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G.R. No. 74451 May 25, 1988
EQUITABLE BANKING CORPORATION, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and THE
EDWARD J. NELL CO., respondents.
William R. Veto for petitioner.
Pelaez, Adriano & Gregorio for respondents.
MELENCIO-HERRERA,J.:
In this Petition for Review on certiorari petitioner, Equitable Banking
Corporation, prays that the adverse judgment against it rendered by
respondent Appellate Court, 1dated 4 October 1985, and its
majority Resolution, dated 28 April 1986, denying petitioner's
Motion for Reconsideration, 2be annulled and set aside.
The facts pertinent to this Petition, as summarized by the Trial Court
and adopted by reference by Respondent Appellate Court,
emanated from the case entitled "Edward J. Nell Co. vs. Liberato V.
Casals, Casville Enterprises, Inc., and Equitable Banking Corporation"
of the Court of First Instance of Rizal (Civil Case No. 25112), andread:
From the evidence submitted by the parties, the
Court finds that sometime in 1975 defendant
Liberato Casals went to plaintiff Edward J. Nell
Company and told its senior sales engineer, Amado
Claustro that he was interested in buying one of the
plaintiff's garrett skidders. Plaintiff was a dealer of
machineries, equipment and supplies. Defendant
Casals represented himself as the majority
stockholder, president and general manager of
Casville Enterprises, Inc., a firm engaged in the large
scale production, procurement and processing of
logs and lumber products, which had a plywood
plant in Sta. Ana, Metro Manila.
After defendant Casals talked with plaintiff's sales
engineer, he was referred to plaintiffs executive
vice-president, Apolonio Javier, for negotiation in
connection with the manner of payment. When
Javier asked for cash payment for the skidders,
defendant Casals informed him that his corporation,
defendant Casville Enterprises, Inc., had a credit line
with defendant Equitable Banking Corporation.Apparently, impressed with this assertion, Javier
agreed to have the skidders paid by way of a
domestic letter of credit which defendant Casals
promised to open in plaintiffs favor, in lieu of cash
payment. Accordingly, on December 22, 1975,
defendant Casville, through its president, defendant
Casals, ordered from plaintiff two units of garrett
skidders ...
The purchase order for the garrett skidders bearingNo. 0051 and dated December 22, 1975 (Exhibit
"A") contained the following terms and conditions:
Two (2) units GARRETT Skidders Model 30A
complete as basically described in the bulletin
PRICE: F.O.B. dock
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Manila P485,000.00/unit
For two (2) units P970,000.00
SHIPMENT: We will inform you the date and nameof the vessel as soon as arranged.
TERMS: By irrevocable domestic letter of credit to
be issued in favor of THE EDWARD J. NELL CO. or
ORDER payable in thirty six (36) months and will be
opened within ninety (90) days after date of
shipment. at first installment will be due one
hundred eighty (180) days after date of shipment.
Interest-14% per annum (Exhibit A)
xxx xxx xxx
... in a letter dated April 21, 1976, defendants Casals
and Casville requested from plaintiff the delivery of
one (1) unit of the bidders, complete with tools and
cables, to Cagayan de Oro, on or before Saturday,
April 24,1976, on board a Lorenzo shipping vessel,
with the information that an irrevocable Domestic
Letter of Credit would be opened in plaintiff's favor
on or before June 30, 1976 under the terms and
conditions agreed upon (Exhibit "B")
On May 3, 1976, in compliance with defendant
Casvile's recognition request, plaintiff shipped to
Cagayan de Oro City a Garrett skidder. Plaintiff paid
the shipping cost in the amount of P10,640.00
because of the verbal assurance of defendant
Casville that it would be covered by the letter of
credit soon to be opened.
xxx xxx xxx
On July 15, 1976, defendant Casals handed to
plaintiff a check in the amount of P300,000.00
postdated August 4, 1976, which was followed by
another check of same date. Plaintiff considered
these checks either as partial payment for the
skidder that was already delivered to Cagayan de
Oro or as reimbursement for the marginal deposit
that plaintiff was supposed to pay.
In a letter dated August 3, 1976 (Exhibit "C"),
defendants Casville informed the plaintiff that their
application for a letter of credit for the payment of
the Garrett skidders had been approved by the
Equitable Banking Corporation. However, thedefendants said that they would need the sum of
P300,000.00 to stand as collateral or marginal
deposit in favor of Equitable Banking Corporation
and an additional amount of P100,000.00, also in
favor of Equitable Banking Corporation, to clear the
title of the Estrada property belonging to defendant
Casals which had been approved as security for the
trust receipts to be issued by the bank, covering the
above-mentioned equipment.
Although the marginal deposit was supposed to be
produced by defendant Casville Enterprises, plaintiff
agreed to advance the necessary amount in order
to facilitate the transaction. Accordingly, on August
5,1976, plaintiff issued a check in the amount of
P400,000.00 (Exhibit "2") drawn against the First
National City Bank and made payable to the order
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of Equitable Banking Corporation and with the
following notation or memorandum:
a/c of Casville Enterprises Inc. for
Marginal deposit and payment of
balance on Estrada Property to be
used as security for trust receipt for
opening L/C of Garrett Skidders in
favor of the Edward J. Nell Co." Said
check together with the cash
disbursement voucher (Exhibit "2-
A") containing the explanation:
Payment for marginal deposit and
other expenses re opening of L/C
for account of Casville Ent..
A covering letter (Exhibit "3") was also sent and
when the three documents were presented to
Severino Santos, executive vice president of
defendant bank, Santos did not accept them
because the terms and conditions required by the
bank for the opening of the letter of credit had not
yet been agreed on.
On August 9, 1976, defendant Casville wrote thebank applying for two letters of credit to cover its
purchase from plaintiff of two Garrett skidders,
under the following terms and conditions:
a) On sight Letter of Credit for P485,000.00; b) One
36 months Letter of Credit for P606,000.00; c)
P300,000.00 CASH marginal deposit1 d) Real Estate
Collateral to secure the Trust Receipts; e) We shall
chattel mortgage the equipments purchased even
after payment of the first L/C as additional security
for the balance of the second L/C and f) Other
conditions you deem necessary to protect the
interest of the bank."
In a letter dated August 11, 1976 (Exhibit "D-l"),
defendant bank replied stating that it was ready to
open the letters of credit upon defendant's
compliance of the following terms and conditions:
c) 30% cash margin deposit; d) Acceptable Real
Estate Collateral to secure the Trust Receipts; e)
Chattel Mortgage on the equipment; and Ashville f)
Other terms and conditions that our bank may
impose.
Defendant Casville sent a copy of the foregoing
letter to the plaintiff enclosing three postdated
checks. In said letter, plaintiff was informed of the
requirements imposed by the defendant bank
pointing out that the "cash marginal required under
paragraph (c) is 30% of Pl,091,000.00 or
P327,300.00 plus another P100,000.00 to clean up
the Estrada property or a total of P427,300.00" and
that the check covering said amount should bemade payable "to the Order of EQUITABLE
BANKING CORPORATION for the account of Casville
Enterprises Inc." Defendant Casville also stated that
the three (3) enclosed postdated checks were
intended as replacement of the checks that were
previously issued to plaintiff to secure the sum of
P427,300.00 that plaintiff would advance to
defendant bank for the account of defendant
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Casville. All the new checks were postdated
November 19, 1976 and drawn in the sum of
Pl45,500.00 (Exhibit "F"), P181,800.00 (Exhibit "G")
and P100,000.00 (Exhibit "H").
On the same occasion, defendant Casals delivered
to plaintiff TCT No. 11891 of the Register of Deeds
of Quezon City and TCT No. 50851 of the Register of
Deeds of Rizal covering two pieces of real estate
properties.
Subsequently, Cesar Umali, plaintiffs credit and
collection manager, accompanied by a
representative of defendant Casville, went to see
Severino Santos to find out the status of the credit
line being sought by defendant Casville. Santosassured Umali that the letters of credit would be
opened as soon as the requirements imposed by
defendant bank in its letter dated August 11, 1976
had been complied with by defendant Casville.
On August 16, 1976, plaintiff issued a check for
P427,300.00, payable to the "order of EQUITABLE
BANKING CORPORATION A/C CASVILLE
ENTERPRISES, INC." and drawn against the first
National City Bank (Exhibit "E-l"). The check did notcontain the notation found in the previous check
issued by the plaintiff (Exhibit "2") but the
substance of said notation was reproduced in a
covering letter dated August 16,1976 that went
with the check (Exhibit "E"). Both
the check and the covering letter were sent to
defendant bank through defendant Casals. Plaintiff
entrusted the delivery of the check and the latter to
defendant Casals because it believed that no one,
including defendant Casals, could encash the same
as it was made payable to the defendant bank
alone. Besides, defendant Casals was known to the
bank as the one following up the application for the
letters of credit.
Upon receiving the check for P427,300.00 entrusted
to him by plaintiff defendant Casals immediately
deposited it with the defendant bank and the bank
teller accepted the same for deposit in defendant
Casville's checking account. After depositing said
check, defendant Casville, acting through defendant
Casals, then withdrew all the amount deposited.
Meanwhile, upon their presentation forencashment, plaintiff discovered that the three
checks (Exhibits "F, "G" and "H") in the total amount
of P427,300.00, that were issued by defendant
Casville as collateral were all dishonored for having
been drawn against a closed account.
As defendant Casville failed to pay its obligation to
defendant bank, the latter foreclosed the mortgage
executed by defendant Casville on the Estrada
property which was sold in a public auction sale to athird party.
Plaintiff allowed some time before following up the
application for the letters of credit knowing that it
took time to process the same. However, when the
three checks issued to it by defendant Casville were
dishonored, plaintiff became apprehensive and sent
Umali on November 29, 1976, to inquire about the
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status of the application for the letters of credit.
When plaintiff was informed that no letters of
credit were opened by the defendant bank in its
favor and then discovered that defendant Casville
had in the meanwhile withdrawn the entire amount
of P427,300.00, without paying its obligation to the
bank plaintiff filed the instant action.
While the the instant case was being tried,
defendants Casals and Casville assigned the garrett
skidder to plaintiff which credited in favor of
defendants the amount of P450,000.00, as partial
satisfaction of plaintiff's claim against them.
Defendants Casals and Casville hardly disputed their
liability to plaintiff. Not only did they show lack ofinterest in disputing plaintiff's claim by not
appearing in most of the hearings, but they also
assigned to plaintiff the garrett skidder which is an
action of clear recognition of their liability.
What is left for the Court to determine, therefore, is
only the liability of defendant bank to plaintiff.
xxx xxx xxx
Resolving that issue, the Trial Court rendered judgment, affirmed by
Respondent Court in toto, the pertinent portion of which reads:
xxx xxx xxx
Defendants Casals and Casville Enterprises and
Equitable Banking Corporation are ordered to pay
plaintiff, jointly and severally, the sum of
P427,300.00, representing the amount of plaintiff's
check which defendant bank erroneously credited
to the account of defendant Casville and which
defendants Casal and Casville misappropriated, with
12% interest thereon from April 5, 1977, until the
said sum is fully paid.
Defendant Equitable Banking Corporation is
ordered to pay plaintiff attorney's fees in the sum of
P25,000.00 .
Proportionate cost against all the defendants.
SO ORDERED.
The crucial issue to resolve is whether or not petitioner EquitableBanking Corporation (briefly, the Bank) is liable to private
respondent Edward J. Nell Co. (NELL, for short) for the value of the
second check issued by NELL, Exhibit "E-l," which was made payable
to the order of EQUITABLE Ashville BANIUNG
CORPORATION A/C OF CASVILLE ENTERPRISES INC.
and which the Bank teller credited to the account of Casville.
The Trial Court found that the amount of the second check hadbeen erroneously credited to the Casville account; held the Bank
liable for the mistake of its employees; and ordered the Bank to pay
NELL the value of the check in the sum of P427,300.00, with legal
interest. Explained the Trial Court:
The Court finds that the check in question was
payable only to the defendant bank and to no one
else. Although the words "A/C OF CASVILLE
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ENTERPRISES INC. "appear on the face of the check
after or under the name of defendant bank, the
payee was still the latter. The addition of said words
did not in any way make Casville Enterprises, Inc.
the Payee of the instrument for the words merely
indicated for whose account or in connection with
what account the check was issued by the plaintiff.
Indeed, the bank teller who received it was fully
aware that the check was not negotiable since he
stamped thereon the words "NON-NEGOTIABLE For
Payee's Account Only" and "NON-NEGOTIABLE
TELLER NO. 4, August 17,1976 EQUITABLE BANKING
CORPORATION.
But said teller should have exercised moreprudence in the handling of Id check because it was
not made out in the usual manner. The addition of
the words A/C OF CASVILLE ENTERPRISES INC."
should have placed the teller on guard and he
should have clarified the matter with his superiors.
Instead of doing so, however, the teller decided to
rely on his own judgment and at the risk of making
a wrong decision, credited the entire amount in the
name of defendant Casville although the latter was
not the payee named in the check. Such mistakewas crucial and was, without doubt, the proximate
cause of plaintiffs defraudation.
xxx xxx xxx
Respondent Appellate Court upheld the above conclusions stating in
addition:
1) The appellee made the subject check payable to
appellant's order, for the account of Casville
Enterprises, Inc. In the light of the other facts, the
directive was for the appellant bank to apply the
value of the check as payment for the letter of
credit which Casville Enterprises, Inc. had previously
applied for in favor of the appellee (Exhibit D-1, p.
5). The issuance of the subject check was precisely
to meet the bank's prior requirement of payment
before issuing the letter of credit previously applied
for by Casville Enterprises in favor of the appellee;
xxx xxx xxx
We disagree.
1) The subject check was equivocal and patently ambiguous. By
making the check read:
Pay to the EQUITABLE BANKING CORPORATION
Order of A/C OF CASVILLE ENTERPRISES, INC.
the payee ceased to be indicated with reasonable certainty in
contravention of Section 8 of the Negotiable Instruments Law.3As
worded, it could be accepted as deposit to the account of the party
named after the symbols "A/C," or payable to the Bank as trustee,or as an agent, for Casville Enterprises, Inc., with the latter being the
ultimate beneficiary. That ambiguity is to be
taken contraproferentemthat is, construed against NELL who
caused the ambiguity and could have also avoided it by the exercise
of a little more care. Thus, Article 1377 of the Civil Code, provides:
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Art. 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party
who caused the obscurity.
2) Contrary to the finding of respondent Appellate Court, the
subject check was, initially, not non-negotiable. Neither was it a
crossed check. The rubber-stamping transversall on the face of the
subject check of the words "Non-negotiable for Payee's Account
Only" between two (2) parallel lines, and "Non-negotiable, Teller-
No. 4, August 17, 1976," separately boxed, was made only by the
Bank teller in accordance with customary bank practice, and not by
NELL as the drawer of the check, and simply meant that thereafter
the same check could no longer be negotiated.
3) NELL's own acts and omissions in connection with the drawing,
issuance and delivery of the 16 August 1976 check, Exhibit "E-l," andits implicit trust in Casals, were the proximate cause of its own
defraudation: (a) The original check of 5 August 1976, Exhibit "2,"
was payable to the order solely of "Equitable Banking Corporation."
NELL changed the payee in the subject check, Exhibit "E", however,
to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.,"
upon Casals request. NELL also eliminated both the cash
disbursement voucher accompanying the check which read:
Payment for marginal deposit and other expense re
opening of L/C for account of Casville Enterprises.
and the memorandum:
a/c of Casville Enterprises Inc. for Marginal deposit
and payment of balance on Estrada Property to be
used as security for trust receipt for opening L/C of
Garrett Skidders in favor of the Edward Ashville J
Nell Co.
Evidencing the real nature of the transaction was merely a separate
covering letter, dated 16 August 1976, which Casals, sinisterly
enough, suppressed from the Bank officials and teller.
(b) NELL entrusted the subject check and its covering letter, Exhibit
"E," to Casals who, obviously, had his own antagonistic interests to
promote. Thus it was that Casals did not purposely present the
subject check to the Executive Vice-President of the Bank, who was
aware of the negotiations regarding the Letter of Credit, and who
had rejected the previous check, Exhibit "2," including its three
documents because the terms and conditions required by the Bank
for the opening of the Letter of Credit had not yet been agreed on.
(c) NELL was extremely accommodating to Casals. Thus, to facilitate
the sales transaction, NELL even advanced the marginal deposit for
the garrett skidder. It is, indeed, abnormal for the seller of goods,the price of which is to be covered by a letter of credit, to advance
the marginal deposit for the same.
(d) NELL had received three (3) postdated checks all dated 16
November, 1976 from Casvine to secure the subject check and had
accepted the deposit with it of two (2) titles of real properties as
collateral for said postdated checks. Thus, NELL was erroneously
confident that its interests were sufficiently protected. Never had it
suspected that those postdated checks would be dishonored, nor
that the subject check would be util ized by Casals for a purposeother than for opening the letter of credit.
In the last analysis, it was NELL's own acts, which put it into the
power of Casals and Casville Enterprises to perpetuate the fraud
against it and, consequently, it must bear the loss (Blondeau, et al.,
vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and
Shanghai Banking Corporation, 89 Phil. 780 [1951]; Republic of the
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Philippines vs. Equitable Banking Corporation, L-15895, January
30,1964, 10 SCRA 8).
... As between two innocent persons, one of whom
must suffer the consequence of a breach of trust,
the one who made it possible by his act of
confidence must bear the loss.
WHEREFORE, the Petition is granted and the Decision of respondent
Appellate Court, dated 4 October 1985, and its majority Resolution,
dated 28 April 1986, denying petitioner's Motion for
Reconsideration, are hereby SET ASIDE. The Decision of the then
Court of First Instance of Rizal, Branch XI. is modified in that
petitioner Equitable Banking Corporation is absolved from any and
all liabilities to the private respondent, Edward J. Nell Company, and
the Amended Complaint against petitioner bank is hereby ordereddismissed. No costs.
SO ORDERED.
Yap, C.J., Paras and Sarmiento, J.J., concur.
Padilla, J., took no part.
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.
REGALADO,J.:
This petition for review on certiorariimpugns and seeks the reversal
of the decision promulgated by respondent court on March 8, 1991
in CA-G.R. CV No. 236151affirming with modifications, the earlier
decision of the Regional Trial Court of Manila, Branch XLII,2which
dismissed the complaint filed therein by herein petitioner against
respondent bank.
The undisputed background of this case, as found by the court a
quo and adopted by respondent court, appears of record:
1. On various dates, defendant, a commercial
banking institution, through its Sucat Branch issued280 certificates of time deposit (CTDs) in favor of
one Angel dela Cruz who deposited with herein
defendant the aggregate amount of P1,120,000.00,
as follows: (Joint Partial Stipulation of Facts and
Statement of Issues, Original Records, p. 207;
Defendant's Exhibits 1 to 280);
CTDCTD
DatesSerial Nos.QuantityAmount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
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9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of
time (CTDs) to herein plaintiff in connection with his
purchased of fuel products from the latter (Original
Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz
informed Mr. Timoteo Tiangco, the Sucat Branch
Manger, that he lost all the certificates of time
deposit in dispute. Mr. Tiangco advised saiddepositor to execute and submit a notarized
Affidavit of Loss, as required by defendant bank's
procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and
delivered to defendant bank the required Affidavit
of Loss (Defendant's Exhibit 281). On the basis of
said affidavit of loss, 280 replacement CTDs were
issued in favor of said depositor (Defendant'sExhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated
and obtained a loan from defendant bank in the
amount of Eight Hundred Seventy Five Thousand
Pesos (P875,000.00). On the same date, said
depositor executed a notarized Deed of Assignment
of Time Deposit (Exhibit 562) which stated, among
others, that he (de la Cruz) surrenders to defendant
bank "full control of the indicated time deposits
from and after date" of the assignment and further
authorizes said bank to pre-terminate, set-off and
"apply the said time deposits to the payment of
whatever amount or amounts may be due" on the
loan upon its maturity (TSN, February 9, 1987, pp.
60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit
Manager of plaintiff Caltex (Phils.) Inc., went to the
defendant bank's Sucat branch and presented for
verification the CTDs declared lost by Angel dela
Cruz alleging that the same were delivered to
herein plaintiff "as security for purchases made with
Caltex Philippines, Inc." by said depositor (TSN,February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a
letter (Defendant's Exhibit 563) from herein plaintiff
formally informing it of its possession of the CTDs in
question and of its decision to pre-terminate the
same.
8. On December 8, 1982, plaintiff was requested by
herein defendant to furnish the former "a copy ofthe document evidencing the guarantee agreement
with Mr. Angel dela Cruz" as well as "the details of
Mr. Angel dela Cruz" obligation against which
plaintiff proposed to apply the time deposits
(Defendant's Exhibit 564).
9. No copy of the requested documents was
furnished herein defendant.
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10. Accordingly, defendant bank rejected the
plaintiff's demand and claim for payment of the
value of the CTDs in a letter dated February 7, 1983
(Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with
the defendant bank matured and fell due and on
August 5, 1983, the latter set-off and applied the
time deposits in question to the payment of the
matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the
instant complaint, praying that defendant bank be
ordered to pay it the aggregate value of the
certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest thereinat 16%per annum, moral and exemplary damages
as well as attorney's fees.
After trial, the court a quorendered its decision
dismissing the instant complaint.3
On appeal, as earlier stated, respondent court affirmed the lower
court's dismissal of the complaint, hence this petition wherein
petitioner faults respondent court in ruling (1) that the subject
certificates of deposit are non-negotiable despite being clearlynegotiable instruments; (2) that petitioner did not become a holder
in due course of the said certificates of deposit; and (3) in
disregarding the pertinent provisions of the Code of Commerce
relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced
below to provide a better understanding of the issues involved in
this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22,
1982, 19____
This is to Certify that B E A R E R hasdeposited in this Bank the sum
of PESOS: FOUR THOUSAND ONLY,
SECURITY BANK SUCAT OFFICE
P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said
depositor 731 days. after date,
upon presentation and surrender of
this certificate, with interest at the
rate of 16% per centper annum.
(Sgd. Illegible) (Sgd. Illegible)
AUTHORIZED SIGNATURES5
Respondent court ruled that the CTDs in question are non-
negotiable instruments, nationalizing as follows:
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. . . While it may be true that the word "bearer"
appears rather boldly in the CTDs issued, it is
important to note that after the word "BEARER"
stamped on the space provided supposedly for the
name of the depositor, the words "has deposited" a
certain amount follows. The document further
provides that the amount deposited shall be
"repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s)
themselves manifest with clarity that they are
payable, not to whoever purports to be the
"bearer" but only to the specified person indicated
therein, the depositor. In effect, the appellee bank
acknowledges its depositor Angel dela Cruz as the
person who made the deposit and further engages
itself to pay said depositor the amount indicatedthereon at the stipulated date.
6
We disagree with these findings and conclusions, and hereby hold
that the CTDs in question are negotiable instruments. Section 1 Act
No. 2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become
negotiable, viz:
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order
to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee,
he must be named or otherwise indicated therein
with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the
law for negotiability. The parties' bone of contention is with regard
to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified
in open court that the depositor reffered to in the CTDs is no other
than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, youare saying that per books of the
bank, the depositor referred (sic) in
these certificates states that it was
Angel dela Cruz?
witness:
a Yes, your Honor, and we have the
record to show that Angel dela Cruz
was the one who cause (sic) theamount.
Atty. Calida:
q And no other person or entity or
company, Mr. Witness?
witness:
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a None, your Honor.7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor
identified in all of these certificates
of time deposit insofar as the bank
is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-
negotiability of an instrument is determined from the writing, that
is, from the face of the instrument itself.9
In the construction of a
bill or note, the intention of the parties is to control, if it can be
legally ascertained. 10While the writing may be read in the light of
surrounding circumstances in order to more perfectly understand
the intent and meaning of the parties, yet as they have constituted
the writing to be the only outward and visible expression of their
meaning, no other words are to be added to it or substituted in itsstead. The duty of the court in such case is to ascertain, not what
the parties may have secretly intended as contradistinguished from
what their words express, but what is the meaning of the words
they have used. What the parties meant must be determined by
what they said.11
Contrary to what respondent court held, the CTDs are negotiable
instruments. The documents provide that the amounts deposited
shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the "bearer." The documents do
not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are
to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount
to Angel de la Cruz only, it could have with facility so expressed that
fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the
name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof. Thus, petitioner's aforesaid
witness merely declared that Angel de la Cruz is the depositor
"insofar as the bank is concerned," but obviously other parties notprivy to the transaction between them would not be in a position to
know that the depositor is not the bearer stated in the CTDs. Hence,
the situation would require any party dealing with the CTDs to go
behind the plain import of what is written thereon to unravel the
agreement of the parties thereto through facts aliunde.This need
for resort to extrinsic evidence is what is sought to be avoided by
the Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the
obscurity.
12
The next query is whether petitioner can rightfully recover on the
CTDs. This time, the answer is in the negative. The records reveal
that Angel de la Cruz, whom petitioner chose not to implead in this
suit for reasons of its own, del ivered the CTDs amounting to
P1,120,000.00 to petitioner without informing respondent bank
thereof at any time. Unfortunately for petitioner, although the CTDs
are bearer instruments, a valid negotiation thereof for the true
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purpose and agreement between it and De la Cruz, as ultimately
ascertained, requires both delivery and indorsement. For, although
petitioner seeks to deflect this fact, the CTDs were in reality
delivered to it as a security for De la Cruz' purchases of its fuel
products. Any doubt as to whether the CTDs were delivered as
payment for the fuel products or as a security has been dissipated
and resolved in favor of the latter by petitioner's own authorized
and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent
Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . .
These certificates of deposit were negotiated to us by Mr. Angel
dela Cruz to guarantee his purchases of fuel products" (Emphasis
ours.)13
This admission is conclusive upon petitioner, its
protestations notwithstanding. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the personmaking it, and cannot be denied or disproved as against the person
relying thereon.14
A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon
them.15
In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such declaration,
act, or omission, be permitted to falsify it.16
If it were true that the CTDs were delivered as payment and not assecurity, petitioner's credit manager could have easily said so,
instead of using the words "to guarantee" in the letter aforequoted.
Besides, when respondent bank, as defendant in the court below,
moved for a bill of particularity therein17
praying, among others,
that petitioner, as plaintiff, be required to aver with sufficient
definiteness or particularity (a) the due date or dates ofpayment of
the alleged indebtedness of Angel de la Cruz to plaintiff and (b)
whether or not it issued a receipt showing that the CTDs were
delivered to it by De la Cruz aspayment of the latter's alleged
indebtedness to it, plaintiff corporation opposed the motion.18
Had
it produced the receipt prayed for, it could have proved, if such truly
was the fact, that the CTDs were delivered as payment and not as
security. Having opposed the motion, petitioner now labors under
the presumption that evidence willfully suppressed would be
adverse if produced.19
Under the foregoing circumstances, this disquisition in Intergrated
Realty Corporation, et al. vs. Philippine National Bank, et al.20
is
apropos:
. . . Adverting again to the Court's pronouncements
in Lopez, supra, we quote therefrom:
The character of the transactionbetween the parties is to be
determined by their intention,
regardless of what language was
used or what the form of the
transfer was. If it was intended to
secure the payment of money, it
must be construed as a pledge; but
if there was some other intention, it
is not a pledge. However, even
though a transfer, if regarded byitself, appears to have been
absolute, its object and character
might still be qualified and
explained by contemporaneous
writing declaring it to have been a
deposit of the property as collateral
security. It has been said that a
transfer of property by the debtor
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to a creditor, even if sufficient on its
face to make an absolute
conveyance, should be treated as a
pledge if the debt continues in
inexistence and is not discharged by
the transfer, and that accordingly
the use of the terms ordinarily
importing conveyance of absolute
ownership will not be given that
effect in such a transaction if they
are also commonly used in pledges
and mortgages and therefore do
not unqualifiedly indicate a transfer
of absolute ownership, in the
absence of clear and unambiguous
language or other circumstancesexcluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the
question. Under the Negotiable Instruments Law, an instrument is
negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder
thereof,21
and a holder may be the payee or indorsee of a bill or
note, who is in possession of it, or the bearer thereof.22
In the
present case, however, there was no negotiation in the sense of a
transfer of the legal title to the CTDs in favor of petitioner in whichsituation, for obvious reasons, mere delivery of the bearer CTDs
would have sufficed. Here, the delivery thereof only as security for
the purchases of Angel de la Cruz (and we even disregard the fact
that the amount involved was not disclosed) could at the most
constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by
mere delivery of the instrument since, necessarily, the terms
thereof and the subsequent disposition of such security, in the
event of non-payment of the principal obligation, must be
contractually provided for.
The pertinent law on this point is that where the holder has a lien
on the instrument arising from contract, he is deemed a holder for
value to the extent of his lien. 23As such holder of collateral
security, he would be a pledgee but the requirements therefor and
the effects thereof, not being provided for by the Negotiable
Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights,24
which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by
negotiable instruments, . . . may also be pledged.
The instrument proving the right pledged shall be
delivered to the creditor, and if negotiable, must be
indorsed.
Art. 2096. A pledge shall not take effect against
third persons if a description of the thing pledged
and the date of the pledge do not appear in a public
instrument.
Aside from the fact that the CTDs were only delivered but not
indorsed, the factual findings of respondent court quoted at the
start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guaranteeagreement between it and Angel de la Cruz.
25Consequently, the
mere delivery of the CTDs did not legally vest in petitioner any right
effective against and binding upon respondent bank. The
requirement under Article 2096 aforementioned is not a mere rule
of adjective law prescribing the mode whereby proof may be made
of the date of a pledge contract, but a rule of substantive law
prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely.26
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On the other hand, the assignment of the CTDs made by Angel de la
Cruz in favor of respondent bank was embodied in a public
instrument.27
With regard to this other mode of transfer, the Civil
Code specifically declares:
Art. 1625. An assignment of credit, right or action
shall produce no effect as against third persons,
unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in
case the assignment involves real property.
Respondent bank duly complied with this statutory requirement.
Contrarily, petitioner, whether as purchaser, assignee or lien holder
of the CTDs, neither proved the amount of its credit or the extent of
its lien nor the execution of any public instrument which could
affect or bind private respondent. Necessarily, therefore, asbetween petitioner and respondent bank, the latter has definitely
the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into
the question of whether or not private respondent observed the
requirements of the law in the case of lost negotiable instruments
and the issuance of replacement certificates therefor, on the
ground that petitioner failed to raised that issue in the lower
court.28
On this matter, we uphold respondent court's finding that the
aspect of alleged negligence of private respondent was not included
in the stipulation of the parties and in the statement of issues
submitted by them to the trial court.29The issues agreed upon by
them for resolution in this case are:
1. Whether or not the CTDs as worded are
negotiable instruments.
2. Whether or not defendant could legally apply the
amount covered by the CTDs against the depositor's
loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or
set off involving the amount covered by the CTDs
and the depositor's outstanding account with
defendant, if any.
4. Whether or not plaintiff could compel defendant
to preterminate the CTDs before the maturity date
provided therein.
5. Whether or not plaintiff is entitled to the
proceeds of the CTDs.
6. Whether or not the parties can recover damages,
attorney's fees and litigation expenses from each
other.
As respondent court correctly observed, with appropriate citation of
some doctrinal authorities, the foregoing enumeration does not
include the issue of negligence on the part of respondent bank. An
issue raised for the first time on appeal and not raised timely in the
proceedings in the lower court is barred by estoppel.30
Questions
raised on appeal must be within the issues framed by the partiesand, consequently, issues not raised in the trial court cannot be
raised for the first time on appeal.31
Pre-trial is primarily intended to make certain that all issues
necessary to the disposition of a case are properly raised. Thus, to
obviate the element of surprise, parties are expected to disclose at
a pre-trial conference all issues of law and fact which they intend to
raise at the trial, except such as may involve privileged or
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impeaching matters. The determination of issues at a pre-trial
conference bars the consideration of other questions on appeal.32
To accept petitioner's suggestion that respondent bank's supposed
negligence may be considered encompassed by the issues on its
right to preterminate and receive the proceeds of the CTDs would
be tantamount to saying that petitioner could raise on appeal any
issue. We agree with private respondent that the broad ultimate
issue of petitioner's entitlement to the proceeds of the questioned
certificates can be premised on a multitude of other legal reasons
and causes of action, of which respondent bank's supposed
negligence is only one. Hence, petitioner's submission, if accepted,
would render a pre-trial delimitation of issues a useless exercise.33
Still, even assuming arguendothat said issue of negligence was
raised in the court below, petitioner still cannot have the odds in itsfavor. A close scrutiny of the provisions of the Code of Commerce
laying down the rules to be followed in case of lost instruments
payable to bearer, which it invokes, will reveal that said provisions,
even assuming their applicability to the CTDs in the case at bar, are
merely permissive and not mandatory. The very first article cited by
petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for
what cause it may be, mayapply to the judge or
court of competent jurisdiction, asking that theprincipal, interest or dividends due or about to
become due, be not paid a third person, as well as
in order to prevent the ownership of the instrument
that a duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not
mandatory but discretionary on the part of the "dispossessed
owner" to apply to the judge or court of competent jurisdiction for
the issuance of a duplicate of the lost instrument. Where the
provision reads "may," this word shows that it is not mandatory but
discretional. 34The word "may" is usually permissive, not
mandatory.35
It is an auxiliary verb indicating liberty, opportunity,
permission and possibility.36
Moreover, as correctly analyzed by private respondent,37
Articles
548 to 558 of the Code of Commerce, on which petitioner seeks to
anchor respondent bank's supposed negligence, merely established,
on the one hand, a right of recourse in favor of a dispossessed
owner or holder of a bearer instrument so that he may obtain a
duplicate of the same, and, on the other, an option in favor of the
party liable thereon who, for some valid ground, may elect to refuseto issue a replacement of the instrument. Significantly, none of the
provisions cited by petitioner categorically restricts or prohibits the
issuance a duplicate or replacement instrument sans compliance
with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition
is DENIEDand the appealed decision is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Nocon, JJ., concur.
G.R. No. 85419 March 9, 1993
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON
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TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and
PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents.
Yngson & Associates for petitioner.
Henry A. Reyes & Associates for Samso Tung & Asian Industrial
Plastic Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
Rafael S. Santayana for Mary Cheng Uy.
CAMPOS, JR.,J.:
On July 6, 1986, the Development Bank of Rizal (petitioner Bank for
brevity) filed a complaint for a sum of money against respondents
Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung,
Asian Industrial Plastic Corporation (Plastic Corporation for short)
and the Producers Bank of the Philippines, on two causes of action:
(1) To enforce payment of the balance of
P1,032,450.02 on a promissory note executed byrespondent Sima Wei on June 9, 1983; and
(2) To enforce payment of two checks executed by
Sima Wei, payable to petitioner, and drawn against
the China Banking Corporation, to pay the balance
due on the promissory note.
Except for Lee Kian Huat, defendants filed their separate Motions to
Dismiss alleging a common ground that the complaint states no
cause of action. The trial court granted the defendants' Motions to
Dismiss. The Court of Appeals affirmed this decision, *to which the
petitioner Bank, represented by its Legal Liquidator, filed this
Petition for Review by Certiorari, assigning the following as the
alleged errors of the Court of Appeals:1
(1) THE COURT OF APPEALS ERRED IN HOLDING
THAT THE PLAINTIFF-PETITIONER HAS NO CAUSE OF
ACTION AGAINST DEFENDANTS-RESPONDENTS
HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING
THAT SECTION 13, RULE 3 OF THE REVISED RULES
OF COURT ON ALTERNATIVE DEFENDANTS IS NOTAPPLICABLE TO HEREIN DEFENDANTS-
RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to
respondent Sima Wei, the latter executed and delivered to the
former a promissory note, engaging to pay the petitioner Bank or
order the amount of P1,820,000.00 on or before June 24, 1983 with
interest at 32%per annum. Sima Wei made partial payments on thenote, leaving a balance of P1,032,450.02. On November 18, 1983,
Sima Wei issued two crossed checks payable to petitioner Bank
drawn against China Banking Corporation, bearing respectively the
serial numbers 384934, for the amount of P550,000.00 and 384935,
for the amount of P500,000.00. The said checks were allegedly
issued in full settlement of the drawer's account evidenced by the
promissory note. These two checks were not del ivered to the
petitioner-payee or to any of its authorized representatives. For
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reasons not shown, these checks came into the possession of
respondent Lee Kian Huat, who deposited the checks without the
petitioner-payee's indorsement (forged or otherwise) to the
account of respondent Plastic Corporation, at the Balintawak
branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch
Manager of the Balintawak branch of Producers Bank, relying on the
assurance of respondent Samson Tung, President of Plastic
Corporation, that the transaction was legal and regular, instructed
the cashier of Producers Bank to accept the checks for deposit and
to credit them to the account of said Plastic Corporation, inspite of
the fact that the checks were crossed and payable to petitioner
Bank and bore no indorsement of the latter. Hence, petitioner filed
the complaint as aforestated.
The main issue before Us is whether petitioner Bank has a cause of
action against any or all of the defendants, in the alternative orotherwise.
A cause of action is defined as an act or omission of one party in
violation of the legal right or rights of another. The essential
elements are: (1) legal right of the plaintiff; (2) correlative obligation
of the defendant; and (3) an act or omission of the defendant in
violation of said legal right.2
The normal parties to a check are the drawer, the payee and the
drawee bank. Courts have long recognized the business custom ofusing printed checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable and the
drawer's signature. All the drawer has to do when he wishes to
issue a check is to properly fill up the blanks and sign it. However,
the mere fact that he has done these does not give rise to any
liability on his part, until and unless the check is delivered to the
payee or his representative. A negotiable instrument, of which a
check is, is not only a written evidence of a contract right but is also
a species of property. Just as a deed to a piece of land must be
delivered in order to convey title to the grantee, so must a
negotiable instrument be delivered to the payee in order to
evidence its existence as a binding contract. Section 16 of the
Negotiable Instruments Law, which governs checks, provides in
part:
Every contract on a negotiable instrument is
incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto.
. . .
Thus, the payee of a negotiable instrument acquires no interest
with respect thereto until its delivery to him.3Delivery of an
instrument means transfer of possession, actual or constructive,
from one person to another.4Without the initial delivery of theinstrument from the drawer to the payee, there can be no liability
on the instrument. Moreover, such delivery must be intended to
give effect to the instrument.
The allegations of the petitioner in the original complaint show that
the two (2) China Bank checks, numbered 384934 and 384935, were
not delivered to the payee, the petitioner herein. Without the
delivery of said checks to petitioner-payee, the former did not
acquire any right or interest therein and cannot therefore assert any
cause of action,founded on said checks, whether against the drawerSima Wei or against the Producers Bank or any of the other
respondents.
In the original complaint, petitioner Bank, as plaintiff, sued
respondent Sima Wei on the promissory note, and the alternative
defendants, including Sima Wei, on the two checks. On appeal from
the orders of dismissal of the Regional Trial Court, petitioner Bank
alleged that its cause of action was not based on collecting the sum
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of money evidenced by the negotiable instruments stated but
on quasi-delicta claim for damages on the ground of fraudulent
acts and evident bad faith of the alternative respondents. This was
clearly an attempt by the petitioner Bank to change not only the
theory of its case but the basis of his cause of action. It is well-
settled that a party cannot change his theory on appeal, as thiswould in effect deprive the other party of his day in court.
5
Notwithstanding the above, it does not necessarily follow that the
drawer Sima Wei is freed from liability to petitioner Bank under the
loan evidenced by the promissory note agreed to by her. Her
allegation that she has paid the balance of her loan with the two
checks payable to petitioner Bank has no merit for, as We have
earlier explained, these checks were never delivered to petitioner
Bank. And even granting, without admitting, that there was delivery
to petitioner Bank, the delivery of checks in payment of anobligation does not constitute payment unless they are cashed or
their value is impaired through the fault of the creditor.6
None of
these exceptions were alleged by respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been
relieved from liability on the promissory note by some other cause,
petitioner Bank has a right of action against her for the balance due
thereon.
However, insofar as the other respondents are concerned,petitioner Bank has no privity with them. Since petitioner Bank
never received the checks on which it based its action against said
respondents, it never owned them (the checks) nor did it acquire
any interest therein. Thus, anything which the respondents may
have done with respect to said checks could not have prejudiced
petitioner Bank. It had no right or interest in the checks which could
have been violated by said respondents. Petitioner Bank has
therefore no cause of action against said respondents, in the
alternative or otherwise. If at all, it is Sima Wei, the drawer, who
would have a cause of action against her
co-respondents, if the allegations in the complaint are found to be
true.
With respect to the second assignment of error raised by petitioner
Bank regarding the applicability of Section 13, Rule 3 of the Rules of
Court, We find it unnecessary to discuss the same in view of Our
finding that the petitioner Bank did not acquire any right or interest
in the checks due to lack of delivery. It therefore has no cause of
action against the respondents, in the alternative or otherwise.
In the light of the foregoing, the judgment of the Court of Appeals
dismissing the petitioner's complaint is AFFIRMED insofar as the
second cause of action is concerned. On the first cause of action,
the case is REMANDED to the trial court for a trial on the merits,consistent with this decision, in order to determine whether
respondent Sima Wei is liable to the Development Bank of Rizal for
any amount under the promissory note allegedly signed by her.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.
G.R. No. L-4388 August 13, 1952
PHILIPPINE NATIONAL BANK,petitioner,
vs.
BENITO SEETO,respondent.
Ramon B. de los Reyes for petitioner.
Montano A. Ortiz for respondent.
LABRADOR,J.:
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On March 13, 1948, respondent Benito Seeto called at the branch of
the Philippine National Bank, petitioner herein, at Surigao, and
presented a check, No. A-21096, in the amount of P5,000 dated at
Cebu on March 10, 1948, payable to cash or bearer, and drawn by
one Gan Yek Kiao against the Cebu branch of the Philippine National
Bank of Communications. After consultation with the employees ofthe branch, Seeto made a general and unqualified indorsement of
the check, and petitioner's agency accepted it and paid respondent
the amount of P5,000 therefor. The check was mailed to petitioner's
Cebu branch on March 20, 1948, and was presented to the drawee
bank for payment on April 9, 1948, but the check was dishonored
for "insufficient funds." So the check was returned to petitioner's
Surigao agency, and upon receipt thereof by it on April 14, 1948,
said branch immediately sent a letter to the respondent herein
demanding immediate refund of in the value of the check. A second
communication of the same tenor was sent on April 26, 1948, towhich respondent answered asking that plaintiff's contemplated
suit be deferred while he was making inquiries about the reasons
for the dishonor of the check. Thereafter, respondent refused to
make the refund demanded, claiming that at the time of the
negotiation o the check the drawer had sufficient funds in the
drawee bank, and that the petitioner's Surigao agency not delayed
to forward the check until the drawer's funds were exhausted, the
same would have been paid.
Thereupon petitioner presented a complaint in the Court of FirstInstance of Surigao, alleging that respondent Benito Seeto gave
assurance to petitioner's agency in Surigao that the drawer of the
check had sufficient funds with the drawee bank, and that upon
these assurances petitioner's agency delivered the P5,000 to the
respondent after the latter had made a general and unqualified
indorsement thereon. Respondent denied having made the alleged
assurances. Upon this issue petitioner submitted two witnesses at
the time of the trial, who testified that it was not the practice of
petitioner's agency to cash out of town checks, and that the check
was cashed because of the assurances given by the respondent that
the drawer had sufficient funds, and that he (respondent) would
refund the amount paid by petitioner's agency in case the check is
dishonored. Respondent denied having given the assurances. The
trial court found notwithstanding respondent's denial to thecontrary, that the respondent made an undertaking to refund the
amount of the checks in the event of dishonor. In support of this
finding it found that as the drawee bank is not in Cebu, it was
impossible for petitioner's agency to make an independent
verification of the drawer's solvency, and must have taken
precautions to protect itself against loss by requiring the
respondent to give assurances that he would return the amount of
the check in the case of nonpayment. It also found that there was
no unreasonable delay in the presentation of the check, and,
therefore, rendered judgment sentencing respondent to refund theamount he had received for the check.
On appeal to the Court of Appeals, this court held that petitioner
was guilty of unreasonably retaining and with-holding the check,
and that the delay in the presentment for payment was inexcusable,
so that respondent was thereby discharged from liability. It also
held that parol evidence is incompetent to show that one signing of
a check as indorser is merely a surety or guarantor, rejecting the
evidence adduced at the trial court about the respondent's
assurance and promise to refund. It, therefore, reversed thejudgment of the trial court and dismissed the complaint, with costs.
Against this judgment an appeal by certiorari has been brought to
this Court, petitioner Philippine National Bank contending that the
Court of Appeals erred in applying sections 143 and 144 of the
Negotiable Instruments Law and declaring respondent Benito Seeto
discharged of his liability as indorser of the check, and in not
admitting parol evidence to show that respondent made oral
assurances to refund the value of the check in case of dishonor.
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In support of petitioner's first assignment of error, it is argued that
inasmuch as a check need not to be presented for acceptance,
unlike a bill of exchange as required by Section 143, Section 144 of
the law is not applicable to the case at bar but Section 84, which
provides:
SEC. 84. Liability of person secondarily liable, when
instrument dishonored. Subject to the provisions of this
Act, when the instrument is dishonored by nonpayment, as
immediate right of recourse to all parties secondarily liable
thereon accrues to the holder.
It is true that Section 143 and 144 of the law are not applicable,
because these are provisions having to do with the presentation of
a bill of exchange for acceptance, and are not applicable to a check,
as to which presentment for acceptance is not required.
It is also true that Section 84 is applicable, but its application is
subject to the condition imposed by Section 186, to the effect that
the check must be presented for payment within a reasonable time
after its issue.
SEC. 186. Within what time a check must be presented.
A check must be presented for payment within a reasonable
time after its issue or the drawer will be discharged from
liability thereon to the extent of the loss caused by thedelay.
Counsel for the petitioner, however, argues that inasmuch as the
above section expressly provides for the discharge of the drawer
from liability to the extent of the loss caused by the delay, and, on
the other hand, it is silent as to the liability of the indorser, the
latter may not be considered discharged from liability by reason of
the delay in the presentment of payment under the general
principle inclusio unius est exclusion alterius. We find no reason nor
merit in the argument. The silence of Section 186 as to the indorser
is due to the fact that his discharge is already expressly covered by
the provision of Section 84, the indorser being a person secondarily
liable on the instrument. The reason for the difference between the
liability of the indorser and that of the drawer in case of dishonor isthat the drawer is not probably or necessarily prejudiced thereby,
while an indorser is, actually or by legal presumption.
Innumerable decisions have already been rendered in the state
courts of the United States to the effect that although the drawer of
a check is discharged only to the extent of loss caused by
unreasonable delay in presentment, an indorser is wholly
discharged thereby irrespective of any question of loss or injury. (
Swift & Co. vs. Miller, 62 Ind. App. 312, 113 N.E. 447, cited in
Brannan's Negotiable Instruments Law, p. 1134, Nuzum vs.Sheppard, 87 W. Va. 243, 104 S.E. 587, 11 A.L.R. 1024, Ibid.)
The proposition maintained in the reported case (Nuzum vs.
Sheppard., ante. 1024) that the indorser of a check, unlike
the drawer, is relieved of liability thereon by an
unreasonable delay in presenting the same for payment,
whether or not he is injured by the delay, is supported by
the great weight of authority, (Cases cited.)
The Court, in Gough v. Staats(N.Y.) supra, says: "Upon thequestion of due diligence to charge an indorser, whether he
has been prejudiced or not by the delay is perfectly
immaterial. It is not inquired into. The law presumes he has
been prejudiced." According to the Court in Caroll v.
Sweet(1891) 128 N.Y. 19, 13 L.R.A. 43, 27 N.E. 763,
"presentment to due time as fixed by the law merchant was
a condition upon performance of which the liability of the
defendant, as indorser, depended, and this delay was not
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excused, although the drawer of the check had no funds, or
was insolvent, or because presentment would not been
unavailing as a means of procuring payment." Only where
there is affirmative proof that the indorser knew when he
cashed the check that there would be no funds in the bank
to meet it can the rule be avoided. Otherwise, the failure topresent the check in due course of payment will discharge
the indorser even though such presentment would have
been unavailing. Start v. Tupper(Vt.) supra. (11 A.L.R.
Annotation, pp. 1028-1029.)
We have been unable to find any authority sustaining the
proposition that an indorser of a check is not discharged from
liability for an unreasonable delay in presentation for payment. This
is contrary to the essential nature and character of negotiable
instruments their negotiability. They are supposed to be passedon with promptness in the ordinary course of business transactions;
not to be retained or kept for such time as the holder may want,
otherwise the smooth flow of commercial transactions would be
hindered.
There seems to be an intimation in the decision appealed from that
inasmuch as the check was drawn payable elsewhere than at the
place of business of the drawer, it must be presented for
acceptance or negotiable within a reasonable time, and upon failure
to do so the drawer and all indorsers thereof are dischargedpursuant to Section 144 of the law. Against this insinuation the
petitioner argues that the application of sections 143 and 144 is not
proper, and that it may not be presumed that the check in question
was not drawn and executed in Cebu, the residence or place of
business of the drawer. There is no evidence at all as to the place
where the check was drawn. However, we have already pointed out
above that neither Section 143 nor Section 144 is applicable. But
our ruling that respondent was discharged upon the dishonor of the
check is based on Sections 84 and 186, the latter expressly requiring
that a check must be presented for payment within a reasonable
time after issue.
It is not claimed by the petitioner on this appeal that the conclusion
of the Court of Appeals that there was unreasonable delay in the
presentation of the check for payment at the drawee bank is
erroneous. The petitioner concedes the correctness of this
conclusion, although for purposes of argument merely. We find that
the conclusion is correct. The fact, admitted by the witnesses for
the petitioner, the checks for the drawer issued subsequent to
March 13, 1948, drawn against the same bank and cashed at the
same Surigao agency, were not dishonored positively shows that
the drawer had enough funds when he issued the check in question,
and that had it not been for the unreasonable delay in its
presentation for payment, the petitioner herein would have beenable to receive payment therefor. The check is dated March 10, and
was cashed by the petitioner's agency on March 13, 1948. It was not
mailed until seven days thereafter, i.e., on March 20, 1948, or ten
days after issue. No excuse was given for this delay. Assuming that it
took one week, or say ten days, or until March 30, for the check to
reach Cebu, neither can there be any excuse for not presenting it for
payment at the drawee bank until April 9, 1948, or 10 days after it
reached Cebu. We, therefore, find no reason for disturbing the
conclusion of the Court of Appeals that there was unreasonable
delay in the presentation of the check for payment at the drawee
bank, and that is a consequence thereof, the indorser, respondent
herein, was thereby discharged.
With respect to the second assignment of error, petitioner argues
that the verbal assurances given by the respondent to the
employees of the bank that he was ready to refund the amount if
the check should be dishonored by the drawee bank is a collateral
agreement, separate and distinct from the indorsement, by virtue of
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which petitioner herein was induced to cash the check, and,
therefore, admissible as an exception that the parol evidence rule.
Petitioners contention in this respect is not entirely unfounded. In
the case of Tan Machan vs. De La Trinidad, et al., 4 Phil., 684, this
court held that parol evidence is admissible to show that parties
signing as principals merely did so as sureties. In the case of Roblesvs. Lizarraga Hermanos, 50 Phil., 387, it was also held by this court
that parol evidence is admissible to prove "an independent
thereof." (Ibid., p. 395.) In Philips vs. Preston, 5 How. (U.S.) 278, 12
L. ed, 152, the Supreme Court of the United States held that any
prior or contemporaneous conversation in connection with a note
or its indorsement, may be proved by parol evidence. And Wigmore
states that "an extrinsic agreement between indorser and indorsee
which cannot be embodied in the instrument without impairing its
credit is provable by parol." (9 Wigmore 148, section 2445 [3].) If,
therefore, the supposed assurances that the drawer had funds andthat the respondent herein would refund the amount of the check if
the drawer had no funds, were the considerations or reasons that
induced the branch agency of the petitioners to go out of its
ordinary practice of not cashing out of town checks and accept the
check and to pay its face value, the same would be provable by
parol, provided, of course, that the assurances or inducements
offered would not vary, alter, or destroy the obligations attached by
law to the indorsement.
We find, however, that the supposed assurances of refund in case
of dishonor of the check are precisely the ordinary obligations of an
indorser, and these obligations are, under the law, considered
discharged by an unreasonable delay in the presentation of the
check for payment.
SEC. 66. Liability of general indorser. . . . .
And, in addition, he engages that on due presentment, it
shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay it. (Emphasis ours.)
There was no express obligation assumed by the respondent herein
that the drawer would always have funds, or that he (the indorser)
would refund the amount of the check even if there was delay in its
presentation, so that while the Court of Appeals may have
committed an error in disregarding the evidence submitted by
petitioner at the trial of the assurances made by respondent herein
at the time of the negotiation of the check, such error was without
prejudice, because the supposed assurances given were part of his
obligations as an indorser, which were discharged by theunreasonable delay in the presentation of the check for payment.
The judgment appealed from is, therefore, affirmed, with costs
against the petitioner.
Paras, C.J., Feria, Bengzon, Padilla, Tuason, Montemayor and
Bautista Angelo, JJ.,concur.
March 3, 1906
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G.R. No. 1904
FRANCISCO GONZALEZ QUIROS,plaintiff-appellee,
vs.
CARLOS PALANCA TAN-GUINLAY,defendant-appellant.
Chicote, Miranda and Sierra for appellant.
Joaquin R. Serra for appellee.
WILLARD,J.:
The plaintiff brought this action to recover the sum of 10,217.75
pesos, the value of goods sold by him to the defendant, and the
sum of 64,984.89 pesos, as damages caused to plaintiff by the
failure of the defendant to pay for the goods at the time agreed
upon. The defendant in his answer denied all the allegations of the
complaint, and further, alleged the pendency of another action for
the same cause; a counterclaim to the amount of 40,000 pesos, for
damages suffered by the defendant by reason of an attachment
wrongfully secured by the plaintiff in 1893; and a further
counterclaim for damages caused by reason of a prosecution
for estafa instituted against him maliciously by the plaintiff. The
court below ordered judgment in favor of the plaintiff for the value
of the goods sold and delivered to the defendant, with interest
thereon. He sustained the first counterclaim of the defendant, and
assessed the damages suffered by the defendant by reason of the
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attachment referred to in the answer, at 6,347.75 pesos. The other
defenses and counterclaims of the defendant the court held not to
have been proven, and final judgment was entered for the plaintiff
and against the defendant for 10,000 pesos and costs. Both parties
have appealed from the judgment.
(1) It is claimed by the defendant that there is no evidence to show
the value of the goods sold by the plaintiff to the defendant, and
that the documents introduced for the purpose of proving the value
were not properly received. It is not necessary to pass upon the
question as to the admissibility of this evidence, since the plaintiff,
testifying at the trial, stated that the value of the goods so sold by
him to the defendant was the amount which the court named in its
judgment.
(2) The goods referred to in the complaint were sold to the
defendant in two parcels. The value of the first lot was 2,235.95
pesos. For the purpose of paying this sum the defendant delivered
to the plaintiff a bill of exchange for 2,700 pesos, purporting to be
drawn by Juan Vy-Teco to the order of Chua-Sengco on Lucio Icaza.
When this bill of exchange was delivered to the plaintiff by the
defendant, and apparently accepted by Lucio Icaza. By the terms of
the acceptance the bill of exchange was payable on the 26th of
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December, 1893. The plaintiff took the bill of exchange and paid the
defendant in cash the difference between 2,700 pesos and the
value of the goods sold, 2,235.95 pesos. At the maturity of the
acceptance Icaza refused to pay the bil l of exchange, on the ground
that his signature thereto was a forgery, and nothing was ever
realized thereon. The plaintiff neglected to have the bill of exchange
protested for this nonpayment. The defendant claims that the court
committed an error in ordering judgment for the full value of the
goods sold, inasmuch as the plaintiff, by reason of his failure to
protest the bill of exchange, must suffer the loss occasioned by its
nonpayment. This contention, we thin, should be sustained. Article
1170 of the Civil Code is as follows:
Payments of debts of money shall be made in the specie stipulated
and, should it not be possible to deliver the specie, then in legal
silver or gold coin current in Spain.
The delivery of promissory notes to order or drafts of other
commercial paper shall only produce the effects of payment when
collected or when, by the fault of the creditor, their value has been
affected.
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In the meantime the action arising form the original obligation shall
be suspended.
We have already held, in the case of Compaia General de Tabacos
vs. Molina[[1]](No. 2091, 3 Off. Gaz., 678) that this section applies
both to mercantile documents executed by the debtors themselves,
and to those executed by third persons and delivered by the debtor
to the creditor. The bill of exchange in this case comes within the
second class, and by the terms of the second paragraph of article
1170 it must be considered as a payment of the debt, inasmuch as
its value has been affected by the fault of the creditor (the plaintiff)
in failing to have the bill of exchange protested for nonpayment.
There should be deducted, therefore, from the sum allowed the
plaintiff, 2,235.95 pesos.
(3) In order to prove the first special defense set out by the
defendant in his answer, viz, the pendency of another suit for the
same cause of action, he presented in evidence a certified copy of a
complaint presented in 1895 by the plaintiff against the defendant.
No evidence was presented to show that the complaint had ever
been answered. Under the former practice there was no lis
pendens until the defendant had answered the complaint, and
although it appears that various proceedings were taken in this suit
http://philippinelaw.info/jurisprudence/gr1904-quiros-v-tan-guinlay.html#fn1http://philippinelaw.info/jurisprudence/gr1904-quiros-v-tan-guinlay.html#fn1http://philippinelaw.info/jurisprudence/gr1904-quiros-v-tan-guinlay.html#fn1http://philippinelaw.info/jurisprudence/gr1904-quiros-v-tan-guinlay.html#fn1 -
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relating to the attachment of the goods of the defendant, yet it
nowhere appears that the defendant ever answered the complaint.
This assignment of error can not, therefore, be sustained.
(4) In December, 1893, the plaintiff procured an attachment of the
defendant's goods. This attachment was dissolved in 1897, and
judgment ordered in favor of the defendant and against the plaintiff
for damages suffered by the defendant by reason of the
attachment. No proceedings were ever had to assess the damages
until the defendant presented his counterclaim in the present case.
It appears from the evidence that the goods of the defendant were
seized under the plaintiff's attachment upon the 5th of December,
18933; that upon the 28th of January, 1894, the same goods were
again attached in a suit by Germann & Co. against this defendant.
What became of the goods does not appear, although there are
indications that they were sold upon the attachment secured by
Germann & Co. Under these circumstances the plaintiff can not be
held responsible for the value of the goods. His responsibility would
be limited to the damages suffered by the goods while they were
held under his own attachment from the 5th day of December,
1893, until the 28th day of January, 1894, and for the time elapsing
after the 28th of January he would incur certain responsibility in
connection with Germann & Co., but under the evidence in the case
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there is no ground for holding that he is responsible for the value of
the goods. There was no evidence to show how much the goods had
been damaged, if at all, while they were in the possession of the
plaintiff, nor was there any evidence to show how much they had
been damaged after the 28th of January, and while they were
subject to both attachments. The only evidence in regard to
damages which the defendant offered was evidence relating to the
value of the goods when they were seized under the plaintiff's
attachment. As we have said, that is not the measure of damages in
this case, and the defendant having failed to prove any other kind of
damages, the decision of the court below allowing him the sum of
6,347 pesos as damages, can not be sustained.
(5) In 1894 the plaintiff presented a criminal complaint against the
defendant for estafa, by reason whereof the defendant was
arrested and kept in confinement for nearly two years and half. He
was released by an order or the United States military authorities
on the 13th of April, 1899, but there does not appear in the record
any order issued by any court authorizing this release. On the 27th
of November, 1900, the plaintiff presented another criminal
complaint forestafaagainst the defendant, based upon the same
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facts as was the first one. This complaint was later dismissed by the
court, and the defendant discharged from custody, Article 326 of
the Penal Code provides, as we have held in the case of United
States vs. Agustina Barrera[[2]](3 Off. Gaz., 411), that no prosecution
for a false accusation or complaint in a criminal case can be
commenced unless the judge, in dismissing the first complaint,
orders a complaint to be filed against the complaining witness for
false accusation. The judgment dismissing the complaint against this
defendant contained no such provision. We hold that this article
applies not only to a criminal proceeding against the complaining
witness, but also to civil proceedings, and that no action to recover
damages in a civil suit can be maintained by the person arrested
against the person presenting the complaint, unless in the order
acquitting the person arrested the judge certifies that the complaint
was malicious, as required by said article 326. The defendant in this
case, therefore, is not entitle to recover any damages by reason of
the criminal prosecution against him.
This disposes of all the errors assigned by the defendant.
(6) The plaintiff also appealed, and claims that he is entitled to
recover 60,000 pesos as damages which he suffered by reason of
the nonpayment by the defendant of the amount due for goods sold
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to him by the plaintiff, saying that if the defendant had paid for the
good as he agreed to do, the plaintiff could, by using the money so
paid, have made 60,000 pesos in his business. This claim is based
upon article 1101 of the Civil Code, which is as follows:
Those who in fulfilling their obligations are guilty of fraud,
negligence, or delay, and those who in any manner whatsoever act
in contravention of the stipulations of the same, shall be subject to
indemnify for the losses and damages caused thereby.
Plaintiff says that the defendant in refusing to pay for these goods
acted in a fraudulent manner. We do not think this article is at all
applicable to the case at bar. Damages may be recovered under this
article when the obliga