Nego-lawww.docx

TOMAS ANG, G.R. No. 146511 Petitioner, Present: PUNO, C.J., Chairperson, - versus - SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ. ASSOCIATED BANK AND ANTONIO ANG ENG LIONG, Promulgated: Respondents. September 5, 2007 X -------------------------------------------------------------------------------------- X

DECISION AZCUNA, J.: This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to review the October 9, 2000 Decision[1] and December 26, 2000 Resolution[2] of the Court of Appeals in CA-G.R. CV No. 53413 which reversed and set aside the January 5, 1996 Decision[3] of the Regional Trial Court, Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing the complaint filed by respondents for collection of a sum of money.

On August 28, 1990, respondent Associated Bank (formerly Associated Banking Corporation and now known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they executed as principal debtor and co-maker, respectively. In the Complaint,[4] respondent Bank alleged that on October 3 and 9, 1978, the defendants obtained a loan of P50,000, evidenced by a promissory note bearing PN-No. DVO78-382, and P30,000, evidenced by a promissory note bearing PN-No. DVO-78-390. As agreed, the loan would be payable, jointly and severally, on January 31, 1979 and December 8, 1978, respectively. In addition, subsequent amendments[5] to the promissory notes as well as the disclosure statements[6] stipulated that the loan would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty charge per month from due date until fully paid, and attorneys fees equivalent to 20% of the outstanding obligation.

1|NEGO Secs. 60 to 69

Despite repeated demands for payment, the latest of which were on September 13, 1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively, respondent Bank claimed that the defendants failed and refused to settle their obligation, resulting in a total indebtedness of P539,638.96 as of July 31, 1990, broken down as follows:

Outstanding Balance Add 14% Interest 2% Service Charge 12% Overdue Charge Total Less: Charges paid Amount Due

PN-No. DVO-78-382

PN-No. DVO-78-390

P50,000.00 Past due charges for 4,199 days (from 01-31-79 to 07-31-90) P203,538.98 P11,663.89 P69,983.34 P285,186.21 P500.00 P334,686.21

P30,000.00 Past due charges for 4,253 days (from 12-8-78 to 07-31-90) P125,334.41 P7,088.34 P42,530.00 P174,952.75 None P204,952.75

In his Answer,[7] Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000. He pleaded though that the bank be ordered to submit a more reasonable computation considering that there had been no correct and reasonable statement of account sent to him by the bank, which was allegedly collecting excessive interest, penalty charges, and attorneys fees despite knowledge that his business was destroyed by fire, hence, he had no source of income for several years. For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Crossclaim. He interposed the affirmative defenses that: the bank is not the real party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course; the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely lent his name as an accommodation party; he accepted the promissory notes in blank, with only the printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it was the bank which completed the notes upon the orders, instructions, or representations of his co-defendant; PN-No. DVO-78-382 was completed in excess of or contrary to the authority given by him to his co-defendant who represented that he would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-390 was procured through fraudulent means when his co-defendant claimed that his first loan did not push through; the promissory notes did not indicate in what capacity he was intended to be bound; the bank granted his co-defendant successive extensions of time within which to pay, without his (Tomas Ang) knowledge and consent; the bank imposed new and additional stipulations on interest, penalties, services charges and attorneys fees more onerous than the terms of the notes, without his knowledge and consent, in the absence of legal and factual basis and in violation of the Usury Law; the bank caused the inclusion in the promissory notes of stipulations such as waiver of presentment for payment and notice of dishonor which are [8]

2|NEGO Secs. 60 to 69

against public policy; and the notes had been impaired since they were never presented for payment and demands were made only several years after they fell due when his co-defendant could no longer pay them. Regarding his counterclaim, Tomas Ang argued that by reason of the banks acts or omissions, it should be held liable for the amount of P50,000 for attorneys fees and expenses of litigation. Furthermore, on his cross-claim against Antonio Ang Eng Liong, he averred that he should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorneys fees, respectively. In its Reply,[9] respondent Bank countered that it is the real party in interest and is the holder of the notes since the Associated Banking Corporation and Associated Citizens Bank are its predecessors-in-interest. The fact that Tomas Ang never received any moneys in consideration of the two (2) loans and that such was known to the bank are immaterial because, as an accommodation maker, he is considered as a solidary debtor who is primarily liable for the payment of the promissory notes. Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that absence or failure of consideration is not a matter of defense; neither is the fact that the holder knew him to be only an accommodation party. Respondent Bank likewise retorted that the promissory notes were completely filled up at the time of their delivery. Assuming that such was not the case, Sec. 14 of the NIL provides that the bank has the prima facie authority to complete the blank form. Moreover, it is presumed that one who has signed as a maker acted with care and had signed the document with full knowledge of its content. The bank noted that Tomas Ang is a prominent businessman in Davao City who has been engaged in the auto parts business for several years, hence, certainly he is not so nave as to sign the notes without knowing or bothering to verify the amounts of the loans covered by them. Further, he is already in estoppel since despite receipt of several demand letters there was not a single protest raised by him that he signed for only one note in the amount of P30,000. It was denied by the bank that there were extensions of time for payment accorded to Antonio Ang Eng Liong. Granting that such were the case, it said that the same would not relieve Tomas Ang from liability as he would still be liable for the whole obligation less the share of his co-debtor who received the extended term. The bank also asserted that there were no additional or new stipulations imposed other than those agreed upon. The penalty charge, service charge, and attorneys fees were reflected in the amendments to the promissory notes and disclosure statements. Reference to the Usury Law was misplaced as usury is legally non-existent; at present, interest can be charged depending on the agreement of the lender and the borrower. 3|NEGO Secs. 60 to 69

Lastly, the bank contended that the provisions on presentment for payment and notice of dishonor were expressly waived by Tomas Ang and that such waiver is not against public policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity therefor since being a solidary debtor he is absolutely required to pay and primarily liable on both promissory notes. On October 19, 1990, the trial court issued a preliminary pre-trial order directing the parties to submit their respective pre-trial guide.[10] When Antonio Ang Eng Liong failed to submit his brief, the bank filed an ex-parte motion to declare him in default.[11] Per Order of November 23, 1990, the court granted the motion and set the ex-partehearing for the presentation of the banks evidence.[12] Despite Tomas Angs motion[13] to modify the Order so as to exclude or cancel the ex-parte hearing based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of the Revised Rules on Civil Procedure), the hearing nonetheless proceeded.[14] Eventually, a decision[15] was rendered by the trial court on February 21, 1991. For his supposed bad faith and obstinate refusal despite several demands from the bank, Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14% interest per annum and 2% service charge per annum. The overdue penalty charge and attorneys fees were, however, reduced for being excessive, thus: WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in favor of plaintiff, ordering the former to pay the latter: On the first cause of action: 1)

2) 3)

the amount of P50,000.00 representing the principal obligation with 14% interest per annum from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully paid;

P11,663.89 as accrued service charge; and P34,991.67 as accrued overdue penalty charge.

On the second cause of action: 1)

2) 3) 4) 5)

the amount of P50,000.00 (sic) representing the principal account with 14% interest from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully paid; P7,088.34 representing accrued service charge; P21,265.00 as accrued overdue penalty charge; the amount of P10,000.00 as attorneys fees; and the amount of P620.00 as litigation expenses and to pay the costs.

4|NEGO Secs. 60 to 69

SO ORDERED.[16]

The decision became final and executory as no appeal was taken therefrom. Upon the banks ex-parte motion, the court accordingly issued a writ of execution on April 5, 1991.[17] Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank and Tomas Ang,[18] who, in turn, filed a Motion to Dismiss[19] on the ground of lack of jurisdiction over the case in view of the alleged finality of the February 21, 1991 Decision. He contended that Sec. 4, Rule 18 of the old Rules sanctions only one judgment in case of several defendants, one of whom is declared in default. Moreover, in his Supplemental Motion to Dismiss,[20] Tomas Ang maintained that he is released from his obligation as a solidary guarantor and accommodation party because, by the banks actions, he is now precluded from asserting his cross-claim against Antonio Ang Eng Liong, upon whom a final and executory judgment had already been issued. The court denied the motion as well as the motion for reconsideration thereon.[21] Tomas Ang subsequently filed a petition for certiorari and prohibition before this Court, which, however, resolved to refer the same to the Court of Appeals.[22] In accordance with the prayer of Tomas Ang, the appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which annulled and set aside the portion of the Order dated November 23, 1990 setting the ex-parte presentation of the banks evidence against Antonio Ang Eng Liong, the Decision dated February 21, 1991 rendered against him based on such evidence, and the Writ of Execution issued on April 5, 1991.[23] Trial then ensued between the bank and Tomas Ang. Upon the latters motion during the pretrial conference, Antonio Ang Eng Liong was again declared in default for his failure to answer the cross-claim within the reglementary period.[24] When Tomas Ang was about to present evidence in his behalf, he filed a Motion for Production of Documents,[25] reasoning: xxx 2. That corroborative to, and/or preparatory or incident to his testimony[,] there is [a] need for him to examine original records in the custody and possession of plaintiff, viz: a. b. c. d.

original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;] original of Disclosure Statement in reference to PN # DVO-78-382; original of PN # DVO-78-390 dated October 9, 1978; original of Disclosure Statement in reference to PN # DVO-78-390;

5|NEGO Secs. 60 to 69

e.

f. g.

Statement or Record of Account with the Associated Banking Corporation or its successor, of Antonio Ang in CA No. 470 (cf. Exh. O) including bank records, withdrawal slips, notices, other papers and relevant dates relative to the overdraft of Antonio Eng Liong in CA No. 470; Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos. DVO-78-382 and DVO-78-390 (supra); Other supporting papers and documents submitted by Antonio Ang Eng Liong relative to his loan application vis--vis PN. Nos. DVO-78382 and DVO-78-390 such as financial statements, income tax returns, etc. as required by the Central Bank or bank rules and regulations.

3. That the above matters are very material to the defenses of defendant Tomas Ang, viz: -

the bank is not a holder in due course when it accepted the [PNs] in blank. The real borrower is Antonio Ang Eng Liong which fact is known to the bank. That the PAYEE not being a holder in due course and knowing that defendant Tomas Ang is merely an accommodation party, the latter may raise against such payee or holder or successor-in-interest (of the notes) PERSONAL and EQUITABLE DEFENSES such as FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application of [Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in delaying collection despite Eng Liongs OVERDRAFT in C.A. No. 470, etc.[26]

In its Order dated May 16, 1994,[27] the court denied the motion stating that the promissory notes and the disclosure statements have already been shown to and inspected by Tomas Ang during the trial, as in fact he has already copies of the same; the Statements or Records of Account of Antonio Ang Eng Liong in CA No. 470, relative to his overdraft, are immaterial since, pursuant to the previous ruling of the court, he is being sued for the notes and not for the overdraft which is personal to Antonio Ang Eng Liong; and besides its nonexistence in the banks records, there would be legal obstacle for the production and inspection of the income tax return of Antonio Ang Eng Liong if done without his consent. When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang filed a petition for certiorari and prohibition with application for preliminary injunction and restraining order before the Court of Appeals docketed as CA G.R. SP No. 34840.[28] On August 17, 1994, however, the Court of Appeals denied the issuance of a Temporary Restraining Order.[29] Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have waived his right to present evidence for failure to appear during the pendency of his petition before the Court of Appeals, the trial court decided to continue with the hearing of the case.[30] 6|NEGO Secs. 60 to 69

After the trial, Tomas Ang offered in evidence several documents, which included a copy of the Trust Agreement between the Republic of the Philippines and the Asset Privatization Trust, as certified by the notary public, and news clippings from the Manila Bulletin dated May 18, 1994 and May 30, 1994.[31] All the documentary exhibits were admitted for failure of the bank to submit its comment to the formal offer.[32] Thereafter, Tomas Ang elected to withdraw his petition in CA G.R. SP No. 34840 before the Court of Appeals, which was then granted.[33] On January 5, 1996, the trial court rendered judgment against the bank, dismissing the complaint for lack of cause of action.[34] It held that: Exh. 9 and its [sub-markings], the Trust Agreement dated 27 February 1987 for the defense shows that: the Associated Bank as of June 30, 1986 is one of DBPs or Development Bank of the [Philippines] non-performing accounts for transfer; on February 27, 1987 through Deeds of Transfer executed by and between the Philippine National Bank and Development Bank of the Philippines and the National Government, both financial institutions assigned, transferred and conveyed their non-performing assets to the National Government; the National Government in turn and as TRUSTOR, transferred, conveyed and assigned by way of trust unto the Asset Privatization Trust said non-performing assets, [which] took title to and possession of, [to] conserve, provisionally manage and dispose[,] of said assets identified for privatization or disposition; one of the powers and duties of the APT with respect to trust properties consisting of receivables is to handle the administration, collection and enforcement of the receivables; to bring suit to enforce payment of the obligations or any installment thereof or to settle or compromise any of such obligations, or any other claim or demand which the government may have against any person or persons[.] The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. 9-A, 9-B, 9-C, and 9-D, show that the Monetary Board of the Bangko Sentral ng Pilipinas approved the rehabilitation plan of the Associated Bank. One main feature of the rehabilitation plan included the financial assistance for the bank by the Philippine Deposit Insurance Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945 billion subject to a buy-back arrangement over a 10 year period. The PDIC had approved of the rehab scheme, which included the purchase of ABs bad loans worth P1.86 at 25% discount. This will then be paid by AB within a 10-year period plus a yield comparable to the prevailing market rates x x x. Based then on the evidence presented by the defendant Tomas Ang, it would readily appear that at the time this suit for Sum of Money was filed which was on August [28], 1990, the notes were held by the Asset Privatization Trust by virtue of the Deeds of Transfer and Trust Agreement, which was empowered to bring suit to enforce payment of the obligations. Consequently, defendant Tomas Ang has sufficiently established that plaintiff at the time this suit was filed was not the holder of the notes to warrant the dismissal of the complaint.[35] 7|NEGO Secs. 60 to 69

Respondent Bank then elevated the case to the Court of Appeals. In the appellants brief captioned, ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG LIONG and TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee, the following errors were alleged: I. THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTERS DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS. II. THE LOWER COURT ERRED IN DISMISSING PLAINTIFFAPPELLANTS COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR JUDICIAL NOTICE.[36]

The bank stressed that it has established the causes of action outlined in its Complaint by a preponderance of evidence. As regards the Deed of Transfer and Trust Agreement, it contended that the same were never authenticated by any witness in the course of the trial; the Agreement, which was not even legible, did not mention the promissory notes subject of the Complaint; the bank is not a party to the Agreement, which showed that it was between the Government of the Philippines, acting through the Committee on Privatization represented by the Secretary of Finance as trustor and the Asset Privatization Trust, which was created by virtue of Proclamation No. 50; and the Agreement did not reflect the signatures of the contracting parties. Lastly, the bank averred that the news items appearing in the Manila Bulletin could not be the subject of judicial notice since they were completely hearsay in character.[37] On October 9, 2000, the Court of Appeals reversed and set aside the trial courts ruling. The dispositive portion of the Decision[38] reads: WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao City, Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED AND SET ASIDE and another one entered ordering defendantappellee Tomas Ang to pay plaintiff-appellant Associated Bank the following: 1. P50,000.00 representing the principal amount of the loan under PNNo. DVO-78-382 plus 14% interest thereon per annum computed from January 31, 1979 until the full amount thereof is paid; 8|NEGO Secs. 60 to 69

2. P30,000.00 representing the principal amount of the loan under PNNo. DVO-78-390 plus 14% interest thereon per annum computed from December 8, 1978 until the full amount thereof is paid; All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis. Defendant-appellees counterclaim is likewise DISMISSED for lack of legal and factual bases. No pronouncement as to costs. SO ORDERED.[39]

The appellate court disregarded the banks first assigned error for being irrelevant in the final determination of the case and found its second assigned error as not meritorious. Instead, it posed for resolution the issue of whether the trial court erred in dismissing the complaint for collection of sum of money for lack of cause of action as the bank was said to be not the holder of the notes at the time the collection case was filed. In answering the lone issue, the Court of Appeals held that the bank is a holder under Sec. 191 of the NIL. It concluded that despite the execution of the Deeds of Transfer and Trust Agreement, the Asset Privatization Trust cannot be declared as the holder of the subject promissory notes for the reason that it is neither the payee or indorsee of the notes in possession thereof nor is it the bearer of said notes. The Court of Appeals observed that the bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust Agreement and that the notes continued to remain with the bank until the institution of the collection suit. With the bank as the holder of the promissory notes, the Court of Appeals held that Tomas Ang is accountable therefor in his capacity as an accommodation party. Citing Sec. 29 of the NIL, he is liable to the bank in spite of the latters knowledge, at the time of taking the notes, that he is only an accommodation party. Moreover, as a co-maker who agreed to be jointly and severally liable on the promissory notes, Tomas Ang cannot validly set up the defense that he did not receive any consideration therefor as the fact that the loan was granted to the principal debtor already constitutes a sufficient consideration. Further, the Court of Appeals agreed with the bank that the experience of Tomas Ang in business rendered it implausible that he would just sign the promissory notes as a co-maker without even checking the real amount of the debt to be incurred, or that he merely acted on the belief that the first loan application was cancelled. According to the appellate court, it is apparent that he was negligent in falling for the alibi of Antonio Ang Eng Liong and such fact would not serve to exonerate him from his responsibility under the notes. 9|NEGO Secs. 60 to 69

Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty and overdue charges as well as attorneys fees on the ground that the promissory notes made no mention of such charges/fees. In his motion for reconsideration,[40] Tomas Ang raised for the first time the assigned errors as follows: xxx 2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has recently discovered that upon the filing of the complaint on August 28, 1990, under the jurisdictional rule laid down in BP Blg. 129, appellant bank fraudulently failed to specify the amount of compounded interest at 14% per annum, service charges at 2% per annum and overdue penalty charges at 12% per annum in the prayer of the complaint as of the time of its filing, paying a total of only P640.00(!!!) as filing and court docket fees although the total sum involved as of that time was P647,566.75 including 20% attorneys fees. In fact, the stated interest in the body of the complaint alone amount to P328,373.39 (which is actually compounded and capitalized) in both causes of action and the total service and overdue penalties and charges and attorneys fees further amount to P239,193.36 in both causes of action, as of July 31, 1990, the time of filing of the complaint. Significantly, appellant fraudulently misled the Court, describing the 14% imposition as interest, when in fact the same was capitalized as principal by appellant bank every month to earn more interest, as stated in the notes. In view thereof, the trial court never acquired jurisdiction over the case and the same may not be now corrected by the filing of deficiency fees because the causes of action had already prescribed and more importantly, the jurisdiction of the Municipal Trial Court had been increased to P100,000.00 in principal claims last March 20, 1999, pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and section 31, Book I of the 1987 Administrative Code. In other words, as of today, jurisdiction over the subject falls within the exclusive jurisdiction of the MTC, particularly if the bank foregoes capitalization of the stipulated interest. 3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT WHICH LEFT OUT TOMAS ANGS CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS AGAINST ENG LIONG. Accordingly, Tomas Angs right of subrogation against Ang Eng Liong, expressed in his cross-claim, is now SEVERAL TIMES foreclosed because of the fault or negligence of appellant bank since 1979 up to its insistence of an ex-parte trial, and now when it failed to serve notice of appeal and appellants brief upon him. Accordingly, appellee Tomas Ang should be 10 | N E G O S e c s . 6 0 t o 6 9

released from his suretyship obligation pursuant to Art. 2080 of the Civil Code. The above is related to the issues above-stated. 4) This Court may have erred in ADDING or ASSIGNING its own bill of error for the benefit of appellant bank which defrauded the judiciary by the payment of deficient docket fees.[41]

Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals denied the motion in its Resolution dated December 26, 2000.[42] Petitioner now submits the following issues for resolution: 1.

2.

Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as accommodation maker or surety because of the failure of [private] respondent bank to serve its notice of appeal upon the principal debtor, respondent Eng Liong? Did the trial court have jurisdiction over the case at all?

3.

Did the Court of Appeals [commit] error in assigning its own error and raising its own issue?

4.

Are petitioners other real and personal defenses such as successive extensions coupled with fraudulent collusion to hide Eng Liongs default, the payees grant of additional burdens, coupled with the insolvency of the principal debtor, and the defense of incomplete but delivered instrument, meritorious?[43]

Petitioner allegedly learned after the promulgation of the Court of Appeals decision that, pursuant to the parties agreement on the compounding of interest with the principal amount (per month in case of default), the interest on the promissory notes as of July 31, 1990 should have been only P81,647.22 for PN No. DVO-78-382 (instead of P203,538.98) and P49,618.33 for PN No. DVO-78-390 (instead of P125,334.41) while the principal debt as of said date should increase to P647,566.75 (instead of P539,638.96). He submits that the bank carefully and shrewdly hid the fact by describing the amounts as interest instead of being part of either the principal or penalty in order to pay a lesser amount of docket fees. According to him, the total fees that should have been paid at the time of the filing of the complaint on August 28, 1990 was P2,216.30 and not P614.00 or a shortage of 71%. Petitioner contends that the bank may not now pay the deficiency because the last demand letter sent to him was dated September 9, 1986, or more than twenty years have elapsed such that prescription had already set in. Consequently, the banks claim must be dismissed as the trial court loses jurisdiction over the case.

11 | N E G O S e c s . 6 0 t o 6 9

Petitioner also argues that the Court of Appeals should not have assigned its own error and raised it as an issue of the case, contending that no question should be entertained on appeal unless it has been advanced in the court below or is within the issues made by the parties in the pleadings. At any rate, he opines that the appellate courts decision that the bank is the real party in interest because it is the payee named in the note or the holder thereof is too simplistic since: (1) the power and control of Asset Privatization Trust over the bank are clear from the explicit terms of the duly certified trust documents and deeds of transfer and are confirmed by the newspaper clippings; (2) even under P.D. No. 902-A or the General Banking Act, where a corporation or a bank is under receivership, conservation or rehabilitation, it is only the representative (liquidator, receiver, trustee or conservator) who may properly act for said entity, and, in this case, the bank was held by Asset Privatization Trust as trustee; and (3) it is not entirely accurate to say that the payee who has not indorsed the notes in all cases is the real party in interest because the rights of the payee may be subject of an assignment of incorporeal rights under Articles 1624 and 1625 of the Civil Code. Lastly, petitioner maintains that when respondent Bank served its notice of appeal and appellants brief only on him, it rendered the judgment of the trial court final and executory with respect to Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang Eng Liong) from any and all liability under the promissory notes and, thereby, foreclosed petitioners cross-claims. By such act, the bank, even if it be the holder of the promissory notes, allegedly discharged a simple contract for the payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented a surety like petitioner from being subrogated in the shoes of his principal (Article 2080, Civil Code), and impaired the notes, producing the effect of payment (Article 1249, Civil Code). The petition is unmeritorious. Procedurally, it is well within the authority of the Court of Appeals to raise, if it deems proper under the circumstances obtaining, error/s not assigned on an appealed case. In Mendoza v. Bautista,[44] this Court recognized the broad discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned, thus: As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its consideration. Higher courts are precluded from entertaining matters neither alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time only in a motion for reconsideration or on appeal. However, as with most procedural rules, this maxim is subject to exceptions. Indeed, our rules recognize the broad discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned. Section 8 of Rule 51 of the Rules of Court provides: 12 | N E G O S e c s . 6 0 t o 6 9

SEC. 8. Questions that may be decided. No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered, unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors. Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the appeal in these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b) matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) matters not assigned as errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on appeal but upon which the determination of a question properly assigned is dependent. (Citations omitted)[45]

To the Courts mind, even if the Court of Appeals regarded petitioners two assigned errors as irrelevant and not meritorious, the issue of whether the trial court erred in dismissing the complaint for collection of sum of money for lack of cause of action (on the ground that the bank was not the holder of the notes at the time of the filing of the action) is in reality closely related to and determinant of the resolution of whether the lower court correctly ruled in not holding Antonio Ang Eng Liong and petitioner Tomas Ang liable to the bank on their unpaid loans despite documentary exhibits allegedly proving their obligations and in dismissing the complaint based on newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on this point. Now, the more relevant question is: who is the real party in interest at the time of the institution of the complaint, is it the bank or the Asset Privatization Trust? To answer the query, a brief history on the creation of the Asset Privatization Trust is proper. Taking into account the imperative need of formally launching a program for the rationalization of the government corporate sector, then President Corazon C. Aquino issued Proclamation No. 50[46] on December 8, 1986. As one of the twin cornerstones of the program was to establish the privatization of a good number of government corporations, the proclamation created the Asset Privatization Trust, which would, for the benefit of the National Government, take title to and possession of, conserve, provisionally manage and dispose of transferred assets that were identified for privatization or disposition.

[47]

13 | N E G O S e c s . 6 0 t o 6 9

In accordance with the provisions of Section 23[48] of the proclamation, then President Aquino subsequently issued Administrative Order No. 14 on February 3, 1987, which approved the identification of and transfer to the National Government of certain assets (consisting of loans, equity investments, accrued interest receivables, acquired assets and other assets) and liabilities (consisting of deposits, borrowings, other liabilities and contingent guarantees) of the Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB). The transfer of assets was implemented through a Deed of Transfer executed on February 27, 1987 between the National Government, on one hand, and the DBP and PNB, on the other. In turn, the National Government designated the Asset Privatization Trust to act as its trustee through a Trust Agreement, whereby the non-performing accounts of DBP and PNB, including, among others, the DBPs equity with respondent Bank, were entrusted to the Asset Privatization Trust.[49] As provided for in the Agreement, among the powers and duties of the Asset Privatization Trust with respect to the trust properties consisting of receivables was to handle their administration and collection by bringing suit to enforce payment of the obligations or any installment thereof or settling or compromising any of such obligations or any other claim or demand which the Government may have against any person or persons, and to do all acts, institute all proceedings, and to exercise all other rights, powers, and privileges of ownership that an absolute owner of the properties would otherwise have the right to do.[50] Incidentally, the existence of the Asset Privatization Trust would have expired five (5) years from the date of issuance of Proclamation No. 50.[51] However, its original term was extended from December 8, 1991 up to August 31, 1992,[52] and again from December 31, 1993 until June 30, 1995,[53] and then from July 1, 1995 up to December 31, 1999,[54] and further from January 1, 2000 until December 31, 2000.[55] Thenceforth, the Privatization and Management Office was established and took over, among others, the powers, duties and functions of the Asset Privatization Trust under the proclamation.[56] Based on the above backdrop, respondent Bank does not appear to be the real party in interest when it instituted the collection suit on August 28, 1990 against Antonio Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had the authority to enforce its claims against both debtors. In fact, during the pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it was under the trusteeship of the Asset Privatization Trust.[57] The Asset Privatization Trust, which should have been represented by the Office of the Government Corporate Counsel, had the authority to file and prosecute the case. The foregoing notwithstanding, this Court can not, at present, readily subscribe to petitioners insistence that the case must be dismissed. Significantly, it stands without refute, both in the 14 | N E G O S e c s . 6 0 t o 6 9

pleadings as well as in the evidence presented during the trial and up to the time this case reached the Court, that the issue had been rendered moot with the occurrence of a supervening event the buy-back of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from the Asset Privatization Trust when the case was still pending in the lower court, the bank reclaimed its real and actual interest over the unpaid promissory notes; hence, it could rightfully qualify as a holder[58] thereof under the NIL. Notably, Section 29 of the NIL defines an accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person.[59] An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto.[60] The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for accommodation.[61] As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and surety the accommodation party being the surety.[62] As such, he is deemed an original promisor and debtor from the beginning; [63] he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable.[64] Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the surety's liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal.[65] As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom.[66] Contrary to petitioners adamant stand, however, Article 2080[67] of the Civil Code does not apply in a contract of suretyship.[68] Art. 2047 of the Civil Code states that if a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and solidary obligations) shall govern the relationship of petitioner with the bank. The case of Inciong, Jr. v. CA[69] is illuminating: 15 | N E G O S e c s . 6 0 t o 6 9

Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a release of his obligation, especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which provides that: "The guarantors, even though they be solidary, are released from their obligation whenever by come act of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter." It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows: "Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid." A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. On the other hand, Article 2047 of the Civil Code states: "By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the contract is called a suretyship." (Italics supplied.) While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains: "A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The later, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of rights of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code." Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that obligation is joint so that 16 | N E G O S e c s . 6 0 t o 6 9

each of the debtors is liable only for a proportionate part of the debt. There is a solidarily liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection. (Citations omitted)[70]

In the instant case, petitioner agreed to be jointly and severally liable under the two promissory notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This being so, it is completely immaterial if the bank would opt to proceed only against petitioner or Antonio Ang Eng Liong or both of them since the law confers upon the creditor the prerogative to choose whether to enforce the entire obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an accommodation party, may seek reimbursement from Antonio Ang Eng Liong, being the party accommodated.[71] It is plainly mistaken for petitioner to say that just because the bank failed to serve the notice of appeal and appellants brief to Antonio Ang Eng Liong, the trial courts judgment, in effect, became final and executory as against the latter and, thereby, bars his (petitioners) cross-claims against him: First, although no notice of appeal and appellants brief were served to Antonio Ang Eng Liong, he was nonetheless impleaded in the case since his name appeared in the caption of both the notice and the brief as one of the defendants-appellees;[72] Second, despite including in the caption of the appellees brief his co-debtor as one of the defendantsappellees, petitioner did not also serve him a copy thereof;[73] Third, in the caption of the Court of Appeals decision, Antonio Ang Eng Liong was expressly named as one of the defendantsappellees;[74] and Fourth, it was only in his motion for reconsideration from the adverse judgment of the Court of Appeals that petitioner belatedly chose to serve notice to the counsel of his co-defendant-appellee.[75] Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his special appearance through counsel, that the Court of Appeals, much less this Court, already lacked jurisdiction over his person or over the subject matter relating to him because he was not a party in CA-G.R. CV No. 53413. Stress must be laid of the fact that he had twice put himself in default one, in not filing a pre-trial brief and another, in not filing his answer to petitioners cross-claims. As a matter of course, Antonio Ang Eng Liong, being a party declared in default, already waived his right to take part in the trial proceedings and had to contend with the judgment rendered by the court based on the evidence presented by the bank and petitioner. Moreover, even without considering these default judgments, Antonio Ang Eng Liong even categorically admitted having secured a loan totaling P80,000. In his Answer to the complaint, he did not deny such liability but merely pleaded that the bank be ordered to submit a more reasonable computation instead of collecting excessive interest, penalty charges, and attorneys 17 | N E G O S e c s . 6 0 t o 6 9

fees. For failing to tender an issue and in not denying the material allegations stated in the complaint, a judgment on the pleadings[76] would have also been proper since not a single issue was generated by the Answer he filed. As the promissory notes were not discharged or impaired through any act or omission of the bank, Sections 119 (d)[77] and 122[78] of the NIL as well as Art. 1249[79] of the Civil Code would necessarily find no application. Again, neither was petitioners right of reimbursement barred nor was the banks right to proceed against Antonio Ang Eng Liong expressly renounced by the omission to serve notice of appeal and appellants brief to a party already declared in default. Consequently, in issuing the two promissory notes, petitioner as accommodating party warranted to the holder in due course that he would pay the same according to its tenor. [80] It is no defense to state on his part that he did not receive any value therefor[81] because the phrase "without receiving value therefor" used in Sec. 29 of the NIL means "without receiving value by virtue of the instrument" and not as it is apparently supposed to mean, "without receiving payment for lending his name."[82] Stated differently, when a third person advances the face value of the note to the accommodated party at the time of its creation, the consideration for the note as regards its maker is the money advanced to the accommodated party. It is enough that value was given for the note at the time of its creation.[83] As in the instant case, a sum of money was received by virtue of the notes, hence, it is immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not received anything in payment of the use of his name.[84] Under the law, upon the maturity of the note, a surety may pay the debt, demand the collateral security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate himself in the place of the creditor with the right to enforce the guaranty against the other signers of the note for the reimbursement of what he is entitled to recover from them.[85] Regrettably, none of these were prudently done by petitioner. When he was first notified by the bank sometime in 1982 regarding his accountabilities under the promissory notes, he lackadaisically relied on Antonio Ang Eng Liong, who represented that he would take care of the matter, instead of directly communicating with the bank for its settlement.[86] Thus, petitioner cannot now claim that he was prejudiced by the supposed extension of time given by the bank to his co-debtor. Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor.[87] In Clark v. Sellner,[88] this Court held: 18 | N E G O S e c s . 6 0 t o 6 9

x x x The mere delay of the creditor in enforcing the guaranty has not by any means impaired his action against the defendant. It should not be lost sight of that the defendant's signature on the note is an assurance to the creditor that the collateral guaranty will remain good, and that otherwise, he, the defendant, will be personally responsible for the payment. True, that if the creditor had done any act whereby the guaranty was impaired in its value, or discharged, such an act would have wholly or partially released the surety; but it must be born in mind that it is a recognized doctrine in the matter of suretyship that with respect to the surety, the creditor is under no obligation to display any diligence in the enforcement of his rights as a creditor. His mere inaction indulgence, passiveness, or delay in proceeding against the principal debtor, or the fact that he did not enforce the guaranty or apply on the payment of such funds as were available, constitute no defense at all for the surety, unless the contract expressly requires diligence and promptness on the part of the creditor, which is not the case in the present action. There is in some decisions a tendency toward holding that the creditor's laches may discharge the surety, meaning by laches a negligent forbearance. This theory, however, is not generally accepted and the courts almost universally consider it essentially inconsistent with the relation of the parties to the note. (21 R.C.L., 1032-1034)[89]

Neither can petitioner benefit from the alleged insolvency of Antonio Ang Eng Liong for want of clear and convincing evidence proving the same. Assuming it to be true, he also did not exercise diligence in demanding security to protect himself from the danger thereof in the event that he (petitioner) would eventually be sued by the bank. Further, whether petitioner may or may not obtain security from Antonio Ang Eng Liong cannot in any manner affect his liability to the bank; the said remedy is a matter of concern exclusively between themselves as accommodation party and accommodated party. The fact that petitioner stands only as a surety in relation to Antonio Ang Eng Liong is immaterial to the claim of the bank and does not a whit diminish nor defeat the rights of the latter as a holder for value. To sanction his theory is to give unwarranted legal recognition to the patent absurdity of a situation where a co-maker, when sued on an instrument by a holder in due course and for value, can escape liability by the convenient expedient of interposing the defense that he is a merely an accommodation party.[90] In sum, as regards the other issues and errors alleged in this petition, the Court notes that these were the very same questions of fact raised on appeal before the Court of Appeals, although at times couched in different terms and explained more lengthily in the petition. Suffice it to say that the same, being factual, have been satisfactorily passed upon and considered both by the trial and appellate courts. It is doctrinal that only errors of law and not of fact are reviewable by this Court in petitions for review on certiorariunder Rule 45 of the Rules of Court. Save for the most cogent and compelling reason, it is not our function under 19 | N E G O S e c s . 6 0 t o 6 9

the rule to examine, evaluate or weigh the probative value of the evidence presented by the parties all over again.[91] WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition is DENIED for lack of merit. No costs. SO ORDERED.

20 | N E G O S e c s . 6 0 t o 6 9

G.R. No. 146511 September 5, 2007 Lessons Applicable: Consideration and Accommodation (Negotiable Instruments)

FACTS:  August 28, 1990: Associated Bank (formerly Associated Banking Corporation and now known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong (principal debtor) and petitioner Tomas Ang (co-maker) for the 2 promissory notes  October 3 and 9, 1978: obtained a loan of P50,000 and P30,000 evidenced by promissory note payable, jointly and severally, on January 31, 1979 and December 8, 1978  Despite repeated demands for payment, the latest on September 13, 1988 and September 9, 1986, they failed to settle their obligations totalling to P539,638.96 as of July 31, 1990  Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000  Tomas Ang: bank is not the real party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course; the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely lent his name as an accommodation party  bank granted his co-defendant successive extensions of time within which to pay, without his knowledge and consent  the bank imposed new and additional stipulations on interest, penalties, services charges and attorney's fees more onerous than the terms of the notes, without his knowledge and consent  he should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorney's fees, respectively.  October 19, 1990: RTC held Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14% interest per annum and 2% service charge per annum  Lower Court: Granted against the bank, dismissing the complaint for lack of cause of action.  CA: ordered Ang to pay the bank - bank is a holder  CA observed that the bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust Agreement and that the notes continued to remain with the bank until the institution of the collection suit.  With the bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is accountable therefor in his capacity as an accommodation party.  Tomas Ang cannot validly set up the defense that he did not receive any consideration therefor as the fact that the loan was granted to the principal debtor already constitutes a sufficient consideration. ISSUE: W/N Ang is liable as accomodation party even without consideration and his coaccomodation party was granted accomodation w/o his knowledge

HELD: CA AFFIRMED 21 | N E G O S e c s . 6 0 t o 6 9

 

 

 

At the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had the authority to enforce its claims against both debtors accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows: "Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid." immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not received anything in payment of the use of his name. since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor.

22 | N E G O S e c s . 6 0 t o 6 9

CLAUDE P. BAUTISTA, Petitioner,

- versus -

G.R. No. 166405 Present: QUISUMBING, J., Chairperson, PUNO, C.J., TINGA, VELASCO, JR., and BRION, JJ.

AUTO PLUS TRADERS, Promulgated: INCORPORATED and COURT OF August 6, 2008 APPEALS (Twenty-First Division), Respondents. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION QUISUMBING, J.: This petition for review on certiorari assails the Decision [1] dated August 10, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 and the Resolution[2] dated October 29, 2004, which denied petitioners motion for reconsideration. The Court of Appeals affirmed the February 24, 2004 Decision and May 11, 2004 Order of the Regional Trial Court (RTC), Davao City, Branch 16, in Criminal Case Nos. 52633-03 and 52634-03. The antecedent facts are as follows: Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport Corporation, purchased various spare parts from private respondent Auto Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks were subsequently dishonored. Private respondent then executed an affidavit-complaint for violation of Batas Pambansa Blg. 22[3] against petitioner. Consequently, two Informations for violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City against the petitioner. These were docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B[4] 2001. The Informations read: Criminal Case No. 102,004-B-2001: The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as follows: That on or about December 15, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee 23 | N E G O S e c s . 6 0 t o 6 9

bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of Digos, Inc. Check No. 058832, dated December 15, 2000, in the amount of P151,200.00, in favor of Auto Plus Traders, Inc., but when said check was presented to the drawee bank for encashment, the same was dishonored for the reason DRAWN AGAINST INSUFFICIENT FUNDS and despite notice of dishonor and demands upon said accused to make good the check, accused failed and refused to make payment to the damage and prejudice of herein complainant. CONTRARY TO LAW. Criminal Case No. 102,005-B-2001: The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as follows: That on or about October 30, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of Digos, Inc. Check No. 059049, dated October 30, 2000, in the amount of P97,500.00, in favor of Auto Plus Traders, [Inc.], but when said check was presented to the drawee bank for encashment, the same was dishonored for the reason DRAWN AGAINST INSUFFICIENT FUNDS and despite notice of dishonor and demands upon said accused to make good the check, accused failed and refused to make payment, to the damage and prejudice of herein complainant. CONTRARY TO LAW.

Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the prosecutions evidence, petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC granted the demurrer, thus: WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as to the guilt of the accused. Cruiser Bus Line[s] and Transport Corporation, through the accused is directed to pay the complainant the sum of P248,700.00 representing the value of the two checks, with interest at the rate of 12% per annum to be computed from the time of the filing of these cases in Court, until the account is paid in full; ordering further Cruiser Bus Line[s] and Transport Corporation, through the accused, to reimburse complainant the expense representing filing fees amounting to P1,780.00 and costs of litigation which this Court hereby fixed at P5,000.00. SO ORDERED.[5]

Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both parties appealed to the RTC. On February 24, 2004, the trial court ruled: WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED to read as follows: Accused is directed to pay and/or reimburse the complainant the 24 | N E G O S e c s . 6 0 t o 6 9

following sums: (1) P248,700.00 representing the value of the two checks, with interest at the rate of 12% per annum to be computed from the time of the filing of these cases in Court, until the account is paid in full; (2) P1,780.00 for filing fees and P5,000.00 as cost of litigation. SO ORDERED.[6]

Petitioner moved for reconsideration, but his motion was denied on May 11, 2004. Petitioner elevated the case to the Court of Appeals, which affirmed the February 24, 2004 Decision and May 11, 2004 Order of the RTC: WHEREFORE, premises considered, the instant petition is DENIED. The assailed Decision of the Regional Trial Court, Branch 16, Davao City, dated February 24, 2004 and its Order dated May 11, 2004 are AFFIRMED. SO ORDERED.[7]

Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred in upholding the RTCs ruling that petitioner, as an officer of the corporation, is personally and civilly liable to the private respondent for the value of the two checks.[8] Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that the corporation, which has a separate personality from its officers, is solely liable for the value of the two checks. Private respondent counters that petitioner should be held personally liable for both checks. Private respondent alleged that petitioner issued two postdated checks: a personal check in his name for the amount of P151,200 and a corporation check under the account of Cruiser Bus Lines and Transport Corporation for the amount of P97,500.According to private respondent, petitioner, by issuing his check to cover the obligation of the corporation, became an accommodation party. Under Section 29[9] of the Negotiable Instruments Law, an accommodation party is liable on the instrument to a holder for value. Private respondent adds that petitioner should also be liable for the value of the corporation check because instituting another civil action against the corporation would result in multiplicity of suits and delay. At the outset, we note that private respondents allegation that petitioner issued a personal check disputes the factual findings of the MTCC. The MTCC found that the two checks belong to Cruiser Bus Lines and Transport Corporation while the RTC found that one of the checks was a personal check of the petitioner. Generally this Court, in a petition for review on certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But, considering that the findings of the MTCC and the RTC are at variance, [10] we are compelled to settle this issue.

25 | N E G O S e c s . 6 0 t o 6 9

A perusal of the two check return slips[11] in conjunction with the Current Account Statements[12] would show that the check for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC. Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding petitioner liable for the value of the checks considering that petitioner was acquitted of the crime charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines and Transport Corporation should be held liable. Juridical entities have personalities separate and distinct from its officers and the persons composing it.[13] Generally, the stockholders and officers are not personally liable for the obligations of the corporation except only when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice. [14] These situations, however, do not exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport Corporation that has obligations to Auto Plus Traders, Inc. for tires.There is no agreement that petitioner shall be held liable for the corporations obligations in his personal capacity. Hence, he cannot be held liable for the value of the two checks issued in payment for the corporations obligation in the total amount of P248,700. Likewise, contrary to private respondents contentions, petitioner cannot be considered liable as an accommodation party for Check No. 58832. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. [15] An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto.[16] The first two elements are present here, however there is insufficient evidence presented in the instant case to show the presence of the third requisite. All that the evidence shows is that petitioner signed Check No. 58832, which is drawn against his personal account. The said check, dated December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000.[17] There is no showing of when petitioner issued the check and in what capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend his name to the corporation.Hence, petitioner cannot be considered as an accommodation party.

26 | N E G O S e c s . 6 0 t o 6 9

Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no evidence that the debts covered by the subject checks have been paid. WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the Resolution dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 are REVERSED and SET ASIDE. Criminal Case Nos. 52633-03 and 52634-03 are DISMISSED, without prejudice to the right of private respondent Auto Plus Traders, Inc., to file the proper civil action against Cruiser Bus Lines and Transport Corporation for the value of the two checks. No pronouncement as to costs. SO ORDERED.

27 | N E G O S e c s . 6 0 t o 6 9

Negotiable Instruments Case Digest: Bautista V. Auto Plus Traders Inc (2008) G.R. No. 166405 August 06, 2008 Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments Law) FACTS:  Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport Corporation (Cruiser), purchased various spare parts from Auto Plus Traders, Inc. (Auto Plus) and issued 2 postdated checks 

The checks were subsequently dishonored



2 Informations for violation of BP Blg. 22 were filed with the MTCC



MTCC: Cruiser directed to pay the Auto Plus



CA Affirmed RTC: Bautista personally issued the check



According to Auto Plus, Bautista, by issuing his check to cover the obligation of the corporation, became an accommodation party

ISSUE: W/N Bautista as an officer of the corporation, is personally and civilly liable for the 2 checks

HELD: NO. petition is GRANTED. CA REVERSED and SET ASIDE. Criminal Case DISMISSED  Section 29 of the Negotiable Instruments Law 

accommodation party is liable on the instrument to a holder for value Private respondent adds that petitioner should also be liable for the value of the corporation check because instituting another civil action against the corporation would result in multiplicity of suits and delay.



Generally this Court, in a petition for review on certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But, considering that the findings of the MTCC and the RTC are at variance, we are compelled to settle this issue.



2 check return slips in conjunction with the Current Account Statements would show that the check for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC. Nonetheless, appellate court in error for affirming the decision of the RTC holding petitioner liable for

28 | N E G O S e c s . 6 0 t o 6 9

the value of the checks considering that he was acquitted of the crime charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines and Transport Corporation should be held liable. 

There is no agreement that petitioner shall be held liable for the corporation's obligations in his personal capacity. Hence, he cannot be held liable for the value of the 2 checks issued in payment for the corporation's obligation



Section 29 of the Negotiable Instruments Law



accommodation party



a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person



requisites





he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser -present



he must not receive value therefor - present



he must sign for the purpose of lending his name or credit to some other person lacking

Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no evidence that the debts covered by the subject checks have been paid.

29 | N E G O S e c s . 6 0 t o 6 9

30 | N E G O S e c s . 6 0 t o 6 9

31 | N E G O S e c s . 6 0 t o 6 9

GENEVIEVE LIM, G.R. No. 163720 Petitioner, Present: PUNO, J., - versus - Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA, and FLORENCIO SABAN, CHICO-NAZARIO, JJ. Respondent. Promulgated: December 16, 2004 x-------------------------------------------------------------------x

DECISION TINGA, J.: Before the Court is a Petition for Review on Certiorari assailing the Decision[1] dated October 27, 2003 of the Court of Appeals, Seventh Division, in CA-G.R. V No. 60392.[2] The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the lot), entered into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for payment of taxes, transfer of title and other expenses incident to the sale, as well as Sabans commission for the sale.[3] Through Sabans efforts, Ybaez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).[4] It appears, however, that the vendees agreed to purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale. After the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two Hundred Fifty 32 | N E G O S e c s . 6 0 t o 6 9

Seven Pesos (P113,257.00) for payment of taxes due on the transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers commission.[5] Lim also issued in the name of Saban four postdated checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B dated June 20, 1994 for P168,000.00. Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez asked Lim to cancel all the checks issued by her in Sabans favor and to extend another partial payment for the lot in his (Ybaezs) favor.[6] After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for collection of sum of money and damages against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu City on August 3, 1994.[7] The case was assigned to Branch 20 of the RTC. In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot for P600,000.00, i.e., with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the total purchase price of P600,000.00, P200,000.00 went to Ybaez, P50,000.00 allegedly went to Lims agent, and P113,257.00 was given to Saban to cover taxes and other expenses incidental to the sale. Lim also issued four (4) postdated checks[8] in favor of Saban for the remaining P236,743.00.[9] Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any commission for the sale since he concealed the actual selling price of the lot from Ybaez and because he was not a licensed real estate broker. Ybaez was able to convince Lim to cancel all four checks. Saban further averred that Ybaez and Lim connived to deprive him of his sales commission by withholding payment of the first three checks. He also claimed that Lim failed to make good the fourth check which was dishonored because the account against which it was drawn was closed. In his Answer, Ybaez claimed that Saban was not entitled to any commission because he concealed the actual selling price from him and because he was not a licensed real estate broker.

33 | N E G O S e c s . 6 0 t o 6 9

Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban, and that she issued stop payment orders for the three checks because Ybaez requested her to pay the purchase price directly to him, instead of coursing it through Saban. She also alleged that she agreed with Ybaez that the purchase price of the lot was only P200,000.00. Ybaez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial court dismissed the case only against him without any objection from the other parties.[10] On May 14, 1997, the RTC rendered its Decision[11] dismissing Sabans complaint, declaring the four (4) checks issued by Lim as stale and nonnegotiable, and absolving Lim from any liability towards Saban. Saban appealed the trial courts Decision to the Court of Appeals. On October 27, 2003, the appellate court promulgated [12] its Decision reversing the trial courts ruling. It held that Saban was entitled to his commission amounting to P236,743.00.[13] The Court of Appeals ruled that Ybaezs revocation of his contract of agency with Saban was invalid because the agency was coupled with an interest and Ybaez effected the revocation in bad faith in order to deprive Saban of his commission and to keep the profits for himself.[14] The appellate court found that Ybaez and Lim connived to deprive Saban of his commission. It declared that Lim is liable to pay Saban the amount of the purchase price of the lot corresponding to his commission because she issued the four checks knowing that the total amount thereof corresponded to Sabans commission for the sale, as the agent of Ybaez. The appellate court further ruled that, in issuing the checks in payment of Sabans commission, Lim acted as an accommodation party. She signed the checks as drawer, without receiving value therefor, for the purpose of lending her name to a third person. As such, she is liable to pay Saban as the holder for value of the checks.[15] Lim filed a Motion for Reconsideration of the appellate courts Decision, but her Motion was denied by the Court of Appeals in a Resolution dated May 6, 2004.[16] Not satisfied with the decision of the Court of Appeals, Lim filed the present petition. 34 | N E G O S e c s . 6 0 t o 6 9

Lim argues that the appellate court ignored the fact that after paying her agent and remitting to Saban the amounts due for taxes and transfer of title, she paid the balance of the purchase price directly to Ybaez.[17] She further contends that she is not liable for Ybaezs debt to Saban under the Agency Agreement as she is not privy thereto, and that Saban has no one but himself to blame for consenting to the dismissal of the case against Ybaez and not moving for his substitution by his heirs.[18] Lim also assails the findings of the appellate court that she issued the checks as an accommodation party for Ybaez and that she connived with the latter to deprive Saban of his commission.[19] Lim prays that should she be found liable to pay Saban the amount of his commission, she should only be held liable to the extent of one-third (1/3) of the amount, since she had two co-vendees (the Spouses Lim) who should share such liability.[20] In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which consisted of the P200,000.00 which would be paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes and other expenses incidental to the sale and Sabans commission as broker for Ybaez. According to Saban, Lim assumed the obligation to pay him his commission. He insists that Lim and Ybaez connived to unjustly deprive him of his commission from the negotiation of the sale.[21] The issues for the Courts resolution are whether Saban is entitled to receive his commission from the sale; and, assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales commission. The Court gives due course to the petition, but agrees with the result reached by the Court of Appeals. The Court affirms the appellate courts finding that the agency was not revoked since Ybaez requested that Lim make stop payment orders for the checks payable to Saban only after the consummation of the sale on March 10, 1994. At that time, Saban had already performed his obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim. 35 | N E G O S e c s . 6 0 t o 6 9

To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach of his contract of agency with Ybaez which expressly states that Saban would be entitled to any excess in the purchase price after deducting the P200,000.00 due to Ybaez and the transfer taxes and other incidental expenses of the sale.[22] In Macondray & Co. v. Sellner,[23] the Court recognized the right of a broker to his commission for finding a suitable buyer for the sellers property even though the seller himself consummated the sale with the buyer.[24] The Court held that it would be in the height of injustice to permit the principal to terminate the contract of agency to the prejudice of the broker when he had already reaped the benefits of the brokers efforts. In Infante v. Cunanan, et al.,[25] the Court upheld the right of the brokers to their commissions although the seller revoked their authority to act in his behalf after they had found a buyer for his properties and negotiated the sale directly with the buyer whom he met through the brokers efforts. The Court ruled that the sellers withdrawal in bad faith of the brokers authority cannot unjustly deprive the brokers of their commissions as the sellers duly constituted agents. The pronouncements of the Court in the aforecited cases are applicable to the present case, especially considering that Saban had completely performed his obligations under his contract of agency with Ybaez by finding a suitable buyer to preparing the Deed of Absolute Sale between Ybaez and Lim and her co-vendees. Moreover, the contract of agency very clearly states that Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybaezs share of P200,000.00 and the taxes and other incidental expenses of the sale. However, the Court does not agree with the appellate courts pronouncement that Sabans agency was one coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. Stated differently, an agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, or for the interest of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. In an agency coupled with an interest, the agents interest must be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation. When an agents interest 36 | N E G O S e c s . 6 0 t o 6 9

is confined to earning his agreed compensation, the agency is not one coupled with an interest, since an agents interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship.[26] Sabans entitlement to his commission having been settled, the Court must now determine whether Lim is the proper party against whom Saban should address his claim. Sabans right to receive compensation for negotiating as broker for Ybaez arises from the Agency Agreement between them. Lim is not a party to the contract. However, the record reveals that she had knowledge of the fact that Ybaez set the price of the lot at P200,000.00 and that the P600,000.00the price agreed upon by her and Sabanwas more than the amount set by Ybaez because it included the amount for payment of taxes and for Sabans commission as broker for Ybaez. According to the trial court, Lim made the following payments for the lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00).[27] Lim, on the other hand, claims that on March 10, 1994, the date of execution of the Deed of Absolute Sale, she paid directly to Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for payment of taxes and P50,000.00 as his commission,[28] and One Hundred Thirty Thousand Pesos (P130,000.00) on June 28, 1994,[29] or a total of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos (P393,257.00). Ybaez, for his part, acknowledged that Lim and her co-vendees paid him P400,000.00 which he said was the full amount for the sale of the lot.[30] It thus appears that he received P100,000.00 on March 10, 1994, acknowledged receipt (through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for commission, and received the balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to Ybaez. Apparently, although the amount actually paid by Lim was P393,257.00, Ybaez rounded off the amount to P400,000.00 and waived the difference. Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor belies her claim that she and her co-vendees did not agree to purchase the lot at P600,000.00. If she did not agree thereto, there would be no reason for her to issue those checks which is the balance of P600,000.00 less the amounts of P200,000.00 (due to Ybaez), P50,000.00 (commission), and the P113,257.00 (taxes). The only logical conclusion is that Lim changed her 37 | N E G O S e c s . 6 0 t o 6 9

mind about agreeing to purchase the lot at P600,000.00 after talking to Ybaez and ultimately realizing that Sabans commission is even more than what Ybaez received as his share of the purchase price as vendor. Obviously, this change of mind resulted to the prejudice of Saban whose efforts led to the completion of the sale between the latter, and Lim and her co-vendees. This the Court cannot countenance. The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein are similar to the circumstances of the present case. In that case, Consejo Infante asked Jose Cunanan and Juan Mijares to find a buyer for her two lots and the house built thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay them five percent (5%) of the purchase price plus whatever overprice they may obtain for the property. Cunanan and Mijares offered the properties to Pio Noche who in turn expressed willingness to purchase the properties. Cunanan and Mijares thereafter introduced Noche to Infante. However, the latter told Cunanan and Mijares that she was no longer interested in selling the property and asked them to sign a document stating that their written authority to act as her agents for the sale of the properties was already cancelled. Subsequently, Infante sold the properties directly to Noche for Thirty One Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan and Mijares to their commission, explaining that [Infante] had changed her mind even if respondent had found a buyer who was willing to close the deal, is a matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to call off the transaction in deference to the request of [Infante]. But the situation varies if one of the parties takes advantage of the benevolence of the other and acts in a manner that would promote his own selfish interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without according the party prejudiced the reward which is due him. This is the situation in which [Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage of the services rendered by [Cunanan and Mijares], but believing that she could evade payment of their commission, she made use of a ruse by inducing them to sign the deed of cancellation.This act of subversion cannot be sanctioned and cannot serve as basis for [Infante] to escape payment of the commission agreed upon.[31]

The appellate court therefore had sufficient basis for concluding that Ybaez and Lim connived to deprive Saban of his commission by dealing with each other directly and reducing the purchase price of the lot and leaving nothing to compensate Saban for his efforts. 38 | N E G O S e c s . 6 0 t o 6 9

Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet paid the balance of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to pay Saban the balance of P200,000.00. Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his asking price of P200,000.00, Saban may claim such excess from Ybaezs estate, if that remedy is still available,[32] in view of the trial courts dismissal of Sabans complaint as against Ybaez, with Sabans express consent, due to the latters demise on November 11, 1994.[33] The appellate court however erred in ruling that Lim is liable on the checks because she issued them as an accommodation party. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person who has signed the negotiable instrument as maker, drawer, acceptor or indorser, without receiving value therefor, for the purpose of lending his name to some other person. The accommodation party is liable on the instrument to a holder for value even though the holder at the time of taking the instrument knew him or her to be merely an accommodation party. The accommodation party may of course seek reimbursement from the party accommodated.[34] As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is one who meets all these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value for the signature; and (3) he signed for the purpose of lending his name to some other person. In the case at bar, while Lim signed as drawer of the checks she did not satisfy the two other remaining requisites. The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the checks in question on account of her transaction, along with the other purchasers, with Ybaez which was a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment of the balance of the purchase price of the lot subject of the transaction. And she had to pay the agreed purchase price in consideration for the sale of the lot to her and her co-vendees. In other words, the amounts covered by the checks form part of the cause or consideration from Ybaezs end, as vendor, while the lot represented the cause or consideration on the 39 | N E G O S e c s . 6 0 t o 6 9

side of Lim, as vendee.[35] Ergo, Lim received value for her signature on the checks. Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or any other person for that matter, to obtain credit or to raise money, thereby totally debunking the presence of the third requisite of an accommodation party. WHEREFORE, in view of the foregoing, the petition is DISMISSED. SO ORDERED.

40 | N E G O S e c s . 6 0 t o 6 9

LIM v. SABAN G.R. No. 163720; December 16, 2004 Ponente: J. Tinga

FACTS:

Under an Agency Agreement, Ybañez authorized Saban to look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for payment of taxes, transfer of title and other expenses incident to the sale, as well as Saban's commission for the sale.

Through Saban's efforts, Ybañez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00). It appears, however, that the vendees agreed to purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale.

After the sale, Lim remitted to Saban the amounts of P113,257 for payment of taxes due on the transaction as well as P50,000.00 as broker's commission. Lim also issued in the name of Saban four postdated checks in the aggregate amount of P236,743.00.

Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybañez asked Lim to cancel all the checks issued by her in Saban's favor and to "extend another partial payment" for the lot in his (Ybañez's) favor.

After the four checks in his favor were dishonored upon presentment, Saban filed a complaint for collection of sum of money and damages against Ybañez and Lim Saban alleged that Ybañez told Lim that he (Saban) was not entitled to any commission for the sale since he concealed the actual selling price of the lot from Ybañez and because he was not a licensed real estate broker. Ybañez was able to convince Lim to cancel all four checks. 41 | N E G O S e c s . 6 0 t o 6 9

In his Answer, Ybañez claimed that Saban was not entitled to any commission because he concealed the actual selling price from him and because he was not a licensed real estate broker.

ISSUE: Whether Saban is entitled to receive his commission from the sale

HELD:

Yes, Saban is entitled to receive his commission from the sale.

The Supreme Court held that to deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach of his contract of agency with Ybañez which expressly states that Saban would be entitled to any excess in the purchase price after deducting the P200,000.00 due to Ybañez and the transfer taxes and other incidental expenses of the sale. Moreover, the Court has already decided in earlier cases that would be in the height of injustice to permit the principal to terminate the contract of agency to the prejudice of the broker when he had already reaped the benefits of the broker's efforts.

42 | N E G O S e c s . 6 0 t o 6 9

[G.R. No. 130570. May 19, 1998]

SPOUSES GIL AND NOELLI GARDOSE, petitioners, vs. REYNALDO S. TARROZA, respondent. DECISION PUNO, J.: This is a petition for review on certiorari assailing the Decision of the Court of Appeals dated April 29, 1997 and its Resolution dated September 10, 1997 in CAG.R. CV No. 45046. On September 20, 1989, private respondent filed a complaint for a sum of money with preliminary attachment against the petitioners, spouses Gil and Noelli Gardose, and a certain Cecilia "Baby" Cacnio. The case was docketed as Civil Case No. Q-893500 and raffled to Branch 92 of the RTC of Quezon City, presided by then Judge Pacita Canizares-Nye. On February 7, 1990, private respondent was allowed to summon by publication the petitioners who were abroad. On August 28, 1990, the complaint against the petitioners was dismissed for failure of the private respondent to have the summons published in a newspaper of general circulation within a reasonable time, amounting to failure to prosecute. The case against Cacnio was also later dismissed for failure of private respondent to file a pre-trial brief. The orders of dismissal became final and executory. On February 13, 1991, private respondent filed a new complaint for a sum of money against the petitioners. The case was raffled to Branch 78 of the RTC of Quezon City and docketed as Civil Case No. Q-91-7959. The complaint contained the same allegations as the complaint in Civil Case No. Q-89-3500 except that it excluded Baby Cacnio as defendant. On April 25, 1991, petitioners filed their Answer with Counterclaim. They invoked the principle of res judicata. They also alleged that Noelli Gardose issued the checks in question merely to guarantee the loans of Cacnio. Petitioners moved to dismiss the complaint on the ground of res judicata but failed. The case was set for hearing on the merits. It appears that petitioners' counsel failed to appear in the hearing of March 31, 1992. The trial court allowed private respondent to present his evidence exparte but reset the continuation of the case to May 26, 1992 for cross-examination of the witness. The petitioners challenged the action of the trial court via a petition for certiorari but the challenge was dismissed by this Court on April 27, 1992. The May 26, 1992 hearing for cross-examination of witness was reset to September 10, 1992 on motion of the petitioners. Again, petitioners failed to appear on September 10, 1992.The trial court considered petitioners' right of crossexamination waived and allowed private respondent to make a formal offer of his 43 | N E G O S e c s . 6 0 t o 6 9

evidence. Still, the case was reset to October 15, 1992 to receive petitioners' evidence. Through a new counsel, petitioners again moved for a reconsideration of the order denying their motion for dismissal on the ground of res judicata. They also insisted that they be allowed to cross-examine the private respondent. In the hearing of October 15, 1992, the trial court denied the reiterated motion to dismiss. It reinstated petitioners' right to cross-examine but their new counsel refused to exercise the right during said hearing. It then ordered petitioners to present their evidence but said counsel sought a resetting of the case as he has yet to familiarize himself with its facts. The trial court ruled that petitioners have waived their right to cross-examine and right to present evidence. The case was deemed submitted for decision.Petitioners' motion for reconsideration was denied on March 15, 1993. They went to the Court of Appeals on certiorari, injunction and prohibition.[1] Their petition was denied on May 31, 1993. On January 11, 1994, the trial court rendered its Decision in favor of the private respondent. It ordered: "WHEREFORE, judgment is rendered ordering defendants to pay plaintiff the following: 1. P70,000.00 plus interest thereon at 12% per annum from the date of the filing of the complaint until fully paid; 2. P50,000.00 plus interest thereon at 12% per annum from the date of the filing of the complaint until fully paid; 3. P200,000.00 plus interest thereon at 12% per annum from the date of the filing of the complaint until fully paid; 4. P50,000.00 as and for attorney's fees; and 5. Cost of suit." Petitioners again appealed to the Court of Appeals.[2] On April 29, 1997, the appellate court affirmed the decision of the trial court.[3] Petitioners' motion for reconsideration was denied on September 10, 1997. Petitioners now contend: I The Court of Appeals gravely erred in not holding that the dismissal in the first case for failure to prosecute and for lack of interest had the effect of an adjudication on the merits and operates as res judicata to the second case. II

44 | N E G O S e c s . 6 0 t o 6 9

The Court of Appeals gravely erred in not holding that the filing of the second case after dismissal of the first case for failure to prosecute and lack of interest constitutes forum shopping. III The Court of Appeals seriously erred in holding that since petitioners failed to include forum shopping as one of the grounds in their omnibus motion, they cannot now raise the said issue on appeal. IV The Court of Appeals gravely erred in holding that the petitioners were not denied procedural due process and they were not denied of their right to cross-examine private respondent and present their evidence. V The Court of Appeals gravely erred in considering petitioner Noelli Gardose as an accommodation party primarily and unconditionally liable to the private respondent for the three dishonored checks. VI The Court of Appeals gravely erred in awarding 12% interest on petitioners' alleged obligation to the private respondent as well as attorney's fees. The petition is unmeritorious. Firstly, the principle of res judicata cannot be invoked. The principle is enunciated in Section 49 (b) and (c) of Rule 39, viz: "Sec. 49. Effects of judgments. -- The effect of a judgment or final order rendered by a court or judge of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows: "xxx xxx xxx "(b) In other cases, the judgment or order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; "(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto." 45 | N E G O S e c s . 6 0 t o 6 9

The rule in Section 49 (b) is known as "bar by former judgment" while the rule embodied in paragraph (c) of the same section is known as "conclusiveness of judgment". There are four (4) requisites which must concur in order for res judicata as a "bar by former judgment" to attach, viz: (1) the former judgment must be final; (2) it must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) it must be a judgment or order on the merits; and (4) there must be between the first and second action identity of parties, identity of subject matter and identity of causes of action. The Court of Appeals correctly ruled that petitioners cannot rely on the principle of bar by former judgment. Civil Case No. Q-89-3500 was dismissed for the continuing failure of private respondent to effect service of summons by publication on the petitioners. In other words, the dismissal was made before the trial court acquired jurisdiction over the petitioners. In Republic Planters Bank vs. Molina,[4] we held: "xxx xxx xxx "The questioned orders of the trial court in Civil Case No. 129829 supporting private respondent's motion to dismiss on the ground of res judicata are without cogent basis. We sustain petitioner's claim that respondent trial judge acted without or in excess of jurisdiction when he issued said orders because he thereby traversed the constitutional precept that `no person shall be deprived of property without due process of law' and that jurisdiction is vitally essential for any order or adjudication to be binding. Justice cannot be sacrificed for technicality. Originally, the action for collection of the loan, evidenced by a promissory note, was only for P100,000.00 but petitioner claims that as of March 5, 1981, the obligation was already P429,219.74. It is a cardinal rule that no one must be allowed to enrich himself at the expense of another without just cause. "In the very order of dismissal of Civil Case No. 116028, the trial court admitted that it did not acquire jurisdiction over the persons of private respondents and yet, it held that it was of no moment as to the dismissal of the case. We disagree. For the court to have authority to dispose of the case on the merits, it must acquire jurisdiction over the subject matter and the parties. If it did not acquire jurisdiction over the private respondents as parties to Civil Case No. 116028, it cannot render any binding decision, favorable or adverse to them, or dismiss the case with prejudice which, in effect, is an adjudication on the merits. The controverted orders in Civil Case No. 116028 disregarded the fundamental principles of remedial law and the meaning and the effect of jurisdiction. A judgment, to be considered res judicata, must be binding, and must be rendered by a court of competent jurisdiction. Otherwise, the judgment is a nullity. "The order of dismissal in Civil Case No. 116028 does not have the effect of an adjudication on the merits of the case because the court that rendered the same did not have the requisite jurisdiction over the persons of the defendants therein. This being so, it cannot be the basis of res judicata and it cannot be a bar to a lawful claim. If at all, such a dismissal may be considered as one without prejudice." 46 | N E G O S e c s . 6 0 t o 6 9

Secondly, petitioners' charge of forum shopping is baseless. To start with, petitioners did not raise the issue in the trial court. Moreover, Revised Circular No. 2891, the anti-forum shopping rule, took effect on January 1, 1992, and it initially applied only to the Court of Appeals. Administrative Circular No. 04-94, which extended the application of the rule to trial courts and administrative agencies, took effect only on April 1, 1994. The second case against petitioners, Civil Case No. Q-91-7959, was filed on February 13, 1991 or before the effectivity of the rules on forum shopping on trial courts. Thirdly, petitioners cannot claim denial of due process. The essence of due process is a fair opportunity to be heard. Petitioners were given all the opportunities to cross-examine the private respondent and to present their evidence. They failed to make use of these opportunities either through negligence or unpreparedness of their counsel. The right of private respondent to speedy justice is just as valuable as the right of petitioners to due process. Fourthly, petitioner Noelli's defense that she was merely an accommodation party was rightly rejected by the Court of Appeals which ruled: "xxx xxx xxx "Appellants persistently insist that when appellant Noelli Gardose issued the three (3) checks to appellee she merely acted as a guarantor and therefore should not be held primarily liable to appellee. "We disagree, the mere fact that appellant Noelli Gardose issued the three (3) checks to appellee make her liable to the latter without the need for the appellee to first go after Cecilia Cacnio because the relationship between an accommodation party and the party accommodated is in effect one of principal and surety (Coneda, Jr. vs. Court of Appeals, 181 SCRA 673; Prudencio vs. Court of Appeals, 143 SCRA 7). In the recent case of Town Savings & Loan Bank, Inc. vs. Court of Appeals, 223 SCRA 459, the Supreme Court held: An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party is in effect a surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another (The Phil. Bank of Commerce vs. Aruego, 102 SCRA 530, 539, 540). "From the foregoing pronouncement of the Supreme Court, it is clear that appellant Noelli Gardose as an accommodation party is primarily and unconditionally liable to appellee for the three (3) checks that were dishonored by the drawee bank. Hence, the lower court did not err in ordering appellants to pay appellee the amount of THREE HUNDRED TWENTY THOUSAND P(320,000.00) PESOS with interest at 12% per annum counted from the filing of the complaint. Under Section 151 of the Negotiable Instruments Law, when a bill is 47 | N E G O S e c s . 6 0 t o 6 9

dishonored by non-acceptance, an immediate right of recourse against the drawers and indorsers accrues to the holder (Travel On, Inc. vs. Court of Appeals, G.R. No. L-56169, June 26, 1992). The drawer of a negotiable instrument engages that, on due presentment, the instrument will be accepted or paid, or both, and if dishonored, he will pay the amount thereof to the holder. x x x" Lastly, petitioners cannot assert that the award of 12% interest and attorney's fees to private respondent is not justified. The Court of Appeals correctly affirmed the trial court's monetary award to private respondent, viz: "x x x The lower court was likewise correct in ordering appellants to pay interest at the legal rate of 12% per annum counted from the filing of the complaint. This is in accordance with Article 2209 of the Civil Code which provides that if the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, should be the payment of the interest agreed upon, and in the absence of stipulation, the legal rate of interest which is now 12 percent per annum. (National Power Corporation vs. Agnar, G.R. No. 60225-26, May 8, 1992).The trial court was likewise correct in granting attorney's fees in the amount of P50,000.00. As found by the court a quo, appellants acted in gross evident bad faith in refusing to pay appellee's just and demandable claim (Reyes v. Zubirri, 208 SCRA 561; Maersk Line vs. Court of Appeals, 222 SCRA 108)." IN VIEW WHEREOF, the petition is dismissed. Costs against the petitioners. SO ORDERED.

48 | N E G O S e c s . 6 0 t o 6 9

49 | N E G O S e c s . 6 0 t o 6 9

50 | N E G O S e c s . 6 0 t o 6 9

G.R. No. L-56169 June 26, 1992 TRAVEL-ON, INC., petitioner, vs. COURT OF APPEALS and ARTURO S. MIRANDA, respondents. RESOLUTION

FELICIANO, J.: Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on commission basis for and in behalf of different airline companies. Private respondent Arturo S. Miranda had a revolving credit line with petitioner. He procured tickets from petitioner on behalf of airline passengers and derived commissions therefrom. On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of Manila to collect on six (6) checks issued by private respondent with a total face amount of P115,000.00. The complaint, with a prayer for the issuance of a writ of preliminary attachment and attorney's fees, averred that from 5 August 1969 to 16 January 1970, petitioner sold and delivered various airline tickets to respondent at a total price of P278,201.57; that to settle said account, private respondent paid various amounts in cash and in kind, and thereafter issued six (6) postdated checks amounting to P115,000.00 which were all dishonored by the drawee banks. Travel-On further alleged that in March 1972, private respondent made another payment of P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was granted by the court a quo. In his answer, private respondent admitted having had transactions with Travel-On during the period stipulated in the complaint. Private respondent, however, claimed that he had already fully paid and even overpaid his obligations and that refunds were in fact due to him. He argued that he had issued the postdated checks for purposes of accommodation, as he had in the past accorded similar favors to petitioner. During the proceedings, private respondent contested several tickets alleged to have been erroneously debited to his account. He claimed reimbursement of his alleged over payments, plus litigation expenses, and exemplary and moral damages by reason of the allegedly improper attachment of his properties. In support of his theory that the checks were issued for accommodation, private respondent testified that he bad issued the checks in the name of Travel-On in order that its General Manager, Elita Montilla, could show to Travel-On's Board of Directors that the accounts receivable of the company were still good. He further stated that Elita Montilla tried to encash the same, but that these were dishonored and were subsequently returned to him after the accommodation purpose had been attained. Travel-On's witness, Elita Montilla, on the other hand explained that the "accommodation" extended to Travel-On by private respondent related to situations where one or more of its passengers needed money in Hongkong, and upon request of Travel-On respondent would 51 | N E G O S e c s . 6 0 t o 6 9

contact his friends in Hongkong to advance Hongkong money to the passenger. The passenger then paid Travel-On upon his return to Manila and which payment would be credited by Travel-On to respondent's running account with it. In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay private respondent the amount of P8,894.91 representing net overpayments by private respondent, moral damages of P10,000.00 for the wrongful issuance of the writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and the costs of the suit. The trial court ruled that private respondent's indebtedness to petitioner was not satisfactorily established and that the postdated checks were issued not for the purpose of encashment to pay his indebtedness but to accommodate the General Manager of Travel-On to enable her to show to the Board of Directors that Travel-On was financially stable. Petitioner filed a motion for reconsideration that was, however, denied by the trial court, which in fact then increased the award of moral damages to P50,000.00. On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced the award of moral damages to P20,000.00, with interest at the legal rate from the date of the filing of the Answer on 28 August 1972. Petitioner moved for reconsideration of the Court of Appeal's' decision, without success. In the instant Petition for Review, it is urged that the postdated checks are per se evidence of liability on the part of private respondent. Petitioner further argues that even assuming that the checks were for accommodation, private respondent is still liable thereunder considering that petitioner is a holder for value. Both the trial and appellate courts had rejected the checks as evidence of indebtedness on the ground that the various statements of account prepared by petitioner did not show that Private respondent had an outstanding balance of P115,000.00 which is the total amount of the checks he issued. It was pointed out that while the various exhibits of petitioner showed various accountabilities of private respondent, they did not satisfactorily establish the amount of the outstanding indebtedness of private respondent. The appellate court made much of the fact that the figures representing private respondent's unpaid accounts found in the "Schedule of Outstanding Account" dated 31 January 1970 did not tally with the figures found in the statement which showed private respondent's transactions with petitioner for the years 1969 and 1970; that there was no satisfactory explanation as to why the total outstanding amount of P278,432.74 was still used as basis in the accounting of 7 April 1972 considering that according to the table of transactions for the year 1969 and 1970, the total unpaid account of private respondent amounted to P239,794.57. We have, however, examined the record and it shows that the 7 April 1972 Statement of Account had simply not been updated; that if we use as basis the figure as of 31 January 1970 which is P278,432.74 and from it deduct P38,638.17 which represents some of the payments subsequently made by private respondent, the figure — P239,794.57 will be obtained. 52 | N E G O S e c s . 6 0 t o 6 9

Also, the fact alone that the various statements of account had variances in figures, simply did not mean that private respondent had no more financial obligations to petitioner. It must be stressed that private respondent's account with petitioner was a running or open one, which explains the varying figures in each of the statements rendered as of a given date. The appellate court erred in considering only the statements of account in determining whether private respondent was indebted to petitioner under the checks. By doing so, it failed to give due importance to the most telling piece of evidence of private respondent's indebtedness — the checks themselves which he had issued. Contrary to the view held by the Court of Appeals, this Court finds that the checks are the all important evidence of petitioner's case; that these checks clearly established private respondent's indebtedness to petitioner; that private respondent was liable thereunder. It is important to stress that a check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value. 1 Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to recovery. Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome by other competent evidence. 2 In the case at bar, the Court of Appeals, contrary to these established rules, placed the burden of proving the existence of valuable consideration upon petitioner. This cannot be countenanced; it was up to private respondent to show that he had indeed issued the checks without sufficient consideration. The Court considers that Private respondent was unable to rebut satisfactorily this legal presumption. It must also be noted that those checks were issued immediately after a letter demanding payment had been sent to private respondent by petitioner Travel-On. The fact that all the checks issued by private respondent to petitioner were presented for payment by the latter would lead to no other conclusion than that these checks were intended for encashment. There is nothing in the checks themselves (or in any other document for that matter) that states otherwise. We are unable to accept the Court of Appeals' conclusion that the checks here involved were issued for "accommodation" and that accordingly private respondent maker of those checks was not liable thereon to petitioner payee of those checks. In the first place, while the Negotiable Instruments Law does refer to accommodation transactions, no such transaction was here shown. Section 29 of the Negotiable Instruments Law provides as follows: Sec. 29. Liability of accommodation party. — An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, 53 | N E G O S e c s . 6 0 t o 6 9

notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party. The latter, in other words, receives or realizes full value which the accommodated party then must repay to the accommodating party, unless of course the accommodating party intended to make a donation to the accommodated party. But the accommodating party is bound on the check to the holder in due course who is necessarily a third party and is not the accommodated party. Having issued or indorsed the check, the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor. 3 In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no value on the checks which bounced. Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, 4 that the checks were supported by valuable consideration. 5 Private respondent maker of the checks did not successfully rebut these presumptions. The only evidence aliunde that private respondent offered was his own self-serving uncorroborated testimony. He claimed that he had issued the checks to Travel-On as payee to "accommodate" its General Manager who allegedly wished to show those checks to the Board of Directors of Travel-On to "prove" that Travel-On's account receivables were somehow "still good." It will be seen that this claim was in fact a claim that the checks were merely simulated, that private respondent did not intend to bind himself thereon. Only evidence of the clearest and most convincing kind will suffice for that purpose; 6 no such evidence was submitted by private respondent. The latter's explanation was denied by Travel-On's General Manager; that explanation, in any case, appears merely contrived and quite hollow to us. Upon the other hand, the "accommodation" or assistance extended to Travel-On's passengers abroad as testified by petitioner's General Manager involved, not the accommodation transactions recognized by the NIL, but rather the circumvention of then existing foreign exchange regulations by passengers booked by Travel-On, which incidentally involved receipt of full consideration by private respondent. Thus, we believe and so hold that private respondent must be held liable on the six (6) checks here involved. Those checks in themselves constituted evidence of indebtedness of private respondent, evidence not successfully overturned or rebutted by private respondent. Since the checks constitute the best evidence of private respondent's liability to petitioner Travel-On, the amount of such liability is the face amount of the checks, reduced only by the P10,000.00 which Travel-On admitted in its complaint to have been paid by private respondent sometime in March 1992. 54 | N E G O S e c s . 6 0 t o 6 9

The award of moral damages to Private respondent must be set aside, for the reason that Petitioner's application for the writ of attachment rested on sufficient basis and no bad faith was shown on the part of Travel-On. If anyone was in bad faith, it was private respondent who issued bad checks and then pretended to have "accommodated" petitioner's General Manager by assisting her in a supposed scheme to deceive petitioner's Board of Directors and to misrepresent Travel-On's financial condition. ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review on Certiorari and to REVERSE and SET ASIDE the Decision dated 22 October 1980 and the Resolution of 23 January 1981 of the Court of Appeals, as well as the Decision dated 31 January 1975 of the trial court, and to enter a new decision requiring private respondent Arturo S. Miranda to pay to petitioner Travel-On the amount of P105,000.00 with legal interest thereon from 14 June 1972, plus ten percent (10%) of the total amount due as attorney's fees. Costs against Private respondent. Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.

55 | N E G O S e c s . 6 0 t o 6 9

G.R. No. L-56169 June 26, 1992 Lessons Applicable: Consideration and Accomodation Party (Negotiable Instruments)

FACTS:  Arturo S. Miranda  had a revolving credit line with Travel-On. Inc. (Travel-On), a travel agency selling airline tickets on commission basis for and in behalf of different airline companies  procured tickets from Travel-On on behalf of airline passengers and derived commissions therefrom.  June 14 1972: Travel-On filed bef. the CFI to collect 6 checks issued by Miranda totaling P115,000.00  August 5 1969 - January 16 1970: Travel-On sold and delivered airline tickets to Miranda w/ total price of P278,201.57  paid in cash and 6 checks = P115,000 - all dishonored by the drawee banks  March 1972: paid P10,000.00 reducing his debts to P105,000  Miranda: checks were issued for to "accommodate" Travel-On's General Manager to show the BOD of Travel-On that their receivables were still good  Travel-On's witness, Elita Montilla: related to situations where its passengers needed money in Hongkong, and upon request of Travel-On, Miranda would contact his friends in Hongkong to advance Hongkong money to the passenger  CA affirmed CFI: ordered Travel-On to pay Miranda P8,894.91 representing net overpayments by private respondent, moral damages of P10,000.00 (later increased to P50,000 by CFI and reduced by CA to P20,000) for the wrongful issuance of the writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and the costs of the suit - decision was because Travel-On did not show that Miranda had an outstanding balance of P115,000.00 ISSUE: W/N Miranda is liable for the 6 dishonored checks because there was no accomodation

HELD: YES. GRANT due course to the Petition for Review on Certiorari and to REVERSE and SET ASIDE the Decision of the CA and trial court  failed to give due importance the checks themselves as evidence of the debt  check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value.  negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome by other competent evidence  Those checks in themselves constituted evidence of indebtedness of Miranda, evidence not successfully overturned or rebutted by private respondent.  While the Negotiable Instruments Law does refer to accommodation transactions, no such transaction was here shown  Sec. 29. Liability of accommodation party. — An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is 56 | N E G O S e c s . 6 0 t o 6 9

 

liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. Having issued or indorsed the check, the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor. Travel-On obviously was not an accommodated party; it realized no value on the checks which bounced.

57 | N E G O S e c s . 6 0 t o 6 9

58 | N E G O S e c s . 6 0 t o 6 9

[G.R. No. 112392. February 29, 2000] BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents. DECISION YNARES-SANTIAGO, J.: This is a petition for review on certiorari of the Decision of the Court of Appeals in CAG.R. CV No. 37392 affirming in toto that of the Regional Trial Court of Makati, Branch 139, which dismissed the complaint filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C. Napiza for sum of money. Sdaad [1]

[2]

On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-187 which he maintained in petitioner banks Buendia Avenue Extension Branch, Continental Bank Managers Check No. 00014757 dated August 17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal side. It appears that the check belonged to a certain Henry Chan who went to the office of private respondent and requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them would go to the bank to withdraw the amount of the check upon private respondents presentation to the bank of his passbook. [3]

[4]

[5]

Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo. [6]

On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of New York that the said check deposited by private respondent was a counterfeit check because it was "not of the type or style of checks issued by Continental Bank International." Consequently, Mr. Ariel Reyes, the manager of petitioners Buendia Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is private respondents son, to inform his father that the check bounced. Reyes himself sent a telegram to private respondent regarding the dishonor of the check. In turn, private respondents son wrote to Reyes stating that the check had been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared upon instruction of Chan. He also said that upon learning of the dishonor of the check, his father immediately tried to contact Chan but the latter was out of town. [7]

[8]

[9]

[10]

Private respondents son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, 1984, Reyes reminded private respondent of his sons promise 59 | N E G O S e c s . 6 0 t o 6 9

and warned that should he fail to return that amount within seven (7) days, the matter would be referred to the banks lawyers for appropriate action to protect the banks interest. This was followed by a letter of the banks lawyer dated April 8, 1985 demanding the return of the $2,500.00. [11]

[12]

In reply, private respondent wrote petitioners counsel on April 20, 1985 stating that he deposited the check "for clearing purposes" only to accommodate Chan. He added: [13]

"Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on October 23, 1984, or a total period of fifty (50) days had elapsed at the time of withdrawal. Also, it may not be amiss to mention here that I merely signed an authority to withdraw said deposit subject to its clearing, the reason why the transaction is not reflected in the passbook of the account. Besides, I did not receive its proceeds as may be gleaned from the withdrawal slip under the captioned signature of recipient. If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still exerting utmost and maximum efforts to collect from Mr. Henry Chan who is directly liable under the circumstances. Scsdaad xxx......xxx......xxx." On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the amount of $2,500.00 or the prevailing peso equivalent plus legal interest from date of demand to date of full payment, a sum equivalent to 20% of the total amount due as attorney's fees, and litigation and/or costs of suit. Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount deposited would be withdrawn only after the check in question has been cleared. He likewise alleged that he instructed the party to whom he issued the signed blank withdrawal slip to return it to him after the bank drafts clearance so that he could lend that party his passbook for the purpose of withdrawing the amount of $2,500.00. However, without his knowledge, said party was able to withdraw the amount of $2,541.67 from his dollar savings account through collusion with one of petitioners employees. Private respondent added that he had "given the Plaintiff fifty one (51) days with which to clear the bank draft in question." Petitioner should have disallowed the withdrawal because his passbook was not presented. He claimed that petitioner had no one to blame except itself "for being grossly negligent;" in fact, it had allegedly admitted having paid the amount in the check "by mistake" x x x "if not altogether due to collusion and/or bad faith on the part of (its) employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way of counterclaim, private respondent prayed for moral damages of P100,000.00, exemplary damages of P50,000.00 and attorneys fees of 30% of whatever amount that would be awarded to him plus an honorarium of P500.00 per appearance in court. Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even without private respondents passbook. Thus, private 60 | N E G O S e c s . 6 0 t o 6 9

respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay attorneys fees of P5,000.00 plus P300.00 honorarium per appearance. Petitioner filed a comment on the motion for leave of court to admit the third party complaint, wherein it asserted that per paragraph 2 of the Rules and Regulations governing BPI savings accounts, private respondent alone was liable "for the value of the credit given on account of the draft or check deposited." It contended that private respondent was estopped from disclaiming liability because he himself authorized the withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as not to unduly delay the disposition of the main case asserting that private respondents claim could be ventilated in another case. Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits, the motion to admit third party complaint should be granted. Meanwhile, the trial court issued orders on August 25, 1987 and October 28, 1987 directing private respondent to actively participate in locating Chan. After private respondent failed to comply, the trial court, on May 18, 1988, dismissed the third party complaint without prejudice. On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that petitioner could not hold private respondent liable based on the checks face value alone. To so hold him liable "would render inutile the requirement of clearance from the drawee bank before the value of a particular foreign check or draft can be credited to the account of a depositor making such deposit." The lower court further held that "it was incumbent upon the petitioner to credit the value of the check in question to the account of the private respondent only upon receipt of the notice of final payment and should not have authorized the withdrawal from the latters account of the value or proceeds of the check." Having admitted that it committed a "mistake" in not waiting for the clearance of the check before authorizing the withdrawal of its value or proceeds, petitioner should suffer the resultant loss. Supremax On appeal, the Court of Appeals affirmed the lower courts decision. The appellate court held that petitioner committed "clear gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondents passbook and, before the check was cleared and in crediting the amount indicated therein in private respondents account. It stressed that the mere deposit of a check in private respondents account did not mean that the check was already private respondents property. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the banks rules and regulations. Furthermore, petitioners contention that private respondent warranted the checks genuineness by endorsing it is untenable for it would render useless the clearance requirement. Likewise, the requirement of presentation of a passbook to ascertain the propriety of the accounting reflected would be a meaningless exercise. After all, these requirements are designed to protect the bank from deception or fraud. The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC, where this Court stated that a personal check is not legal tender or money, and [14]

61 | N E G O S e c s . 6 0 t o 6 9

held that the check deposited in this case must be cleared before its value could be properly transferred to private respondent's account. Without filing a motion for the reconsideration of the Court of Appeals Decision, petitioner filed this petition for review on certiorari, raising the following issues: 1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL INDORSER. 2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON. 3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL. Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for the amount stated therein in accordance with the following provision of the Negotiable Instruments Law (Act No. 2031): "SEC. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all subsequent holders in due course (a)......The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b)......That the instrument is at the time of his indorsement, valid and subsisting. 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." Section 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it, and (c) that all prior parties had capacity to contract. In People v. Maniego, this Court described the liabilities of an indorser as follows: Juris [15]

[16]

"Appellants contention that as mere indorser, she may not be liable on account of the dishonor of the checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable instrument has the right to enforce payment of the instrument for the full amount thereof against all parties liable thereon. Among the parties liable thereon is an indorser of the instrument, i.e., a person placing his signature upon an instrument otherwise than as a maker, drawer or acceptor * * unless he clearly indicated by appropriate words his intention to be bound 62 | N E G O S e c s . 6 0 t o 6 9

in some other capacity. Such an indorser who indorses without qualification, inter alia engages that on due presentment, * * (the instrument) 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 any subsequent indorser who may be compelled to pay it. Maniego may also be deemed an accommodation party in the light of the facts, i.e., a person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. As such, she is under the law liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew * * (her) to be only an accommodation party, although she has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them is in effect that of principal and surety, the accommodation party being the surety." It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party. However, to hold private respondent liable for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. The interest of justice thus demands looking into the events that led to the encashment of the check. [17]

Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for the withdrawal of the amount in question." Petitioner relied "on the genuine signature on the withdrawal slip, the personality of private respondents son and the lapse of more than fifty (50) days from date of deposit of the Continental Bank draft, without the same being returned yet." We hold, however, that the propriety of the withdrawal should be gauged by compliance with the rules thereon that both petitioner bank and its depositors are duty-bound to observe. [18]

In the passbook that petitioner issued to private respondent, the following rules on withdrawal of deposits appear: "4.......Withdrawals must be made by the depositor personally but in some exceptional circumstances, the Bank may allow withdrawal by another upon the depositors written authority duly authenticated; and neither a deposit nor a withdrawal will be permitted except upon the presentation of the depositors savings passbook, in which the amount deposited withdrawn shall be entered only by the Bank. 5.......Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the request of the depositor in writing on the withdrawal slip or by authenticated cable. Such request must indicate the name of the payee/s, amount and the place where the funds are to be paid. Any stamp, transmission and other charges related to such withdrawals shall be for the account of the depositor and shall be paid by him/her upon 63 | N E G O S e c s . 6 0 t o 6 9

demand. Withdrawals may also be made in the form of travellers checks and in pesos. Withdrawals in the form of notes/bills are allowed subject however, to their (availability). 6.......Deposits shall not be subject to withdrawal by check, and may be withdrawn only in the manner above provided, upon presentation of the depositors savings passbook and with the withdrawal form supplied by the Bank at the counter." Scjuris [19]

Under these rules, to be able to withdraw from the savings account deposit under the Philippine foreign currency deposit system, two requisites must be presented to petitioner bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the depositors passbook. Private respondent admits that he signed a blank withdrawal slip ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must name the payee, the amount to be withdrawn and the place where such withdrawal should be made. That the withdrawal slip was in fact a blank one with only private respondents two signatures affixed on the proper spaces is buttressed by petitioners allegation in the instant petition that had private respondent indicated therein the person authorized to receive the money, then Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner contends that "(i)n failing to do so (i.e., naming his authorized agent), he practically authorized any possessor thereof to write any amount and to collect the same." [20]

Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioners personnel should have been duly warned that Gayon, who was also employed in petitioners Buendia Ave. Extension branch, was not the proper payee of the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman should have issued another authority to Gayon for such withdrawal. Of course, at the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can withdraw the amount indicated in the check. Private respondent does not deny having signed such authority. However, considering petitioners clear admission that the withdrawal slip was a blank one except for private respondents signature, the unavoidable conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by Gayon or whoever was allowed by petitioner to withdraw the amount. Under these facts, there could not have been a principal-agent relationship between private respondent and Gayon so as to render the former liable for the amount withdrawn. [21]

Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the corresponding foreign currency savings passbook by the depositor in person. For withdrawals thru a representative, depositor should accomplish the authority at the back." The requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service even though the person making the withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6 set out by petitioner so that, for the protection of the banks interest and as a reminder to the depositor, the withdrawal shall be entered in the depositors passbook. The fact that private respondents passbook was not presented during the withdrawal is 64 | N E G O S e c s . 6 0 t o 6 9

evidenced by the entries therein showing that the last transaction that he made with the bank was on September 3, 1984, the date he deposited the controversial check in the amount of $2,500.00. [22]

In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus: "2.......All deposits will be received as current funds and will be repaid in the same manner; provided, however, that deposits of drafts, checks, money orders, etc. will be accepted as subject to collection only and credited to the account only upon receipt of the notice of final payment. Collection charges by the Banks foreign correspondent in effecting such collection shall be for the account of the depositor. If the account has sufficient balance, the collection shall be debited by the Bank against the account. If, for any reason, the proceeds of the deposited checks, drafts, money orders, etc., cannot be collected or if the Bank is required to return such proceeds, the provisional entry therefor made by the Bank in the savings passbook and its records shall be deemed automatically cancelled regardless of the time that has elapsed, and whether or not the defective items can be returned to the depositor; and the Bank is hereby authorized to execute immediately the necessary corrections, amendments or changes in its record, as well as on the savings passbook at the first opportunity to reflect such cancellation." (Italics and underlining supplied.) Jurissc As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not become the outright owner of the amount stated therein. Under the above rule, by depositing the check with petitioner, private respondent was, in a way, merely designating petitioner as the collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether a managers check or ordinary check, is not legal tender. As such, after receiving the deposit, under its own rules, petitioner shall credit the amount in private respondents account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. Again, this is in accordance with ordinary banking practices and with this Courts pronouncement that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements." The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in question is a managers check. Misjuris [23]

[24]

[25]

In Banco Atlantico v. Auditor General, Banco Atlantico, a commercial bank in Madrid, Spain, paid the amounts represented in three (3) checks to Virginia Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did so without previously clearing the checks with the drawee bank, the Philippine National Bank in New York, on account of the "special treatment" that Boncan received from the personnel of Banco Atlanticos foreign department. The Court held that the encashment of the checks without prior [26]

65 | N E G O S e c s . 6 0 t o 6 9

clearance is "contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were large." Accordingly, the Court approved the Auditor Generals denial of Banco Atlanticos claim for payment of the value of the checks that was withdrawn by Boncan. Said ruling brings to light the fact that the banking business is affected with public interest. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors "with meticulous care, always having in mind the fiduciary nature of their relationship." As such, in dealing with its depositors, a bank should exercise its functions not only with the diligence of a good father of a family but it should do so with the highest degree of care. [27]

[28]

In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit, failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioners personnel negligently handled private respondents account to petitioners detriment. As this Court once said on this matter: "Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith, provides the test by which to determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater-familias of the Roman law. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that." [29]

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of private respondents dollar deposits that had yet to be cleared. The banks ledger on private respondents account shows that before he deposited $2,500.00, private respondent had a balance of only $750.00. Upon private respondents deposit of $2,500.00 on September 3, 1984, that amount was credited in his ledger as a deposit resulting in the corresponding total balance of $3,250.00. On September 10, 1984, the amount of $600.00 and the additional charges of $10.00 were indicated therein as withdrawn thereby leaving a balance of $2,640.00. On September 30, 1984, an interest of $11.59 was reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was entered as withdrawn with a balance of $109.92. On November 19, 1984 the word "hold" was written beside the balance of $109.92. That must have been the time when Reyes, petitioners branch manager, was informed unofficially of the fact that the check deposited was a counterfeit, but petitioners Buendia Ave. Extension Branch received a copy of the communication thereon from Wells Fargo Bank International in New York [30]

[31]

[32]

[33]

66 | N E G O S e c s . 6 0 t o 6 9

the following day, November 20, 1984. According to Reyes, Wells Fargo Bank International handled the clearing of checks drawn against U.S. banks that were deposited with petitioner. Jjlex [34]

[35]

From these facts on record, it is at once apparent that petitioners personnel allowed the withdrawal of an amount bigger than the original deposit of $750.00 and the value of the check deposited in the amount of $2,500.00 although they had not yet received notice from the clearing bank in the United States on whether or not the check was funded. Reyes contention that after the lapse of the 35-day period the amount of a deposited check could be withdrawn even in the absence of a clearance thereon, otherwise it could take a long time before a depositor could make a withdrawal, is untenable. Said practice amounts to a disregard of the clearance requirement of the banking system. [36]

While it is true that private respondents having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit check, the negligence of petitioners personnel was the proximate cause of the loss that petitioner sustained. Proximate cause, which is determined by a mixed consideration of logic, common sense, policy and precedent, is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred." The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioners part was its personnels negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage. [37]

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED. SO ORDERED. Newmiso

67 | N E G O S e c s . 6 0 t o 6 9

G.R. No. 112392 February 29, 2000 Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)

FACTS:  September 3, 1987: Bejanmin Napiza deposited in Foreign Currency Deposit Unit (FCDU) Savings Account which he maintained in BPI a Continental Bank Manager's Check dated August 17, 1984, payable to "cash" $2,500.00 

check belonged to Henry who went to the office of Napiza and requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same.



Napiza acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them would go to the bank to withdraw



October 23, 1984: Using the blank withdrawal slip given by Napiza to Chan, Ruben Gayon, Jr. was able to withdraw



the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo



November 20, 1984: BPI received communication from the Wells Fargo Bank International of New York that check deposited by Napiza was a counterfeit check because it was "not of the type or style of checks issued by Continental Bank International."



Mr. Ariel Reyes, manager of BPI, instructed one of its employees, Benjamin D. Napiza IV, who is Napiza's son, to inform his father that the check bounced.



Reyes himself sent a telegram to Napiza regarding the dishonor of the check



Napiza's son told Reyes that:



check been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared upon instruction of Chan



his father immediately tried to contact Chan but Chan was out of town



Napiza's son undertook to return the amount of $2,500.00 to BPI



August 12, 1986: BPI filed a complaint against Napiza for the return of $2,500.00 or the prevailing peso equivalent plus legal interest, attorney's fees, and litigation and/or costs of suit

68 | N E G O S e c s . 6 0 t o 6 9



Napiza:



admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount deposited would be withdrawn only after the check in question has been cleared.



However, without his knowledge, it was withdrawn through collusion with one of BPI's employees.



BPI aslo filed a motion for admission of a third party complaint against Chan. He alleged that "thru strategem and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even without Napiza's passbook.



November 4, 1991: Lower Court dismissed the complaint.



Having admitted that it committed a "mistake" in not waiting for the clearance of the check before authorizing the withdrawal of its value or proceeds, BPI should suffer the resultant loss.



CA: Affirmed the lower courts decision



BPI committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting BPI's passbook and, before the check was cleared and in crediting the amount indicated therein in Napiza's account.



BPI claims that Napiza, having affixed his signature at the dorsal side of the check, should be liable in accordance to Sec. 66 of the Negotiable Instrument Law

Sec. 66. Liability of general indorser. — Every indorser who indorses without qualification, warrants to all subsequent holders in due course — (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b) That the instrument is at the time of his indorsement, valid and subsisting. 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.

Sec. 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it, and (c) that all prior parties had capacity to contract.

ISSUE: W/N Napiza can be held liable as an indorser or accommodation party 69 | N E G O S e c s . 6 0 t o 6 9

HELD: NO.  ordinarily Napiza may be held liable as an indorser of the check or even as an accommodation party 

However, to hold Napiza liable for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system.



The interest of justice thus demands looking into the events that led to the encashment of the check.



under the Philippine foreign currency deposit system, two requisites must be presented to petitioner bank by the person withdrawing an amount:



(a) a duly filled-up withdrawal slip, and



Napiza signed a blank deposit slip



BUT withdrawal slip itself indicates a special instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman."



(b) the depositor's passbook



In depositing the check in his name, Napiza did not become the outright owner of the amount stated therein. By depositing the check with BPI, he was, in a way, merely designating BPI as the collecting bank.



This is in consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or ordinary check, is not legal tender



Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do



While it is true that Napiza's having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit check, the negligence of BPI's personnel was the proximate cause of the loss that petitioner sustained.



Proximate cause, which is determined by a mixed consideration of logic, common sense, policy and precedent, is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred."

70 | N E G O S e c s . 6 0 t o 6 9



The proximate cause = disregard of its own rules and the clearing requirement in the banking system

71 | N E G O S e c s . 6 0 t o 6 9

72 | N E G O S e c s . 6 0 t o 6 9

[G.R. No. 136729. September 23 ,2003]

ASTRO ELECTRONICS CORP. and PETER ROXAS, petitioner, vs. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, respondent. DECISION AUSTRIA-MARTINEZ, J.:

Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court is the decision of the Court of Appeals in CA-G.R. CV No. 41274, affirming the decision of the Regional Trial Court (Branch 147) of Makati, then Metro Manila, whereby petitioners Peter Roxas and Astro Electronics Corp. (Astro for brevity) were ordered to pay respondent Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee), jointly and severally, the amount of P3,621,187.52 with interests and costs. [1]

The antecedent facts are undisputed. Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to P3,000,000.00 with interest and secured by three promissory notes: PN NO. PFX-254 dated December 14, 1981 for P600,000.00, PN No. PFX-258 also dated December 14, 1981 for P400,000.00 and PN No. 15477 dated August 27, 1981 for P2,000,000.00. In each of these promissory notes, it appears that petitioner Roxas signed twice, as President of Astro and in his personal capacity. Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety. [2]

[3]

Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astros loan, subject to the condition that upon payment by Philguanrantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro. [4]

[5]

As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of Makati. In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the same in blank and the phrases in his personal capacity and in his official capacity were fraudulently inserted without his knowledge. [6]

After trial, the RTC rendered its decision in favor of Philguarantee with the following dispositive portion: WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic) the plaintiff and against the defendants Astro Electronics Corporation and Peter T. Roxas, ordering the then (sic) to pay, jointly and severally, the plaintiff the sum of P3,621.187.52 representing the total obligation of defendants in favor of plaintiff Philguarantee as of December 31, 1984 with interest at the stipulated rate of 16% per annum and stipulated penalty charges of 16% per annum computed from January 1, 1985 until the amount is fully paid. With costs. 73 | N E G O S e c s . 6 0 t o 6 9

SO ORDERED.

[7]

The trial court observed that if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then he should have signed only once in the promissory note. [8]

On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court that Roxas failed to explain satisfactorily why he had to sign twice in the contract and therefore the presumption that private transactions have been fair and regular must be sustained. [9]

In the present petition, the principal issue to be resolved is whether or not Roxas should be jointly and severally liable (solidary) with Astro for the sum awarded by the RTC. The answer is in the affirmative. Astros loan with Philtrust Bank is secured by three promissory notes. These promissory notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as president of Astro and second, in his personal capacity. In signing his name aside from being the President of Asro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers, promising that they will pay to the order of the payee or any holder according to its tenor. Thus, even without the phrase personal capacity, Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal. [10]

[11]

Unnoticed by both the trial court and the Court of Appeals, a closer examination of the signatures affixed by Roxas on the promissory notes, Exhibits A-4 and 3-A and B-4 and 4-A readily reveals that portions of his signatures covered portions of the typewritten words personal capacity indicating with certainty that the typewritten words were already existing at the time Roxas affixed his signatures thus demolishing his claim that the typewritten words were just inserted after he signed the promissory notes. If what he claims is true, then portions of the typewritten words would have covered portions of his signatures, and not vice versa. As to the third promissory note, Exhibit C-4 and 5-A, the copy submitted is not clear so that this Court could not discern the same observations on the notes, Exhibits A-4 and 3-A and B-4 and 4-A. Nevertheless, the following discussions equally apply to all three promissory notes. The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK or order... An instrument which begins with I, We, or Either of us promise to pay, when signed by two or more persons, makes them solidarily liable. Also, the phrase joint and several binds the makers jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. Having [12]

[13]

[14]

74 | N E G O S e c s . 6 0 t o 6 9

signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro. Roxas claim that the phrases in his personal capacity and in his official capacity were inserted on the notes without his knowledge was correctly disregarded by the RTC and the Court of Appeals. It is not disputed that Roxas does not deny that he signed the notes twice. As aptly found by both the trial and appellate court, Roxas did not offer any explanation why he did so. It devolves upon him to overcome the presumptions that private transactions are presumed to be fair and regular and that a person takes ordinary care of his concerns. Aside from his self-serving allegations, Roxas failed to prove the truth of such allegations. Thus, said presumptions prevail over his claims. Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not equivalent to proof under our Rules of Court. [15]

[16]

[17]

Roxas is the President of Astro and reasonably, a businessman who is presumed to take ordinary care of his concerns. Absent any countervailing evidence, it cannot be gainsaid that he will not sign document without first informing himself of its contents and consequences. Clearly, he knew the nature of the transactions and documents involved as he not only executed these notes on two different dates but he also executed, and again, signed twice, a continuing Surety ship Agreement notarized on July 31, 1981, wherein he guaranteed, jointly and severally with Astro the repayment of P3,000,000.00 due to Philtrust. Such continuing suretyship agreement even re-enforced his solidary liability Philtrust because as a surety, he bound himself jointly and severally with Astros obligation. Roxas cannot now avoid liability by hiding under the convenient excuse that he merely signed the notes in blank and the phrases in personal capacity and in his official capacity were fraudulently inserted without his knowledge. [18]

Lastly, Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of Philtrust to demand for and collect payment from both Roxas and Astro since it already paid the value of 70% of roxas and Astro Electronics Corp.s loan obligation. In compliance with its contract of Guarantee in favor of Philtrust. Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Instances of legal subrogation are those provided in Article 1302 of the Civil Code. Conventional subrogation, on the other hand, is that which takes place by agreement of the parties. [19]

[20]

[21]

Roxas acquiescence is not necessary for subrogation to take place because the instant case is one of the legal subrogation that occurs by operation of law, and without need of the debtors knowledge. Further, Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against Roxas and Astro because the guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor. [22]

[23]

WHEREFORE, finding no error with the decision of the Court of Appeals dated December 10, 1998, the same is hereby AFFIRMED in toto. SO ORDERED. 75 | N E G O S e c s . 6 0 t o 6 9

Astro Electronics Corp. v Philguarantee; G.R. No. 136729; 23 Sep 2003; 411 SCRA 462

FACTS: Respondent guaranteed the payment of 70% of petitioner corporation’s loans on the condition that upon payment of said amount it shall be proportionally subrogated to the rights of the original creditor. The loans were secured by three promissory notes, each of which petitioner Roxas signed twice – as president of petitioner corporation and in his personal capacity. For their failure to pay their loan obligations, respondent filed against both petitioners a complaint for sum of money. ISSUE(S): Whether or not petitioner Roxas should be jointly and severally liable. RULING: Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers, promising that they will pay to the order of the payee or any holder according to its tenor. Thus, even without the phrase “personal capacity,” petitioner Roxas will still be primarily liable as a joint and several debtors under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal.

76 | N E G O S e c s . 6 0 t o 6 9