Negotioble Instrument Cases

7/24/2019 Negotioble Instrument Cases

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Philippine Education Co. vs. Soriano

L-22405 June 30, 1!1

"i#on, J.$

Facts: Enrique Montinola sought to purchase from Manila PostOce ten money orders of 200php each payable to E. P. Montinola.

Montinola oered to pay !ith the money orders !ith a pri"atechec#. Pri"ate chec# !ere not generally accepted in payment ofmoney orders$ the teller ad"ised him to see the %hief of the MoneyOrder &i"ision$ but instead of doing so$ Montinola managed to lea"ethe building !ithout the #no!ledge of the teller. 'pon thedisappearance of the unpaid money order$ a message !as sent toinstruct all ban#s that it must not pay for the money order stolenupon presentment. (he )an# of *merica recei"ed a copy of saidnotice. +o!e"er$ (he )an# of *merica recei"ed the money orderand deposited it to the appellant,s account upon clearance.Mauricio -oriano$ %hief of the Money Order &i"ision notied the)an# of *merica that the money order deposited had been found to

ha"e been irregularly issued and that$ the amount it representedhad been deducted from the ban#,s clearing account. (he )an# of*merica debited appellant,s account !ith the same account andgi"e notice by mean of debit memo.

/ssue: hether or not the postal money order in question is anegotiable instrument

+eld:1o. /t is not disputed that the Philippine postal statutes !ere

patterned after similar statutes in force in 'nited -tates. (he eightof authority in the 'nited -tates is that postal money orders are notnegotiable instruments$ the reason being that in establishing andoperating a postal money order system$ the go"ernment is notengaged in commercial transactions but merely eercises ago"ernmental po!er for the public benet. Moreo"er$ some of therestrictions imposed upon money orders by postal la!s andregulations are inconsistent !ith the character of negotiableinstruments. For instance$ such la!s and regulations usually pro"idefor not more than one endorsement3 payment of money orders maybe !ithheld under a "ariety of circumstances.

%.&. 'o. L-22405 June 30, 1!1P()L)PP)'E E"*C+)' C., )'C., plainti4appellant$"s.+*&)C) +. S&)+', E +L., defendant4appellees.Marcial Esposo for plainti-appellant.Oce of the Solicitor General Arturo A. Alafriz, Assistant Solicitor

General Antonio G. Ibarra and Attorney oncepcion !orri"os-A#apinan for defendants-appellees.")/',J.:*n appeal from a decision of the %ourt of First /nstance of Maniladismissing the complaint led by the Philippine Education %o.$ /nc.against Mauricio *. -oriano$ Enrico Palomar and 5afael %ontreras.On *pril 67$ 6897 Enrique Montinola sought to purchase from theManila Post Oce ten 60; money orders of P200.00 each payableto E.P. Montinola !ithaddress at on. *fter the postalteller had made out money ordersnumbered 62?@79$ 62?@7A462?@89$ Montinola oered to pay for them !ith a pri"ate chec#s

!ere not generally accepted in payment of money orders$ the tellerad"ised him to see the %hief of the Money Order &i"ision$ butinstead of doing so$ Montinola managed to lea"e building !ith hiso!n chec# and the ten60; money orders !ithout the #no!ledge ofthe teller.On the same date$ *pril 67$ 6897$ upon disco"ery of thedisappearance of the unpaid money orders$ an urgent message !assent to all postmasters$ and the follo!ing day notice !as li#e!iseser"ed upon all ban#s$ instructing them not to pay anyone of themoney orders aforesaid if presented for payment. (he )an# of*merica recei"ed a copy of said notice three days later.On *pril 2B$ 6897 one of the abo"e4mentioned money orders

numbered 62?@77 !as recei"ed by appellant as part of its salesreceipts. (he follo!ing day it deposited the same !ith the )an# of*merica$ and one day thereafter the latter cleared it !ith the)ureau of Posts and recei"ed from the latter its face "alue ofP200.00.On -eptember 2A$ 68@6$ appellee Mauricio *. -oriano$ %hief of theMoney Order &i"ision of the Manila Post Oce$ acting for and inbehalf of his co4appellee$ Postmaster Enrico Palomar$ notied the)an# of *merica that money order 1o. 62?@77 attached to his letterhad been found to ha"e been irregularly issued and that$ in "ie!thereof$ the amount it represented had been deducted from theban#Cs clearing account. For its part$ on *ugust 2 of the same year$

the )an# of *merica debited appellantCs account !ith the same


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amount and ga"e it ad"ice thereof by means of a debit memo.On October 62$ 68@6 appellant requested the Postmaster Deneral toreconsider the action ta#en by his oce deducting the sum ofP200.00 from the clearing account of the )an# of *merica$ but hisrequest !as denied. -o !as appellantCs subsequent request that thematter be referred to the -ecretary of ustice for ad"ice. (hereafter$appellant ele"ated the matter to the -ecretary of Public or#s and%ommunications$ but the latter sustained the actions ta#en by thepostal ocers.

/n connection !ith the e"ents set forth abo"e$ Montinola !ascharged !ith theft in the %ourt of First /nstance of Manila %riminal%ase 1o. ?B7@@; but after trial he !as acquitted on the ground ofreasonable doubt.On anuary 7$ 68@2 appellant led an action against appellees in theMunicipal %ourt of Manila praying for udgment as follo!s:+E5EFO5E$ plainti prays that after hearing defendants beordered:a; (o countermand the notice gi"en to the )an# of *merica on-eptember 2A$ 68@6$ deducting from the said )an#Cs clearingaccount the sum of P200.00 represented by postal money order 1o.62?@77$ or in the alternati"e indemnify the plainti in the same

amount !ith interest at 74GH per annum from -eptember 2A$ 68@6$!hich is the rate of interest being paid by plainti on its o"erdraftaccount3b; (o pay to the plainti out of their o!n personal funds$ ointly andse"erally$ actual and moral damages in the amount of P6$000.00 orin such amount as !ill be pro"ed andIor determined by this+onorable %ourt: eemplary damages in the amount of P6$000.00$attorneyCs fees of P6$000.00$ and the costs of action.Plainti also prays for such other and further relief as may bedeemed ust and equitable.

On 1o"ember 6A$ 68@2$ after the parties had submitted thestipulation of facts reproduced at pages 62 to 69 of the 5ecord on

*ppeal$ the abo"e4named court rendered udgment as follo!s:+E5EFO5E$ udgment is hereby rendered$ ordering the

defendants to countermand the notice gi"en to the )an# of *mericaon -eptember 2A$ 68@6$ deducting from said )an#Cs clearingaccount the sum of P200.00 representing the amount of postalmoney order 1o. 62?@77$ or in the alternati"e$ to indemnify theplainti in the said sum of P200.00 !ith interest thereon at the rateof 74GH per annum from -eptember 2A$ 68@6 until fully paid3!ithout any pronouncement as to cost and attorneyCs fees.

(he case !as appealed to the %ourt of First /nstance ofManila !here$ after the parties had resubmitted the samestipulation of facts$ the appealed decision dismissing the complaint$

!ith costs$ !as rendered.

(he rst$ second and fth assignments of error discussed inappellantCs brief are related to the other and !ill therefore bediscussed ointly. (hey raise this main issue: that the postal moneyorder in question is a negotiable instrument3 that its nature as suchis not in any!ay aected by the letter dated October 2@$ 68?7signed by the &irector of Posts and addressed to all ban#s !ith aclearing account !ith the Post Oce$ and that money orders$ onceissued$ create a contractual relationship of debtor and creditor$respecti"ely$ bet!een the go"ernment$ on the one hand$ and the

remitters payees or endorses$ on the other./t is not disputed that our postal statutes !ere patterned

after statutes in force in the 'nited -tates. For this reason$ ours aregenerally construed in accordance !ith the construction gi"en inthe 'nited -tates to their o!n postal statutes$ in the absence of anyspecial reason ustifying a departure from this policy or practice.(he !eight of authority in the 'nited -tates is that postal moneyorders are not negotiable instruments )olognesi "s. '.-. 678 Fed.B893 '.-. "s. -toc# &ra!ers 1ational )an#$ B0 Fed. 862;$ the reasonbehind this rule being that$ in establishing and operating a postalmoney order system$ the go"ernment is not engaging incommercial transactions but merely eercises a go"ernmental

po!er for the public benet./t is to be noted in this connection that some of the

restrictions imposed upon money orders by postal la!s andregulations are inconsistent !ith the character of negotiableinstruments. For instance$ such la!s and regulations usually pro"idefor not more than one endorsement3 payment of money orders maybe !ithheld under a "ariety of circumstances ?8 %.. 669B;.

Of particular application to the postal money order inquestion are the conditions laid do!n in the letter of the &irector ofPosts of October 2@$ 68?7 Ehibit B; to the )an# of *merica for theredemption of postal money orders recei"ed by it from itsdepositors. *mong others$ the condition is imposed that Jin cases of

ad"erse claim$ the money order or money orders in"ol"ed !ill bereturned to you the ban#; and the$ corresponding amount !ill ha"eto be refunded to the Postmaster$ Manila$ !ho reser"es the right todeduct the "alue thereof from any amount due you if such step isdeemed necessary.J (he conditions thus imposed in order to enablethe ban# to continue enoying the facilities theretofore enoyed byits depositors$ !ere accepted by the )an# of *merica. (he latter istherefore bound by them. (hat it is so is clearly referred from thefact that$ upon recei"ing ad"ice that the amount represented by themoney order in question had been deducted from its clearingaccount !ith the Manila Post Oce$ it did not le any protestagainst such action.

Moreo"er$ not being a party to the understanding eisting bet!een


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the postal ocers$ on the one hand$ and the )an# of *merica$ onthe other$ appellant has no right to assail the terms and conditionsthereof on the ground that the letter setting forth the terms andconditions aforesaid is "oid because it !as not issued by a&epartment +ead in accordance !ith -ec. A8 ); of the 5e"ised*dministrati"e %ode. /n reality$ ho!e"er$ said legal pro"ision doesnot apply to the letter in question because it does not pro"ide for adepartment regulation but merely sets do!n certain conditionsupon the pri"ilege granted to the )an# of *mrica to accept and pay

postal money orders presented for payment at the Manila PostOce. -uch being the case$ it is clear that the &irector of Posts hadample authority to issue it pursuant to -ec. 6680 of the 5e"ised*dministrati"e %ode.

/n "ie! of the foregoing$ e do not nd it necessary toresol"e the issues raised in the third and fourth assignments oferror.+E5EFO5E$ the appealed decision being in accordance !ith la!$the same is hereby armed !ith costs.

%.&. 'o. L-41 Januar 30, 10P()L)PP)'E +)&L)'ES, )'C., petitioner$"s.('. C*& +PPE+LS, ('. J*"%E &)C+&" ". %+L+',Court o irst )nstance o anila, ranch ))), J+)E 6. "EL&S+&), "eput Sheri7, Court o irst )nstance, anila,and +EL)+ +', respondents.

%*)E&&E/, J&.,J.:)ehind the simple issue of "alidity of an alias !rit of eecution inthis case is a more fundamental question. -hould the %ourt allo! atoo literal interpretation of the 5ules !ith an open in"itation to#na"ery to pre"ail o"er a more discerning and ust approachK-hould !e not apply the ancient rule of statutory construction thatla!s are to be interpreted by the spirit !hich "i"ies and not by theletter !hich #illethK

(his is a petition to re"ie! on certiorarithe decision of the%ourt of *ppeals in %*4D.5. 1o. 0A@89 entitled J$hilippine Airlines,Inc. %. &on. 'ud#e (icardo ). Galano, et al.*,dismissing the petition

for certiorari against the order of the %ourt of First /nstance of

Manila !hich issued an alias !rit of eecution against the petitioner.(he petition in"ol"ing the alias !rit of eecution had its

beginnings on 1o"ember 7$ 68@A$ !hen respondent *melia (an$under the name and style of *ble Printing Press commenced acomplaint for damages before the %ourt of First /nstance of Manila.(he case !as doc#eted as %i"il %ase 1o. A6B0A$ entitled A+elia!an, et al. %. $hilippine Airlines, Inc.

*fter trial$ the %ourt of First /nstance of Manila$ )ranch 6B$then presided o"er by the late udge esus P. Morfe rendered

udgment on une 28$ 68A2$ in fa"or of pri"ate respondent *melia(an and against petitioner Philippine *irlines$ /nc. P*


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(he case !as remanded to the trial court for eecution andon -eptember 2$68AA$ respondent *melia (an led a motion prayingfor the issuance of a !rit of eecution of the udgment rendered bythe %ourt of *ppeals. On October 66$ 68AA$ the trial court$ presidedo"er by udge Dalano$ issued its order of eecution !ith thecorresponding !rit in fa"or of the respondent. (he !rit !as dulyreferred to &eputy -heri Emilio . 5eyes of )ranch 6B of the %ourtof First /nstance of Manila for enforcement.Four months later$ on February 66$ 68A7$ respondent *melia (an

mo"ed for the issuance of an alias !rit of eecution stating that theudgment rendered by the lo!er court$ and armed !ithmodication by the %ourt of *ppeals$ remained unsatised.

On March 6$ 68A7$ the petitioner led an opposition to themotion for the issuance of an alias !rit of eecution stating that ithad already fully paid its obligation to plainti through the deputysheri of the respondent court$ Emilio . 5eyes$ as e"idenced bycash "ouchers properly signed and receipted by said Emilio .5eyes.

On March B$68A7$ the %ourt of *ppeals denied the issuanceof the alias !rit for being premature$ ordering the eecuting sheriEmilio . 5eyes to appear !ith his return and eplain the reason for

his failure to surrender the amounts paid to him by petitioner P*ed to impede indenitely the

undisputed and a!arded rights !hich a pre"ailing party rightfully


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deser"es to obtain and !ith dispatch. (he nal udgment in thiscase should not indeed be permitted to become illusory orincapable of eecution for an indenite and o"er etended period$as had already transpired. 5ollo$ pp. B94B@;'udiciu+ non debet esse illusoriu+ suu+ eectu+ habere debet*udgment ought not to be illusory it ought to ha"e its proper eect;.

/ndeed$ technicality cannot be countenanced to defeat theeecution of a udgment for eecution is the fruit and end of the suitand is "ery aptly called the life of the la! /pe#dian Merchandising

%o. ". %ourt of (a *ppeals$ 7 -%5* 98 Q68@BR3 %ommissioner of/nternal 5e"enue ". Lisayan Electric %o.$ 68 -%5* @8A$ @87 Q68@AR;.* udgment cannot be rendered nugatory by the unreasonableapplication of a strict rule of procedure. Lested rights !ere ne"erintended to rest on the requirement of a return$ the oce of !hichis merely to inform the court and the parties$ of any and all actionsta#en under the !rit of eecution. here such information can beestablished in some other manner$ the absence of an eecutingocerCs return !ill not preclude a udgment from being treated asdischarged or being eecuted through an alias !rit of eecution asthe case may be. More so$ as in the case at bar. here the returncannot be epected to be forthcoming$ to require the same !ould

be to compel the enforcement of rights under a udgment to rest onan impossibility$ thereby allo!ing the total a"oidance of udgmentdebts. -o long as a udgment is not satised$ a plainti is entitled toother !rits of eecution Do"ernment of the Philippines ". Echausand Don>ales$ A6 Phil. B67;. /t is a !ell #no!n legal maim that he!ho cannot prosecute his udgment !ith eect$ sues his case "ainly.

More important in the determination of the propriety of thetrial courtCs issuance of an alias !rit of eecution is the issue ofsatisfaction of udgment.'nder the peculiar circumstances surrounding this case$ did thepayment made to the absconding sheri by chec# in his nameoperate to satisfy the udgment debtK (he %ourt rules that the

plainti !ho has !on her case should not be adudged as ha"ingsued in "ain. (o decide other!ise !ould not only gi"e her an emptybut a pyrrhic "ictory./t should be emphasi>ed that under the initial udgment$ *melia (an!as found to ha"e been !ronged by P*


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/n the meantime$ the action deri"ed from the original obligationshall be held in abeyance./n the absence of an agreement$ either epress or implied$ paymentmeans the discharge of a debt or obligation in money '- ".5obertson$ 9 Pet. Q'-R @?6$ 7


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but itself to blame.(he attention of this %ourt has been called to the bad practice of anumber of eecuting ocers$ of requiring chec#s in satisfaction ofudgment debts to be made out in their o!n names. /f a sheridirects a udgment debtor to issue the chec#s in the sheriCs name$claiming he must get his commission or fees$ the debtor mustreport the sheri immediately to the court !hich ordered theeecution or to the -upreme %ourt for appropriate disciplinaryaction. Fees$ commissions$ and salaries are paid through regular

channels. (his improper procedure also allo!s such ocers$ !hoha"e sity @0; days !ithin !hich to ma#e a return$ to treat themoneys as their personal nds and to deposit the same in theirpri"ate accounts to earn sity @0; days interest$ before said ndsare turned o"er to the court or udgment creditor -ee )algos ".Lelasco$ 607 -%5* 929 Q6876R;. =uite as easily$ such ocers couldput up the defense that said chec#s had been issued to them intheir pri"ate or personal capacity. ithout a receipt e"idencingpayment of the udgment debt$ the misappropriation of nds bysuch ocers becomes clean and complete. (he practice isingenious but e"il as it unustly enriches court personnel at theepense of litigants and the proper administration of ustice. (he

temptation could be far greater$ as pro"ed to be in this case of theabsconding sheri. (he correct and prudent thing for the petitioner!as to ha"e issued the chec#s in the intended payeeCs name.

(he pernicious eects of issuing chec#s in the name of aperson other than the intended payee$ !ithout the latterCsagreement or consent$ are as many as the !ays that an artful mindcould create to get around the safeguards pro"ided by the la! onnegotiable instruments. *n angry litigant !ho loses a case$ as arule$ !ould not !ant the !inning party to get !hat he !on in theudgment. +e !ould thin# of !ays to delay the !inning partyCsgetting !hat has been adudged in his fa"or. e cannot condonethat practice especially in cases !here the courts and their ocers

are in"ol"ed. e rule against the petitioner.

*nent the applicability of -ection 69$ 5ule B8$ as follo!s:

Section 15.Execution of money judgments. S (he ocer mustenforce an eecution of a money udgment by le"ying on all theproperty$ real and personal of e"ery name and nature !hatsoe"er$and !hich may be disposed of for "alue$ of the udgment debtor noteempt from eecution$ or on a sucient amount of such property$if they be sucient$ and selling the same$ and payin# to the"ud#+ent creditor$ or his attorney$ so much of the proceeds as !illsatisfy the udgment. ...

the respondent court held:

e are obliged to rule that the udgment debt cannot be consideredsatised and therefore the orders of the respondent udge grantingthe alias !rit of eecution may not be pronounced as a nullity. /t is clear and manifest that after le"y or garnishment$ for audgment to be eecuted there is the requisite of payment by theocer to the udgment creditor$ or his attorney$ so much of theproceeds as !ill satisfy the udgment and none such payment hadbeen concededly made yet by the absconding -heri to the pri"ate

respondent *melia (an. (he ultimate and essential step to completethe eecution of the udgment not ha"ing been performed by the%ity -heri$ the udgment debt legally and factually remainsunsatised.-trictly spea#ing eecution cannot be equated !ith satisfaction of audgment. 'nder unusual circumstances as those obtaining in thispetition$ the distinction comes out clearly.

Eecution is the process !hich carries into eect a decree orudgment Painter ". )erglund$ B6 %al. *pp. 2d. @B$ 7A P 2d B@0$B@B3 Miller ".


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%ourt *dministrator is ordered to follo! up the actions ta#en againstEmilio . 5eyes.-O O5&E5E&.

")%ESPhilippine *irlines$ /nc. "s %ourt of *ppeals$ 676 -%5* 99A$ D5 1o.

?8677$(E +CS$*melia (an commenced a complaint for damages before the %ourtof First /nstance against Philippine *irlines$ /nc. P*


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the eecuting ocers. Payment in cash !ould result in damage orendless litigations each time a sheri !ith huge amounts of cash inhis hands decides to abscond.*s a protecti"e measure$ the courts encourage the practice ofpayment of chec# pro"ided adequate controls are instituted topre"ent !rongful payment and illegal !ithdra!al or disbursement offunds.+o!e"er$ in the case at bar$ it is out of the ordinary that chec#sintended for a particular payee are made out in the name of

another. (he issuance of the chec#s in the name of the shericlearly made possible the misappropriation of the funds that !ere!ithdra!n.(he %ourt of *ppeals eplained:TNno!ing as it does that the intended payment !as for therespondent *melia (an$ the petitioner corporation$ utili>ing theser"ices of its personnel !ho are or should be #no!ledgeable aboutthe accepted procedure and resulting consequences of the chec#sdra!n$ ne"ertheless$ in this instance$ !ithout prudence$ departedfrom !hat is generally obser"ed and done$ and placed as payee inthe chec#s the name of the errant -heri and not the name of therightful payee. Petitioner thereby created a situation !hich

permitted the said -heri to personally encash said chec#s andmisappropriate the proceeds thereof to his eclusi"e benet. For thepreudice that resulted$ the petitioner himself must bear the faultVU+a"ing failed to employ the proper safeguards to protect itself$ theudgment debtor !hose act made possible the loss had but itself toblame.


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D.5. 1o. A??96 May 29$ 6877

E='/(*)


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On uly 69$ 68A@$ defendant %asals handed to plainti a chec# inthe amount of PB00$000.00 postdated *ugust ?$ 68A@$ !hich !asfollo!ed by another chec# of same date. Plainti considered thesechec#s either as partial payment for the s#idder that !as alreadydeli"ered to %agayan de Oro or as reimbursement for the marginaldeposit that plainti !as supposed to pay.

/n a letter dated *ugust B$ 68A@ Ehibit J%J;$ defendants %as"illeinformed the plainti that their application for a letter of credit forthe payment of the Darrett s#idders had been appro"ed by theEquitable )an#ing %orporation. +o!e"er$ the defendants said thatthey !ould need the sum of PB00$000.00 to stand as collateral ormarginal deposit in fa"or of Equitable )an#ing %orporation and anadditional amount of P600$000.00$ also in fa"or of Equitable)an#ing %orporation$ to clear the title of the Estrada propertybelonging to defendant %asals !hich had been appro"ed as securityfor the trust receipts to be issued by the ban#$ co"ering the abo"e4mentioned equipment.

*lthough the marginal deposit !as supposed to be produced bydefendant %as"ille Enterprises$ plainti agreed to ad"ance thenecessary amount in order to facilitate the transaction. *ccordingly$on *ugust 9$68A@$ plainti issued a chec# in the amount ofP?00$000.00 Ehibit J2J; dra!n against the First 1ational %ity )an#and made payable to the order of Equitable )an#ing %orporationand !ith the follo!ing notation or memorandum:

aIc of %as"ille Enterprises /nc. for Marginal deposit and payment ofbalance on Estrada Property to be used as security for trust receiptfor opening on %ity and (%( 1o.90796 of the 5egister of &eeds of 5i>al co"ering t!o pieces of realestate properties.

-ubsequently$ %esar 'mali$ plaintis credit and collection manager$accompanied by a representati"e of defendant %as"ille$ !ent to see

-e"erino -antos to nd out the status of the credit line being sought


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by defendant %as"ille. -antos assured 'mali that the letters ofcredit !ould be opened as soon as the requirements imposed bydefendant ban# in its letter dated *ugust 66$ 68A@ had beencomplied !ith by defendant %as"ille.

On *ugust 6@$ 68A@$ plainti issued a chec# for P?2A$B00.00$payable to the Jorder of E='/(*)


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to the order of E='/(*)


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Enterprises /nc.$J upon %asals request. 1E


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/n 68A9$


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QD.5. 1o. 69?62A. &ecember 7$ 200BR

5OMEO %. D*5%/*$ petitioner$ "s. &/O1/-/O L.


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retirement$ but QrespondentR nonetheless led the instant case!hile his retirement !as being processed3 and that$ in defense ofhis rights$ he agreed to pay his counsel P20$000.00 QasR attorneysfees$ plus P6$000.00 for e"ery court appearance.

&uring the pre4trial conference$ de esus and his la!yer did notappear$ nor did they le any pre4trial brief. 1either did QPetitionerRDarcia le a pre4trial brief$ and his counsel e"en manifested that he!ould no QlongerR present e"idence. Di"en this de"elopment$ the

trial court ga"e QrespondentR permission to present his e"idence eparte against de esus3 and$ as regards QPetitionerR Darcia$ thetrial court directed Qrespondent1 to le a motion for udgment on thepleadings$ and for QPetitionerR Darcia to le his comment oropposition thereto.

/nstead$ QrespondentR led a QMRotion to declare QPetitionerR Darciain default and to allo! him to present his e"idence e parte.Mean!hile$ QPetitionerR Darcia led a QMRanifestation submitting hisdefense to a udgment on the pleadings. -ubsequently$QrespondentR led a QMRanifestationIQMRotion to submit the case forudgement on the pleadings$ !ithdra!ing in the process his

pre"ious motion. (hereunder$ he asserted that Qpetitioners and deesusR solidary liability under the promissory note cannot be anyclearer$ and that the chec# issued by de esus did not discharge theloan since the chec# bounced.Q9R

On uly A$ 6887$ the 5egional (rial %ourt 5(%; of =ue>on %ity)ranch 222; disposed of the case as follo!s:

+E5EFO5E$ premises considered$ udgment on the pleadings ishereby rendered in fa"or of QrespondentR and against Qpetitionerand &e esusR$ !ho are hereby ordered to pay$ ointly and se"erally$the QrespondentR the follo!ing sums$ to !it:

6; P?00$000.00 representing the principal amount plus 9H interestthereon per month from anuary 2B$ 688A until the same shall ha"ebeen fully paid$ less the amount of P620$000.00 representinginterests already paid by de esus3

2; P600$000.00 as attorneys fees plus appearance fee of P2$000.00for each day of QcRourt appearance$ and3

B; %ost of this suit.Q@R

5uling of the %ourt of *ppeals

(he %* ruled that the trial court had erred !hen it rendered audgment on the pleadings against &e esus. *ccording to theappellate court$ his *ns!er raised genuinely contentious issues.Moreo"er$ he !as still required to present his e"idence e parte.(hus$ respondent !as not ipso facto entitled to the 5(% udgment$e"en though &e esus had been declared in default. (he caseagainst the latter !as therefore remanded by the %* to the trialcourt for the e parte reception of the formers e"idence.

*s to petitioner$ the %* treated his case as a summary udgment$because his *ns!er had failed to raise e"en a single genuine issueregarding any material fact.

(he appellate court ruled that no no"ation 44 epress or implied 44had ta#en place !hen respondent accepted the chec# from &eesus. *ccording to the %*$ the chec# !as issued precisely to pay forthe loan that !as co"ered by the promissory note ointly andse"erally underta#en by petitioner and &e esus. 5espondentsacceptance of the chec# did not ser"e to ma#e &e esus the soledebtor because$ rst$ the obligation incurred by him and petitioner!as oint and se"eral3 and$ second$ the chec# 44 !hich had been

intended to etinguish the obligation 44 bounced upon itspresentment.

+ence$ this Petition.QAR

/ssues

Petitioner submits the follo!ing issues for our consideration:

/

hether or not the +onorable %ourt of *ppeals gra"ely erred in not

holding that no"ation applies in the instant case as Eduardode esus had epressly assumed sole and eclusi"e liability for theloan obligation he obtained from 5espondent &ionisio


18/37

c; de esus ha"ing paid interests on the loan in the totalamount of P620$000.003

d; (he fact that 5espondent


19/37

B; (he old contract must be etinguished.?; (here must be a "alid ne! contract.Q69R

1o"ation may also be epress or implied. /t is epress !hen the ne!obligation declares in unequi"ocal terms that the old obligation isetinguished. /t is implied !hen the ne! obligation is incompatible!ith the old one on e"ery point.Q6@R (he test of incompatibility is!hether the t!o obligations can stand together$ each one !ith itso!n independent eistence.Q6AR

*pplying the foregoing to the instant case$ !e hold that no no"ationtoo# place.

(he parties did not unequi"ocally declare that the old obligation hadbeen etinguished by the issuance and the acceptance of thechec#$ or that the chec# !ould ta#e the place of the note. (here isno incompatibility bet!een the promissory note and the chec#. *sthe %* correctly obser"ed$ the chec# had been issued precisely toans!er for the obligation. On the one hand$ the note e"idences theloan obligation3 and on the other$ the chec# ans!ers for it. Lerily$the t!o can stand together.

1either could the payment of interests 44 !hich$ in petitioners "ie!$also constitutes no"ationQ67R 44 change the terms and conditions ofthe obligation. -uch payment !as already pro"ided for in thepromissory note and$ li#e the chec#$ !as totally in accord !ith theterms thereof.

*lso unmeritorious is petitioners argument that the obligation !asno"ated by the substitution of debtors. /n order to change theperson of the debtor$ the old one must be epressly released fromthe obligation$ and the third person or ne! debtor must assume theformers place in the relation.Q68R ell4settled is the rule that

no"ation is ne"er presumed.Q20R %onsequently$ that !hich arisesfrom a purported change in the person of the debtor must be clearand epress.Q26R /t is thus incumbent on petitioner to sho! clearlyand unequi"ocally that no"ation has indeed ta#en place.

/n the present case$ petitioner has not sho!n that he !as epresslyreleased from the obligation$ that a third person !as substituted inhis place$ or that the oint and solidary obligation !as cancelled andsubstituted by the solitary underta#ing of &e esus. (he %* aptlyheld:

. Plaintis acceptance of the bum chec# did not result in

substitution by de esus either$ the nature of the obligation being

solidary due to the fact that the promissory note epressly declaredthat the liability of appellants thereunder is oint and Qsolidary.R5eason: under the la!$ a creditor may demand payment orperformance from one of the solidary debtors or some or all of themsimultaneously$ and payment made by one of them etinguishesthe obligation. /t therefore follo!s that in case the creditor fails tocollect from one of the solidary debtors$ he may still proceedagainst the other or others. Q22R

Moreo"er$ it must be noted that for no"ation to be "alid and legal$the la! requires that the creditor epressly consent to thesubstitution of a ne! debtor.Q2BR -ince no"ation implies a !ai"er ofthe right the creditor had before the no"ation$ such !ai"er must beepress.Q2?R /t cannot be supposed$ !ithout clear proof$ that thepresent respondent has done a!ay !ith his right to eact fulllmentfrom either of the solidary debtors.Q29R

More important$ &e esus !as not a third person to the obligation.From the beginning$ he !as a oint and solidary obligor of theP?00$000 loan3 thus$ he can be released from it only upon itsetinguishment. 5espondents acceptance of his chec# did not

change the person of the debtor$ because a oint and solidaryobligor is required to pay the entirety of the obligation.

/t must be noted that in a solidary obligation$ the creditor is entitledto demand the satisfaction of the !hole obligation from any or all ofthe debtors.Q2@R /t is up to the former to determine against !hom toenforce collection.Q2AR +a"ing made himself ointly and se"erallyliable !ith &e esus$ petitioner is therefore liableQ27R for the entireobligation.Q28R

-econd /ssue:*ccommodation Party

Petitioner a"ers that he signed the promissory note merely as anaccommodation party3 and that$ as such$ he !as released as obligor!hen respondent agreed to etend the term of the obligation.

(his reasoning is misplaced$ because the note herein is not ane>otia?le instru=ent. (he note reads:

P5OM/--O5 1O(EP?00$000.00

5E%E/LE& F5OM *((. &/O1/-/O L.


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before anuary 2B$ 688A at 1o. 6?? N460 -t. Namias$ =ue>on %ity$!ith interest at the rate of 9H per month or fraction thereof.

/t is understood that our liability under this loan is ointly andse"erally QsicR.

&one at =ue>on %ity$ Metro Manila this 2Brd day of &[email protected]

its ter=s, the note @as =ade paa?le to a speciAcperson rather than to ?earer or to orderQB6R 44 a requisite fornegotiability under *ct 20B6$ the 1egotiable /nstruments


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+E5EFO5E$ this Petition is hereby &E1/E& and the assailed&ecision *FF/5ME&. %osts against petit ioner.-O O5&E5E&.etropolitan anB rust Co=pan vs Court o +ppeals14 SC&+ 1D 11

acts$ (he Metropolitan )an# and (rust %o. Metro)an#; is acommercial ban# !ith branches throughout the Philippines ande"en abroad. Dolden -a"ings and !hile the others appearedto ha"e been indorsed by their respecti"e payees$ follo!ed byDome> as second indorser.

On "arious dates bet!een une 29 and uly 6@$ 68A8$ all these

!arrants !ere subsequently indorsed by Dloria %astillo as %ashierof Dolden -a"ings and deposited to its -a"ings *ccount 2?87 in theMetroban# branch in %alapan$ Mindoro. (hey !ere then sent forclearing by the branch oce to the principal oce of Metroban#$!hich for!arded them to the )ureau of (reasury for special clearing.More than 2 !ee#s after the deposits$ Dloria %astillo !ent to the%alapan branch se"eral times to as# !hether the !arrants had beencleared. -he !as told to !ait. *ccordingly$ Dome> !as mean!hilenot allo!ed to !ithdra! from his account.


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-ection B of the 1egotiable /nstruments


23/37

2. &issol"ing and lifting the !rit of attachment of the propertiesof defendant Dolden -a"ings and until Metroban# allo!ed Dolden -a"ings itself to !ithdra! themfrom its o!n deposit. A /t !as only !hen Metroban# ga"e the go4signal that Dome> !as nally allo!ed by Dolden -a"ings to!ithdra! them from his o!n account.

(he argument of Metroban# that Dolden -a"ings should ha"eeercised more care in chec#ing the personal circumstances ofDome> before accepting his deposit does not hold !ater. /t !asDome> !ho !as entrusting the !arrants$ not Dolden -a"ings that

!as etending him a loan3 and moreo"er$ the treasury !arrants!ere subect to clearing$ pending !hich the depositor could not!ithdra! its proceeds. (here !as no question of Dome>Cs identity orof the genuineness of his signature as chec#ed by Dolden -a"ings./n fact$ the treasury !arrants !ere dishonored allegedly because ofthe forgery of the signatures of the dra!ers$ not of Dome> as payeeor indorser. 'nder the circumstances$ it is clear that Dolden -a"ingsacted !ith due care and diligence and cannot be faulted for the!ithdra!als it allo!ed Dome> to ma#e.

)y contrast$ Metroban# ehibited etraordinary carelessness. (heamount in"ol"ed !as not tri_ing S more than one and a half million

pesos and this !as 68A8;. (here !as no reason !hy it should not


24/37

ha"e !aited until the treasury !arrants had been cleared3 it !ouldnot ha"e lost a single centa"o by !aiting. et$ despite the lac# ofsuch clearance S and not!ithstanding that it had not recei"ed asingle centa"o from the proceeds of the treasury !arrants$ as it no!repeatedly stresses S it allo!ed Dolden -a"ings to !ithdra! S notonce$ not t!ice$ but thrice S from the uncleared treasury !arrantsin the total amount of P8@7$000.00

/ts reasonK /t !as JeasperatedJ o"er the persistent inquiries of

Dloria %astillo about the clearance and it also !anted toJaccommodateJ a "alued client. /t JpresumedJ that the !arrantshad been cleared simply because of Jthe lapse of one !ee#.J 7 For aban# !ith its long eperience$ this eplanation is unbelie"ablynai"e.

*nd no!$ to gloss o"er its carelessness$ Metroban# !ould in"o#ethe conditions printed on the dorsal side of the deposit slips through!hich the treasury !arrants !ere deposited by Dolden -a"ings !ithits %alapan branch. (he conditions read as follo!s:

Nindly note that in recei"ing items on deposit$ the ban# obligates

itself only as the depositorCs collecting agent$ assuming noresponsibility beyond care in selecting correspondents$ and untilsuch time as actual payment shall ha"e come into possession ofthis ban#$ the right is reser"ed to charge bac# to the depositorCsaccount any amount pre"iously credited$ !hether or not such itemis returned. (his also applies to chec#s dra!n on local ban#s andban#ers and their branches as !ell as on this ban#$ !hich areunpaid due to insuciency of funds$ forgery$ unauthori>ed o"erdraftor any other reason. Emphasis supplied.;

*ccording to Metroban#$ the said conditions clearly sho! that it !asacting only as a collecting agent for Dolden -a"ings and gi"e it the

right to Jcharge bac# to the depositorCs account any amountpre"iously credited$ !hether or not such item is returned. (his alsoapplies to chec#s J. . . !hich are unpaid due to insuciency offunds$ forgery$ unauthori>ed o"erdraft of any other reason.J /t isclaimed that the said conditions are in the nature of contractualstipulations and became binding on Dolden -a"ings !hen Dloria%astillo$ as its %ashier$ signed the deposit slips.

&oubt may be epressed about the binding force of the conditions$considering that they ha"e apparently been imposed by the ban#unilaterally$ !ithout the consent of the depositor. /ndeed$ it could beargued that the depositor$ in signing the deposit slip$ does so only

to identify himself and not to agree to the conditions set forth in the

gi"en permit at the bac# of the deposit slip. e do not ha"e to ruleon this matter at this time. *t any rate$ the %ourt feels that e"en ifthe deposit slip !ere considered a contract$ the petitioner could stillnot "alidly disclaim responsibility thereunder in the light of thecircumstances of this case.

/n stressing that it !as acting only as a collecting agent for Dolden-a"ings$ Metroban# seems to be suggesting that as a mere agent itcannot be liable to the principal. (his is not eactly true. On the

contrary$ *rticle 6808 of the %i"il %ode clearly pro"ides that S

*rt. 6808. S (he agent is responsible not only for fraud$ but also fornegligence$ !hich shall be udged C!ith more or less rigor by thecourts$ according to !hether the agency !as or !as not for acompensation.

(he negligence of Metroban# has been suciently established. (orepeat for emphasis$ it !as the clearance gi"en by it that assuredDolden -a"ings it !as already safe to allo! Dome> to !ithdra! theproceeds of the treasury !arrants he had deposited Metroban#misled Dolden -a"ings. (here may ha"e been no epress clearance$

as Metroban# insists although this is refuted by Dolden -a"ings;but in any case that clearance could be implied from its allo!ingDolden -a"ings to !ithdra! from its account not only once or e"ent!ice but three times. (he total !ithdra!al !as in ecess of itsoriginal balance before the treasury !arrants !ere deposited$ !hichonly added to its belief that the treasury !arrants had indeed beencleared.

Metroban#Cs argument that it may reco"er the disputed amount ifthe !arrants are not paid for any reason is not acceptable. *nyreason does not mean no reason at all. Other!ise$ there !ould ha"ebeen no need at all for Dolden -a"ings to deposit the treasury

!arrants !ith it for clearance. (here !ould ha"e been no need for itto !ait until the !arrants had been cleared before paying theproceeds thereof to Dome>. -uch a condition$ if interpreted in the!ay the petitioner suggests$ is not binding for being arbitrary andunconscionable. *nd it becomes more so in the case at bar !hen itis considered that the supposed dishonor of the !arrants !as notcommunicated to Dolden -a"ings before it made its o!n paymentto Dome>.

(he belated notication aggra"ated the petitionerCs earliernegligence in gi"ing epress or at least implied clearance to thetreasury !arrants and allo!ing payments therefrom to Dolden

-a"ings. )ut that is not all. On top of this$ the supposed reason for


25/37

the dishonor$ to !it$ the forgery of the signatures of the generalmanager and the auditor of the dra!er corporation$ has not beenestablished. 8 (his !as the nding of the lo!er courts !hich !e seeno reason to disturb. *nd as !e said in M-- ". %ourt of *ppeals:60

Forgery cannot be presumed -iasat$ et al. ". /*%$ et al.$ 6B8 -%5*2B7;. /t must be established by clear$ positi"e and con"incinge"idence. (his !as not done in the present case.

* no less important consideration is the circumstance that thetreasury !arrants in question are not negotiable instruments.%learly stamped on their face is the !ord Jnon4negotiable.JMoreo"er$ and this is of equal signicance$ it is indicated that theyare payable from a particular fund$ to !it$ Fund 906.

(he follo!ing sections of the 1egotiable /nstruments


26/37

not!ithstanding that the payee !as the /nter4/sland Das -er"ices$/nc. and it did not appear that he !as authori>ed to indorse it. 1osimilar negligence can be imputed to Dolden -a"ings.

e nd the challenged decision to be basically correct. +o!e"er$!e !ill ha"e to amend it insofar as it directs the petitioner to creditDolden -a"ings !ith the full amount of the treasury chec#sdeposited to its account.

(he total "alue of the B2 treasury !arrants dishonored !asP6$A9?$078.00$ from !hich Dome> !as allo!ed to !ithdra!P6$6@A$900.00 before Dolden -a"ings !as notied of the dishonor.(he amount he has !ithdra!n must be charged not to Dolden-a"ings but to Metroban#$ !hich must bear the consequences of itso!n negligence. )ut the balance of P97@$978.00 should be debitedto Dolden -a"ings$ as ob"iously Dome> can no longer be permittedto !ithdra! this amount from his deposit because of the dishonor ofthe !arrants. Dome> has in fact disappeared. (o also credit thebalance to Dolden -a"ings !ould unduly enrich it at the epense ofMetroban#$ let alone the fact that it has already been informed ofthe dishonor of the treasury !arrants.

+E5EFO5E$ the challenged decision is *FF/5ME&$ !ith themodication that Paragraph B of the dispositi"e portion of theudgment of the lo!er court shall be re!orded as follo!s:

B. &ebiting -a"ings *ccount 1o. 2?87 in the sum ofP97@$978.00 only and thereafter allo!ing defendant Dolden -a"ingsW ust 10, 12

acts$

On "arious dates$ defendant$ a commercial ban#ing institution$

through its -ucat )ranch issued 270 certicates of time deposit%(&s; in fa"or of one *ngel dela %ru> !ho is tas#ed to depositaggregate amounts.

One time Mr. dela %ru> deli"ered the %(&s to CalteFPhilippines inconnection !ith his purchased of fuel products from the latter.+o!e"er$ -ometime in March 6872$ he informed Mr. (imoteo(iangco$ the -ucat )ranch Manger$ that he lost all the certicates oftime deposit in dispute. Mr. (iangco ad"ised said depositor toeecute and submit a notari>ed *da"it of negotiated and obtained a loan from defendantban# and eecuted a notari>ed &eed of *ssignment of (ime&eposit$ !hich stated$ among others$ that he surrenders todefendant ban# Jfull control of the indicated time deposits from andafter dateJ of the assignment and further authori>es said ban# topre4terminate$ set4o and Japply the said time deposits to thepayment of !hate"er amount or amounts may be dueJ on the loanupon its maturity.

/n 6872$ Mr. *ranas$ %redit Manager of plainti CalteFPhils.; /nc.$!ent to the defendant ban#Cs -ucat branch and presented for

"erication the %(&s declared lost by *ngel dela %ru> alleging that


27/37

the same !ere deli"ered to herein plainti Jas security forpurchases made !ith CalteFPhilippines$ /nc.J by said depositor.

Mr dela %ru> recei"ed a letter from the plainti formally informing ofits possession of the %(&s in question and of its decision to pre4terminate the same. ccordingly$ defendant ban# reected theplaintiCs demand and claim for payment of the "alue of the %(&s ina letter dated February A$ 687B.

(he loan of *ngel dela %ru> !ith the defendant ban# matured andfell due and on *ugust 9$ 687B$ the latter set4o and applied thetime deposits in question to the payment of the matured loan.+o!e"er$ the plainti led the instant complaint$ praying thatdefendant ban# be ordered to pay it the aggregate "alue of thecerticates of time deposit of P6$620$000.00 plus accrued interestand compounded interest therein at 6@H per annum$ moral andeemplary damages as !ell as attorneyCs fees.

On appeal$ C+armed the lo!er courtCs dismissal of the complaint$and ruled 6; that the subect certiAcates o deposit are non-ne>otia?le despite being clearly negotiable instruments3 2; that

petitioner did not become a holder in due course of the saidcerticates of deposit3 and B; in disregarding the pertinentpro"isions of the %ode of %ommerce relating to lost instrumentspayable to bearer.

)ssues$

a; hether certicates of time deposit %(&s; are negotiableinstrumentsK

b; /s the depositor also the bearer of the documentKc; hether petitioner can rightfully reco"er on the %(&sK

(eld$

(he %(&s in question are not negotiable instruments . -ection 6 *ct1o. 20B6$ other!ise #no!n as the 1egotiable /nstruments


28/37

J*+')+ S+L+S, petitioner$"s.('. C*& +PPE+LS and )&S )'+'CE LE+S)'%

C&P&+)', respondents.Arsenio . 2illalon, 'r. for petitioner.3aba#uis, 3oyola, An#ara 4 Associates for pri%ate respondent.E&'+', C.J.:*ssailed in this petition for re"ie! on certiorariis the decision of the%ourt of *ppeals in %.*.4D.5. %L 1o. 00A9A entitled JFilin"estFinance W


29/37

* perusal of the e"idence sho!s that the amount ofP97$6B7.20 stated in the promissory note is the amount assumed bythe plainti in nancing the purchase of defendantCs motor "ehiclefrom the Liolago Motor -ales %orp.$ the monthly amorti>ation of!inch is Pl$@6?.89 for B@ months. %onsidering that the defendant!as able to pay t!ice as admitted by the plainti$ defendantCsaccount became delinquent only beginning May$ 6870; or in thetotal sum of PB$228.80$ she is therefore liable to pay the remainingbalance of P9?$807.B0 at l?Hper annu+from October 2$ 6870 untilfull payment.

+E5EFO5E$ considering the foregoing$ the appealeddecision is hereby modied ordering the defendant to pay theplainti the sum of P9?$807.B0 at 6?Hper annu+from October 2$6870 until full payment. (he decision is *FF/5ME& in all otherrespects. ith costs to defendant. 2

PetitionerCs motion for reconsideration !as denied3 hence$the present recourse.

/n the petition before us$ petitioner assigns t!el"e 62;errors !hich focus on the alleged fraud$ bad faith andmisrepresentation of Liolago Motor -ales %orporation in the conductof its business and !hich fraud$ bad faith and misrepresentation

supposedly released petitioner from any liability to pri"aterespondent !ho should instead proceed against LM-. 3

Petitioner argues that in the light of the pro"ision of the la! on salesby description 4 !hich she alleges is applicable here$ no contracte"er eisted bet!een her and LM- and therefore none had beenassigned in fa"or of pri"ate respondent.

-he contends that it is not necessary$ as opined by theappellate court$ to implead LM- as a party to the case before it canbe made to ans!er for damages because LM- !as earlier sued byher for Jbreach of contract !ith damagesJ before the 5egional (rial%ourt of Olongapo %ity$ )ranch


30/37

promissory note !hich bears all the earmar#s of negotiability.(he pertinent portion of the note reads:

P5OM/--O5 1O(EMO1(+


31/37

P()L)PP)'E '+)'+L +'6, %.&. 'o. 1!0325Petitioner$Present:

1*5E-4-*1(/*DO$'.,hairperson,- %ersus -*'-(5/*4M*5(/1E$%+/%O41**5/O$E&L+'" . &"&)%*E/ Promulgated:and '&+ &"&)%*E/,

5espondents. -eptember 2@$ 2007 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 44 " E C ) S ) '

&E9ES, &..,J.$

+E1 the payee of the chec# is not intended to be the truerecipient of its proceeds$ is it payable to order or bearerK hat is

the ctitious4payee rule and !ho is liable under itK /s there anyeceptionK(hese questions see# ans!ers in this petition for re"ie! oncertiorari of the *mended &ecision of the %ourt of *ppeals %*;!hich armed !ith modication that of the 5egional (rial %ourt5(%;.

he acts

(he facts as borne by the records are as follo!s:

5espondents4-pouses Erlando and 1orma 5odrigue> !ereclients of petitioner Philippine 1ational )an# P1);$ *melia *"enue)ranch$ %ebu %ity. (hey maintained sa"ings and demandIchec#ingaccounts$ namely$ P1)ig &emand &eposits %hec#ingI%urrent*ccount 1o. 760@2?4@ under the account name Erlando andIor1orma 5odrigue>;$ and P1)ig &emand &eposit %hec#ingI%urrent*ccount 1o. 760?704? under the account name Erlando (.5odrigue>;.

(he spouses !ere engaged in the informal lendingbusiness. /n line !ith their business$ they had a discountingarrangement !ith the Philnaban# Employees -a"ings and


32/37

P2$B?9$70?.00. (hese !ere payable to forty se"en ?A; indi"idualpayees !ho !ere all members of PEM- incurred losses from the rediscountingtransactions.&C "isposition

*larmed o"er the unepected turn of e"ents$ the spouses5odrigue> led a ci"il complaint for damages against PEM-


33/37

P1) appealed the decision of the trial court to the %* onthe principal ground that the disputed chec#s should be consideredas payable to bearer and not to order.

/n a &ecisiondated uly 22$ 200?$ the %* re"ersed and setaside the 5(% disposition. (he %* concluded that the chec#s !ereob"iously meant by the spouses to be really paid to PEM-; that their cause of action arose from thealleged breach of contract by the defendant4appellant P1); !hen itpaid the "alue of the chec#s to PEM- for the follo!ing:

6. *ctual damages in the amount of P2$B?9$70? !ith interestat @H per annum from 6? May 6888 until fully paid32.

B.

?. %osts of suit.+E5EFO5E$ in "ie! of the foregoing premises$ udgment is herebyrendered by 's *FF/5M/1D /(+ MO&/F/%*(/O1 the assaileddecision rendered in %i"il %ase 1o. 88460782$ as set forth in theimmediately net preceding paragraph hereof$ and -E((/1D *-/&EOur original decision promulgated in this case on 22 uly 200?.

-O O5&E5E&.

(he %* ruled that the chec#s !ere payable to order. *ccording tothe appellate court$ P1) failed to present sucient proof to defeatthe claim of the spouses 5odrigue> that they really intended thechec#s to be recei"ed by the specied payees. (hus$ P1) is liablefor the "alue of the chec#s !hich it paid to PEM-


34/37

+ence$ the present recourse under 5ule ?9.)ssues

(he issues may be compressed to !hether the subectchec#s are payable to order or to bearer and !ho bears the lossKP1) argues ane! that !hen the spouses 5odrigue> issued thedisputed chec#s$ they did not intend for the named payees torecei"e the proceeds. (hus$ they are bearer instruments that couldbe "alidly ne>otiated ? =ere deliver. Further$ testimonial anddocumentary e"idence presented during trial amply pro"ed thatspouses 5odrigue> and the ocers of PEM-

Prefatorily$ amendment of decisions is more acceptablethan an erroneous udgment attaining nality to the preudice ofinnocent parties. * court disco"ering an erroneous udgment beforeit becomes nal may$ +otu proprioor upon motion of the parties$correct its udgment !ith the singular obecti"e of achie"ing usticefor the litigants.

+o!e"er$ a !ord of caution to lo!er courts$ the %* in%ebu in this particular case$ is in order. (he %ourt does not sanctioncareless disposition of cases by courts of ustice. (he highest degreeof diligence must go into the study of e"ery contro"ersy submittedfor decision by litigants. E"ery issue and factual detail must beclosely scrutini>ed and analy>ed$ and all the applicable la!sudiciously studied$ before the promulgation of e"ery udgment bythe court. Only in this manner !ill errors in udgments be a"oided.

1o! to the core of the petition.+s a rule, @hen the paee is Actitious or not intended to ?ethe true recipient o the proceeds, the checB is consideredas a ?earer instru=ent. * chec# is a bill of echange dra!n on aban# payable on demand. /t is either an order or a bearerinstrument. -ections 7 and 8 of the 1/< states:-E%. 7. Fhen payable to order.(he instrument is payable to order!here it is dra!n payable to the order of a specied person or tohim or his order. /t may be dra!n payable to the order of

a; * payee !ho is not ma#er$ dra!er$ or dra!ee3 or

b;c; (he dra!ee3 ord; (!o or more payees ointly3 ore; One or some of se"eral payees3 orf;

here the instrument is payable to order$ the payee must benamed or other!ise indicated therein !ith reasonable certainty.-E%. 8. hen payable to bearer. (he instrument is payable tobearera;b; hen it is payable to a person named therein or bearer3 orc; hen it is payable to the order of a ctitious or non4eistingperson$ and such fact is #no!n to the person ma#ing it so payable3or

d; hen the name of the payee does not purport to be the nameof any person3 ore;

(he distinction bet!een bearer and order instrumentslies in their manner of negotiation. 'nder -ection B0 of the 1/


35/37

e ha"e yet to discuss a broader meaning of the term

ctitious as used in the 1/, applicable 5hen thetransferee acts dishonestly 5here it has actual Dno5led#e of factsand circu+stances that a+ount to bad faith, thus itself beco+in# aparticipant in a fraudulent sche+e. -uch a test nds supportin the tet of the %ode$ !hich omits a standard of care requirementfrom '%% B4?09 but imposes on all parties an obligation to act !ithhonesty in fact. %ett also laid the principle that the ctitious4payee rule etendsprotection e"en to non4ban# transferees of the chec#s.

/n the case under re"ie!$ the 5odrigue> chec#s !erepayable to specied payees. /t is unrefuted that the @8 chec#s !ere

payable to specic persons.


36/37

payees !ere actual$ eisting$ and li"ing persons !ho !ere membersof PEM-.

hat remains to be determined is if the payees$ thougheisting persons$ !ere ctitious in its broader contet.

For the ctitious4payee rule to be a"ailable as a defense$P1) must sho! that the ma#ers did not intend for the namedpayees to be part of the transaction in"ol"ing the chec#s. *t most$the ban#s thesis sho!s that the payees did not ha"e #no!ledge ofthe eistence of the chec#s. his lacB o Bno@led>e on the parto the paees, ho@ever, @as not tanta=ount to a lacB ointention on the part o respondents-spouses that thepaees @ould not receive the checBs proceeds. %onsideringthat respondents4spouses !ere transacting !ith PEM-ed to the dra@ers account.

/n the case at bar$ respondents4spouses !ere the ban#sdepositors. (he chec#s !ere dra!n against respondents4spousesaccounts. P1)$ as the dra!ee ban#$ had the responsibility toascertain the regularity of the indorsements$ and the genuinenessof the signatures on the chec#s before accepting them for deposit.


37/37

procedure$ permitted the in"alid deposits of chec#s to the PEM-

Negotioble Instrument Cases

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