Gutierrez with his check being used only as a security.

The Ruling of the CA

On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings. After careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in due course as he did not receive the check in good faith.

The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the petitioner’s authority. It held that the loan may not be nullified since it is grounded on an obligation arising from law and ruled that the petitioner is still liable to pay Marasigan the sum of P200,000.00.

After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the present petition for review on certiorari under Rule 45 of the Revised Rules of Court.

The Petition

The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized the borrowing of money nor the check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a special power of attorney is necessary for an individual to make a loan or borrow money in behalf of another; (3) the loan transaction was between Gutierrez and Marasigan, with his check being used only as a security; (4) the check had not been completely and strictly filled out in accordance with his authority since the condition that the subject check can only be used provided there is prior approval from him, was not complied with; (5) even if the check was strictly filled up as instructed by the petitioner, Marasigan is still not entitled to claim the check’s value as he was not a holder in due course; and (6) by reason of the bad faith in the dealings between the respondents, he is entitled to claim for damages.

The Issues

Reduced to its basics, the case presents to us the following issues:

1. Whether the contract of loan in the amount of P200,000.00 granted by respondent Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;

2. Whether there is basis to hold the petitioner liable for the payment of the P200,000.00 loan;

3. Whether respondent Gutierrez has completely filled out the subject check strictly under the authority given by the petitioner; and

4. Whether Marasigan is a holder in due course.

The Court’s Ruling

The petition is impressed with merit.

We note at the outset that the issues raised in this petition are essentially factual in nature. The main point of inquiry of whether the contract of loan may be nullified, hinges on the very existence of the contract of loan – a question that, as presented, is essentially, one of fact. Whether the petitioner authorized the borrowing; whether Gutierrez completely filled out the subject check strictly under the petitioner’s authority; and whether Marasigan is a holder in due course are also questions of fact, that, as a general rule, are beyond the scope of a Rule 45 petition.

The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no exceptions. One notable exception is when the findings off act of both the trial court and the CA are conflicting, making their review necessary.5 In the present case, the tribunals below arrived at two conflicting factual findings, albeit with the same conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we will examine the parties’ evidence presented.

I. Liability Under the Contract of Loan

The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing of money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written authority when the loan is contracted through an agent. The petitioner contends that absent such authority in writing, he should not be held liable for the face value of the check because he was not a party or privy to the agreement.

Contracts of Agency May be Oral Unless The Law Requires a Specific Form

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

As a general rule, a contract of agency may be oral.6 However, it must be written when the law requires a specific form, for example, in a sale of a piece of land or any interest therein through an agent.

Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent can loan or borrow money in behalf of the principal, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

x x x x

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration. (emphasis supplied)

Article 1878 does not state that the authority be in writing. As long as the mandate is express, such authority may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the requirement under Article 1878 of the Civil Code refers to the nature of the authorization and not to its form. Be that as it may, the authority must be duly established by competent and convincing evidence other than the self serving assertion of the party claiming that such authority was verbally given, thus:

The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its form. The requirements are met if there is a clear mandate from the principal specifically authorizing the performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be either oral or written, the one vital thing being that it shall be express. And more recently, We stated that, if the special authority is not written, then it must be duly established by evidence:

x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while the same does not state that the special authority be in writing the Court has every reason to expect that, if not in writing, the same be duly established by evidence other than the self-serving assertion of counsel himself that such authority was verbally given him.(Home Insurance Company vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).

The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being Void; Petitioner is Not Bound by the Contract of Loan.

A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the petitioner.1âwphi1 Records do not show that the petitioner executed any special power of attorney (SPA) in favor of Gutierrez. In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez (or anyone for that matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware of any such transaction:

ALVIN PATRIMONIO (witness)

ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing him to borrow using your money?

WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8

x x x x

Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing them to Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract the loan in his behalf.

Marasigan’s submission fails to persuade us.

In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by real estate mortgages in the name of East Cordillera Mining Corporation, in the absence

of an SPA conferring authority on de Villa, there is no basis to hold the corporation liable, to wit:

The power to borrow money is one of those cases where corporate officers as agents of the corporation need a special power of attorney. In the case at bar, no special power of attorney conferring authority on de Villa was ever presented. x x x There was no showing that respondent corporation ever authorized de Villa to obtain the loans on its behalf.

x x x x

Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable since there was no authority, express, implied or apparent, given to de Villa to borrow money from petitioner. Neither was there any subsequent ratification of his act.

x x x x

The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death). (citations omitted; emphasis supplied).

This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:

Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to obtain a loan from him.

x x x x

Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the statement of account marked as Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado.

It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or anyone for that matter.

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of the principal. x x x (emphasis supplied).

In the absence of any showing of any agency relations or special authority to act for and in behalf of the petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner is not bound by the parties’ loan agreement.

Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient because the authority to enter into a loan can never be presumed. The contract of agency and the special fiduciary relationship inherent in this contract must exist as a matter of fact. The person alleging it has the burden of proof to show, not only the fact of agency, but also its nature and extent.11 As we held in People v. Yabut:12

Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to beno contract of agency between Yambao and Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn testimony before the investigating fiscal that Yambao is but her "messenger" or "part-time employee." There was no special fiduciary relationship that permeated their dealings. For a contract of agency to exist, the consent of both parties is essential, the principal consents that the other party, the agent, shall act on his behalf, and the agent consents so to act. It must exist as a fact. The law makes no presumption thereof. The person alleging it has the burden of proof to show, not only the fact of its existence, but also its nature and extent. This is more imperative when it is considered that the transaction dealt with involves checks, which are not legal tender, and the creditor may validly refuse the same as payment of obligation.(at p. 630). (emphasis supplied)

The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the SPA in favor of the latter and without verifying from the petitioner whether he had authorized the borrowing of

money or release of the check. He was thus bound by the risk accompanying his trust on the mere assurances of Gutierrez.

No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent Was Not Obtained.

Another significant point that the lower courts failed to consider is that a contract of loan, like any other contract, is subject to the rules governing the requisites and validity of contracts in general.13 Article 1318 of the Civil Code14enumerates the essential requisites for a valid contract, namely:

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract; and

3. cause of the obligation which is established.

In this case, the petitioner denied liability on the ground that the contract lacked the essential element of consent. We agree with the petitioner. As we explained above, Gutierrez did not have the petitioner’s written/verbal authority to enter into a contract of loan. While there may be a meeting of the minds between Gutierrez and Marasigan, such agreement cannot bind the petitioner whose consent was not obtained and who was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of loan.

True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of Marasigan. This act, however, does not constitute sufficient authority to borrow money in his behalf and neither should it be construed as petitioner’s grant of consent to the parties’ loan agreement. Without any evidence to prove Gutierrez’ authority, the petitioner’s signature in the check cannot be taken, even remotely, as sufficient authorization, much less, consent to the contract of loan. Without the consent given by one party in a purported contract, such contract could not have been perfected; there simply was no contract to speak of.15

With the loan issue out of the way, we now proceed to determine whether the petitioner can be made liable under the check he signed.

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable Instruments Law (NIL) which states:

Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.

This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a negotiable instrument, that person is deemed to have prima facie authority to fill it up. It merely requires that the instrument be in the possession of a person other than the drawer or maker and from such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks.16

In order however that one who is not a holder in due course can enforce the instrument against a party prior to the instrument’s completion, two requisites must exist: (1) that the blank must be filled strictly in accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven that the instrument had not been filled up strictly in accordance with the authority given and within a reasonable time, the maker can set this up as a personal defense and avoid liability. However, if the holder is a holder in due course, there is a conclusive presumption that authority to fill it up had been given and that the same was not in excess of authority.17

In the present case, the petitioner contends that there is no legal basis to hold him liable both under the contract and loan and under the check because: first, the subject check was not completely filled out strictly under the authority he has given and second, Marasigan was not a holder in due course.

Marasigan is Not a Holder in Due Course

The Negotiable Instruments Law (NIL) defines a holder in due course, thus:

Sec. 52 — A holder in due course is a holder who has taken the instrument under the following conditions:

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

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;

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

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.(emphasis supplied)

Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good faith and for value." It also provides in Section 52(d) that in order that one may be a holder in due course, it is necessary that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Acquisition in good faith means taking without knowledge or notice of equities of any sort which could beset up against a prior holder of the instrument.18 It means that he does not have any knowledge of fact which would render it dishonest for him to take a negotiable paper. The absence of the defense, when the instrument was taken, is the essential element of good faith.19

As held in De Ocampo v. Gatchalian:20

In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to bad faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the defendant had notice that there was something wrong about his assignor's acquisition of title, although he did not have notice of the particular wrong that was committed.

It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is not necessary that he should know the particulars or even the nature of the fraud, since all that is required is knowledge of such facts that his action in taking the note amounted bad faith.

The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a commercial sense. The manner in which the defendants conducted their Liberty Loan department provided an easy way for thieves to dispose of their plunder. It was a case of "no questions asked." Although gross negligence does not of itself constitute bad faith, it is evidence from which bad faith may be inferred. The circumstances thrust the duty upon the defendants to make further inquiries and they had no right to shut their eyes deliberately to obvious facts. (emphasis supplied).

In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the contract of loan, and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. The following exchange is significant on this point:

WITNESS: AMBET NABUS

Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?

A: Since I celebrated my birthday in that place where Nap and I live together with the other crew, there were several visitors that included Danny Espiritu. So a week after my birthday, Bong Marasigan called me up again and he was fuming mad. Nagmumura na siya. Hinahanap niya si… hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya yung utang ni Nap, dahil…

x x x x

WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng tumalbog… (He told me that we have to fix it up before it…) mauwi pa kung saan…

x x x x

Q: What was your reply, if any?

A: I actually asked him. Kanino ba ang tseke na sinasabi mo?

(Whose check is it that you are referring to or talking about?)

Q: What was his answer?

A: It was Alvin’s check.

Q: What was your reply, if any?

A: I told him do you know that it is not really Alvin who borrowed money from you or what you want to appear…

x x x x

Q: What was his reply?

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied)21

Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of the instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his inaction and failure to verify, despite knowledge of that the petitioner was not a party to the loan, may be construed as gross negligence amounting to bad faith.

Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally barred from recovery. The NIL does not provide that a holder who is not a holder in due course may not in any case recover on the instrument.22 The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.23 Among such defenses is the filling up blank not within the authority.

On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the authority he gave. He points to his instruction not to use the check without his prior approval and argues that the check was filled up in violation of said instruction.

Check Was Not Completed Strictly Under The Authority Given by The Petitioner

Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks and use the check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed checks to be used in their business provided that he could only use them upon his approval. His instruction could not be any clearer as Gutierrez’ authority was limited to the use of the checks for the operation of their business, and on the condition that the petitioner’s prior approval be first secured.

While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie authority does not extend to its use (i.e., subsequent transfer or negotiation)once the check is completed. In other words, only the authority to complete the check is presumed. Further, the law used the term "prima facie" to underscore the fact that the authority which the law accords to a holder is a presumption juris tantumonly; hence, subject to subject to contrary proof. Thus, evidence that there was no authority or that the authority granted has been exceeded may be presented by the maker in order to avoid liability under the instrument.

In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted that he never authorized nor approved the filling up of the blank checks, thus:

ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23, 1994?

WITNESS: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?

A: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to write the figure P200,000 in this check?

A: No, sir.

Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words P200,000 only xx in this check?

A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24

Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the authority when he used the check to pay the loan he supposedly contracted for the construction of petitioner's house. This is a clear violation of the petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot therefore be validly concluded that the check was completed strictly in accordance with the authority given by the petitioner.

Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal defense that the blanks were not filled up in accordance with the authority he gave. Consequently, Marasigan has no right to enforce payment against the petitioner and the latter cannot be obliged to pay the face value of the check.

WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin Patrimonio's petition for review on certiorari. The appealed Decision dated September 24, 2008 and the Resolution dated April 30, 2009 of the Court of Appeals are consequently ANNULLED AND SET ASIDE. Costs against the respondents.

SO ORDERED.

G.R. No. 158312 November 14, 2008

JOHN DY, petitioner, vs. PEOPLE OF THE PHILIPPINES and The HONORABLE COURT OF APPEALS, respondents.

D E C I S I O N

QUISUMBING, Acting C.J.:

This appeal prays for the reversal of the Decision1 dated January 23, 2003 and the Resolution2 dated May 14, 2003 of the Court of Appeals in CA-G.R. CR No. 23802. The appellate court affirmed with modification the Decision3 dated November 17, 1999 of the Regional Trial Court (RTC), Branch 82 of Quezon City, which had convicted petitioner John Dy of two counts of estafa in Criminal Cases Nos. Q-93-46711 and Q-93-46713, and two counts of violation of Batas Pambansa Bilang 224 (B.P. Blg. 22) in Criminal Cases Nos. Q-93-46712 and Q-93-46714.

The facts are undisputed:

Since 1990, John Dy has been the distributor of W.L. Food Products (W.L. Foods) in Naga City, Bicol, under the business name Dyna Marketing. Dy would pay W.L. Foods in either cash or check upon pick up of stocks of snack foods at the latter's branch or main office in Quezon City. At times, he would entrust the payment to one of his drivers.

On June 24, 1992, Dy's driver went to the branch office of W.L. Foods to pick up stocks of snack foods. He introduced himself to the checker, Mary Jane D. Maraca, who upon confirming Dy's credit with the main office, gave him merchandise worth P106,579.60. In return, the driver handed her a blank Far East Bank and Trust Company (FEBTC) Check with Check No. 553602 postdated July 22, 1992. The check was signed by Dy though it did not indicate a specific amount.

Yet again, on July 1, 1992, the same driver obtained snack foods from Maraca in the amount ofP226,794.36 in exchange for a blank FEBTC Check with Check No. 553615 postdated July 31, 1992.

In both instances, the driver was issued an unsigned delivery receipt. The amounts for the purchases were filled in later by Evelyn Ong, accountant of W.L. Foods, based on the value of the goods delivered.

When presented for payment, FEBTC dishonored the checks for insufficiency of funds. Raul D. Gonzales, manager of FEBTC-Naga Branch, notified Atty. Rita Linda Jimeno, counsel of W.L. Foods, of the dishonor. Apparently, Dy only had an available balance of P2,000 as of July 22, 1992 and July 31, 1992.

Later, Gonzales sent Atty. Jimeno another letter5 advising her that FEBTC Check No. 553602 forP106,579.60 was returned to the drawee bank for the reasons stop payment order and drawn against uncollected deposit (DAUD),

and not because it was drawn against insufficient funds as stated in the first letter. Dy's savings deposit account ledger reflected a balance of P160,659.39 as of July 22, 1992. This, however, included a regional clearing check for P55,000 which he deposited on July 20, 1992, and which took five (5) banking days to clear. Hence, the inward check was drawn against the yet uncollected deposit.

When William Lim, owner of W.L. Foods, phoned Dy about the matter, the latter explained that he could not pay since he had no funds yet. This prompted the former to send petitioner a demand letter, which the latter ignored.

On July 16, 1993, Lim charged Dy with two counts of estafa under Article 315, paragraph 2(d)6 of the Revised Penal Code in two Informations, which except for the dates and amounts involved, similarly read as follows:

That on or about the 24th day of June, 1992, in Quezon City, Philippines, the said accused, did then and there [willfully] and feloniously defraud W.L. PRODUCTS, a corporation duly organized and existing under the laws of the Republic of the Philippines with business address at No. 531 Gen. Luis St., Novaliches, this City, in the following manner, to wit: the said accused, by means of false manifestations and fraudulent representation which he made to complainant to the effect that Far East Bank and Trust Co. check No. 553602 dated July 22, 1992 in the amount ofP106,579.60, payable to W.L. Products is a good check and will be honored by the bank on its maturity date, and by means of other deceit of similar import, induced and succeeded in inducing the said complainant to receive and accept the aforesaid check in payment of snack foods, the said accused knowing fully well that all his manifestations and representations were false and untrue and were made solely for the purpose of obtaining, as in fact he did obtain the aforesaid snack foods valued at P106,579.60 from said complainant as upon presentation of said check to the bank for payment, the same was dishonored and payment thereof refused for the reason stop payment and the said accused, once in possession of the aforesaid snack foods, with intent to defraud, [willfully], unlawfully and feloniously misapplied, misappropriated and converted the same or the value thereof to his own personal use and benefit, to the damage and prejudice of said W.L. Products, herein represented by RODOLFO BORJAL, in the aforementioned amount of P106,579.60, Philippine Currency.

Contrary to law.7

On even date, Lim also charged Dy with two counts of violation of B.P. Blg. 22 in two Informations which likewise save for the dates and amounts involved similarly read as follows:

That on or about the 24th day of June, 1992, the said accused, did then and there [willfully], unlawfully and feloniously make or draw and issue to W.L. FOOD PRODUCTS to apply on account or for value a Far East Bank and Trust Co. Check no. 553602 dated July 22, 1992 payable to W.L. FOOD PRODUCTS in the amount of P106,579.60 Philippine Currency, said accused knowing fully well that at the time of issue he/she/they did not have sufficient funds in or credit with the drawee bank for payment of such check in full upon its presentment, which check when presented 90 days from the date thereof was subsequently dishonored by the drawee bank for the reason "Payment stopped" but the same would have been dishonored for insufficient funds had not the accused without any valid reason, ordered the bank to stop payment, the said accused despite receipt of notice of such dishonor, failed to pay said W.L. Food Products the amount of said check or to make arrangement for payment in full of the same within five (5) banking days after receiving said notice.

CONTRARY TO LAW.8

On November 23, 1994, Dy was arrested in Naga City. On arraignment, he pleaded not guilty to all charges. Thereafter, the cases against him were tried jointly.

On November 17, 1999 the RTC convicted Dy on two counts each of estafa and violation of B.P. Blg. 22. The trial court disposed of the case as follows:

WHEREFORE, accused JOHN JERRY DY ALDEN (JOHN DY) is hereby found GUILTY beyond reasonable doubt of swindling (ESTAFA) as charged in the Informations in Criminal Case No. 93-46711 and in Criminal Case No. Q-93-46713, respectively. Accordingly, after applying the provisions of the Indeterminate Sentence Law and P.D. No. 818, said accused is hereby sentenced to suffer the indeterminate penalty of ten (10) years and one (1) day to twelve (12) years of prision mayor, as minimum, to twenty (20)

years of reclusion temporal, as maximum, in Criminal Case No. Q-93-46711 and of ten (10) years and one (1) day to twelve (12) years of prision mayor, as minimum, to thirty (30) years of reclusion perpetua, as maximum, in Criminal Case No. Q-93-46713.

Likewise, said accused is hereby found GUILTY beyond reasonable doubt of Violation of B.P. 22 as charged in the Informations in Criminal Case No. Q-93-46712 and in Criminal Case No. Q-93-46714 and is accordingly sentenced to imprisonment of one (1) year for each of the said offense and to pay a fine in the total amount of P333,373.96, with subsidiary imprisonment in case of insolvency.

FINALLY, judgment is hereby rendered in favor of private complainant, W. L. Food Products, herein represented by Rodolfo Borjal, and against herein accused JOHN JERRY DY ALDEN (JOHN DY), ordering the latter to pay to the former the total sum of P333,373.96 plus interest thereon at the rate of 12% per annum from September 28, 1992 until fully paid; and, (2) the costs of this suit.

SO ORDERED.9

Dy brought the case to the Court of Appeals. In the assailed Decision of January 23, 2003, the appellate court affirmed the RTC. It, however, modified the sentence and deleted the payment of interests in this wise:

WHEREFORE, in view of the foregoing, the decision appealed from is hereby AFFIRMED with MODIFICATION. In Criminal

Case No. Q-93-46711 (for estafa), the accused-appellant JOHN JERRY DY ALDEN (JOHN DY) is hereby sentenced to suffer an indeterminate penalty of imprisonment ranging from six (6) years and one (1) day of prision mayor as minimum to twenty (20) years of reclusion temporal as maximum plus eight (8) years in excess of [P]22,000.00. InCriminal Case No. Q-93-46712 (for violation of BP

22), accused-appellant is sentenced to suffer an imprisonment of one (1) year and to indemnify W.L. Food Products, represented by Rodolfo Borjal, the amount of ONE HUNDRED SIX THOUSAND FIVE HUNDRED SEVENTY NINE PESOS and 60/100 ([P]106,579.60). In Criminal Case No. Q-93-46713 (for estafa), accused-appellant is hereby sentenced to suffer an indeterminate penalty of imprisonment ranging from eight (8) years and one (1) day of prision mayor as minimum to thirty (30) years as maximum. Finally, in Criminal Case No. Q-93-46714 (for violation of BP 22), accused-appellant is sentenced to suffer an imprisonment of one (1) year and to indemnify W.L. Food Products, represented by Rodolfo Borjal, the amount of TWO HUNDRED TWENTY SIX THOUSAND SEVEN HUNDRED NINETY FOUR PESOS AND 36/100 ([P]226,794.36).

SO ORDERED.10

Dy moved for reconsideration, but his motion was denied in the Resolution dated May 14, 2003.

Hence, this petition which raises the following issues:

I.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PROSECUTION HAS PROVEN THE GUILT OF ACCUSED BEYOND REASONABLE DOUBT OF ESTAFA ON TWO (2) COUNTS?

II.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PROSECUTION HAS PROVEN THE GUILT OF ACCUSED BEYOND REASONABLE DOUBT OF VIOLATION OF BP 22 ON TWO (2) COUNTS?

III.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AWARDING DAMAGES TO PRIVATE COMPLAINANT, W.L. FOOD PRODUCTS, THE TOTAL SUM OF [P]333,373.96?11

Essentially, the issue is whether John Dy is liable for estafa and for violation of B.P. Blg. 22.

First, is petitioner guilty of estafa?

Mainly, petitioner contends that the checks were ineffectively issued. He stresses that not only were the checks blank, but also that W.L. Foods' accountant had no authority to fill the amounts. Dy also claims failure of consideration to negate any obligation to W.L. Foods. Ultimately, petitioner denies having deceived Lim inasmuch as only the two checks bounced since he began dealing with him. He maintains that it was his long established business relationship with Lim that enabled him to obtain the goods, and not the checks issued in payment for them. Petitioner renounces personal liability on the checks since he was absent when the goods were delivered.

The Office of the Solicitor General (OSG), for the State, avers that the delivery of the checks by Dy's driver to Maraca, constituted valid issuance. The OSG sustains Ong's prima facie authority to fill the checks based on the value of goods taken. It observes that nothing in the records showed that W.L. Foods' accountant filled up the checks in violation of Dy's instructions or their previous agreement. Finally, the OSG challenges the present petition as an inappropriate remedy to review the factual findings of the trial court.

We find that the petition is partly meritorious.

Before an accused can be held liable for estafa under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885,12 the following elements must concur: (1) postdating or issuance of a check in payment of an obligation contracted at the time the check was issued; (2) insufficiency of funds to cover the check; and (3) damage to the payee thereof.13 These elements are present in the instant case.

Section 191 of the Negotiable Instruments Law14 defines "issue" as the first delivery of an instrument, complete in form, to a person who takes it as a holder. Significantly, delivery is the final act essential to the negotiability of an instrument. Delivery denotes physical transfer of the instrument by the maker or drawer coupled with an intention to convey title to the payee and recognize him as a holder.15 It means more than handing over to another; it imports such transfer of the instrument to another as to enable the latter to hold it for himself.16

In this case, even if the checks were given to W.L. Foods in blank, this alone did not make its issuance invalid. When the checks were delivered to Lim, through his employee, he became a holder with prima facie authority to fill the blanks. This was, in fact, accomplished by Lim's accountant.

The pertinent provisions of Section 14 of the Negotiable Instruments Law are instructive:

SEC. 14. Blanks; when may be filled.-Where the instrument is wanting in any material particular,the person in possession thereof has

a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as aprima facie authority to fill it up as such for any amount. …. (Emphasis supplied.)

Hence, the law merely requires that the instrument be in the possession of a person other than the drawer or maker. From such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks.17 Because of this, the burden of proving want of authority or that the authority granted was exceeded, is placed on the person questioning such authority.18 Petitioner failed to fulfill this requirement.

Next, petitioner claims failure of consideration. Nevertheless, in a letter19 dated November 10, 1992, he expressed willingness to pay W.L. Foods, or to replace the dishonored checks. This was a clear acknowledgment of receipt of the goods, which gave rise to his duty to maintain or deposit sufficient funds to cover the amount of the checks.

More significantly, we are not swayed by petitioner's arguments that the single incident of dishonor and his absence when the checks were delivered belie fraud. Indeed damage and deceit are essential elements of the offense and must be established with satisfactory proof to warrant conviction.20 Deceit as an element of estafa is a specie of fraud. It is actual fraud which consists in any misrepresentation or contrivance where a person deludes another, to his hurt. There is deceit when one is misled -- by guile, trickery or by other means -- to believe as true what is really false.21

Prima facie evidence of deceit was established against petitioner with regard to FEBTC Check No. 553615 which was dishonored for insufficiency of funds. The letter22 of petitioner's counsel dated November 10, 1992 shows beyond reasonable doubt that petitioner received notice of the dishonor of the said check for insufficiency of funds. Petitioner, however, failed to deposit the

amounts necessary to cover his check within three banking days from receipt of the notice of dishonor. Hence, as provided for by law,23 the presence of deceit was sufficiently proven.

Petitioner failed to overcome the said proof of deceit. The trial court found no pre-existing obligation between the parties. The existence of prior transactions between Lim and Dy alone did not rule out deceit because each transaction was separate, and had a different consideration from the others. Even as petitioner was absent when the goods were delivered, by the principle of agency, delivery of the checks by his driver was deemed as his act as the employer. The evidence shows that as a matter of course, Dy, or his employee, would pay W.L. Foods in either cash or check upon pick up of the stocks of snack foods at the latter's branch or main office. Despite their two-year standing business relations prior to the issuance of the subject check, W.L Foods employees would not have parted with the stocks were it not for the simultaneous delivery of the check issued by petitioner.24Aside from the existing business relations between petitioner and W.L. Foods, the primary inducement for the latter to part with its stocks of snack foods was the issuance of the check in payment of the value of the said stocks.

In a number of cases,25 the Court has considered good faith as a defense to a charge of estafa by postdating a check. This good faith may be manifested by making arrangements for payment with the creditor and exerting best efforts to make good the value of the checks. In the instant case petitioner presented no proof of good faith. Noticeably absent from the records is sufficient proof of sincere and best efforts on the part of petitioner for the payment of the value of the check that would constitute good faith and negate deceit.

With the foregoing circumstances established, we find petitioner guilty of estafa with regard to FEBTC Check No. 553615 for P226,794.36.

The same, however, does not hold true with respect to FEBTC Check No. 553602 for P106,579.60. This check was dishonored for the reason that it was drawn against uncollected deposit. Petitioner had P160,659.39 in his savings deposit account ledger as of July 22, 1992. We disagree with the conclusion of the RTC that since the balance included a regional clearing check worth P55,000 deposited on July 20, 1992, which cleared only five (5) days later, then petitioner had inadequate funds in this instance. Since petitioner technically and retroactively had sufficient funds at the time Check No. 553602 was presented for payment then the second element (insufficiency of funds to cover the check) of the crime is absent. Also there is no prima facie evidence of deceit in this instance because the check was not dishonored for lack or insufficiency of funds. Uncollected deposits are not the same as insufficient funds. The prima facie presumption of deceit arises only when a check has been dishonored for lack or insufficiency of funds. Notably, the law speaks of insufficiency of funds but not of uncollected deposits. Jurisprudence teaches that criminal laws are strictly construed against the Government and liberally in favor of the accused.26 Hence, in the instant case, the law cannot be interpreted or applied in such a way as to expand its provision to encompass the situation of uncollected deposits because it would make the law more onerous on the part of the accused.

Clearly, the estafa punished under Article 315, paragraph 2(d) of the Revised Penal Code is committed when a check is dishonored for being drawn against insufficient funds or closed account, and not against uncollected deposit.27 Corollarily, the issuer of the check is not liable for estafa if the remaining balance and the uncollected deposit, which was duly collected, could satisfy the amount of the check when presented for payment.

Second, did petitioner violate B.P. Blg. 22?

Petitioner argues that the blank checks were not valid orders for the bank to pay the holder of such checks. He reiterates lack of knowledge of the insufficiency of funds and reasons that the checks could not have been issued to apply on account or for value as he did not obtain delivery of the goods.

The OSG maintains that the guilt of petitioner has been proven beyond reasonable doubt. It cites pieces of evidence that point to Dy's culpability: Maraca's acknowledgment that the checks were issued to W.L. Foods as consideration for the snacks; Lim's testimony proving that Dy received a copy of the demand letter; the bank manager's confirmation that petitioner had insufficient balance to cover the checks; and Dy's failure to settle his obligation within five (5) days from dishonor of the checks.

Once again, we find the petition to be meritorious in part.

The elements of the offense penalized under B.P. Blg. 22 are as follows: (1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause,

ordered the bank to stop payment.28 The case at bar satisfies all these elements.

During the joint pre-trial conference of this case, Dy admitted that he issued the checks, and that the signatures appearing on them were his.29 The facts reveal that the checks were issued in blank because of the uncertainty of the volume of products to be retrieved, the discount that can be availed of, and the deduction for bad orders. Nevertheless, we must stress that what the law punishes is simply the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating thereto.30 If inquiry into the reason for which the checks are issued, or the terms and conditions of their issuance is required, the public's faith in the stability and commercial value of checks as currency substitutes will certainly erode.31

Moreover, the gravamen of the offense under B.P. Blg. 22 is the act of making or issuing a worthless check or a check that is dishonored upon presentment for payment. The act effectively declares the offense to be one of malum prohibitum. The only valid query, then, is whether the law has been breached, i.e., by the mere act of issuing a bad check, without so much regard as to the criminal intent of the issuer.32 Indeed, non-fulfillment of the obligation is immaterial. Thus, petitioner's defense of failure of consideration must likewise fall. This is especially so since as stated above, Dy has acknowledged receipt of the goods.

On the second element, petitioner disputes notice of insufficiency of funds on the basis of the check being issued in blank. He relies on Dingle v. Intermediate Appellate Court33 and Lao v. Court of Appeals34 as his authorities. In both actions, however, the accused were co-signatories, who were neither apprised of the particular transactions on which the blank checks were issued, nor given notice of their dishonor. In the latter case, Lao signed the checks without knowledge of the insufficiency of funds, knowledge she was not expected or obliged to possess under the organizational structure of the corporation.35 Lao was only a minor employee who had nothing to do with the issuance, funding and delivery of checks.36 In contrast, petitioner was the proprietor of Dyna Marketing and the sole signatory of the checks who received notice of their dishonor.

Significantly, under Section 237 of B.P. Blg. 22, petitioner was prima facie presumed to know of the inadequacy of his funds with the bank when he did not pay the value of the goods or make arrangements for their payment in full within five (5) banking days upon notice. His letter dated November 10, 1992 to Lim fortified such presumption.

Undoubtedly, Dy violated B.P. Blg. 22 for issuing FEBTC Check No. 553615. When said check was dishonored for insufficient funds and stop payment order, petitioner did not pay or make arrangements with the bank for its payment in full within five (5) banking days.

Petitioner should be exonerated, however, for issuing FEBTC Check No. 553602, which was dishonored for the reason DAUD or drawn against uncollected deposit. When the check was presented for payment, it was dishonored by the bank because the check deposit made by petitioner, which would make petitioner's bank account balance more than enough to cover the face value of the subject check, had not been collected by the bank.

In Tan v. People,38 this Court acquitted the petitioner therein who was indicted under B.P. Blg. 22, upon a check which was dishonored for the reason DAUD, among others. We observed that:

In the second place, even without relying on the credit line, petitioner's bank account covered the check she issued because even though there were some deposits that were still uncollected the deposits became "good" and the bank certified that the check was "funded."39

To be liable under Section 140 of B.P. Blg. 22, the check must be dishonored by the drawee bank for insufficiency of funds or credit or dishonored for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.

In the instant case, even though the check which petitioner deposited on July 20, 1992 became good only five (5) days later, he was considered by the bank to retroactively have had P160,659.39 in his account on July 22, 1992. This was more than enough to cover the check he issued to respondent in the amount of P106,579.60. Under the circumstance obtaining in this case, we find the petitioner had issued the check, with full ability to abide by his commitment41 to pay his purchases.

Significantly, like Article 315 of the Revised Penal Code, B.P. Blg. 22 also speaks only of insufficiency of funds and does not treat of uncollected deposits. To repeat, we cannot interpret the law in such a way as to expand its provision to encompass the situation of uncollected deposits because it would make the law more onerous on the part of the accused. Again, criminal

statutes are strictly construed against the Government and liberally in favor of the accused.42

As regards petitioner's civil liability, this Court has previously ruled that an accused may be held civilly liable where the facts established by the evidence so warrant.43 The rationale for this is simple. The criminal and civil liabilities of an accused are separate and distinct from each other. One is meant to punish the offender while the other is intended to repair the damage suffered by the aggrieved party. So, for the purpose of indemnifying the latter, the offense need not be proved beyond reasonable doubt but only by preponderance of evidence.44

We therefore sustain the appellate court's award of damages to W.L. Foods in the total amount ofP333,373.96, representing the sum of the checks petitioner issued for goods admittedly delivered to his company.

As to the appropriate penalty, petitioner was charged with estafa under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Presidential Decree No. 81845 (P.D. No. 818).

Under Section 146 of P.D. No. 818, if the amount of the fraud exceeds P22,000, the penalty ofreclusión temporal is imposed in its maximum period, adding one year for each additional P10,000 but the total penalty shall not exceed thirty (30) years, which shall be termed reclusión perpetua.47Reclusión perpetua is not the prescribed penalty for the offense, but merely describes the penalty actually imposed on account of the amount of the fraud involved.

WHEREFORE, the petition is PARTLY GRANTED. John Dy is hereby ACQUITTED in Criminal Case No. Q-93-46711 for estafa, and Criminal Case No. Q-93-46712 for violation of B.P. Blg. 22, but he isORDERED to pay W.L. Foods the amount of P106,579.60 for goods delivered to his company.

In Criminal Case No. Q-93-46713 for estafa, the Decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner is sentenced to suffer an indeterminate penalty of twelve (12) years ofprisión mayor, as minimum, to thirty (30) years of reclusión perpetua, as maximum.

In Criminal Case No. Q-93-46714 for violation of B.P. Blg. 22, the Decision of the Court of Appeals isAFFIRMED, and John Dy is hereby sentenced to one (1) year imprisonment and ordered to indemnify W.L. Foods in the amount of P226,794.36.

SO ORDERED.

[G.R. No. 142047. July 10, 2006]

SPS. SERGIO AND MILAGROS OJEDA versus ANDRELINA ORBETA

Third Division

Sirs/Mesdames:

Quoted hereunder, for your information, is a resolution of this Court dated JULY 10, 2006.

G.R. No. 142047 (Sps. Sergio and Milagros Ojeda versus Andrelina Orbeta)

Petitioner spouses Sergio Ojeda and Milagros Ojeda seek a reversal of the February 24, 2000 Decision[1] rendered by the Court of Appeals in CA-G.R. CV No. 59985 entitled Andrelina Orbeta v. Sps. Sergio Ojeda and Milagros Ojeda. The questioned decision affirmed the February 23, 1995 Decision[2] of the Regional Trial Court, Branch 106 of Quezon City in Civil Case No. Q-91-7794.

The facts of this case are not complicated.

From 1986 to 1989, the spouses Ojeda obtained various loans they would use as additional capital from Andrelina Orbeta, a general merchandiser and former market stall holder. Over time, Orbeta extended a total of 18 loans to the spouses.[3] Although the couple failed to pay their obligations on time, Orbeta continued to accommodate them, and lent them more money on the assurance that they would soon pay all their debts. Every time Orbeta would

verbally demand payment, she was told that payment was forthcoming and there was nothing to worry about since the spouses' business was doing well and the couple had a daughter based in Japan who always sent them money. To their sincerity, they aver, they even delivered a copy of the registration papers of one of their vehicles to Orbeta.

Notwithstanding all their promises, however, the spouses' obligations remained unpaid. Orbeta made numerous demands but all attempts to collect from the couple proved futile. Frustrated by their failure to pay, Orbeta through her lawyer sent a demand letter to the spouses on March 1989.[4] Eventually, on July 1989, after an accounting of all outstanding loans due, Milagros Ojeda issued Security Bank and Trust Company Check No. 027836 dated September 1, 1989 for P487,133.87, representing full settlement of all obligations due in favor of Orbeta. When presented for payment, however, the check was dishonored for having been drawn against an account already closed.

Consequently, Orbeta filed Criminal Case No. Q-90-10226 for violation of Batas Pambansa Bilang 22 against Milagros Ojeda with the Regional Trial Court of Quezon City.[5] After a plea of guilty, judgment was rendered against the accused in a decision[6] dated October 11, 1990. The dispositive portion of the decision read:

WHEREFORE, considering the plea of Guilty entered by accused Milagros Ojeda this morning, the Court hereby renders judgment:

1. Finding said accused GUILTY beyond reasonable doubt of the offense charged;

2. Sentencing her to suffer the penalty of ONE (1) YEAR imprisonment; and

3. To pay costs.

The decision was promulgated in open Court this morning in the presence of the accused herself, Assistant City Prosecutor Perpetuo LB Alonzo and Atty. Renerio S. Payumo.

SO ORDERED.

Consistent with the reservation made by Ojeda in the BP 22 case, Civil Case No. Q-91-7794 was subsequently filed against the spouses to collect on the civil aspect of the BP 22 case. In the civil case, the Regional Trial Court ruled as follows:

WHEREFORE, finding no cogent reason to deny the relief being prayed for, the cause of action of plaintiff having been fully established and proven by preponderant evidence, judgment is hereby rendered ordering defendants to pay plaintiff:

1. The amount of Four Hundred Eighty Seven Thousand One Hundred Thirteen and 87/100 (P487,113.87) pesos with 12% interest from filing of the case until fully paid.

2. 25% of the principal obligation as and by way of attorney's fees.

3. Cost of suit.

SO ORDERED.[7]

Aggrieved, the spouses brought their case to the Court of Appeals where the Regional Trial Court's judgment was affirmed, to wit:

WHEREFORE, with the sole modification that the award for attorney's fee[s] is hereby eliminated, the Judgment appealed from is in all other respects AFFIRMED, with the costs of this instance to be taxed against the defendants-appellants.

SO ORDERED.[8]

Before us now are the following issues: (1) Are the spouses liable for issuing Security Bank and Trust Company Check No. 027836? (2) Did the Court of Appeals err in upholding the propriety of the civil case that was instituted separately from the BP 22 case?

To justify their prayer for a reversal of the Court of Appeals' decision, the spouses insist that there are special and important reasons present in the case which constitute a question of law and there was a misapprehension of facts committed by the Court of Appeals which must be rectified.

Petitioners maintain that any obligation arising from Security Bank and Trust Company Check No. 027836 is invalid and illegal since the same was issued in blank except for the signature of Milagros Ojeda. They further claim that they already paid P55,000 to satisfy their obligation to Orbeta of P30,000 only. The couple also aver that the motion of Orbeta to file a separate civil action was merely noted by the Regional Trial Court in the BP 22 case and there was no order granting the institution of a separate civil action.

Respondent Orbeta, on the other hand, counters that the errors raised by the spouses deal with questions of fact which have already been passed upon and decided by the Regional Trial Court and the Court of Appeals and cannot now be raised in this petition for review. Orbeta also contends that, the couple cannot assert for the first time that the motion to file a separate civil action was merely noted and no order was issued by the Regional Trial Court granting the same since a full blown trial had been conducted without the said issue having been raised by the spouses, hence, they are barred from doing so, since they are considered to have waived any objection they may have had on the subject. Finally, Orbeta points out that the judgment in the BP 22 case did not contain an award for civil liability which is tantamount to the Regional Trial Court's approval of the motion.[9]

To resolve the first issue, we must here emphasize that the jurisdiction of this Court in a petition such as this is limited to reviewing errors of law that might have been committed by the lower court. The allegation of the spouses that Security Bank and Trust Company Check No. 027836 was delivered to Orbeta in blank except for the signature of Milagros Ojeda and the amount of P10,000 annotated at the back of the check, and their contention that they cannot be held liable for the face value of the check since Milagros Ojeda was not the one who filled up the date, name of the payee and the amount appearing on the check, are questions of fact that require us to re-examine the evidence presented by the contending parties during trial. This cannot be done in a petition for review. Under Rule 45, only questions of law may be raised in a petition for review, except in very few specified instances, e.g. where there is variance in the factual findings of the trial and appellate courts. Since both the Regional Trial Court and the Court of Appeals agree on the cited facts, we are bound by their factual findings.

In any event, the spouses do not deny that the check was delivered to Orbeta and that the signature appearing on the check belongs to Milagros Ojeda. Even if the check was delivered to Orbeta in blank, we must stress that the presumption is that the latter had prima facie authority to complete the check by filling up the same. Here, the provision of Section 14 of the Negotiable Instruments Law is pertinent:

SEC. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facieauthority to fill it up as such for any amount. In order, however, that any such instrument, when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. (Emphasis supplied.)

The law merely requires that the instrument be in the possession of a person other than the drawer or maker, and from such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks.[10] Because of the presumption of authority, the burden of proving that there was no authority or that the authority granted was exceeded is placed on the person questioning such authority.[11] There is nothing on record to show that the prima facie presumption created by the afore-quoted section was successfully refuted by the spouses. Therefore, the couple's stance that they cannot be held liable for the check because they were not the ones who wrote the date, the name of the payee and the amount, is untenable.

On the second issue, it appears that an urgent motion to file a separate civil action was filed by Orbeta on October 11, 1990, which motion was correspondingly noted by the Regional Trial Court in its decision.[12] Since the civil liability involved in this case is one that arises from a crime, the rule is that the same is impliedly instituted with the criminal action unless the offended party expressly waives the civil action; reserves his right to institute it separately; or institutes the civil action prior to the filing of the criminal case.[13] The purpose of the rule requiring reservation is to prevent the offended party from recovering damages twice for the same act or omission.[14]

Orbeta's intention to reserve her right to recover the civil liability arising from the BP 22 case is clear from the time she filed the urgent motion.[15] The fact that the Regional Trial Court did not provide for an award of damages in its decision is also a clear recognition of Orbeta's reservation.

Contrary to the spouses' argument, an order by the Regional Trial Court granting the urgent motion to file a separate civil action is not necessary since the rules only require that the offended party make the reservation before the prosecution starts to present its evidence and under circumstances affording the offended party a reasonable opportunity to make such reservation.

Lastly, we agree with respondent that it is now too late for the spouses to question the institution of the civil case separately from the BP 22 case. A full blown trial was conducted in the civil case with the participation of the spouses, but they never raised any objection thereto, and they cannot be allowed here and now to raise this issue for the first time.

WHEREFORE, the instant petition is DENIED. The February 24, 2000 Decision of the Court of Appeals sustaining the February 23, 1995 Decision of the Regional Trial Court is AFFIRMED.

Costs against petitioners.

SO ORDERED.

G.R. No. 150228 July 30, 2009

BANK OF AMERICA NT & SA, Petitioner, vs. PHILIPPINE RACING CLUB, Respondent.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision1 promulgated on July 16, 2001 by the former Second Division of the Court of Appeals (CA), in CA-G.R. CV No. 45371 entitled "Philippine Racing Club, Inc. v. Bank of America NT & SA," affirming the Decision2 dated March 17, 1994 of the Regional Trial Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent. Likewise, the present petition assails the Resolution3 promulgated on September 28, 2001, denying the Motion for Reconsideration of the CA Decision.

The facts of this case as narrated in the assailed CA Decision are as follows:

Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with different banks in the Metro Manila area. Among the accounts maintained was Current Account No. 58891-012 with defendant-appellant BA (Paseo de Roxas Branch). The authorized joint signatories with respect to said Current Account were plaintiff-appellee’s President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes).

On or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee corporation were scheduled to go out of the country in connection with the corporation’s business. In order not to disrupt operations in their absence, they pre-signed several checks relating to Current Account No. 58891-012. The intention was to insure continuity of plaintiff-appellee’s operations by making available cash/money especially to settle obligations that might become due. These checks were entrusted to the accountant with instruction to make use of the same as the need arose. The internal arrangement was, in the event there was need to make use of the checks, the accountant would prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks.

It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank for encashment a couple of plaintiff-appellee corporation’s checks (Nos. 401116 and 401117) with the indicated value of P110,000.00 each. It is admitted that these 2 checks were among those presigned by plaintiff-appellee corporation’s authorized signatories.

The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee should be indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on the upper line was the word "CASH" while the lower line had the following typewritten words, viz: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Despite the highly irregular entries on the face of the checks, defendant-appellant bank, without as much as verifying and/or confirming the legitimacy of the checks considering the substantial amount involved and the obvious infirmity/defect of the checks on their faces, encashed said checks. A verification process, even by was of a telephone call to PRCI office, would have taken less than ten (10) minutes. But this was not done by BA. Investigation conducted by plaintiff-appellee corporation yielded the fact that there was no transaction involving PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to have come into the hands of an employee of PRCI (one Clarita Mesina who was subsequently criminally charged for qualified theft) who eventually completed without authority the

entries on the pre-signed checks. PRCI’s demand for defendant-appellant to pay fell on deaf ears. Hence, the complaint.4

After due proceedings, the trial court rendered a Decision in favor of respondent, the dispositive portion of which reads:

PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the defendant, and the latter is ordered to pay plaintiff:

(1) The sum of Two Hundred Twenty Thousand (P220,000.00) Pesos, with legal interest to be computed from date of the filing of the herein complaint;

(2) The sum of Twenty Thousand (P20,000.00) Pesos by way of attorney’s fees;

(3) The sum of Ten Thousand (P10,000.00) Pesos for litigation expenses, and

(4) To pay the costs of suit.

SO ORDERED.5

Petitioner appealed the aforesaid trial court Decision to the CA which, however, affirmed said decision in toto in its July 16, 2001 Decision. Petitioner’s Motion for Reconsideration of the CA Decision was subsequently denied on September 28, 2001.

Petitioner now comes before this Court arguing that:

I. The Court of Appeals gravely erred in holding that the proximate cause of respondent’s loss was petitioner’s encashment of the checks.

A. The Court of Appeals gravely erred in holding that petitioner was liable for the amount of the checks despite the fact that petitioner was merely fulfilling its obligation under law and contract.

B. The Court of Appeals gravely erred in holding that petitioner had a duty to verify the encashment, despite the absence of any obligation to do so.

C. The Court of Appeals gravely erred in not applying Section 14 of the Negotiable Instruments Law, despite its clear applicability to this case;

II. The Court of Appeals gravely erred in not holding that the proximate cause of respondent’s loss was its own grossly negligent practice of pre-signing checks without payees and amounts and delivering these pre-signed checks to its employees (other than their signatories).

III. The Court of Appeals gravely erred in affirming the trial court’s award of attorney’s fees despite the absence of any applicable ground under Article 2208 of the Civil Code.

IV. The Court of Appeals gravely erred in not awarding attorney’s fees, moral and exemplary damages, and costs of suit in favor of petitioner, who clearly deserves them.6

From the discussions of both parties in their pleadings, the key issue to be resolved in the present case is whether the proximate cause of the wrongful encashment of the checks in question was due to (a) petitioner’s failure to make a verification regarding the said checks with the respondent in view of the misplacement of entries on the face of the checks or (b) the practice of the respondent of pre-signing blank checks and leaving the same with its employees.

Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the aforesaid checks. Invoking Sections 1267 and 1858 of the Negotiable Instruments Law (NIL), petitioner claims that its duty as a drawee bank to a drawer-client maintaining a checking account with it is to pay orders for checks bearing the drawer-client’s genuine signatures. The genuine signatures of the client’s duly authorized signatories affixed on the checks signify the order for payment. Thus, pursuant to the said obligation, the drawee bank has the duty to determine whether the signatures appearing on the check are the drawer-client’s or its duly authorized signatories. If the signatures are genuine, the bank has the unavoidable legal and contractual duty to pay. If the signatures are forged and falsified, the drawee bank has the corollary, but equally unavoidable legal and contractual, duty not to pay.9

Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from the drawer before encashing a check only when the check bears a material alteration. A material alteration is defined in Section 125 of the NIL to be one which changes the date, the sum payable, the time or place of payment, the number or relations of the parties, the currency in which payment is to be made or one which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect. With respect to the checks at issue, petitioner points out that they do not contain any material alteration.10 This is a fact which was affirmed by the trial court itself.11

There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondent’s authorized joint signatories; namely, Antonia Reyes and Gregorio Reyes who were respondent’s President and Vice-President for Finance, respectively. Both pre-signed the said checks since they were both scheduled to go abroad and it was apparently their practice to leave with the company accountant checks signed in black to answer for company obligations that might fall due during the signatories’ absence. It is likewise admitted that neither of the subject checks contains any material alteration or erasure.

However, on the blank space of each check reserved for the payee, the following typewritten words appear: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Above the same is the typewritten word, "CASH." On the blank reserved for the amount, the same amount of One Hundred Ten Thousand Pesos was indicated with the use of a check writer. The presence of these irregularities in each check should have alerted the petitioner to be cautious before proceeding to encash them which it did not do.

It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. They have the obligation to treat their client’s account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.12

Petitioner asserts that it was not duty-bound to verify with the respondent since the amount below the typewritten word "CASH," expressed in words, is the very same amount indicated in figures by means of a check writer on the amount portion of the check. The amount stated in words is, therefore, a mere reiteration of the amount stated in figures. Petitioner emphasizes that a reiteration of the amount in words is merely a repetition and that a repetition is not an alteration which if present and material would have enjoined it to commence verification with respondent.13

We do not agree with petitioner’s myopic view and carefully crafted defense. Although not in the strict sense "material alterations," the misplacement of the typewritten entries for the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person who customarily accomplishes the checks of respondent, it should have occurred to petitioner’s employees that it would be unlikely such mistakes would be made. All these circumstances should have alerted the bank to the possibility that the holder or the person who is attempting to encash the checks did not have proper title to the checks or did not have authority to fill up and encash the same. As noted by the CA, petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to respondent due to the encashment of the stolen checks would have been prevented.

In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the authenticity of the subject checks or the accuracy of the entries therein not only because of the presence of highly irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding their encashment. Respondent’s witness testified that for checks in amounts greater than Twenty Thousand Pesos (P20,000.00) it is the company’s practice to ensure that the payee is indicated by name in the check.14 This was not rebutted by petitioner. Indeed, it is highly uncommon for a corporation to make out checks payable to "CASH" for substantial amounts such as in this case. If each irregular circumstance in this case were taken singly or isolated, the bank’s employees might have been justified in ignoring them. However, the confluence of the irregularities on the face of the checks and circumstances that depart from the usual banking practice of respondent should have put petitioner’s employees on guard that the checks were possibly not issued by the respondent in due course of its business. Petitioner’s subtle sophistry cannot exculpate it from behavior that fell extremely short of the highest degree of care and diligence required of it as a banking institution.

Indeed, taking this with the testimony of petitioner’s operations manager that in case of an irregularity on the face of the check (such as when blanks were not properly filled out) the bank may or may not call the client depending on how busy the bank is on a particular day,15 we are even more convinced that petitioner’s safeguards to protect clients from check fraud are arbitrary and

subjective. Every client should be treated equally by a banking institution regardless of the amount of his deposits and each client has the right to expect that every centavo he entrusts to a bank would be handled with the same degree of care as the accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to the high standard of diligence expected of it as a banking institution.

In defense of its cashier/teller’s questionable action, petitioner insists that pursuant to Sections 1416 and 1617 of the NIL, it could validly presume, upon presentation of the checks, that the party who filled up the blanks had authority and that a valid and intentional delivery to the party presenting the checks had taken place. Thus, in petitioner’s view, the sole blame for this debacle should be shifted to respondent for having its signatories pre-sign and deliver the subject checks.18 Petitioner argues that there was indeed delivery in this case because, following American jurisprudence, the gross negligence of respondent’s accountant in safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped from claiming non-delivery of the instrument.19

Petitioner’s contention would have been correct if the subject checks were correctly and properly filled out by the thief and presented to the bank in good order. In that instance, there would be nothing to give notice to the bank of any infirmity in the title of the holder of the checks and it could validly presume that there was proper delivery to the holder. The bank could not be faulted if it encashed the checks under those circumstances. However, the undisputed facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not properly delivered to the person who encashed the same. In all, we see no reason to depart from the finding in the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus making Section 1520 of the NIL applicable in this case.

However, we do agree with petitioner that respondent’s officers’ practice of pre-signing of blank checks should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of businesses. It should have occurred to respondent’s officers and managers that the pre-signed blank checks could fall into the wrong hands as they did in this case where the said checks were stolen from the company accountant to whom the checks were entrusted.

Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner will still emerge as the party foremost liable in this case. In instances where both parties are at fault, this Court has consistently applied the doctrine of last clear chance in order to assign liability.

In Westmont Bank v. Ong,21 we ruled:

…[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and followed the proper and regular banking procedures in clearing checks. As we had earlier ruled, the one who had a last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof.22 (emphasis ours)

In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent because, even if we concur that the latter was indeed negligent in pre-signing blank checks, the former had the last clear chance to avoid the loss. To reiterate, petitioner’s own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. Verily, petitioner had the final opportunity to avert the injury that befell the respondent. Failing to make the necessary verification due to the volume of banking transactions on that particular day is a flimsy and unacceptable excuse, considering that the "banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be a high degree of diligence, if not the utmost diligence."23 Petitioner’s negligence has been undoubtedly established and, thus, pursuant to Art. 1170 of the NCC,24 it must suffer the consequence of said negligence.

In the interest of fairness, however, we believe it is proper to consider respondent’s own negligence to mitigate petitioner’s liability. Article 2179 of the Civil Code provides:

Art. 2179. When the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.1avvph!1

Explaining this provision in Lambert v. Heirs of Ray Castillon,25 the Court held:

The underlying precept on contributory negligence is that a plaintiff who is partly responsible for his own injury should not be entitled to recover damages in full but must bear the consequences of his own negligence. The defendant must thus be held liable only for the damages actually caused by his negligence. xxx xxx xxx

As we previously stated, respondent’s practice of signing checks in blank whenever its authorized bank signatories would travel abroad was a dangerous policy, especially considering the lack of evidence on record that respondent had appropriate safeguards or internal controls to prevent the pre-signed blank checks from falling into the hands of unscrupulous individuals and being used to commit a fraud against the company. We cannot believe that there was no other secure and reasonable way to guarantee the non-disruption of respondent’s business. As testified to by petitioner’s expert witness, other corporations would ordinarily have another set of authorized bank signatories who would be able to sign checks in the absence of the preferred signatories.26 Indeed, if not for the fortunate happenstance that the thief failed to properly fill up the subject checks, respondent would expectedly take the blame for the entire loss since the defense of forgery of a drawer’s signature(s) would be unavailable to it. Considering that respondent knowingly took the risk that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent shares in the responsibility for the loss.

We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from respondent’s accountant turned out to be another employee, purportedly a clerk in respondent’s accounting department. As the employer of the "thief," respondent supposedly had control and supervision over its own employee. This gives the Court more reason to allocate part of the loss to respondent.

Following established jurisprudential precedents,27 we believe the allocation of sixty percent (60%) of the actual damages involved in this case (represented by the amount of the checks with legal interest) to petitioner is proper under the premises. Respondent should, in light of its contributory negligence, bear forty percent (40%) of its own loss.

Finally, we find that the awards of attorney’s fees and litigation expenses in favor of respondent are not justified under the circumstances and, thus, must be deleted. The power of the court to award attorney’s fees and litigation expenses under Article 2208 of the NCC28 demands factual, legal, and equitable justification.

An adverse decision does not ipso facto justify an award of attorney’s fees to the winning party.29 Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney’s fees may not be awarded where no sufficient showing of bad faith could be reflected in a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause.30

WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution dated September 28, 2001 are AFFIRMED with the following MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty Thousand Pesos (P220,000.00) with legal interest as awarded by the trial court and (b) the awards of attorney’s fees and litigation expenses in favor of respondent are deleted.

Proportionate costs.

SO ORDERED.

G.R. No. 141181 April 27, 2007

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

D E C I S I O N

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari filed by Samson Ching of the Decision1 dated November 22, 1999 of the Court of Appeals (CA) in CA-G.R. CR No. 23055. The assailed decision acquitted respondent Clarita Nicdao of eleven (11) counts of violation of Batas Pambansa Bilang (BP) 22, otherwise known as "The Bouncing Checks Law." The instant petition pertains and is limited to the civil aspect of the case as it submits that notwithstanding respondent Nicdao’s acquittal, she should be held liable to pay petitioner Ching the amounts of the dishonored checks in the aggregate sum of P20,950,000.00.

Factual and Procedural Antecedents

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

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

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

CONTRARY TO LAW.

Dinalupihan, Bataan, October 21, 1997.

(Sgd.) SAMSON T.Y. CHING

Complainant

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

Check No.

Amount Date Private Complainant

Reason for the Dishonor

0025242 P 20,000,000 Oct. 6, 1997

Samson T.Y. Ching

DAIF*

0088563 150,000 Oct. 6, 1997

" "

0121424 100,000 Oct. 6, 1997

" "

0045315 50,000 Oct. 6, 1997

" "

0022546 100,000 Oct. 6, 1997

" "

0088757 100,000 Oct. 6, 1997

" "

0089368 50,000 Oct. 6, 1997

" "

0022739 50,000 Oct. 6, 1997

" "

00894810 150,000 Oct. 6, 1997

" "

00893511 100,000 Oct. 6, 1997

" "

01037712 100,000 Oct. 6, 1997

" "

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

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

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

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

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

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

Petitioner Ching confirmed the truthfulness of the allegations contained in the eleven (11) Informations that he filed against respondent Nicdao. He reiterated that, upon their agreement, the checks were all signed by respondent Nicdao but she left them undated. Petitioner Ching admitted that he was the one who wrote the date, October 6, 1997, on those checks when respondent Nicdao refused to pay him.

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

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

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

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

Petitioner Ching reiterated that after the lapse of one (1) year from the time respondent Nicdao issued the checks to him, he went to her several times to collect payment. In all these instances, she said that she had no cash. Finally, in September 1997, respondent Nicdao allegedly went to his house and told him that Janette was only willing to pay him between P3,000,000.00 and P5,000,000.00 because, as far as her daughter was concerned, that was the only amount borrowed from petitioner Ching. On hearing this, petitioner Ching angrily told respondent Nicdao that she should not have allowed her debt to reach P20,000,000.00 knowing that she would not be able to pay the full amount.

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

Another witness presented by the prosecution was Imelda Yandoc, an employee of HSLB. On direct-examination,15 she testified that she worked as a checking account bookkeeper/teller of the bank. As such, she received the checks that were drawn against the bank and verified if they were funded. On October 6, 1997, she received several checks issued by respondent Nicdao. She knew respondent Nicdao because the latter maintained a savings and checking account with them. Yandoc identified the checks subject of Criminal Cases Nos. 9433-9443 and affirmed that stamped at the back of each was the annotation "DAIF". Further, per the bank’s records, as of October 8, 1997, only a balance of P300.00 was left in respondent Nicdao’s checking account and P645.83 in her savings account. On even date, her account with the bank was considered inactive.

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

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

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

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

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

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

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

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

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

At the continuation of her direct-examination,19 respondent Nicdao said that she never dealt with petitioner Ching because it was Nuguid who went to the grocery store everyday to collect the interest payments. When shown theP20,000,000.00 check, respondent Nicdao admitted that the signature thereon was hers but she denied issuing it as a blank check to petitioner Ching. On the other hand, with respect to the other ten (10) checks, she also admitted that the signatures thereon were hers and that the amounts thereon were written by either Josie Nicdao or Melanie Tolentino, her employees whom she authorized to do so. With respect to the payee, it was purposely left blank allegedly upon instruction of Nuguid who said that she would use the checks to pay someone else.

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

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

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

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

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

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

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

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

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

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

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

After due trial, on December 8, 1998, the MCTC rendered judgment in Criminal Cases Nos. 9433-9443 convicting respondent Nicdao of eleven (11) counts of violation of BP 22. The MCTC gave credence to petitioner Ching’s testimony that respondent Nicdao borrowed money from him in the total amount of P20,950,000.00. Petitioner Ching delivered P1,000,000.00 every month to respondent Nicdao from 1995 up to 1997 until the sum reachedP20,000,000.00. The MCTC also found that subsequent thereto, respondent Nicdao still borrowed money from petitioner Ching. As security for these loans, respondent Nicdao issued checks to petitioner Ching. When the latter deposited the checks (eleven in all) on October 6, 1997, they were dishonored by the bank for being "DAIF."

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

According to the MCTC, all the foregoing elements are present in the case of respondent Nicdao’s issuance of the checks subject of Criminal Cases Nos. 9433-9443. On the first element, respondent Nicdao was found by the MCTC to have made, drawn and issued the checks. The fact that she did not personally write the payee and date on the checks was not material

considering that under Section 14 of the Negotiable Instruments Law, "where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount x x x." Respondent Nicdao admitted that she authorized her employees to provide the details on the checks after she had signed them.

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

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

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

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

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

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

SO ORDERED.27

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

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

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

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

On November 22, 1999, the CA (13th Division) rendered the assailed Decision in CA-G.R. CR No. 23055 acquitting respondent Nicdao of the eleven (11)

counts of violation of BP 22 filed against her by petitioner Ching. The decretal portion of the assailed CA Decision reads:

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

SO ORDERED.28

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

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

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

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

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

Soon thereafter, Emma Nuguid befriended petitioner and offered to lend money to the latter which could be used in running her newly acquired store. Nuguid represented to petitioner that as former manager of the Vignette Superstore, she knew that petitioner would be in need of credit to meet the daily expenses of running the business, particularly in the daily purchases of merchandise to be sold at the store. After Emma Nuguid succeeded in befriending petitioner, Nuguid was able to gain access to the Vignette Superstore where petitioner’s blank and pre-signed checks were kept.29

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

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

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

The CA negated petitioner Ching’s contention that the payments as reflected at the back of the cigarette wrappers could be applied only to the interests due. Since the transactions were not evidenced by any document or writing, the CA ratiocinated that no interests could be collected because, under Article

1956 of the Civil Code, "no interest shall be due unless it has been expressly stipulated in writing."

The CA gave credence to the testimony of respondent Nicdao that when she had fully paid her loans to Nuguid, she tried to retrieve her checks. Nuguid, however, refused to return the checks to respondent Nicdao. Instead, Nuguid and petitioner Ching filled up the said checks to make it appear that: (a) petitioner Ching was the payee in five checks; (b) the six checks were payable to cash; (c) Nuguid was the payee in fourteen (14) checks. Petitioner Ching and Nuguid then put the date October 6, 1997 on all these checks and deposited them the following day. On October 8, 1997, through a joint demand letter, they informed respondent Nicdao that her checks were dishonored by HSLB and gave her three days to settle her indebtedness or else face prosecution for violation of BP 22.

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

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

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

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

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

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

The CA held that the P20,000,000.00 check was filled up by petitioner Ching without respondent Nicdao’s authority. Further, it was incomplete and

undelivered. Hence, petitioner Ching did not acquire any right or interest therein and could not assert any cause of action founded on the

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

The Petitioner’s Case

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

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

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

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

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

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

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

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

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

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

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

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

respondent Nicdao’s own witness, Jocelyn Nicdao, who testified that when she started working in Vignette Superstore in 1994, she noticed that respondent Nicdao was already indebted to Nuguid.

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

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

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

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

In fine, it is petitioner Ching’s view that the CA gravely erred in disregarding the findings of the MCTC, as affirmed by the RTC, and submits that there is more than sufficient preponderant evidence to hold respondent Nicdao civilly liable to him in the amount of P20,950,000.00. He thus prays that the Court direct respondent Nicdao to pay him the said amount plus 12% interest per annum computed from the date of written demand until the total amount is fully paid.

The Respondent’s Counter-Arguments

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

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

x x x x

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

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

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

In any case, respondent Nicdao contends that the CA did not commit serious misapprehension of facts when it found that the P20,000,000.00 check was a stolen check and that she never made any transaction with petitioner Ching. Moreover, the other ten (10) checks were not issued to apply on account or for value. These findings are allegedly supported by the evidence on record which consisted of the respective testimonies of the defense witnesses to the effect that: respondent Nicdao had the practice of leaving pre-signed checks placed inside an unsecured cash box in the Vignette Superstore; the salesladies were given the authority to fill up the said checks as to the amount, payee and date; Nuguid beguiled respondent Nicdao to obtain loans from her; as security for the loans, respondent Nicdao issued checks to Nuguid; when the salesladies gave the checks to Nuguid, she instructed them to leave blank the payee and date; Nuguid had access to the grocery store; in 1995, one of the salesladies reported that a check was missing; in 1997, when she had fully paid her loans to Nuguid, respondent Nicdao tried to retrieve her checks but Nuguid and petitioner Ching falsely told her that she still owed them money; they then maliciously filled up the checks making it appear that petitioner Ching was the payee in the five checks and the six others were payable to "cash"; and knowing fully well that these checks were not funded because respondent Nicdao already fully paid her loans, petitioner Ching and Nuguid deposited the checks and caused them to be dishonored by HSLB.

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

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

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

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

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

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

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

Respondent Nicdao rebuts petitioner Ching’s argument (that the daily payments were applied to the interests), and claims that this is illegal.

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

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

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

The Court’s Rulings

The petition is denied for lack of merit.

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

It is axiomatic that "every person criminally liable for a felony is also civilly liable."34 Under the pertinent provision of the Revised Rules of Court, the civil action is generally impliedly instituted with the criminal action. At the time of petitioner Ching’s filing of the Informations against respondent Nicdao, Section 1,35 Rule 111 of the Revised Rules of Court, quoted earlier, provided in part:

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

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

x x x x

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Salazar also enunciated that the civil action based on the delict is extinguished if there is a finding in the final judgment in the criminal action that the act or omission from which the civil liability may arise did not exist or where the accused did not commit the act or omission imputed to him.

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

The acquittal of respondent Nicdao likewise effectively extinguished her civil liability

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

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

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

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

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

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

Third, while petitioner Ching attempts to show that respondent Nicdao’s liability did not arise from or was not based upon the criminal act of which she was acquitted (ex delicto) but from her loan obligations to him (ex contractu), however, petitioner Ching miserably failed to prove by preponderant evidence the existence of these unpaid loan obligations. Significantly, it can be inferred from the following findings of the CA in its decision acquitting respondent Nicdao that the act or omission from which her civil liability may arise did not exist. On theP20,000,000.00 check, the CA found as follows:

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

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

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

x x x x

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

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

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

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

Apart from the payment to Emma Nuguid through said demand draft, it is also not disputed that petitioner made cash payments to Emma Nuguid who

collected the payments almost daily at the Vignette Superstore. As of July 21, 1997, Emma Nuguid collected cash payments amounting to approximately P5,780,000.00. All of these cash payments were recorded at the back of cigarette cartons by Emma Nuguid in her own handwriting, the authenticity and accuracy of which were never denied by either complainant Ching or Emma Nuguid.

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

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

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

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

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

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

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

respondent Nicdao’s payment to petitioner Ching on account of the loan obligations that she obtained from him since October 1995.

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

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

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

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

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

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

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

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

(a) At the instance of any party or Justice to whom the case is assigned for study and report, and with the conformity of all the Justices concerned, the consolidation may be allowed when the cases to be consolidated involve the same parties and/or related questions of fact and/or law.53

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

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

SO ORDERED.

G.R. No. 111190 June 27, 1995

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity as garnishee,petitioner, vs. HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H. SESBREÑO, respondents.

BELLOSILLO, J.:

RAUL H. SESBREÑO filed a complaint for damages against Assistant City Fiscals Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr., before the

Regional Trial Court of Cebu City. After trial judgment was rendered ordering the defendants to pay P11,000.00 to the plaintiff, private respondent herein. The decision having become final and executory, on motion of the latter, the trial court ordered its execution. This order was questioned by the defendants before the Court of Appeals. However, on 15 January 1992 a writ of execution was issued.

On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as City Fiscal of Mandaue City where defendant Mabanto, Jr., was then detailed. The notice directed petitioner not to disburse, transfer, release or convey to any other person except to the deputy sheriff concerned the salary checks or other checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of law. 1 On 10 March 1992 private respondent filed a motion before the trial court for examination of the garnishees.

On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial court, finding no more legal obstacle to act on the motion for examination of the garnishees, directed petitioner on 4 November 1992 to submit his report showing the amount of the garnished salaries of Mabanto, Jr., within fifteen (15) days from receipt 2 taking into consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.

On 24 November 1992 private respondent filed a motion to require petitioner to explain why he should not be cited in contempt of court for failing to comply with the order of 4 November 1992.

On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment claiming that he was not in possession of any money, funds, credit, property or anything of value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public funds which could not be subject to garnishment.

On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply with its order of 4 November 1992. 3 It opined that the checks of Mabanto, Jr., had already been released through petitioner by the Department of Justice duly signed by the officer concerned. Upon service of the writ of garnishment, petitioner as custodian of the checks was under obligation to hold them for the judgment creditor. Petitioner became a virtual party to, or a forced intervenor in, the case and the trial court thereby acquired jurisdiction to bind him to its orders and processes with a view to the complete satisfaction of the judgment. Additionally, there was no sufficient reason for petitioner to hold the checks because they were no longer government funds and presumably delivered to the payee, conformably with the last sentence of Sec. 16 of the Negotiable Instruments Law.

With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt. For, while his explanation suffered from procedural infirmities nevertheless he took pains in enlightening the court by sending a written explanation dated 22 July 1992 requesting for the lifting of the notice of garnishment on the ground that the notice should have been sent to the Finance Officer of the Department of Justice. Petitioner insists that he had no authority to segregate a portion of the salary of Mabanto, Jr. The explanation however was not submitted to the trial court for action since the stenographic reporter failed to attach it to the record. 4

On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it was not the duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution, writ of execution and notice of garnishment was justified. His only duty was to turn over the garnished checks to the trial court which issued the order of execution. 5

Petitioner raises the following relevant issues: (1) whether a check still in the hands of the maker or its duly authorized representative is owned by the payee before physical delivery to the latter: and, (2) whether the salary check of a government official or employee funded with public funds can be subject to garnishment.

Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because they were not yet delivered to him, and that petitioner as garnishee has no legal obligation to hold and deliver them to the trial court to be applied to Mabanto, Jr.'s judgment debt. The thesis of petitioner is that the salary checks still formed part of public funds and therefore beyond the reach of garnishment proceedings.

Petitioner has well argued his case.

Garnishment is considered as a species of attachment for reaching credits belonging to the judgment debtor owing to him from a stranger to the litigation. 6 Emphasis is laid on the phrase "belonging to the judgment debtor" since it is the focal point in resolving the issues raised.

As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his compensation in the form of checks from the Department of Justice through petitioner as City Fiscal of Mandaue City and head of office. Under Sec. 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof. 7

According to the trial court, the checks of Mabanto, Jr., were already released by the Department of Justice duly signed by the officer concerned through petitioner and upon service of the writ of garnishment by the sheriff petitioner was under obligation to hold them for the judgment creditor. It recognized the role of petitioner ascustodian of the checks. At the same time however it considered the checks as no longer government funds and presumed delivered to the payee based on the last sentence of Sec. 16 of the Negotiable Instruments Law which states: "And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed." Yet, the presumption is not conclusive because the last portion of the provision says "until the contrary is proved." However this phrase was deleted by the trial court for no apparent reason. Proof to the contrary is its own finding that the checks were in the custody of petitioner. Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had the character of public funds. In Tiro v. Hontanosas 8 we ruled that —

The salary check of a government officer or employee such as a teacher does not belong to him before it is physically delivered to him. Until that time the check belongs to the government. Accordingly, before there is actual delivery of the check, the payee has no power over it; he cannot assign it without the consent of the Government.

As a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment. 9 The rationale behind this doctrine is obvious consideration of public policy. The Court succinctly stated in Commissioner of Public Highways v. San Diego 10 that —

The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated by law.

In denying petitioner's motion for reconsideration, the trial court expressed the additional ratiocination that it was not the duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution, the writ of execution, and the notice of garnishment was justified, citing our ruling in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our precise ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire or to judge for itself whether or not the order for the advance execution of a judgment is valid." But that is invoking only the general rule. We have also established therein the compelling reasons, as exceptions thereto, which were not taken into account by the trial court, e.g., a defect on the face of the writ or actual knowledge by the garnishee of lack of entitlement on the part of the garnisher. It is worth to note that the ruling referred to the validity of advance execution of judgments, but a careful scrutiny of that case and similar cases reveals that it was applicable to a notice of garnishment as well. In the case at bench, it was incumbent upon petitioner to inquire into the validity of the notice of garnishment as he had actual knowledge of the non-entitlement of private respondent to the checks in question. Consequently, we find no difficulty concluding that the trial court exceeded its jurisdiction in issuing the notice of garnishment concerning the salary checks of Mabanto, Jr., in the possession of petitioner.

WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the Regional Trial Court of Cebu City, Br. 17, subject of the petition are SET ASIDE. The notice of garnishment served on petitioner dated 3 February 1992 is ordered DISCHARGED.

SO ORDERED.

G.R. No. 107898 December 19, 1995

MANUEL LIM and ROSITA LIM, petitioners, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

BELLOSILLO, J.:

MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial Court of Malabon with estafa on three (3) counts under Art. 315, par. 2 (d), of The Revised Penal Code, docketed as Crim. Cases Nos. 1696-MN to 1698-

MN. The Informations substantially alleged that Manuel and Rosita, conspiring together, purchased goods from Linton Commercial Company, Inc. (LINTON), and with deceit issued seven Consolidated Bank and Trust Company (SOLIDBANK) checks simultaneously with the delivery as payment therefor. When presented to the drawee bank for payment the checks were dishonored as payment on the checks had been stopped and/or for insufficiency of funds to cover the amounts. Despite repeated notice and demand the Lim spouses failed and refused to pay the checks or the value of the goods.

On the basis of the same checks, Manuel and Rosita Lim were also charged with seven (7) counts of violation of B.P. Blg. 22, otherwise known as the Bouncing Checks Law, docketed as Crim. Cases Nos. 1699-MN to 1705-MN. In substance, the Informations alleged that the Lims issued the checks with knowledge that they did not have sufficient funds or credit with the drawee bank for payment in full of such checks upon presentment. When presented for payment within ninety (90) days from date thereof the checks were dishonored by the drawee bank for insufficiency of funds. Despite receipt of notices of such dishonor the Lims failed to pay the amounts of the checks or to make arrangements for full payment within five (5) banking days.

Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt Industries, Inc. (RIGI). RIGI had been transacting business with LINTON for years, the latter supplying the former with steel plates, steel bars, flat bars and purlin sticks which it uses in the fabrication, installation and building of steel structures. As officers of RIGI the Lim spouses were allowed 30, 60 and sometimes even up to 90 days credit.

On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth P51,815.00 from LINTON which were delivered on the same day at their place of business at 666 7th Avenue, 8th Street, Kalookan City. To pay LINTON for the delivery the Lims issued SOLIDBANK Check No. 027700 postdated 3 September 1983 in the amount of P51,800.00. 1

On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth P63,455.00 from LINTON which were delivered at their place of business on the same day. They issued as payment SOLIDBANK Check No. 027699 in the amount of P63,455.00 postdated 20 August 1983. 2

The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were delivered to them on various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and 9 June 1983. To pay for the deliveries, they issued seven SOLIDBANK checks, five of which were —

Check No. Date of Issue Amount

027683 16 July 1983 P27,900.00 3 027684 23 July 1983 P27,900.00 4

027719 6 Aug. 1983 P32,550.00 5

027720 13 Aug. 1983 P27,900.00 6 027721 27 Aug. 1983 P37,200.00 7

William Yu Bin, Vice President and Sales Manager of LINTON, testified that when those seven (7) checks were deposited with the Rizal Commercial Banking Corporation they were dishonored for "insufficiency of funds" with the additional notation "payment stopped" stamped thereon. Despite demand Manuel and Rosita refused to make good the checks or pay the value of the deliveries.

Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch, Kalookan City, where the Lim spouses maintained an account, testified on the following transactions with respect to the seven (7) checks:

CHECK NO. DATE PRESENTED REASON FOR DISHONOR

027683 22 July 1983 Payment Stopped (PS) 8

027684 23 July 1983 PS and Drawn Against Insufficient Fund (DAIF) 9

027699 24 Aug. 1983 PS and DAIF 10 027700 5 Sept. 1983 PS and DAIF 11

027719 9 Aug. 1983 DAIF 12

027720 16 Aug. 1983 PS and DAIF 13 027721 30 Aug. 1983 PS and DAIF 14

Manuel Lim admitted having issued the seven (7) checks in question to pay for deliveries made by LINTON but denied that his company's account had insufficient funds to cover the amounts of the checks. He presented the bank ledger showing a balance of P65,752.75. Also, he claimed that he ordered SOLIDBANK to stop payment because the supplies delivered by LINTON were not in accordance with the specifications in the purchase orders.

Rosita Lim was not presented to testify because her statements would only be corroborative.

On the basis of the evidence thus presented the trial court held both accused guilty of estafa and violation of B.P. Blg. 22 in its decision dated 25 January 1989. In Crim. Case No. 1696-MN they were sentenced to an indeterminate penalty of six (6) years and one (1) day of prision mayor as minimum to twelve (12) years and one (1) day of reclusion temporal as maximum plus one (1) year for each additional P10,000.00 with all the accessory penalties provided for by law, and to pay the costs. They were also ordered to indemnify LINTON in the amount of P241,800.00. Similarly sentences were imposed in Crim. Cases Nos. 1697-MN and 1698-MN except as to the indemnities awarded, which were P63,455.00 and P51,800.00, respectively.

In Crim. Case No. 1699-MN the trial court sentenced both accused to a straight penalty of one (1) year imprisonment with all the accessory penalties provided for by law and to pay the costs. In addition, they were ordered to indemnify LINTON in the amount of P27,900.00. Again, similar sentences were imposed in Crim. Cases Nos. 1700-MN to 1705-MN except for the indemnities awarded, which were P32,550.00, P27,900.00, P27,900.00, P63,455.00, P51,800.00 and P37,200.00 respectively. 15

On appeal, the accused assailed the decision as they imputed error to the trial court as follows: (a) the regional Trial Court of malabon had no jurisdiction over the cases because the offenses charged ere committed outside its territory; (b) they could not be held liable for estafa because the seven (7) checks were issued by them several weeks after the deliveries of the goods; and, (c) neither could they be held liable for violating B.P. Blg. 22 as they ordered payment of the checks to be stopped because the goods delivered were not those specified by them, besides they had sufficient funds to pay the checks.

In the decision of 18 September 1992 16 respondent Court of Appeals acquitted accused-appellants of estafa on the ground that indeed the checks were not made in payment of an obligation contracted at the time of their issuance. However it affirmed the finding of the trial court that they were guilty of having violated B.P. Blg. 22. 17 On 6 November 1992 their motion for reconsideration was denied. 18

In the case at bench petitioners maintain that the prosecution failed to prove that any of the essential elements of the crime punishable under B.P. Blg. 22 was committed within the jurisdiction of the Regional Trial Court of Malabon. They claim that what was proved was that all the elements of the offense were committed in Kalookan City. The checks were issued at their place of business, received by a collector of LINTON, and dishonored by the drawee bank, all in Kalookan City. Furthermore, no evidence whatsoever supports the proposition that they knew that their checks were insufficiently funded. In fact, some of the checks were funded at the time of presentment but dishonored nonetheless upon their instruction to the bank to stop payment. In fine, considering that the checks were all issued, delivered, and dishonored in Kalookan City, the trial court of Malabon exceeded its jurisdiction when it tried the case and rendered judgment thereon.

The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment . . ." The gravamen of the offense is knowingly issuing a worthless check. 19 Thus, a fundamental element is knowledge on the part of the drawer of the insufficiency of his funds in 20 or credit with the drawee bank for the payment of such check in full upon presentment. Another essential element is subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. 21

It is settled that venue in criminal cases is a vital ingredient of jurisdiction. 22 Section 14, par. (a), Rule 110, of the Revised Rules of Court, which has been carried over in Sec. 15, par. (a), Rule 110 of the 1985 Rules on Criminal Procedure, specifically provides:

Sec. 14. Place where action is to be instituted. — (a) In all criminal prosecutions the action shall be instituted and tried in the court of the municipality or province wherein the offense was committed or anyone of the essential ingredients thereof took place.

If all the acts material and essential to the crime and requisite of its consummation occurred in one municipality or territory, the court therein has the sole jurisdiction to try the case. 23 There are certain crimes in which some acts material and essential to the crimes and requisite to their consummation occur in one municipality or territory and some in another, in which event, the court of either has jurisdiction to try the cases, it being understood that the first court taking cognizance of the case excludes the other. 24 These are the so-called transitory or continuing crimes under which violation of B.P. Blg. 22 is categorized. In other words, a person charged with

a transitory crime may be validly tried in any municipality or territory where the offense was in part committed. 25

In determining proper venue in these cases, the following acts material and essential to each crime and requisite to its consummation must be considered: (a) the seven (7) checks were issued to LINTON at its place of business in Balut, Navotas; b) they were delivered to LINTON at the same place; (c) they were dishonored in Kalookan City; and, (d) petitioners had knowledge of the insufficiency of their funds in SOLIDBANK at the time the checks were issued. Since there is no dispute that the checks were dishonored in Kalookan City, it is no longer necessary to discuss where the checks were dishonored.

Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first delivery of the instrument complete in form to a person who takes it as a holder. On the other hand, the term "holder" refers to the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. In People v. Yabut 26 this Court explained —

. . . The place where the bills were written, signed, or dated does not necessarily fix or determine the place where they were executed. What is of decisive importance is the delivery thereof. The delivery of the instrument is the final act essential to its consummation as an obligation. An undelivered bill or note is inoperative. Until delivery, the contract is revocable. And the issuance as well as the delivery of the check must be to a person who takes it as a holder, which means "(t)he payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof." Delivery of the check signifies transfer of possession, whether actual or constructive, from one person to another with intent to transfer titlethereto . . .

Although LINTON sent a collector who received the checks from petitioners at their place of business in Kalookan City, they were actually issued and delivered to LINTON at its place of business in Balut, Navotas. The receipt of the checks by the collector of LINTON is not the issuance and delivery to the payee in contemplation of law. The collector was not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with the intent to transfer title thereto. Neither could the collector be deemed an agent of LINTON with respect to the checks because he was a mere employee. As this Court further explained in People v. Yabut 27 —

Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to be no contract of agency between Yambao and Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn testimony before the investigating fiscal that Yambao is but her "messenger" or "part-time employee." There was no special fiduciary relationship that permeated their dealings. For a contract of agency to exist, the consent of both parties is essential. The principal consents that the other party, the agent, shall act on his behalf, and the agent consents so as to act. It must exist as a fact. The law makes no presumption thereof. The person alleging it has the burden of proof to show, not only the fact of its existence, but also its nature and extent . . .

Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of insufficient funds as follows —

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

The prima facie evidence has not been overcome by petitioners in the cases before us because they did not pay LINTON the amounts due on the checks; neither did they make arrangements for payment in full by the drawee bank within five (5) banking days after receiving notices that the checks had not been paid by the drawee bank. InPeople v. Grospe 28 citing People v. Manzanilla 29 we held that ". . . knowledge on the part of the maker or drawer of the check of the insufficiency of his funds is by itself a continuing eventuality, whether the accused be within one territory or another."

Consequently, venue or jurisdiction lies either in the Regional Trial Court of Kalookan City or Malabon. Moreover, we ruled in the same Grospe and Manzanilla cases as reiterated in Lim v. Rodrigo 30 that venue or jurisdiction is determined by the allegations in the Information. The

Informations in the cases under consideration allege that the offenses were committed in the Municipality of Navotas which is controlling and sufficient to vest jurisdiction upon the Regional Trial Court of Malabon. 31

We therefore sustain likewise the conviction of petitioners by the Regional Trial Court of Malabon for violation of B.P. Blg. 22 thus —

Accused-appellants claim that they ordered payment of the checks to be stopped because the goods delivered were not those specified by them. They maintain that they had sufficient funds to cover the amount of the checks. The records of the bank, however, reveal otherwise. The two letters (Exhs. 21 and 22) dated July 23, and August 10, 1983 which they claim they sent to Linton Commercial, complaining against the quality of the goods delivered by the latter, did not refer to the delivery of mild steel plates (6mm x 4 x 8) and "Z" purlins (16 x 7 x 2-1/2 mts) for which the checks in question were issued. Rather, the letters referred to B.1. Lally columns (Sch. #20), which were the subject of other purchase orders.

It is true, as accused-appellants point out, that in a case brought by them against the complainant in the Regional Trial Court of Kalookan City (Civil Case No. C-10921) the complainant was held liable for actual damages because of the delivery of goods of inferior quality (Exh. 23). But the supplies involved in that case were those of B.I. pipes, while the purchases made by accused-appellants, for which they issued the checks in question, were purchases of mild steel plates and "Z" purlins.

Indeed, the only question here is whether accused-appellants maintained funds sufficient to cover the amounts of their checks at the time of issuance and presentment of such checks. Section 3 of B.P. Blg. 22 provides that "notwithstanding receipt of an order to stop payment, the drawee bank shall state in the notice of dishonor that there were no sufficient funds in or credit with such bank for the payment in full of the check, if such be the fact."

The purpose of this provision is precisely to preclude the maker or drawer of a worthless check from ordering the payment of the check to be stopped as a pretext for the lack of sufficient funds to cover the check.

In the case at bar, the notice of dishonor issued by the drawee bank, indicates not only that payment of the check was stopped but also that the reason for such order was that the maker or drawer did not have sufficient funds with which to cover the checks. . . . Moreover, the bank ledger of accused-appellants' account in Consolidated Bank shows that at the time the checks were presented for encashment, the balance of accused-appellants' account was inadequate to cover the amounts of the checks. 32 . . .

WHEREFORE, the decision of the Court of Appeals dated 18 September 1992 affirming the conviction of petitioners Manuel Lim and Rosita Lim —

In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN); CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN); CA-G.R. CR No. 07279 (RTC Crim. Case No. 1701-MN); CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN); CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN); CA-G.R. CA No. 07282 (RTC Crim. Case No. 1704-MN); and CA-G.R. CR No. 07283 (RTC Crim Case No. 1705-MN), the Court finds the accused-appellants

MANUEL LIM and ROSITA LIM guilty beyond reasonable doubt of violation of Batas Pambansa Bilang 22 and are hereby sentenced to suffer a STRAIGHT PENALTY OF ONE (1) YEAR IMPRISONMENT in each case, together with all the accessory penalties provided by law, and to pay the costs.

In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN), both accused-appellants are hereby ordered to indemnify the offended party in the sum of P27,900.00.

In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P32,550.00.

In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1701-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P27,900.00.

In CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P27,900.00.

In CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN) both accused are hereby ordered to indemnify the offended party in the sum of P63,455.00.

In CA-G.R CR No. 07282 (RTC Crim. Case No. 1704-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P51,800.00, and

In CA-G.R. CR No. 07283 (RTC Crim. Case No. 1705-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P37,200.00 33 —

as well as its resolution of 6 November 1992 denying reconsideration thereof, is AFFIRMED. Costs against petitioners.

SO ORDERED.

G.R. No. 192413 June 13, 2012

Rizal Commercial Banking Corporation, Petitioner, vs. Hi-Tri Development Corporation and Luz R. Bakunawa, Respondents.

D E C I S I O N

SERENO, J.:

Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal Commercial Banking Corporation (RCBC) against respondents Hi-Tri Development Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to appeal from the 26 November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals (CA),1 which reversed and set aside the 19 May 2008 Decision and 3 November 2008 Order of the Makati City Regional Trial Court (RTC) in Civil Case No. 06-244.2 The case before the RTC involved the Complaint for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No. 3936, as amended by Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, and unclaimed balances held by the branches of various banks in the Philippines. The trial court declared the amounts, subject of the special proceedings, escheated to the Republic and ordered them deposited with the Treasurer of the Philippines (Treasurer) and credited in favor of the Republic.3 The assailed RTC judgments included an unclaimed balance in the amount of P 1,019,514.29, maintained by RCBC in its Ermita Business Center branch.

We quote the narration of facts of the CA4 as follows:

x x x Luz [R.] Bakunawa and her husband Manuel, now deceased ("Spouses Bakunawa") are registered owners of six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the Marikina Register of Deeds. These lots were sequestered by the Presidential Commission on Good Government [(PCGG)].

Sometime in 1990, a certain Teresita Millan ("Millan"), through her representative, Jerry Montemayor, offered to buy said lots for "P 6,724,085.71", with the promise that she will take care of clearing whatever preliminary obstacles there may[]be to effect a "completion of the sale". The Spouses Bakunawa gave to Millan the Owner’s Copies of said TCTs and in turn, Millan made a down[]payment of "P 1,019,514.29" for the intended purchase. However, for one reason or another, Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa rescinded the sale and offered to return to Millan her down[]payment of P 1,019,514.29. However, Millan refused to accept back the P 1,019,514.29 down[]payment. Consequently, the Spouses Bakunawa, through their company, the Hi-Tri Development Corporation ("Hi-Tri") took out on October 28, 1991, a Manager’s Check from RCBC-Ermita in the amount of P 1,019,514.29, payable to Millan’s company Rosmil Realty and Development Corporation ("Rosmil") c/o Teresita Millan and used this as one of their basis for a complaint against Millan and Montemayor which they filed with the Regional Trial Court of Quezon City, Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991], praying that:

1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to return to plaintiffs spouses the Owners’ Copies of Transfer Certificates of Title Nos. 324985, 324986, 103724, 98827, 98828 and 98829;

2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine Centavos (P 1,019,514.29);

3. That the defendants be ordered to pay to plaintiffs spouses moral damages in the amount of P2,000,000.00; and

4. That the defendants be ordered to pay plaintiffs attorney’s fees in the amount of P 50,000.00.

Being part and parcel of said complaint, and consistent with their prayer in Civil Case No. Q-91-10719 that "Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine [Centavos] ("P 1,019,514.29")["], the Spouses Bakunawa, upon advice of their counsel, retained custody of RCBC Manager’s Check No. ER 034469 and refrained from canceling or negotiating it.

All throughout the proceedings in Civil Case No. Q-91-10719, especially during negotiations for a possible settlement of the case, Millan was informed that the Manager’s Check was available for her withdrawal, she being the payee.

On January 31, 2003, during the pendency of the abovementioned case and without the knowledge of [Hi-Tri and Spouses Bakunawa], x x x RCBC reported the "P 1,019,514.29-credit existing in favor of Rosmil" to the Bureau of Treasury as among its "unclaimed balances" as of January 31, 2003. Allegedly, a copy of the Sworn Statement executed by Florentino N. Mendoza, Manager and Head of RCBC’s Asset Management, Disbursement & Sundry Department ("AMDSD") was posted within the premises of RCBC-Ermita.

On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filed with the RTC the action below for Escheat [(Civil Case No. 06-244)].

On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan. Instead of only the amount of "P 1,019,514.29", [Spouses Bakunawa] agreed to pay Rosmil and Millan the amount of "P3,000,000.00", [which is] inclusive [of] the amount of ["]P 1,019,514.29". But during negotiations and evidently prior to said settlement, [Manuel Bakunawa, through Hi-Tri] inquired from RCBC-Ermita the availability of the P1,019,514.29 under RCBC Manager’s Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however dismayed when they were informed that the amount was already subject of the escheat proceedings before the RTC.

On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:

"We understand that the deposit corresponding to the amount of Php 1,019,514.29 stated in the Manager’s Check is currently the subject of escheat proceedings pending before Branch 150 of the Makati Regional Trial Court.

Please note that it was our impression that the deposit would be taken from [Hi-Tri’s] RCBC bank account once an order to debit is issued upon the payee’s presentation of the Manager’s Check. Since the payee rejected the negotiated Manager’s Check, presentation of the Manager’s Check was never made.

Consequently, the deposit that was supposed to be allocated for the payment of the Manager’s Check was supposed to remain part of the Corporation[’s] RCBC bank account, which, thereafter, continued to be actively maintained and operated. For this reason, We hereby demand your confirmation that the amount of Php 1,019,514.29 continues to form part of the funds in the Corporation’s RCBC bank account, since pay-out of said amount was never ordered. We wish to point out that if there was any attempt on the part of RCBC to consider the amount indicated in the Manager’s Check separate from the Corporation’s bank account, RCBC would have issued a statement to that effect, and repeatedly reminded the Corporation that the deposit would be considered dormant absent any fund movement. Since the Corporation never received any statements of account from RCBC to that effect, and more importantly, never received any single letter from RCBC noting the absence of fund movement and advising the Corporation that the deposit would be treated as dormant."

On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their position as above-quoted.

In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses Bakunawa] that:

"The Bank’s Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of Manager’s Check No. ER034469 in the escheat proceedings docketed as Civil Case No. 06-244, as well as the status thereof, between 28 January 2008 and 1 February 2008.

x x x x x x x x x

Contrary to what Hi-Tri hopes for, the funds covered by the Manager’s Check No. ER034469 does not form part of the Bank’s own account. By simple operation of law, the funds covered by the manager’s check in issue became a deposit/credit susceptible for inclusion in the escheat case initiated by the OSG and/or Bureau of Treasury.

x x x x x x x x x

Granting arguendo that the Bank was duty-bound to make good the check, the Bank’s obligation to do so prescribed as early as October 2001."

(Emphases, citations, and annotations were omitted.)

The RTC Ruling

The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial court rendered its assailed Decision declaring the deposits, credits, and unclaimed balances subject of Civil Case No. 06-244 escheated to the Republic. Among those included in the order of forfeiture was the amount of P 1,019,514.29 held by RCBC as allocated funds intended for the payment of the Manager’s Check issued in favor of Rosmil. The trial court ordered the deposit of the escheated balances with the Treasurer and credited in favor of the Republic. Respondents claim that they were not able to participate in the trial, as they were not informed of the ongoing escheat proceedings.

Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the partial reconsideration of the RTC Decision insofar as it escheated the fund allocated for the payment of the Manager’s Check. They asked that they be included as party-defendants or, in the alternative, allowed to intervene in the case and their motion considered as an answer-in-intervention. Respondents argued that they had meritorious grounds to ask reconsideration of the Decision or, alternatively, to seek intervention in the case. They alleged that the deposit was subject of an ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that they were interested parties to that case.5

On 3 November 2008, the RTC issued an Order denying the motion of respondents. The trial court explained that the Republic had proven compliance with the requirements of publication and notice, which served as notice to all those who may be affected and prejudiced by the Complaint for Escheat. The RTC also found that the motion failed to point out the findings and conclusions that were not supported by the law or the evidence presented, as required by Rule 37 of the Rules of Court. Finally, it ruled that the alternative prayer to intervene was filed out of time.

The CA Ruling

On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008 Decision and 3 November 2008 Order of the RTC. According to the appellate court,6 RCBC failed to prove that the latter had communicated with the purchaser of the Manager’s Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee (Rosmil) immediately before the bank filed its Sworn Statement on the dormant accounts held therein. The CA ruled that the bank’s failure to notify respondents deprived them of an opportunity to intervene in the escheat proceedings and to present evidence to substantiate their claim, in violation of their right to due process. Furthermore, the CA pronounced that the Makati City RTC Clerk of Court failed to issue individual notices directed to all persons claiming interest in the unclaimed balances, as well as to require them to appear after publication and show cause why the unclaimed balances should not be deposited with the Treasurer of the Philippines. It explained that the jurisdictional requirement of individual notice by personal service was distinct from the requirement of notice by publication. Consequently, the CA held that the Decision and Order of the RTC were void for want of jurisdiction.

Issue

After a perusal of the arguments presented by the parties, we cull the main issues as follows:

I. Whether the Decision and Order of the RTC were void for failure to send separate notices to respondents by personal service

II. Whether petitioner had the obligation to notify respondents immediately before it filed its Sworn Statement with the Treasurer

III. Whether or not the allocated funds may be escheated in favor of the Republic

Discussion

Petitioner bank assails7 the CA judgments insofar as they ruled that notice by personal service upon respondents is a jurisdictional requirement in escheat proceedings. Petitioner contends that respondents were not the owners of the unclaimed balances and were thus not entitled to notice from the RTC Clerk of Court. It hinges its claim on the theory that the funds represented by the Manager’s Check were deemed transferred to the credit of the payee or holder upon its issuance.

We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of processes, to wit:

Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall commence an action or actions in the name of the People of the Republic of the Philippines in the Court of First Instance of the province or city where the bank, building and loan association or trust corporation is located, in which shall be joined as parties the bank, building and loan association or trust corporation and all such creditors or depositors. All or any of such creditors or depositors or banks, building and loan association or trust corporations may be included in one action. Service of process in such action or actions shall be made by delivery of a copy of the complaint and summons to the president, cashier, or managing officer of each defendant bank, building and loan association or trust corporation and by publication of a copy of such summons in a newspaper of general circulation, either in English, in Filipino, or in a local dialect, published in the locality where the bank, building and loan association or trust corporation is situated, if there be any, and in case there is none, in the City of Manila, at such time as the court may order. Upon the trial, the court must hear all parties who have appeared therein, and if it be determined that such unclaimed balances in any defendant bank, building and loan association or trust corporation are unclaimed as hereinbefore stated, then the court shall render judgment in favor of the Government of the Republic of the Philippines, declaring that said unclaimed balances have escheated to the Government of the Republic of the Philippines and commanding said bank, building and loan association or trust corporation to forthwith deposit the same with the Treasurer of the Philippines to credit of the Government of the Republic of the Philippines to be used as the National Assembly may direct.

At the time of issuing summons in the action above provided for, the clerk of court shall also issue a notice signed by him, giving the title and number of said action, and referring to the complaint therein, and directed to all persons, other than those named as defendants therein, claiming any interest in any unclaimed balance mentioned in said complaint, and requiring them to appear within sixty days after the publication or first publication, if there are several, of such summons, and show cause, if they have any, why the unclaimed balances involved in said action should not be deposited with the Treasurer of the Philippines as in this Act provided and notifying them that if they do not appear and show cause, the Government of the Republic of the Philippines will apply to the court for the relief demanded in the complaint. A copy of said notice shall be attached to, and published with the copy of, said summons required to be published as above, and at the end of the copy of such notice so published, there shall be a statement of the date of publication, or first publication, if there are several, of said summons and notice. Any person interested may appear in said action and become a party thereto. Upon the publication or the completion of the publication, if there are several, of the summons and notice, and the service of the summons on the defendant banks, building and loan associations or trust corporations, the court shall have full and complete jurisdiction in the Republic of the Philippines over the said unclaimed balances and over the persons having or claiming any interest in the said unclaimed balances, or any of them, and shall have full and complete jurisdiction to hear and determine the issues herein, and render the appropriate judgment thereon. (Emphasis supplied.)

Hence, insofar as banks are concerned, service of processes is made by delivery of a copy of the complaint and summons upon the president, cashier, or managing officer of the defendant bank.8 On the other hand, as to depositors or other claimants of the unclaimed balances, service is made by publication of a copy of the summons in a newspaper of general circulation in the locality where the institution is situated.9 A notice about the forthcoming escheat proceedings must also be issued and published, directing and requiring all persons who may claim any interest in the unclaimed balances to appear before the court and show cause why the dormant accounts should not be deposited with the Treasurer.

Accordingly, the CA committed reversible error when it ruled that the issuance of individual notices upon respondents was a jurisdictional requirement, and that failure to effect personal service on them rendered the Decision and the Order of the RTC void for want of jurisdiction. Escheat proceedings are actions in rem,10whereby an action is brought against the thing itself instead of the person.11 Thus, an action may be instituted and carried to judgment without personal service upon the depositors or other claimants.12 Jurisdiction is secured by the power of the court over the res.13 Consequently, a judgment of escheat is conclusive upon persons notified by advertisement, as publication is considered a general and constructive notice to all persons interested.14

Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment of the Manager’s Check in the escheat proceedings.

Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty, steps in and claims abandoned, left vacant, or unclaimed property, without there being an interested person having a legal claim thereto.15 In the case of dormant accounts, the state inquires into the status, custody, and ownership of the unclaimed balance to determine whether the inactivity was brought about by the fact of death or absence of or abandonment by the depositor.16 If after the proceedings the property remains without a lawful owner interested to claim it, the property shall be reverted to the state "to forestall an open invitation to self-service by the first comers."17 However, if interested parties have come forward and lain claim to the property, the courts shall determine whether the credit or deposit should pass to the claimants or be forfeited in favor of the state.18 We emphasize that escheat is not a proceeding to penalize depositors for failing to deposit to or withdraw from their accounts. It is a proceeding whereby the state compels the surrender to it of unclaimed deposit balances when there is substantial ground for a belief that they have been abandoned, forgotten, or without an owner.19

Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other similar institutions in filing a sworn statement with the Treasurer concerning dormant accounts:

Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd year, all banks, building and loan associations, and trust corporations shall forward to the Treasurer of the Philippines a statement, under oath, of their respective managing officers, of all credits and deposits held by them in favor of persons known to be dead, or who have not made further deposits or withdrawals during the preceding ten years or more, arranged in alphabetical order according to the names of creditors and depositors, and showing:

(a) The names and last known place of residence or post office addresses of the persons in whose favor such unclaimed balances stand;

(b) The amount and the date of the outstanding unclaimed balance and whether the same is in money or in security, and if the latter, the nature of the same;

(c) The date when the person in whose favor the unclaimed balance stands died, if known, or the date when he made his last deposit or withdrawal; and

(d) The interest due on such unclaimed balance, if any, and the amount thereof.

A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the bank, building and loan association, or trust corporation concerned for at least sixty days from the date of filing thereof: Provided, That immediately before filing the above sworn statement, the bank, building and loan association, and trust corporation shall communicate with the person in whose favor the unclaimed balance stands at his last known place of residence or post office address.

It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time the existence of unclaimed balances held by banks, building and loan associations, and trust corporations. (Emphasis supplied.)

As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of unclaimed balances. This notification is meant to inform them that their deposit could be escheated if left unclaimed. Accordingly, before filing a sworn statement, banks and other similar institutions are under obligation to communicate with owners of dormant accounts. The purpose of this initial notice is for a bank to determine whether an inactive account has indeed been unclaimed, abandoned, forgotten, or left without an owner. If the depositor simply does not wish to touch the funds in the meantime, but still asserts ownership and dominion over the dormant account, then the bank is no longer obligated to include the account in its sworn statement.20 It is not the intent of the law to force depositors into unnecessary litigation and defense of their rights, as the state is only interested in escheating balances that have been abandoned and left without an owner.

In case the bank complies with the provisions of the law and the unclaimed balances are eventually escheated to the Republic, the bank "shall not thereafter be liable to any person for the same and any action which may be brought by any person against in any bank xxx for unclaimed balances so deposited xxx shall be defended by the Solicitor General without cost to such bank."21 Otherwise, should it fail to comply with the legally outlined

procedure to the prejudice of the depositor, the bank may not raise the defense provided under Section 5 of Act No. 3936, as amended.

Petitioner asserts22 that the CA committed a reversible error when it required RCBC to send prior notices to respondents about the forthcoming escheat proceedings involving the funds allocated for the payment of the Manager’s Check. It explains that, pursuant to the law, only those "whose favor such unclaimed balances stand" are entitled to receive notices. Petitioner argues that, since the funds represented by the Manager’s Check were deemed transferred to the credit of the payee upon issuance of the check, the proper party entitled to the notices was the payee – Rosmil – and not respondents. Petitioner then contends that, in any event, it is not liable for failing to send a separate notice to the payee, because it did not have the address of Rosmil. Petitioner avers that it was not under any obligation to record the address of the payee of a Manager’s Check.

In contrast, respondents Hi-Tri and Bakunawa allege23 that they have a legal interest in the fund allocated for the payment of the Manager’s Check. They reason that, since the funds were part of the Compromise Agreement between respondents and Rosmil in a separate civil case, the approval and eventual execution of the agreement effectively reverted the fund to the credit of respondents. Respondents further posit that their ownership of the funds was evidenced by their continued custody of the Manager’s Check.

An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee),24 requesting the latter to pay a person named therein (payee) or to the order of the payee or to the bearer, a named sum of money.25 The issuance of the check does not of itself operate as an assignment of any part of the funds in the bank to the credit of the drawer.26 Here, the bank becomes liable only after it accepts or certifies the check.27After the check is accepted for payment, the bank would then debit the amount to be paid to the holder of the check from the account of the depositor-drawer.

There are checks of a special type called manager’s or cashier’s checks. These are bills of exchange drawn by the bank’s manager or cashier, in the name of the bank, against the bank itself.28 Typically, a manager’s or a cashier’s check is procured from the bank by allocating a particular amount of funds to be debited from the depositor’s account or by directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted in advance.29Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon demand.30

Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to the account of the payee. In case the procurer of the manager’s or cashier’s check retains custody of the instrument, does not tender it to the intended payee, or fails to make an effective delivery, we find the following provision on undelivered instruments under the Negotiable Instruments Law applicable:31

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

Petitioner acknowledges that the Manager’s Check was procured by respondents, and that the amount to be paid for the check would be sourced from the deposit account of Hi-Tri.32 When Rosmil did not accept the Manager’s Check offered by respondents, the latter retained custody of the instrument instead of cancelling it. As the Manager’s Check neither went to the hands of Rosmil nor was it further negotiated to other persons, the instrument remained undelivered. Petitioner does not dispute the fact that respondents retained custody of the instrument.33

Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit the account of respondents was never made. In fact, petitioner confirms that the Manager’s Check was never negotiated or presented for payment to its Ermita Branch, and that the allocated fund is still held by the bank.34As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which procured the Manager’s Check. The doctrine that the deposit represented by a manager’s check automatically passes to the payee is inapplicable, because the instrument – although accepted in advance – remains undelivered. Hence, respondents should have been informed that the deposit had been left

inactive for more than 10 years, and that it may be subjected to escheat proceedings if left unclaimed.1âwphi1

After a careful review of the RTC records, we find that it is no longer necessary to remand the case for hearing to determine whether the claim of respondents was valid. There was no contention that they were the procurers of the Manager’s Check. It is undisputed that there was no effective delivery of the check, rendering the instrument incomplete. In addition, we have already settled that respondents retained ownership of the funds. As it is obvious from their foregoing actions that they have not abandoned their claim over the fund, we rule that the allocated deposit, subject of the Manager’s Check, should be excluded from the escheat proceedings. We reiterate our pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed balances. We further note that there is nothing in the records that would show that the OSG appealed the assailed CA judgments. We take this failure to appeal as an indication of disinterest in pursuing the escheat proceedings in favor of the Republic.

WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are hereby AFFIRMED.

SO ORDERED.