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MICHAEL A. OSMEA, petitioner, vs. CITIBANK, N.A., ASSOCIATED BANK and FRANK TAN, respondents. DECISION CALLEJO, SR.

, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 49529 which affirmed in toto the Decision[2] of the Regional Trial Court of Makati City, Branch 38, in Civil Case No. 91-538. As culled from the records, the appeal at bench stemmed from the following factual backdrop: On February 22, 1991, the petitioner filed with the Regional Trial Court of Makati an action for damages against the respondents Citibank, N.A. and Associated Bank.[3] The case was docketed as Civil Case No. 91-538. The complaint materially alleged that, on or about August 25, 1989, the petitioner purchased from the Citibank Managers Check No. 20-015301 (the check for brevity) in the amount of P1,545,000 payable to respondent Frank Tan; the petitioner later received information that the aforesaid managers check was deposited with the respondent Associated Bank, Rosario Branch, to the account of a certain Julius Dizon under Savings Account No. 19877; the clearing and/or payment by the respondents of the check to an improper party and the absence of any indorsement by the payee thereof, respondent Frank Tan, is a clear violation of the respondents obligations under the Negotiable Instruments Law and standard banking practice; considering that the petitioners intended payee for the check, the respondent Frank Tan, did not receive the value thereof, the petitioner demanded from the respondents Citibank and the Associated Bank the payment or reimbursement of the value of the check; the respondents, however, obstinately refused to heed his repeated demands for payment and/or reimbursement of the amount of the check; hence, the petitioner was compelled to file this complaint praying for the restitution of the amount of the check, and for moral damages and attorneys fees. On June 17, 1991, the petitioner, with leave of court, filed an Amended Complaint[4] impleading Frank Tan as an additional defendant. The petitioner averred therein that the check was purchased by him as a demand loan to respondent Frank Tan. Since apparently respondent Frank Tan did not receive the proceeds of the check, the petitioner might have no right to collect from respondent Frank Tan and is consequently left with no recourse but to seek payment or reimbursement from either or both respondents Citibank and/or Associated Bank. In its answer to the amended complaint, the respondent Associated Bank alleged that the petitioner was not the real party-in-interest but respondent Frank Tan who was the payee of the check. The respondent also maintained that the check was deposited to the account of respondent Frank Tan, a.k.a. Julius Dizon, through its Ayala Head Office and was credited to the savings account of Julius Dizon; the Ayala office confirmed with the Rosario Branch that the account of Julius Dizon is also in reality that of respondent Frank Tan; it never committed any violation of its duties and responsibilities as the proceeds of the check went and was credited to respondent Frank Tan, a.k.a. Julius Dizon; the petitioners affirmative allegation of non-payment to the payee is self-serving; as such, the petitioners claim for damages is baseless, unfounded and without legal basis.
[5]

On the other hand, the respondent Citibank, in answer to the amended complaint,[6] alleged that the payment of the check was made by it in due course and in the exercise of its regular banking function. Since a managers check is normally purchased in favor of a third party, the identity of whom in most cases is unknown to the issuing bank, its only responsibility when paying the check was to examine the genuineness of the check. It had no way of ascertaining the genuineness of the signature of the payee respondent Frank Tan who was a total stranger to it. If at all, the petitioner had a cause of action only against the respondent Associated Bank which, as depository or collecting bank, was obliged to make sure that the check in question was properly endorsed by the payee. It is not expected of the respondent Citibank to ascertain the genuineness of the indorsement of the payee or even the lack of indorsement by him, most especially when the check was presented for payment with the respondent Associated Banks guaranteeing all prior indorsements or lack thereof. On March 16, 1992, the trial court declared Frank Tan in default for failure to file his answer.[7] On June 10, 1992, the pre-trial conference was concluded without the parties reaching an amicable settlement.[8] Hence, trial on the merits ensued. After evaluating the evidence adduced by the parties, the trial court resolved that the preponderance of evidence supports the claim of the petitioner as against respondent Frank Tan only but not against respondents Banks. Hence, on February 21, 1995, the trial court rendered judgment in favor of the petitioner and against respondent Frank Tan. The complaints against the respondents Banks were dismissed. The dispositive portion of the decision reads: WHEREFORE, judgment is hereby rendered as follows : 1. Ordering defendant Frank Tan to pay plaintiff Michael Osmea the amount of One Million Five Hundred Forty-Five Thousand (P1,545,000.00) Pesos, Philippine Currency, with interest thereon at 12% per annum from January 1990, date of extra-judicial demand until the full amount is paid; 2. Dismissing the complaint against defendants Citibank and Associated Bank; 3. Dismissing the counter-claims and the cross-claim of Citibank against Associated Bank for lack of merit. With costs against defendant Frank Tan.[9] The petitioner appealed the decision,[10] while respondent Frank Tan did not. On November 26, 1999, the appellate court rendered judgment affirming in toto the decision of the trial court. Aggrieved, the petitioner assailed the decision in his petition at bar. The petitioner contends that: I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND ASSOCIATED BANK LIABLE TO PETITIONER FOR THE ENCASHMENT OF CITIBANK MANAGERS CHECK NO. 20015301 BY JULIUS DIZON.

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

III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN ONLY TO ASSOCIATED BANK AND WAS NOT BINDING ON PETITIONER.[11] The petition is denied. The petitioner asserts that the check was payable to the order of respondent Tan. However, the respondent Associated Bank ordered the check to be deposited to the account of one Julius Dizon, although the check was not endorsed by respondent Tan. As Julius Dizon was not a holder of the check in due course, he could not validly negotiate the check. The latter was not even a transferee in due course because respondent Tan, the payee, did not endorse the said check. The position of the respondent Bank is akin to that of a bank accepting a check for deposit wherein the signature of the payee or endorsee has been forged. The contention of the petitioner does not hold water. The fact of the matter is that the check was endorsed by Julius Dizon and was deposited and credited to Savings Account No. 19877 with the respondent Associated Bank. But the evidence on record shows that the said account was in the name of Frank Tan Guan Leng, which is the Chinese name of the respondent Frank Tan, who also uses the alias Julius Dizon. As correctly ruled by the Court of Appeals: On the other hand, Associated satisfactorily proved that Tan is using and is also known by his alias of Julius Dizon. He signed the Agreement On Bills Purchased (Exh. 1) and Continuing Suretyship Agreement (Exh. 2) both acknowledged on January 16, 1989, where his full name is stated to be FRANK Tan Guan Leng (aka JULIUS DIZON). Exh. 1 also refers to his Account No. SA#19877, the very same account to which the P1,545,000.00 from the managers check was deposited. Osmea countered that such use of an alias is illegal. That is but an irrelevant casuistry that does not detract from the fact that the payee Tan as Julius Dizon has encashed and deposited the P1,545,000.00.[12] The respondent Associated Bank presented preponderant evidence to support its assertion that respondent Tan, the payee of the check, did receive the proceeds of the check. It adduced evidence that Julius Dizon and Frank Tan are one and the same person. Respondent Tan was a regular and trusted client or depositor of the respondent Associated Bank in its branch at Rosario, Binondo, Manila. As such, respondent Tan was allowed to maintain two (2) savings accounts therein.[13] The first is Savings Account No. 20161-3 under his name Frank Tan.[14] The other is Savings Account No. 19877 under his assumed Filipino name Julius Dizon, [15] to which account the check was deposited in the instant case. Both witnesses for the respondent Associated Bank, Oscar Luna (signature verifier) and Luz Lagrimas (new accounts clerk), testified that respondent Tan was using the alias Julius Dizon, and that both names referred to one and the same person, as Frank Tan himself regularly transacted business at the bank under both names.[16] This is also evidenced by the Agreement on Bills Purchased[17] and the Continuing Suretyship Agreement[18] executed between Frank Tan and the respondent Associated Bank on January 16, 1989. Frank Tans name appears in said document as FRANK TAN GUAN LENG (a.k.a. JULIUS DIZON).[19] The same documentary evidence also made reference to Savings Account No. 19877,[20] the very same account to which the check was deposited and the entireP1,545,000 was credited. Additionally, Citibank Check No. 075713[21] which was presented by the petitioner to prove one of the loans previously extended to respondent Tan showed that the endorsement of

respondent Tan at the dorsal side thereof[22] is strikingly similar to the signatures of Frank Tan appearing in said agreements. By seeking to recover the loan from respondent Tan, the petitioner admitted that respondent Tan received the amount of the check. This apprehension was not without any basis at all, for after the petitioner attempted to communicate with respondent Tan on January or February 1990, demanding payment for the loan, respondent Tan became elusive of the petitioner.[23] As a matter of fact, respondent Tan did not file his answer to the amended complaint and was never seen or heard of by the petitioner.[24] Besides, if it were really a fact that respondent Tan did not receive the proceeds of the check, he could himself have initiated the instant complaint against respondents Banks, or in the remotest possibility, joined the petitioner in pursuing the instant claim. The petitioner initially sought to recover from the respondents Banks the amount of P1,545,000 corresponding to the loan obtained by respondent Tan from him, obviously because respondent Tan had no intent to pay the amount. The petitioner alleges that the respondents Banks were negligent in paying the amount to a certain Julius Dizon, in relation to the pertinent provisions of the Negotiable Instruments Law, without the proper indorsement of the payee, Frank Tan. The petitioner cites the ruling of the Court in Associated Bank v. Court of Appeals,[25] in which we outlined the respective responsibilities and liabilities of a drawee bank, such as the respondent Citibank, and a collecting bank, such as the defendant Associated Bank, in the event that payment of a check to a person not designated as the payee, or who is not a holder in due course, had been made. However, the ruling of the Court therein does not apply to the present case for, as has been amply demonstrated, the petitioner failed to establish that the proceeds of the check was indeed wrongfully paid by the respondents Banks to a person other than the intended payee. In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case.[26] Moreover, the chain of events following the purported delivery of the check to respondent Tan renders even more dubious the petitioners claim that respondent Tan had not received the proceeds of the check. Thus, the petitioner never bothered to find out from the said respondent whether the latter received the check from his messenger. And if it were to be supposed that respondent Tan did not receive the check, given that his need for the money was urgent, it strains credulity that respondent Tan never even made an effort to get in touch with the petitioner to inform the latter that he did not receive the check as agreed upon, and to inquire why the check had not been delivered to him. The petitioner and respondent Tan saw each other during social gatherings but they never took the chance to discuss details on the loan or the check.[27] Their actuations are not those to be usually expected of friends of 15 years who, as the petitioner would want to impress upon this Court, were transacting business on the basis of confidence.[28] In fact, the first time that the petitioner attempted to communicate with respondent Tan was on January or February 1990, almost five or six months after the expected delivery of the check, for the purpose of demanding payment for the loan. And it was only on that occasion that respondent Tan, as the petitioner insinuates, informed him that he (Frank Tan) had not received the proceeds of the check and refused to pay his loan.[29] All told, the petitioners allegation that respondent Tan did not receive the proceeds of the check[30] is belied by the evidence on record and attendant circumstances.

Conversely, the records would disclose that even the petitioner himself had misgivings about the truthfulness of his allegation that respondent Tan did not receive the amount of the check. This is made implicit by respondent Tans being made a party-defendant to the case when the petitioner filed his amended complaint. In his memorandum in the case below, the petitioner averred inter alia that: The amount of P1,545,000.00 is sought to be recovered from: 1. Frank Tan for his failure to pay the loan extended by plaintiff; and 2. Associated Bank and Citibank for having accepted for deposit and/or paid the Citibank managers check despite the absence of any signature/endorsement by the named payee, Frank Tan. The claim of the petitioner that respondent Tans use of an alias is illegal does not detract a whit from the fact that respondent Tan had been credited by the respondent Associated Bank for the amount of the check. Respondent Tan did not appeal the decision of the RTC. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision dated November 26, 1999 of the Court of Appeals in CA-G.R. CV No. 49529 is hereby AFFIRMED. Costs against the petitioner. SO ORDERED.

[G.R. No. 120639. September 25, 1998]

BPI EXPRESS CARD CORPORATION, petitioner, vs. COURT OF APPEALS and RICARDO J. MARASIGAN, respondents. DECISION KAPUNAN, J.: The question before this Court is whether private respondent can recover moral damages arising from the cancellation of his credit card by petitioner credit card corporation. wit: The facts of the case are as stated in the decision of the respondent court,[1] to The case arose from the dishonor of the credit card of the plaintiff Atty. Ricardo J. Marasigan by Cafe Adriatico, a business establishment accredited with the defendant-appellant BPI Express Card Corporation (BECC for brevity) on December 8, 1989 when the plaintiff entertained some guests thereat.

The records of this case show that plaintiff, who is a lawyer by profession was a complimentary member of BECC from February 1988 to February 1989 and was issued Credit Card No. 100-012-5534 with a credit limit of P3,000.00 and with a monthly billing every 27th of the month (Exh. N), subject to the terms and conditions stipulated in the contract (Exh. 1b). His membership was renewed for another year or until February 1990 and the credit limit was increased to P5,000.00 (Exh. A). The plaintiff oftentimes exceeded his credit limits (Exhs. I, I-1 to I-12) but this was never taken against him by the defendant and even his mode of paying his monthly bills in check was tolerated. Their contractual relations went on smoothly until his statement of account for October, 1989 amounting to P8,987.84 was not paid in due time. The plaintiff admitted having inadvertently failed to pay his account for the said month because he was in Quezon province attending to some professional and personal commitments. He was informed by his secretary that defendant was demanding immediate payment of his outstanding account, was requiring him to issue a check for P15,000.00 which would include his future bills, and was threatening to suspend his credit card. Plaintiff issued Far East Bank and Trust Co. Check No. 494675 in the amount of P15,000.00, postdated December 15, 1989 which was received on November 23, 1989 by Tess Lorenzo, an employee of the defendant (Exhs. J and J-1), who in turn gave the said check to Jeng Angeles, a co-employee who handles the account of the plaintiff. The check remained in the custody of Jeng Angeles. Mr. Roberto Maniquiz, head of the collection department of defendant was formally informed of the postdated check about a week later. On November 28, 1989, defendant served plaintiff a letter by ordinary mail informing him of the temporary suspension of the privileges of his credit card and the inclusion of his account number in their Caution List. He was also told to refrain from further use of his credit card to avoid any inconvenience/embarrassment and that unless he settles his outstanding account with the defendant within 5 days from receipt of the letter, his membership will be permanently cancelled (Exh. 3). There is no showing that the plaintiff received this letter before December 8, 1989. Confident that he had settled his account with the issuance of the postdated check, plaintiff invited some guests on December 8, 1989 and entertained them at Caf Adriatico. When he presented his credit card to Caf Adriatico for the bill amounting to P735.32, said card was dishonored. One of his guests, Mary Ellen Ringler, paid the bill by using her own credit card, a Unibankard (Exhs. M, M-1 and M-2). In a letter addressed to the defendant dated December 12, 1989, plaintiff requested that he be sent the exact billing due him as of December 15, 1989, to withhold the deposit of his postdated check and that said check be returned to him because he had already instructed his bank to stop the payment thereof as the defendant violated their agreement that the plaintiff issue the check to the defendant to cover his account amounting to only P8,987.84 on the condition that the defendant will not suspend the effectivity of the card (Exh. D). A letter dated December 16, 1989 was sent by the plaintiff to the manager of FEBTC, Ramada Branch, Manila requesting the bank to stop the payment of the check (Exhs. E, E-1). No reply was received by plaintiff from the defendant to his letter dated December 12, 1989. Plaintiff sent defendant another letter dated March 12, 1990 reminding the latter that he had long rescinded and cancelled whatever arrangement he entered into with defendant and requesting for his correct billing, less the improper charges and penalties, and for an

explanation within five (5) days from receipt thereof why his card was dishonored on December 8, 1989 despite assurance to the contrary by defendant's personnel-in-charge, otherwise the necessary court action shall be filed to hold defendant responsible for the humiliation and embarrassment suffered by him (Exh. F). Plaintiff alleged further that after a few days, a certain Atty. Albano, representing himself to be working with office of Atty. Lopez, called him inquiring as to how the matter can be threshed out extrajudicially but the latter said that such is a serious matter which cannot be discussed over the phone. The defendant served its final demand to the plaintiff dated March 21, 1990 requiring him to pay in full his overdue account, including stipulated fees and charges, within 5 days from receipt thereof or face court action also to replace the postdated check with cash within the same period or face criminal suit for violation of the Bouncing Check Law (Exh. G/Exh. 13). The plaintiff, in a reply letter dated April 5, 1990 (Exh. H), demanded defendant's compliance with his request in his first letter dated March 12, 1990 within three (3) days from receipt, otherwise the plaintiff will file a case against them, x x x.[2] Thus, on May 7, 1990 private respondent filed a complaint for damages against petitioner before the Regional Trial Court of Makati, Branch 150, docketed as Civil Case No. 90-1174. After trial, the trial court ruled for private respondent, finding that herein petitioner abused its right in contravention of Article 19 of the Civil Code.[3] The dispositive portion of the decision reads: Wherefore, judgment is hereby rendered ordering the defendant to pay plaintiff the following: 1. P100,000.00 as moral damages; 2. P50,000.00 as exemplary damages; and 3. P20,000.00 by way of attorney's fees. On the other hand, plaintiff is ordered to pay defendant its outstanding obligation in the amount of P14,439.41, amount due as of December 15, 1989.[4] The trial court's ruling was based on its findings and conclusions, to wit: There is no question that plaintiff had been in default in the payment of his billings for more than two months, prompting defendant to call him and reminded him of his obligation. Unable to personally talk with him, this Court is convinced that somehow one or another employee of defendant called him up more than once. However, while it is true that, as indicated in the terms and conditions of the application for BPI credit card, upon failure of the cardholder to pay his outstanding obligation for more than thirty (30) days, the defendant can automatically suspend or cancel the credit card, that reserved right should not have been abused, as it was in fact abused, in plaintiff's case. What is more peculiar here is that there have been admitted communications between plaintiff and defendant prior to the suspension or cancellation of plaintiff's credit card and his inclusion in the caution list. However, nowhere in any of these communications was there ever a hint given to plaintiff that his card had already been suspended or

cancelled. In fact, the Court observed that while defendant was trying its best to persuade plaintiff to update its account and pay its obligation, it had already taken steps to suspend/cancel plaintiff's card and include him in the caution list. While the Court admires defendant's diplomacy in dealing with its clients, it cannot help but frown upon the backhanded way defendant dealt with plaintiff's case. For despite Tess Lorenzo's denial, there is reason to believe that plaintiff was indeed assured by defendant of the continued honoring of his credit card so long as he pays his obligation of P15,000.00. Worst, upon receipt of the postdated check, defendant kept the same until a few days before it became due and said check was presented to the head of the collection department, Mr. Maniquiz, to take steps thereon, resulting to the embarrassing situation plaintiff found himself in on December 8, 1989. Moreover, Mr. Maniquiz himself admitted that his request for plaintiff to replace the check with cash was not because it was a postdated check but merely to tally the payment with the account due. Likewise, the Court is not persuaded by the sweeping denials made by Tess Lorenzo and her claim that her only participation was to receive the subject check. Her immediate superior, Mr. Maniquiz testified that he had instructed Lorenzo to communicate with plaintiff once or twice to request the latter to replace the questioned check with cash, thus giving support to the testimony of plaintiff's witness, Dolores Quizon, that it was one Tess Lorenzo who she had talked over the phone regarding plaintiff's account and plaintiff's own statement that it was this woman who assured him that his card has not yet been and will not be cancelled/suspended if he would pay defendant the sum of P15,000.00. Now, on the issue of whether or not upon receipt of the subject check, defendant had agreed that the card shall remain effective, the Court takes note of the following: 1. An employee of defendant corporation unconditionally accepted the subject check upon its delivery, despite its being a postdated one; and the amount did not tally with plaintiff's obligation; 2. Defendant did not deny nor controvert plaintiff's claim that all his payments were made in checks; 3. Defendant's main witness, Mr. Maniquiz, categorically stated that the request for plaintiff to replace his postdated check with cash was merely for the purpose of tallying plaintiff's outstanding obligation with his payment and not to question the postdated check; 4. That the card was suspended almost a week after receipt of the postdated check; 5. That despite the many instances that defendant could have informed plaintiff over the phone of the cancellation or suspension of his credit card, it did not do so, which could have prevented the incident of December 8, 1989, the notice allegedly sent thru ordinary mail is not only unreliable but takes a long time. Such action as suspension of credit card must be immediately relayed to the person affected so as to avoid embarrassing situations.

6. And that the postdated check was deposited on December 20, 1989. In view of the foregoing observations, it is needless to say that there was indeed an arrangement between plaintiff and the defendant, as can be inferred from the acts of the defendant's employees, that the subject credit card is still good and could still be used by the plaintiff as it would be honored by the duly accredited establishment of defendant.[5] Not satisfied with the Regional Trial Court's decision, petitioner appealed to the Court of Appeals, which, in a decision promulgated on March 9, 1995 ruled in its dispositive portion: WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the defendant-appellant shall pay the plaintiff-appellee the following: P50,000.00 as moral damages; P25,000.00 as exemplary damages; and P10,000.00 by way of attorney's fees. SO ORDERED.[6] Hence, the present petition on the following assignment of errors: I THE LOWER COURT ERRED IN DECLARING THAT THERE WAS INDEED AN AGREEMENT OR ARRANGEMENT ENTERED INTO BETWEEN THE PARTIES WHEREIN THE DEFENDANT REQUIRED THE PLAINTIFF TO ISSUE A POSTDATED CHECK IN ITS FAVOR IN THE AMOUNT OF P15,000.00 AS PAYMENT FOR HIS OVERDUE ACCOUNTS, WITH THE CONDITION THAT THE PLAINTIFF'S CREDIT CARD WILL NOT BE SUSPENDED OR CANCELLED. II THE LOWER COURT ERRED IN HOLDING DEFENDANT LIABLE FOR DAMAGES AND ATTORNEY'S FEES ARISING OUT FROM THE DISHONOR OF THE PLAINTIFF'S CREDIT CARD.[7] We find the petition meritorious. The first issue to be resolved is whether petitioner had the right to suspend the credit card of the private respondent. Under the terms and conditions of the credit card, signed by the private respondent, any card with outstanding balances after thirty (30) days from original billing/statement shall automatically be suspended, thus: PAYMENT OF CHARGES - BECC shall furnish the Cardholder a monthly statement of account made through the use of the CARD and the Cardholder agrees that all charges made through the use of the CARD shall be paid by the Cardholder on or before the last day for payments, which is twenty (20) days from the date of the said statement of account, and such payment due date may be changed to an earlier date if the Cardholder's account is considered overdue and/or with balances in excess of the approved credit limit; or to such other date as may be deemed proper by the CARD issuer with notice to the Cardholder on the same monthly statement of account. If the last day for payment falls on a Saturday, Sunday or Holiday, the last day for payment automatically

becomes the last working day prior to said payment date. However, notwithstanding the absence or lack of proof of service of the statement of charges to the Cardholder, the latter shall pay any or all charges made through the use of the CARD within thirty (30) days from the date or dates thereof. Failure of Cardholder to pay any and all charges made through the CARD within the payment period as stated in the statement of charges or within thirty (30) days from actual date or dates whichever occur earlier, shall render him in default without the necessity of demand from BECC, which the Cardholder expressly waives. These charges or balance thereof remaining unpaid after the payment due date indicated on the monthly statement of account shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% of the amount due for every month or a fraction of a month's delay. PROVIDED, that if there occurs any change on the prevailing market rates. BECC shall have the option to adjust the rate of interest and/or penalty fee due on the outstanding obligation with prior notice to the Cardholder. xxx xxx xxx

Any CARD with outstanding balances unpaid after thirty (30) days from original billing/statement date shall automatically be suspended, and those with accounts unpaid after sixty (60) days from said original billing/statement date shall automatically be cancelled, without prejudice to BECC's right to suspend or cancel any CARD any time and for whatever reason. In case of default in his obligation as provided for in the preceding paragraph, Cardholder shall surrender his CARD to BECC and shall in addition to the interest and penalty charges aforementioned, pay the following liquidated damages and/or fees (a) a collection fee of 25% of the amount due if the account is referred to a collection agency or attorney; (b) a service fee of P100 for every dishonored check issued by the Cardholder in payment of his account, with prejudice, however, to BECC's right of considering Cardholder's obligation unpaid, cable cost for demanding payment or advising cancellation of membership shall also be for Cardholder's account; and (c) a final fee equivalent to 25% of the unpaid balance, exclusive of litigation expenses and judicial costs, if the payment of the account is enforced through court action.[8] The aforequoted provision of the credit card cannot be any clearer. By his own admission, private respondent made no payment within thirty days for his original billing/statement dated 27 September 1989. Neither did he make payment for his original billing/statement dated 27 October 1989. Consequently, as early as 28 October 1989, thirty days from the non-payment of his billing dated 27 September 1989, petitioner corporation could automatically suspend his credit card. The next issue is whether prior to the suspension of private respondent's credit card on 28 November 1989, the parties entered into an agreement whereby the card could still be used and would be duly honored by duly accredited establisments. We agree with the findings of the respondent court, that there was an arrangement between the parties, wherein the petitioner required the private respondent to issue a check worth P15,000 as payment for the latter's billings. However, we find that the private respondent was not able to comply with his obligation. As the testimony of private respondent himself bears out, the agreement was for the immediate payment of the outstanding account:

Q A Q A Q A Q A Q A Q A Q

In said statement of account that you are supposed to pay the P8,974.84 the charge of interest and penalties, did you note that? Yes, sir. I noted the date. When? When I returned from the Quezon province, sir. When? I think November 22, sir. So that before you used again the credit card you were not able to pay immediately this P8,987.84 in cash? I paid P15,000.00, sir. My question Mr. Witness is, did you pay this P8,987.84 in charge of interest and penalties immediately in cash? In cash no, but in check, sir. You said that you noted the word "immediately" in bold letters in your statement of account, why did you not pay immediately? Because I received that late, sir. Yes, on November 22 when you received from the secretary of the defendant telling you to pay the principal amount of P8,987.84, why did you not pay? There was a communication between me and the defendant, I was required to pay P8,000.00 but I paid in check for P15,000.00, sir. Do you have any evidence to show that the defendant required you to pay in check for P15,000.00? Yes, sir. Where is it? It was by telecommunication, sir. So there is no written communication between you and the defendant? There was none, sir. There is no written agreement which says that P8,987.84 should be paid for P15,000.00 in check, there is none? Yes, no written agreement, sir. And you as a lawyer you know that a check is not considered as cash specially when it is postdated sent to the defendant? That is correct, sir.

As agreed upon by the parties, on the following day, private respondent did issue a check for P15,000. However, the check was postdated 15 December 1989. Settled is the doctrine that a check is only a substitute for money and not money, the delivery of such an instrument does not, by itself operate as payment.[9] This is especially true in the case of a postdated check. Thus, the issuance by the private respondent of the postdated check was not effective payment. It did not comply with his obligation under the arrangement with Miss Lorenzo. Petitioner corporation was therefore justified in suspending his credit card. Finally, we find no legal and factual basis for private respondent's assertion that in canceling the credit card of the private respondent, petitioner abused its right under the terms and conditions of the contract. To find the existence of an abuse of right under Article 19 the following elements must be present: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring another.[10] Time and again this Court has held that good faith is presumed and the burden of proving bad faith is on the party alleging it.[11] This private respondent failed to do. In fact, the action of the petitioner belies the existence of bad faith. As early as 28 October 1989, petitioner could have suspended private respondent's card outright. Instead, petitioner allowed private respondent to use his card for several weeks. Petitioner had even notified private respondent of the impending suspension of his credit card and made special accommodations for him for settling his outstanding account. As such, petitioner cannot be said to have capriciously and arbitrarily canceled the private respondent's credit card. We do not dispute the findings of the lower court that private respondent suffered damages as a result of the cancellation of his credit card. However, there is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm which results from the injury; and damages are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty. In such cases, the consequences must be borne by the injured person alone, the law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. These situations are often called damnum absque injuria.[12] In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying basis for the award of tort damages is the premise that an individual was injured in contemplation of law. Thus, there must first be a breach of some duty and the imposition of liability for that breach before damages may be awarded;[13] and the breach of such duty should be the proximate cause of the injury. We therefore disagree with the ruling of the respondent court that the dishonor of the credit card of the private respondent by Caf Adriatico is attributable to petitioner for its willful or gross neglect to inform the private respondent of the suspension of his credit card, the unfortunate consequence of which brought social humiliation and embarrassment to the private respondent.[14] It was petitioner's failure to settle his obligation which caused the suspension of his credit card and subsequent dishonor at Caf Adriatico. He can not now pass

A Q A Q A Q A Q A Q A

Clearly, the purpose of the arrangement between the parties on November 22, 1989, was for the immediate payment of the private respondent's outstanding account, in order that his credit card would not be suspended.

the blame to the petitioner for not notifying him of the suspension of his card. As quoted earlier, the application contained the stipulation that the petitioner could automatically suspend a card whose billing has not been paid for more than thirty days. Nowhere is it stated in the terms and conditions of the application that there is a need of notice before suspension may be effected as private respondent claims.[15] This notwithstanding, on November 28, 1989, the day of the suspension of private respondent's card, petitioner sent a letter by ordinary mail notifying private respondent that his card had been temporarily suspended. Under the Rules on Evidence, there is a disputable presumption that letters duly directed and mailed were received on the regular course of mail.[16] Aside from the private respondent's bare denial, he failed to present evidence to rebut the presumption that he received said notice. In fact upon cross examination, private respondent admitted that he did received the letter notifying him of the cancellation: Q A Q A Q A Now you were saying that there was a first letter sent to you by the defendant? Your letter, sir. Was that the first letter that you received? Yes, sir. Is it that there was a communication first between you and the defendant? There was none, sir. I received a cancellation notice but that was after November 27.[17]

WHEREFORE, the decision appealed from is hereby reversed and set aside and another one entered for the plaintiff ordering the defendant-appellee Roman Catholic Bishop of Malolos, Inc. to accept the balance of P124,000.00 being paid by plaintiff-appellant and thereafter to execute in favor of Robes-Francisco Realty Corporation a registerable Deed of Absolute Sale over 20,655 square meters portion of that parcel of land situated in San Jose del Monte, Bulacan described in OCT No. 575 (now Transfer Certificates of Title Nos. T-169493, 169494,169495 and 169496) of the Register of Deeds of Bulacan. In case of refusal of the defendant to execute the Deed of Final Sale, the clerk of court is directed to execute the said document. Without pronouncement as to damages and attorney's fees. Costs against the defendant-appellee. 3 The case at bar arose from a complaint filed by the private respondent, then plaintiff, against the petitioner, then defendant, in the Court of First Instance (now Regional Trial Court) of Bulacan, at Sta. Maria, Bulacan, 4 for specific performance with damages, based on a contract 5 executed on July 7, 1971. The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of the 30,655 sq.m. total area, of a parcel of land covered by Original Certificate of Title No. 575 of the Province of Bulacan, issued and registered in the name of the petitioner which it sold to the private respondent for and in consideration of P123,930.00. The crux of the instant controversy lies in the compliance or non-compliance by the private respondent with the provision for payment to the petitioner of the principal balance of P100,000.00 and the accrued interest of P24,000.00 within the grace period.

As it was private respondent's own negligence which was the proximate cause of his embarrassing and humiliating experience, we find the award of damages by the respondent court clearly unjustified. We take note of the fact that private respondent has not yet paid his outstanding account with petitioner. IN VIEW OF THE FOREGOING, the decision of the Court of Appeals ordering petitioner to pay private respondent P100,000.00 as moral damages, P50,000.00 as exemplary damages and P20,000.00 as attorney's fees, is SET ASIDE. Private respondent is DIRECTED to pay his outstanding obligation with the petitioner in the amount of P14,439.41. SO ORDERED. SECOND DIVISION [G.R. No. 72110. November 16, 1990.]

A chronological narration of the antecedent facts is as follows: On July 7, 1971, the subject contract over the land in question was executed between the petitioner as vendor and the private respondent through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to be paid within four (4) years from execution of the contract, that is, on or before July 7, 1975. The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the land in question in case the private respondent would fail to complete payment within the said period. On March 12, 1973, the private respondent, through its new president, Atty. Adalia Francisco, addressed a letter 6 to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished with a copy of the subject contract and the supporting documents. On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same Atty. Francisco wrote the petitioner a formal request 7 that her company be allowed to pay the principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment and the accrued interest of P24,000.00 to be paid immediately upon approval of the said request.

ROMAN CATHOLIC BISHOP OF MALOLOS, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, and ROBES-FRANCISCO REALTY AND DEVELOPMENT CORPORATION, respondents. SARMIENTO, J.: This is a petition for review on certiorari which seeks the reversal and setting aside of the decision 1 of the Court of Appeals, 2 the dispositive portion of which reads:

On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez, formally denied the said request of the private respondent, but granted the latter a grace period of five (5) days from the receipt of the denial 8 to pay the total balance of P124,000.00, otherwise, the provisions of the contract regarding cancellation, forfeiture, and reconveyance would be implemented. On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote 9 the counsel of the petitioner requesting an extension of 30 days from said date to fully settle its account. The counsel for the petitioner, Atty. Fernandez, received the said letter on the same day. Upon consultation with the petitioner in Malolos, Bulacan, Atty. Fernandez, as instructed, wrote the private respondent a letter 10 dated August 7, 1975 informing the latter of the denial of the request for an extension of the grace period. Consequently, Atty. Francisco, the private respondent's president, wrote a letter 11 dated August 22, 1975, directly addressed to the petitioner, protesting the alleged refusal of the latter to accept tender of payment purportedly made by the former on August 5, 1975, the last day of the grace period. In the same letter of August 22, 1975, received on the following day by the petitioner, the private respondent demanded the execution of a deed of absolute sale over the land in question and after which it would pay its account in full, otherwise, judicial action would be resorted to. On August 27, 1975, the petitioner's counsel, Atty. Fernandez, wrote a reply 12 to the private respondent stating the refusal of his client to execute the deed of absolute sale due to its (private respondent's) failure to pay its full obligation. Moreover, the petitioner denied that the private respondent had made any tender of payment whatsoever within the grace period. In view of this alleged breach of contract, the petitioner cancelled the contract and considered all previous payments forfeited and the land as ipso facto reconveyed. From a perusal of the foregoing facts, we find that both the contending parties have conflicting versions on the main question of tender of payment. The trial court, in its ratiocination, preferred not to give credence to the evidence presented by the private respondent. According to the trial court: . . . What made Atty. Francisco suddenly decide to pay plaintiff's obligation on August 5, 1975, go to defendant's office at Malolos, and there tender her payment, when her request of August 4, 1975 had not yet been acted upon until August 7, 1975? If Atty. Francisco had decided to pay the obligation and had available funds for the purpose on August 5, 1975, then there would have been no need for her to write defendant on August 4, 1975 to request an extension of time. Indeed, Atty. Francisco's claim that she made a tender of payment on August 5, 1975 such alleged act, considered in relation to the circumstances both antecedent and subsequent thereto, being not in accord with the normal pattern of human conduct is not worthy of credence. 13 The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of the private respondent, who earlier testified that a certain Mila Policarpio accompanied her on August 5, 1975 to the office of the petitioner.

Another person, however, named Aurora Oracion, was presented to testify as the secretary-companion of Atty. Francisco on that same occasion. Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court the certified personal check allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof. Finally, the trial court found that the private respondent had insufficient funds available to fulfill the entire obligation considering that the latter, through its president, Atty. Francisco, only had a savings account deposit of P64,840.00, and although the latter had a money-market placement of P300,000.00, the same was to mature only after the expiration of the 5-day grace period. Based on the above considerations, the trial court rendered a decision in favor of the petitioner, the dispositive portion of which reads: WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares the subject contract cancelled and plaintiff's downpayment of P23,930.00 forfeited in favor of defendant, and hereby dismisses the complaint; and on the counterclaim, the Court orders plaintiff to pay defendant. (1) (2) (3) Attorney's fees of P10,000.00; Litigation expenses of P2,000.00; and Judicial costs.

Not satisfied with the said decision, the private respondent appealed to the respondent Intermediate Appellate Court (now Court of Appeals) assigning as reversible errors, among others, the findings of the trial court that the available funds of the private respondent were insufficient and that the latter did not effect a valid tender of payment and consignation. The respondent court, in reversing the decision of the trial court, essentially relies on the following findings: . . . We are convinced from the testimony of Atty. Adalia Francisco and her witnesses that in behalf of the plaintiff-appellant they have a total available sum of P364,840.00 at her and at the plaintiff's disposal on or before August 4, 1975 to answer for the obligation of the plaintiff-appellant. It was not correct for the trial court to conclude that the plaintiff-appellant had only about P64,840.00 in savings deposit on or before August 5, 1975, a sum not enough to pay the outstanding account of P124,000.00. The plaintiff-appellant, through Atty. Francisco proved and the trial court even acknowledged that Atty. Adalia Francisco had about P300,000.00 in money market placement. The error of the trial court has in concluding that the money market placement of P300,000.00 was out of reach of Atty. Francisco. But as testified to by Mr. Catalino Estrella, a representative of the Insular Bank of Asia and America, Atty. Francisco could withdraw anytime her money market placement and place it at her disposal, thus proving her financial capability of meeting more than the whole of P124,000.00 then due per contract. This situation, We believe, proves the truth that Atty. Francisco apprehensive that her request for a 30-day grace period would be denied, she tendered payment on

August 4, 1975 which offer defendant through its representative and counsel refused to receive. . .15 (Emphasis supplied) In other words, the respondent court, finding that the private respondent had sufficient available funds, ipso facto concluded that the latter had tendered payment. Is such conclusion warranted by the facts proven? The petitioner submits that it is not. Hence, this petition. 16 The petitioner presents the following issues for resolution: xxx xxx xxx

remains to be proven by independent and credible evidence. Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. "A proof that an act could have been done is no proof that it was actually done." The respondent court was therefore in error to have concluded from the sheer proof of sufficient available funds on the part of the private respondent to meet more than the total obligation within the grace period, the alleged truth of tender of payment. The same is a classic case of non-sequitur. On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important findings of fact made by the trial court which we have earlier mentioned and which as a rule, are entitled to great weight on appeal and should be accorded full consideration and respect and should not be disturbed unless for strong and cogent reasons. 18 While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at variance with those of the trial court, 19 or when the inference of the Court of Appeals from its findings of fact is manifestly mistaken, 20 the Court has to review the evidence in order to arrive at the correct findings based on the record. Apropos the second issue raised, although admittedly the documents for the deed of absolute sale had not been prepared, the subject contract clearly provides that the full payment by the private respondent is an a priori condition for the execution of the said documents by the petitioner. That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause the execution of a Deed of Absolute Sale in favor of the VENDEE. 21 The private respondent is therefore in estoppel to claim otherwise as the latter did in the testimony in cross-examination of its president, Atty. Francisco, which reads: Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final deed of sale before you would given (sic) the personal certified check in payment of your balance, is that correct? A xxx Yes, sir. 22 xxx xxx

A. Is a finding that private respondent had sufficient available funds on or before the grace period for the payment of its obligation proof that it (private respondent) did tender of (sic) payment for its said obligation within said period? xxx xxx xxx

B. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in favor of the private respondent (as vendee) before the latter has actually paid the complete consideration of the sale where the contract between and executed by the parties stipulates "That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause the execution of a Deed of Absolute Sale in favor of the VENDEE." xxx xxx xxx.

C. Is an offer of a check a valid tender of payment of an obligation under a contract which stipulates that the consideration of the sale is in Philippine Currency? 17 We find the petition impressed with merit. With respect to the first issue, we agree with the petitioner that a finding that the private respondent had sufficient available funds on or before the grace period for the payment of its obligation does not constitute proof of tender of payment by the latter for its obligation within the said period. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor avails himself of such funds to settle his outstanding account

Art. 1159 of the Civil Code of the Philippines provides that "obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." And unless the stipulations in said contract are contrary to law, morals, good customs, public order, or public policy, the same are binding as between the parties.23 What the private respondent should have done if it was indeed desirous of complying with its obligations would have been to pay the petitioner within the grace period and obtain a receipt of such payment duly issued by the latter.

Thereafter, or, allowing a reasonable time, the private respondent could have demanded from the petitioner the execution of the necessary documents. In case the petitioner refused, the private respondent could have had always resorted to judicial action for the legitimate enforcement of its right. For the failure of the private respondent to undertake this more judicious course of action, it alone shall suffer the consequences. With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding issues, the case of the private respondent still can not succeed in view of the fact that the latter used a certified personal check which is not legal tender nor the currency stipulated, and therefore, can not constitute valid tender of payment. The first paragraph of Art. 1249 of the Civil Code provides that "the payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The Court en banc in the recent case of Philippine Airlines v. Court of Appeals, 24 G.R. No. L-49188, stated thus: Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Hence, where the tender of payment by the private respondent was not valid for failure to comply with the requisite payment in legal tender or currency stipulated within the grace period and as such, was validly refused receipt by the petitioner, the subsequent consignation did not operate to discharge the former from its obligation to the latter. In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject contract, did validly order therefore the cancellation of the said contract, the forfeiture of the previous payment, and the reconveyance ipso facto of the land in question. WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the respondent court promulgated on April 25, 1985 is hereby SET ASIDE and ANNULLED and the DECISION of the trial court dated May 25, 1981 is hereby REINSTATED. Costs against the private respondent.

DECISION PANGANIBAN, J.: Novation cannot be presumed. It must be clearly shown either by the express assent of the parties or by the complete incompatibility between the old and the new agreements. Petitioner herein fails to show either requirement convincingly; hence, the summary judgment holding him liable as a joint and solidary debtor stands.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the November 26, 2001 Decision[2] and the June 26, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 60521. The appellate court disposed as follows: UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it pertains to [Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to the modification that the award for attorneys fees and cost of suit is DELETED. The portion of the judgment that pertains to x x x Eduardo de Jesus is SET ASIDE and VACATED. Accordingly, the case against x x x Eduardo de Jesus isREMANDED to the court of origin for purposes of receiving ex parte [Respondent] Dionisio Llamas evidence against x x x Eduardo de Jesus.[4] The challenged Resolution, on the other hand, denied petitioners Motion for Reconsideration.

The Antecedents

The antecedents of the case are narrated by the CA as follows: This case started out as a complaint for sum of money and damages by x x x [Respondent] Dionisio Llamas against x x x [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from [respondent]; that, on the same day, [they] executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month; that the loan has long been overdue and, despite repeated demands, [petitioner and de Jesus] have failed and refused to pay it; and that, by reason of the[ir] unjustified refusal, [respondent] was compelled to engage the services of counsel to whom he agreed to pay 25% of the sum to be recovered from [petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed to the complaint were the promissory note abovementioned and a demand letter, dated 02 May 1997, by [respondent] addressed to [petitioner and de Jesus].

[G.R. No. 154127. December 8, 2003]

ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent.

Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no liability under the promissory note because he signed it merely as an accommodation party for x x x de Jesus; and, alternatively, that he is relieved from any liability arising from the note inasmuch as the loan had been paid by x x x de Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check and [respondents] acceptance thereof novated or superseded the note. [Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting that the loan remained unpaid for the reason that the check issued by x x x de Jesus bounced, and that [Petitioner] Garcias answer was not even accompanied by a certificate of non-forum shopping. Annexed to the reply were the face of the check and the reverse side thereof. For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed P400,000.00 loan, he received only P360,000.00, the P40,000.00 having been advance interest thereon for two months, that is, for January and February 1997; that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was made when [respondents] daughter, one Nits LlamasQuijencio, received from the Central Police District Command at Bicutan, Taguig, Metro Manila (where x x x de Jesus worked), the sum of P40,000.00, representing the peso equivalent of his accumulated leave credits, another P40,000.00 as advance interest, and still another P40,000.00 as interest for the months of March and April 1997; that he had difficulty in paying the loan and had asked [respondent] for an extension of time; that [respondent] acted in bad faith in instituting the case, [respondent] having agreed to accept the benefits he (de Jesus) would receive for his retirement, but [respondent] nonetheless filed the instant case while his retirement was being processed; and that, in defense of his rights, he agreed to pay his counsel P20,000.00 [as] attorneys fees, plus P1,000.00 for every court appearance. During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did they file any pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested that he would no [longer] present evidence. Given this development, the trial court gave [respondent] permission to present his evidence ex parte against x x x de Jesus; and, as regards [Petitioner] Garcia, the trial court directed [respondent] to file a motion for judgment on the pleadings, and for [Petitioner] Garcia to file his comment or opposition thereto. Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to present his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation submitting his defense to a judgment on the pleadings. Subsequently, [respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the pleadings, withdrawing in the process his previous motion. Thereunder, he asserted that [petitioners and de Jesus] solidary liability under the promissory note cannot be any clearer, and that the check issued by de Jesus did not discharge the loan since the check bounced.[5] On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as follows:

WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of [respondent] and against [petitioner and De Jesus], who are hereby ordered to pay, jointly and severally, the [respondent] the following sums, to wit: 1) P400,000.00 representing the principal amount plus 5% interest thereon per month from January 23, 1997 until the same shall have been fully paid, less the amount of P120,000.00 representing interests already paid by x x x de Jesus; 2) P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each day of [c]ourt appearance, and; 3) Cost of this suit.[6]

Ruling of the Court of Appeals

The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De Jesus. According to the appellate court, his Answer raised genuinely contentious issues. Moreover, he was still required to present his evidence ex parte. Thus, respondent was not ipso facto entitled to the RTC judgment, even though De Jesus had been declared in default. The case against the latter was therefore remanded by the CA to the trial court for the ex parte reception of the formers evidence. As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed to raise even a single genuine issue regarding any material fact. The appellate court ruled that no novation -- express or implied -- had taken place when respondent accepted the check from De Jesus. According to the CA, the check was issued precisely to pay for the loan that was covered by the promissory note jointly and severally undertaken by petitioner and De Jesus. Respondents acceptance of the check did not serve to make De Jesus the sole debtor because, first, the obligation incurred by him and petitioner was joint and several; and, second, the check -- which had been intended to extinguish the obligation -bounced upon its presentment. Hence, this Petition.[7]

Issues

Petitioner submits the following issues for our consideration: I Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies in the instant case as x x x Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan obligation he obtained from x x x Respondent Dionisio Llamas, as clearly evidenced by:

a)

Issuance by x x x de Jesus of a check in payment of the full amount of the loan of P400,000.00 in favor of Respondent Llamas, although the check subsequently bounced[;] Acceptance of the check by the x x x respondent x x x which resulted in [the] substitution by x x x de Jesus or [the superseding of] the promissory note; x x x de Jesus having paid interests on the loan in the total amount of P120,000.00; The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to financial difficulties, he be given an extension of time to pay his loan obligation and that his retirement benefits from the Philippine National Police will answer for said obligation.

b)

Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting that novation took place, either through the substitution of De Jesus as sole debtor or the replacement of the promissory note by the check. Alternatively, the former argues that the original obligation was extinguished when the latter, who was his co-obligor, paid the loan with the check. The fallacy of the second (alternative) argument is all too apparent. The check could not have extinguished the obligation, because it bounced upon presentment. By law,[9] the delivery of a check produces the effect of payment only when it is encashed. We now come to the main issue of whether novation took place. Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.[10] Article 1293 of the Civil Code defines novation as follows: Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In expromision, the initiative for the change does not come from -- and may even be made without the knowledge of -- the debtor, since it consists of a third persons assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. Indelegacion, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent of these three persons are necessary.[11]Both modes of substitution by the debtor require the consent of the creditor.[12] Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. It is merely modificatorywhen the old obligation subsists to the extent that it remains compatible with the amendatory agreement.[13] Whether extinctive or modificatory, novation is made either by changing the object or the principal conditions, referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or personal novation.[14] For novation to take place, the following requisites must concur: 1) There must be a previous valid obligation. The parties concerned must agree to a new contract. The old contract must be extinguished. There must be a valid new contract.[15]

c)

d)

II Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of petitioner that he was merely an accommodation party, despite the fact that the promissory note provided for a joint andsolidary liability, should have been given weight and credence considering that subsequent events showed that the principal obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing circumstances showing his assumption of sole liability over the loan obligation. III Whether or not judgment on the pleadings or summary judgment was properly availed of by Respondent Llamas, despite the fact that there are genuine issues of fact, which the Honorable Court of Appeals itself admitted in its Decision, which call for the presentation of evidence in a full-blown trial.[8] Simply put, the issues are the following: 1) whether there was novation of the obligation; 2) whether the defense that petitioner was only an accommodation party had any basis; and 3) whether the judgment against him -- be it a judgment on the pleadings or a summary judgment -- was proper.

The Courts Ruling 2) The Petition has no merit. 3) 4) First Issue: Novation

Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point.[16] The test of incompatibility is whether the two obligations can stand together, each one with its own independent existence.[17] Applying the foregoing to the instant case, we hold that no novation took place. The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check, or that the check would take the place of the note. There is no incompatibility between the promissory note and the check. As the CA correctly observed, the check had been issued precisely to answer for the obligation. On the one hand, the note evidences the loan obligation; and on the other, the check answers for it. Verily, the two can stand together. Neither could the payment of interests -- which, in petitioners view, also constitutes novation[18] -- change the terms and conditions of the obligation. Such payment was already provided for in the promissory note and, like the check, was totally in accord with the terms thereof. Also unmeritorious is petitioners argument that the obligation was novated by the substitution of debtors. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the formers place in the relation.[19] Well-settled is the rule that novation is never presumed.[20] Consequently, that which arises from a purported change in the person of the debtor must be clear and express. [21] It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place. In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person was substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary undertaking of De Jesus. The CA aptly held: x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either, the nature of the obligation being solidary due to the fact that the promissory note expressly declared that the liability of appellants thereunder is joint and [solidary.] Reason: under the law, a creditor may demand payment or performance from one of the solidary debtors or some or all of them simultaneously, and payment made by one of them extinguishes the obligation. It therefore follows that in case the creditor fails to collect from one of the solidary debtors, he may still proceed against the other or others. x x x [22] Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor expressly consent to the substitution of a new debtor.[23] Since novation implies a waiver of the right the creditor had before the novation, such waiver must be express.[24] It cannot be supposed, without clear proof, that the present respondent has done away with his right to exact fulfillment from either of the solidary debtors.[25] More important, De Jesus was not a third person to the obligation. From the beginning, he was a joint and solidary obligor of the P400,000 loan; thus, he can be released from it only upon its extinguishment. Respondents acceptance of his

check did not change the person of the debtor, because a joint and solidary obligor is required to pay the entirety of the obligation. It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. [26] It is up to the former to determine against whom to enforce collection.[27] Having made himself jointly and severally liable with De Jesus, petitioner is therefore liable[28] for the entire obligation.[29]

Second Issue: Accommodation Party

Petitioner avers that he signed the promissory note merely as an accommodation party; and that, as such, he was released as obligor when respondent agreed to extend the term of the obligation. This reasoning is misplaced, because the note herein is not a negotiable instrument. The note reads: PROMISSORY NOTE P400,000.00 RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND PESOS, Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City, with interest at the rate of 5% per month or fraction thereof. It is understood that our liability under this loan is jointly and severally [sic]. Done at Quezon City, Metro Manila this 23rd day of December, 1996.[30] By its terms, the note was made payable to a specific person rather than to bearer or to order[31] -- a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may have been created by the assent of the parties.[32] The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL. Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety -- the accommodation party being the surety.[33] It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an originalpromissor and debtor from the beginning. The liability is immediate and direct.[34]

Third Issue: Propriety of Summary Judgment or Judgment on the Pleadings

WHEREFORE, this Petition is hereby DENIED and Decision AFFIRMED. Costs against petitioner. SO ORDERED. Davide, JJ., concur. Jr., C.J., (Chairman), Ynares-Santiago,

the

assailed

The next issue illustrates the usual confusion between a judgment on the pleadings and a summary judgment. Under Section 3 of Rule 35 of the Rules of Court, a summary judgment may be rendered after a summary hearing if the pleadings, supporting affidavits, depositions and admissions on file show that (1) except as to the amount of damages, there is no genuine issue regarding any material fact; and (2) the moving party is entitled to a judgment as a matter of law. A summary judgment is a procedural device designed for the prompt disposition of actions in which the pleadings raise only a legal, not a genuine, issue regarding any material fact.[35]Consequently, facts are asserted in the complaint regarding which there is yet no admission, disavowal or qualification; or specific denials or affirmative defenses are set forth in the answer, but the issues are fictitious as shown by the pleadings, depositions or admissions.[36] A summary judgment may be applied for by either a claimant or a defending party.[37] On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings is proper when an answer fails to render an issue or otherwise admits the material allegations of the adverse partys pleading. The essential question is whether there are issues generated by the pleadings.[38] A judgment on the pleadings may be sought only by a claimant, who is the party seeking to recover upon a claim, counterclaim or cross-claim; or to obtain a declaratory relief. [39] Apropos thereto, it must be stressed that the trial courts judgment against petitioner was correctly treated by the appellate court as a summary judgment, rather than as a judgment on the pleadings. His Answer[40] apparently raised several issues -- that he signed the promissory note allegedly as a mere accommodation party, and that the obligation was extinguished by either payment or novation. However, these are not factual issues requiring trial. We quote with approval the CAs observations: Although Garcias [A]nswer tendered some issues, by way of affirmative defenses, the documents submitted by [respondent] nevertheless clearly showed that the issues so tendered were not valid issues. Firstly, Garcias claim that he was merely an accommodation party is belied by the promissory note that he signed. Nothing in the note indicates that he was only an accommodation party as he claimed to be. Quite the contrary, the promissory note bears the statement: It is understood that our liability under this loan is jointly and severally [sic]. Secondly, his claim that his co-defendant de Jesus already paid the loan by means of a check collapses in view of the dishonor thereof as shown at the dorsal side of said check. [41] From the records, it also appears that petitioner himself moved to submit the case for judgment on the basis of the pleadings and documents. In a written Manifestation,[42] he stated that judgment on the pleadings may now be rendered without further evidence, considering the allegations and admissions of the parties.[43] In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court had issued against petitioner.

Carpio, and Azcuna,

G.R. No. 16454

September 29, 1921 plaintiff-appellee,

GEORGE A. KAUFFMAN, vs. THE PHILIPPINE NATIONAL BANK, defendant-appellant. Roman J. Ross and Lawrence for appellee. STREET, J.: Lacson for

appellant.

At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was the president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918, the board of directors of said company, declared a dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of P98,000. This amount was accordingly placed to his credit on the books of the company, and so remained until in October of the same year when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in New York City. In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce Company, presented himself in the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. He was informed that the total cost of said transfer, including exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and Produce Company, thereupon drew and delivered a check for that amount on the Philippine National Bank; and the same was accepted by the officer selling the exchange in payment of the transfer in question. As evidence of this transaction a document was made out and delivered to Wicks, which is referred to by the bank's assistant cashier as its official receipt. This memorandum receipt is in the following language: October 9th, 1918.

CABLE Manila, P.I.

TRANSFER

BOUGHT PHILIPPINE NATIONAL Stamp P18

FROM BANK,

Foreign $45,000.

3/8 %

Amount P90,337.50

Rate

Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total P90,355.50. Account of Philippine Fiber and Produce Company. Sold to Messrs. Philippine Fiber and Produce Company, Manila. (Sgd.) Manager, Foreign Department. Y LERMA,

Philippine Fiber and Produce Company, whose credit was secured at the bank by warehouse receipts on Philippine products; and it is alleged that after the exchange in question was sold the bank found that it did not have sufficient to warrant payment of the remittance. In view, however, of the failure of the bank to substantiate these allegations, or to offer any other proof showing failure of consideration, it must be assumed that the obligation of the bank was supported by adequate consideration. In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the plaintiff Kauffman was not a party to the contract with the bank for the transmission of this credit, no right of action can be vested in him for the breach thereof. "In this situation," we here quote the words of the appellant's brief, "if there exists a cause of action against the defendant, it would not be in favor of the plaintiff who had taken no part at all in the transaction nor had entered into any contract with the plaintiff, but in favor of the Philippine Fiber and Produce Company, the party which contracted in its own name with the defendant." The question thus placed before us is one purely of law; and at the very threshold of the discussion it can be stated that the provisions of the Negotiable Instruments Law can come into operation there must be a document in existence of the character described in section 1 of the Law; and no rights properly speaking arise in respect to said instrument until it is delivered. In the case before us there was an order, it is true, transmitted by the defendant bank to its New York branch, for the payment of a specified sum of money to George A. Kauffman. But this order was not made payable "to order or "to bearer," as required in subsection ( d) of that Act; and inasmuch as it never left the possession of the bank, or its representative in New York City, there was no delivery in the sense intended in section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the telegraphic order, and already set out above, cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof of the obligation actually assumed by the bank. Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the Philippine Fiber and Produce Company agreed on October 9, 1918, to cause a sum of money to be paid to the plaintiff in New York City; and the question is whether the plaintiff can maintain an action against the bank for the nonperformance of said undertaking. In other words, is the lack of privity with the contract on the part of the plaintiff fatal to the maintenance of an action by him? The only express provision of law that has been cited as bearing directly on this question is the second paragraph of article 1257 of the Civil Code; and unless the present action can be maintained under the provision, the plaintiff admittedly has no case. This provision states an exception to the more general rule expressed in the first paragraph of the same article to the effect that contracts are productive of effects only between the parties who execute them; and in harmony with this general rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibaez de Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad Co. vs. Compaia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.) The paragraph introducing the exception which we are now to consider is in these words:

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect: Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila. Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in reply suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine National Bank acquiesced in this and on October 11 dispatched to its New York agency another message to withhold the Kauffman payment as suggested. Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York, advising him that $45,000 had been placed to his credit in the New York agency of the Philippine National Bank; and in response to this advice Kauffman presented himself at the office of the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By this time, however, the message from the Philippine National Bank of October 11, directing the withholding of payment had been received in New York, and payment was therefore refused. In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of the city of Manila to recover said sum, with interest and costs; and judgment having been there entered favorably to the plaintiff, the defendant appealed. Among additional facts pertinent to the case we note the circumstance that at the time of the transaction above-mentioned, the Philippines Fiber and Produce Company did not have on deposit in the Philippine National Bank money adequate to pay the check for P90,355.50, which was delivered in payment of the telegraphic order; but the company did have credit to that extent, or more, for overdraft in current account, and the check in question was charged as an overdraft against the Philippine Fiber and Produce Company and has remained on the books of the bank as an interest-bearing item in the account of said company. It is furthermore noteworthy that no evidence has been introduced tending to show failure of consideration with respect to the amount paid for said telegraphic order. It is true that in the defendant's answer it is suggested that the failure of the bank to pay over the amount of this remittance to the plaintiff in New York City, pursuant to its agreement, was due to a desire to protect the bank in its relations with the

Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions governing the right of the person for whose benefit a contract is made to maintain an action for the breach thereof in the following words: So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the contracting parties desired to tender him such an interest. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such third person? In resolving this question, of course, the ordinary rules of construction and interpretation of writings must be observed. (Uy Tam and Uy Yet vs. Leonard, supra.) Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.) In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question were not applicable to the facts now before us, it would be difficult to conceive of a case arising under it. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although the Philippine National Bank had already directed its New York agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing he exchange.

In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921, wherein it is held that, by selling a cable transfer of funds on a foreign country in ordinary course, a bank incurs a simple contractual obligation, and cannot be considered as holding the money which was paid for the transfer in the character of a specific trust. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary described in the cable. All these transaction are matters of purchase and sale create no trust relationship." As we view it there is nothing in the decision referred to decisive of the question now before us, wish is merely that of the right of the beneficiary to maintain an action against the bank selling the transfer. Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment must be affirmed. It is so ordered, with costs against the appellant. Interest will be computed as prescribed in section 510 of the Code of Civil Procedure. Johnson, Araullo, Avancea and Villamor, JJ., concur. G.R. No. L-22375 July 18, 1975 THE CAPITAL INSURANCE & SURETY CO., INC., petitioner, vs. PLASTIC ERA CO., INC., AND COURT OF APPEALS, respondents. Salcedo, Del Rosario, Bito, Misa and Lozada for petitioner. K.V. Faylona for Private respondent.

MARTIN, J.: Petition for review of a decision of the Court of Appeals affirming the decision of the Court of First Instance of Manila in Civil Case No. 47934 entitled "Plastic Era Manufacturing Co., Inc. versus The Capital Insurance and Surety Co., Inc." On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc. (hereinafter referred to as Capital Insurance) delivered to the respondent Plastic Era Manufacturing Co., Inc., (hereinafter referred to as Plastic Era) its open Fire Policy No. 22760 1 wherein the former undertook to insure the latter's building, equipments, raw materials, products and accessories located at Sheridan Street, Mandaluyong, Rizal. The policy expressly provides that if the property insured would be destroyed or damaged by fire after the payment of the premiums, at anytime between the 15th day of December 1960 and one o'clock in the afternoon of the 15th day of December 1961, the insurance company shall make good all such loss

or damage in an amount not exceeding P100,000.00. When the policy was delivered, Plastic Era failed to pay the corresponding insurance premium. However, through its duly authorized representative, it executed the following acknowledgment receipt: This acknowledged receipt of Fire Policy) NO. 22760 Premium x x x x x) (I promise to pay) (P2,220.00) (has been paid) THIRTY DAYS AFTER on effective date --------------------(Date) On January 8, 1961, in partial payment of the insurance premium, Plastic Era delivered to Capital Insurance, a check 2 for the amount of P1,000.00 postdated January 16, 1961 payable to the order of the latter and drawn against the Bank of America. However, Capital Insurance tried to deposit the check only on February 20, 1961 and the same was dishonored by the bank for lack of funds. The records show that as of January 19, 1961 Plastic Era had a balance of P1,193.41 with the Bank of America. On January 18, 1961 or two days after the insurance premium became due, at about 4:00 to 5:00 o'clock in the morning, the property insured by Plastic Era was destroyed by fire. In due time, the latter notified Capital Insurance of the loss of the insured property by fire 3 and accordingly filed its claim for indemnity thru the Manila Adjustment Company. 4 The loss and/or damage suffered by Plastic Era was estimated by the Manila Adjustment Company to be P283,875. However, according to the records the same property has been insured by Plastic Era with the Philamgen Insurance Company for P200,000.00. In less than a month Plastic Era demanded from Capital Insurance the payment of the sum of P100,000.00 as indemnity for the loss of the insured property under Policy No. 22760 but the latter refused for the reason that, among others, Plastic Era failed to pay the insurance premium. On August 25, 1961, Plastic Era filed its complaint against Capital Insurance for the recovery of the sum of P100,000.00 plus P25,000.00 for attorney's fees and P20,000.00 for additional expenses. Capital Insurance filed a counterclaim of P25,000.00 as and for attorney's fees. On November 15, 1961, the trial court rendered judgment, the dispositive portion of which reads as follows: WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant for the sum of P88,325.63 with interest at the legal rate from the filing of the complaint and to pay the costs. From said decision, Capital Insurance appealed to the Court of Appeals. On December 5, 1963, the Court of Appeals rendered its decision affirming that of the trial court. Hence, this petition for review by certiorari to this Court.

Assailing the decision of the Court of Appeals petitioner assigns the following errors, to wit: 1. THE COURT OF APPEALS ERRED IN SENTENCING PETITIONER TO PAY PLASTIC ERA THE SUM OF P88,325.63 PLUS INTEREST, AND COST OF SUIT, ALTHOUGH PLASTIC ERA NEVER PAID PETITIONER THE INSURANCE PREMIUM OF P2,220.88. 2. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER SHOULD HAVE INSTITUTED AN ACTION FOR RESCISSION OF THE INSURANCE CONTRACT ENTERED INTO BETWEEN IT AND PLASTIC ERA BEFORE PETITIONER COULD BE RELIEVED OF RESPONSIBILITY UNDER ITS FIRE INSURANCE POLICY. 3. WE HAVE SHOWN ABOVE THAT PLASTIC ERA'S ACTION WAS UNWARRANTED AND THAT THE PETITIONER SHOULD HAVE BEEN ABSOLVED FROM THE COMPLAINT, AND CONSEQUENTLY, THE LOWER COURT SHOULD HAVE AWARDED PETITIONER A REASONABLE SUM AND AS ATTORNEY'S FEES P25,000.00. The pivotal issue in this petition is whether or not a contract of insurance has been duly perfected between the petitioner, Capital Insurance, and respondent Plastic Era. Necessarily, the issue calls for a correct interpretation of the insurance policy which states: This Policy of Insurance Witnesseth That in consideration of PLASTIC ERA MANUFACTURING COMPANY, INC. hereinafter called the Insured, paying to the Capital Insurance & Surety Co., Inc., hereinafter called the Company, the sum of PESOS TWO THOUSAND ONE HUNDRED EIGHTY EIGHT the premium for the first period hereinafter mentioned, for insuring against Loss or Damage by only Fire or Lightning, as hereinafter appears, the Property hereinafter described and contained, or described herein and not elsewhere, in the several sums following namely: PESOS ONE HUNDRED THOUSAND ONLY, PHILIPPINE CURRENCY; ... THE COMPANY HEREBY AGREES with the Insured but subject to the terms and conditions endorsed or otherwise expressed hereon, which are to be taken as part of this Policy), that if the Property described, or any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of the Premiums, at anytime between the 15th day of December One Thousand Nine Hundred and Sixty and 1 'clock in the afternoon of the 15th day of December One Thousand Nine Hundred and Sixty-One of the last day of any subsequent period in respect of which the insured, or a successor in interest to whom the insurance is by an endorsement hereon declared to be or is otherwise continued, shall pay to the Company and the Company shall accept the sum required for the renewal of this Policy, the Company will pay or make good all such loss or Damage, to an amount not exceeding during any one period of the insurance in respect of the several matters specified, the sum; set opposite thereto respectively, and not exceeding the whole sum of PESOS, ONE HUNDRED THOUSAND ONLY, PHIL. CUR....

In clear and unequivocal terms the insurance policy provides that it is only upon payment of the premiums by Plastic Era that Capital Insurance agrees to insure the properties of the former against loss or damage in an amount not exceeding P100,000.00. The crux of the problem then is whether at the time the insurance policy was delivered to Plastic Era on December 17, 1960, the latter was able to pay the stipulated premium. It appears on record that on the day the insurance policy was delivered, Plastic Era did not pay the Capital Insurance, but instead executed an acknowledgment receipt of Policy No. 22760. In said receipt Plastic Era promised to pay the premium within thirty (30) days from the effectivity date of the policy on December 17, 1960 and Capital Insurance accepted it. What then is the effect of accepting such acknowledgment receipt from the Plastic Era? Did the Capital Insurance mean to agree to make good its undertaking under the policy if the premium could be paid on or before January 16, 1961? And what would be the effect of the delivery to Capital Insurance on January 8, 1961 of a postdated check (January 16, 1961) in the amount of P1,000.00, payable to the order of the latter? Could not this have been considered a valid payment of the insurance premium? Pursuant to Article 1249 of the New Civil Code: xxx xxx xxx The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. xxx xxx xxx In the meantime, the action derived from the original obligation shall be held in abeyance. Under this provision the mere delivery of a bill of exchange in payment of a debt does not immediately effect payment. It simply suspends the action arising from the original obligation in satisfaction of which it was delivered, until payment is accomplished either actually or presumptively. 5 Tender of draft or check in order to effect payment that would extinguish the debtor's liability should be actually cashed. 6 If the delivery of the check of Plastic Era to Capital Insurance were to be viewed in the light of the foregoing, no payment of the premium had been effected, for it is only when the check is cashed that it is said to effect payment. Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic Era to pay the insurance premium within thirty (30) days from the effective date of policy. By so doing, it has implicitly agreed to modify the tenor of the insurance policy and in effect, waived the provision therein that it would only pay for the loss or damage in case the same occurs after the payment of the premium. Considering that the insurance policy is silent as to the mode of payment, Capital Insurance is deemed to have accepted the promissory note in payment of the premium. This rendered the policy immediately operative on the date it was delivered. The view taken in most cases in the United States:

... is that although one of conditions of an insurance policy is that "it shall not be valid or binding until the first premium is paid", if it is silent as to the mode of payment, promissory notes received by the company must be deemed to have been accepted in payment of the premium. In other words, a requirement for the payment of the first or initial premium in advance or actual cash may be waived by acceptance of a promissory note ... 7 Precisely, this was what actually happened when the Capital Insurance accepted the acknowledgment receipt of the Plastic Era promising to pay the insurance premium within thirty (30) days from December 17, 1960. Hence, when the damage or loss of the insured property occurred, the insurance policy was in full force and effect. The fact that the check issued by Plastic Era in partial payment of the promissory note was later on dishonored did not in any way operate as a forfeiture of its rights under the policy, there being no express stipulation therein to that effect. In the absence of express agreement or stipulation to that effect in the policy, the non-payment at maturity of a note given for and accepted as premium on a policy does not operate to forfeit the rights of the insured even though the note is given for an initial premium, nor does the fact that the collection of the note had been enjoined by the insured in any way affect the policy. 8 ... If the check is accepted as payment of the premium even though it turns out to be worthless, there is payment which will prevent forfeiture. 9 By accepting its promise to pay the insurance premium within thirty (30) days from the effectivity date of the policy December 17, 1960 Capital Insurance had in effect extended credit to Plastic Era. The payment of the premium on the insurance policy therefore became an independent obligation the non-fulfillment of which would entitle Capital Insurance to recover. It could just deduct the premium due and unpaid upon the satisfaction of the loss under the policy. 10 It did not have the right to cancel the policy for nonpayment of the premium except by putting Plastic Era in default and giving it personal notice to that effect. This Capital Insurance failed to do. ... Where credit is given by an insurance company for the payment of the premium it has no right to cancel the policy for nonpayment except by putting the insured in default and giving him personal notice.... 11 On the contrary Capital Insurance had accepted a check for P1,000.00 from Plastic Era in partial payment of the premium on the insurance policy. Although the check was due for payment on January 16, 1961 and Plastic Era had sufficient funds to cover it as of January 19, 1961, Capital Insurance decided to hold the same for thirty-five (35) days before presenting it for payment. Having held the check for such an unreasonable period of time, Capital Insurance was estopped from claiming a forfeiture of its policy for non-payment even if the check had been dishonored later.1wph1.t

Where the check is held for an unreasonable time before presenting it for payment, the insurer may be held estopped from claiming a forfeiture if the check is dishonored. 12 Finally, it is submitted by petitioner that: We are here concerned with a case of reciprocal obligations, and respondent having failed to comply with its obligation to pay the insurance premium due on the policy within thirty days from December 17, 1960, petitioner was relieved of its obligation to pay anything under the policy, without the necessity of first instituting an action for rescission of the contract of insurance entered into by the parties. But precisely in this case, Plastic Era has complied with its obligation to pay the insurance premium and therefore Capital Insurance is obliged to make good its undertaking to Plastic Era. WHEREFORE, finding no reversible error in the decision appealed from, We hereby affirm the same in toto. Costs against the petitioner. SO ORDERED. Castro, Makasiar, Esguerra and Muoz Palma, JJ., concur. Teehankee, J., is on leave. G.R. Nos. L-50405-06 August 5, 1981 VICENTA P. TOLENTINO and JOSE TOLENTINO, petitioners, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, CONSUELO B. DE LA CRUZ, et al., respondents.

meters covered by Original Certificate of Title No. P-16 in his name, issued by virtue of Homestead Patent No. V-1728. In a deed of sale executed by the De la Cruzes on April 30, 1962, the homestead land was sold to the spouses Jose Tolentino and Vicenta Tolentino (hereinafter referred to as the Tolentinos). The Tolentinos took immediate possession of the homestead land and caused the cancellation of O.C.T. No. P-16 and the issuance of T.C.T. No. T-11135 in their names. In 1963, the Tolentinos constituted a first mortgage over the homestead land, together with two other parcels of land covered by T.C.T. Nos. 11085 and 11626 in their names, in favor of the Bank of the Philippine Islands, (BPI) Davao Branch, for a loan of P40,000. Another mortgage was constituted over the said properties in 1964 in favor of Philippine Banking Corporation. The Tolentinos failed to pay their mortgage indebtedness to the BPI upon maturity in the judicial foreclosure sale that followed, conducted by the City Sheriff of Davao on July 15, 1967, BPI was the sole and highest bidder. The Sheriff's Certificate of Sale in favor of BPI was registered only on April 2, 1969 in the Registry of Deeds of Davao. Meanwhile, on February 4, 1967, the De la Cruzes filed an action 5 with the Court of First Instance of Davao against the Tolentinos for the repurchase of the homestead land under Section 119 of the Public Land Act (CA 141), with a prayer for damages and accounting of fruits on the ground that they had tried to repurchase said land extrajudicially for several tunes already but that the Tolentinos would not heed their request, thus constraining the De la Cruzes to file a court action for the repurchase thereof. BPI and Philippine Banking Corporation were included in the action as formal party defendants, being the first and second mortgagees, respectively, of the homestead land. On June 1, 1967, the Tolentinos filed a motion for extension of ten (10) days "from and after June lst" to file their answer. This motion was granted by the lower court. On June 14, 1967, the De la Cruzes filed a petition to declare the Tolentinos in default for failure to file an answer. On that same day, the Tolentinos filed a Motion to Dismiss the repurchase case on the ground that the complaint states no cause of action, but said motion was denied by the lower court on the ground that the same was filed out of time. Subsequently, the Tolentinos were declared in default and the De la Cruzes were allowed to present their evidence ex parte. On November 24, 1967, the Tolentinos filed their answer interposing the defense that the complaint states no cause of action because from the face of T.C.T. No. T11135 alone, only the original patentee, Ceferino, is given the right to repurchase the homestead land and not the De la Cruzes and because the complaint does not allege that there was a bona fide offer to repurchase or a valid tender of payment, as well as an allegation that the De la Cruzes intended to pay not only the purchase price but all the other expenses of the sale which includes the necessary and useful expenses made on the thing sold, as required under Article 1616 of the new Civil Code. Upon a manifestation filed by the De la Cruzes, the lower court issued an Order dated December 8, 1967 declaring the Tolentinos as "having no standing" in the proceedings therein, to which the latter filed a motion for its reconsideration. This

DE CASTRO, J.: A petition for review by certiorari of the consolidated decision 1 of the respondent Court of Appeals in CA-G.R. Nos. 53907-R 2 and 54004-R 3 promulgated on February 22, 1978, as well as the Resolution 4 of said Court of Appeals, promulgated on March 30, 1979, denying the Motion for Reconsideration of the aforesaid consolidated decision. Ceferino de la Cruz died in Davao City on April 19, 1960 leaving as his only heirs his widow, Consuelo de la Cruz, and their children Hilario, Tarcelo, and Godofredo, all surnamed de la Cruz (hereinafter referred to as the De la Cruzes). At the time of his demise, Ceferino left a parcel of land (homestead land) containing 131,705 square

motion, as well as their second Motion for Reconsideration, was denied by the lower court. On March 27, 1969, the lower court rendered a decision allowing the De la Cruzes to repurchase the homestead land. Upon payment by the De la Cruzes of the amount of P16,000 representing the repurchase price to the BPI, the latter executed a deed of conveyance over the homestead land on August 25, 1969. On motion, the lower court issued a writ of possession in favor of the De la Cruzes on September 4, 1969, which was served by the City Sheriff upon the Tolentinos on September 8, 1969. Accordingly, the possession of the homestead land was delivered to the De la Cruzes on September 13,1969. On September 19, 1969, the Tolentinos filed a petition for relief from the Decision dated March 27, 1969 on the ground of excusable mistake in the counting of the reglementary period for the filing of an answer, with a prayer that the Order declaring them in default be lifted and that they be allowed to present their defense. On October 1, 1969, the Tolentinos filed a Motion to Quash the writ of possession alleging as principal grounds therefor the absence of service on their counsel of a copy of the writ of possession, as well as the decision of the lower court declaring the De la Cruzes entitled to repurchase the homestead land. The De la Cruzes filed an opposition to this Motion and prayed for the investigation of an alleged tampering of records of the case particularly the page containing the proofs of the service of a copy of the writ of possession as well as of the decision of the lower court to the Tolentinos. On October 4, 1969, the lower court denied the Motion to Quash. A motion for reconsideration was likewise denied by the lower court on December 6,1969. On October 6, 1970, the Tolentinos filed before the respondent Court of Appeals a petition for certiorari (CA-G.R. No. SP-46321) against the De la Cruzes, wherein the Tolentinos raise the propriety of the issuance of the Writ of Possession alleging that it was issued improvidently because the decision of the lower court declaring them in default was not served upon them and, therefore, the judgment has not become final and executory. This petition was denied by the respondent court in a decision rendered on November 15, 1971 on the ground that the Tolentino were actually and duly served with a copy of the questioned decision. On March 5, 1973, the trial court issued an Order denying for lack of merit the petition for relief from judgment filed therein by the Tolentinos. It likewise denied a motion for reconsideration filed subsequently by the Tolentinos in its Order of July 5, 1973. Consequently, the Tolentinos appealed to the respondent Court of Appeals the above 2 Orders of the lower court, docketed therein as CA G.R. No. 54004-R, claiming that the lower court erred and abused its discretion in not lifting its Order of default and in not ordering resumption of trial for the reception of their evidence; and, in finally ordering execution of the default judgment. In the meantime, on March 2, 1970, petitioner Vicente Tolentino went to see Mr. Ramon Lopez, Branch Manager of BPI Davao Branch, carrying a letter of even date, offering to redeem the homestead property for P16,000 covered by a check. Upon being informed that she can no longer redeem the same for the reason that it was already conveyed to the De la Cruzes pursuant to the decision dated March 27, 1969, Vicenta left the office of the manager, bringing with her the letter which she

later on sent to Mr. Lopez by registered mail, inclosed In another letter dated March 3, 1970, reteirating her desire to redeem the homestead land. Mr. Lopez sent said letters to the BPI's legal counsel with specific request to inform the Tolentinos that they can still redeem the two other properties covered by T.C.T. Nos. 11085 and 11626 before the expiration of the redemption period upon payment of the amount of P75,995.07 the balance remaining after deducting the amount of P16,000 paid by the De la Cruzes for the homestead property. However, instead of complying with BPI's advice, Vicente consigned with the Office of the City Sheriff of Davao a crossed PNB check for P91,995.07 drawn against the PNB Kidapawan Branch, Cotabato, on March 31, 1970, allegedly for the redemption of the 3 lots, including the homestead land. The following day, however, upon advice of their counsel, Vicente issued a stop-payment order against the said crossed check purportedly to protect her rights and to prevent BPI cashing said check without returning all the properties which BPI had foreclosed and purchased. Simultaneously with the consignation of the crossed check with the City Sheriff of Davao on March 31, 1970, the Tolentinos filed a complaint (redemption case) 6 against BPI, amended on April 15, 1970, with the Davao Court of First Instance for the redemption of their properties covered by T.C.T. Nos. 11135, 11085 and 11626, which were foreclosed by and sold to BPI, with a prayer for damages, imputing bad faith on BPI in allegedly refusing to allow them to redeem all three lots and praying that BPI be ordered to allow the Tolentinos to redeem their properties, to accept the payment consigned by them with the City Sheriff's Office of Davao, and to pay moral and exemplary damages in the sum of P95,000 plus attorney's fees and costs of suit. BPI seasonably filed an answer with counterclaim, denying the material averments of the complaint, the truth being that the Tolentinos did not have an intention to redeem their said properties but only the homestead land. BPI counterclaimed for exemplary damages in the sum of P5,000 and attorney's fees in the sum of P4,000 plus costs. On April 10, 1973, the trial court rendered its decision dismissing the complaint of the Tolentinos, with no particular pronouncement as to attorney's fees but with costs against the Tolentinos. From that decision, both the Tolentinos and BPI appealed to the respondent Court of Appeals, docketed under CA-G.R. No. 53907R, the Tolentinos claiming that l. The lower court erred in finding that the title to the land covered by T.C.T. No. 11135 legally passed to the heirs of Ceferino de la Cruz; 2. The lower court erred in holding that defendant-appellant (herein respondent BPI) was legally justified, in refusing plaintiffsappellants' (Tolentinos) demand to be allowed to redeem the lands in question; and 3. The lower court erred in not granting plaintiffs-appellants' (Tolentinos) claim for damages. while BPI claims that the trial court erred in not holding the Tolentinos liable for damages and attorney's fees despite its findings that they acted in evident bad faith in

a. filing the complaint in the redemption case; and b. issuing a crossed check drawn against the PNB, Kidapawan Branch, and likewise, in depositing said check with the Sheriff's Office allegedly to redeem the foreclosed properties and, thereafter, the day following the deposit in issuing a stop-payment order on said check. Acting upon a written request dated March 26, 1976 filed by the Tolentinos for the consolidation of the two appealed cases, CA-G.R. Nos. 53907-R (Civil Case No. 6830) and 54004-R (Civil Case No. 5432), the respondent Court of Appeals resolved, after considering the comment of the BPI and the opposition of the De la Cruzes, to grant the motion for consolidation by the Tolentinos. In a consolidated decision Court of Appeals held: In the Repurchase Case (1) that "despite the order of the trial court as prayed for by appellants granting them a ten-day period of extension to file their answer which was to expire on June 12, 1967, extended by operation of law to June 13, 1967, because June 12 was a holiday, the Tolentinos failed to file their answer. Instead, on June 14, 1967, which was already late, the Tolentinos filed a motion to dismiss, which is not even a responsive pleading, followed by their answer filed more than five months after, on November 24, 1967. The Tolentinos having failed to observe the requirements of the Rules of Court, no abuse of discretion could be imputed to the court a quo in ordering them in default." 8 While "default orders are judicially frowned upon, Quirante vs. Verano (L-30207, February 27, 1971, 37 SCRA 801) explicitly admonishes that such 'is true only in meritorious cases, that is, where the failure to file answer on time was due to fraud, accident, mistake, or excusable negligence and when the existence of a good and substantial defense has been shown.' No showing was made in the case at bar, that the Tolentinos' failure to file their answer on time was due to any of these grounds. The contention and insistence of counsel for the Tolentinos that he filed through his clerk the motion to dismiss on June 13 but only stamped June 14, 1967, attributing negligence instead to the docket clerk of the lower court was not believed by the lower court, and we (Court of Appeals) find no cogent reason for believing otherwise. " 9 The Court of Appeals ruled further that "compounding the errors, is the failure of the Tolentinos and/or their counsel to appear on January 12, 1968, the date set for hearing of their petition for relief, the reason given by counsel that he was out-of-town when his clerk received the notice, and that his said clerk did not notify him nor did he note said date on their trial calendar, being clearly a case of inexcusable negligence. " (2) that the supposed existence of a good and meritorious defense relied by the Tolentinos consisting of the alleged expiration of the five-year period for the repurchase of the homestead lot under Commonwealth Act No. 141 is clearly belied by the records of the case which show that the offer to repurchase the homestead land made by the De la Cruzes was well within the 5-year period required by law; and
7

(3) that the Tolentinos' claim that the lower court ordered the execution of the default judgment before its finality due to the absence of service of the default judgment on them is not well- taken because this issue has already been settled in CA G.R. No. SP-46321 rendered on November 15, 1971, where it was found, after an investigation was conducted on the alleged disappearance of that page of the record where the receipts by the respective parties were indicated, that the Tolentinos through their counsel were duly served with a copy of the default judgment. In the Redemption Case (1) in dismissing the Tolentinos' appeal, the respondent court reasoned that although there is no quarrel that the Tolentinos had 12 months within which to redeem the properties sold at the Sheriff's sale counted from the time it was registered on April 2, 1969, the problem, however, lies in the manner of the tender of payment made by them, granting they made one, "since consignation by crossed check does not satisfy the requirements set forth in Article 1249 of the New Civil Code governing the payment of debts in money, which 'shall be made in the Currency stipulate and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.' Admittedly, a check, even if good when offered, does not satisfy the requirements of a legal tender, and for that very reason, BPI was not legally bound to accept such tender of payment." Hence, no error was committed by the court a quo in dismissing the Tolentinos' complaint for redemption with damages. (2) in dismissing BPI's appeal, the respondent Court stated that "no bad faith should be attributed to the Tolentinos for filing the instant case for redemption, in the absence of a proven motive to harass the BPI considering that in so filing these cases, the Tolentinos acted in the belief that they are exercising certain rights under the law, and considering further that they, too, had to spend in prosecuting their claims, no matter how unfounded they may have proven to be." On April 24, 1978, the Tolentinos filed a Motion for Reconsideration 10 in the Court of Appeals of the decision rendered in CA-G.R. No. 53907-R on the ground that "the right to redeem is not an obligation or debt but rather a privilege, hence, the provisions of Article 1249 N.C.C. governing payment of debts in money" do not apply in this case; and, of the decision rendered in CA-G.R. No. 54004-R on the ground that the respondent court erred in not considering that the trial court abused its discretion in declaring the Tolentinos in default, and that the period within which the De la Cruzes can repurchase the homestead land had already expired, This Motion for Reconsideration was denied by the respondent court for lack of merit in a Resolution dated March 30, 1979. Hence, the instant petition for review from the foregoing consolidated Decision and Resolution raising the following issues: I WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE APPLIES IN THE CASE AT BAR; II

promulgated on February 22, 1978, the respondent

WHETHER OR NOT THE TENDER OF PAYMENT AND CONSIGNATION MADE BY THE TOLENTINOS BEFORE THE CITY SHERIFF OF DAVAO WERE VALID; and III WHETHER THE DEFAULT JUDGMENT AGAINST THE TOLENTINOS IN CIVIL CASE NO. 5432 (CA-G.R. No. 54004-R) HAS BECOME FINAL AND EXECUTORY. It is worthwhile to remember that Article 1249 of the new Civil Code deals with a mode of extinction of an obligation and expressly provides for the medium in the "payment of debts." Thus, it provides that: The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance. We are of the considered view that the aforequoted Article should not be applied in the instant case, hereinafter explained, together with the exposition on the resolution of the second issue raised in this petition, the first two issues raised hinging ultimately on whether the Tolentinos may redeem the properties in suit. To start with, the Tolentinos are not indebted to BPI their mortgage indebtedness having been extinguished with the foreclosure and sale of the mortgaged properties. After said foreclosure and sale, what remains is the right vested by law in favor of the Tolentinos to redeem the properties within the prescribed period. This right of redemption is an absolute privilege, the exercise of which is entirely dependent upon the will and discretion of the redemptioners. There is, thus, no legal obligation to exercise the right of redemption. 11 Said right, can in no sense, be considered an obligation, for the Tolentinos are under no compulsion to exercise the same. Should they choose not to exercise it, nobody can compel them to do so nor win such choice give rise to a cause of action in favor of the purchaser at the auction sale. In fact, the relationship between said purchaser and the redemptioners is not even that of creditor and debtor. 12 On the other hand, if the redemptioners choose to exercise their right of redemption, it is the policy of the law to aid rather than to defeat the right of redemption. 13 It stands to reason therefore, that redemptions should be looked upon with favor and where no injury is to follow, a liberal construction will be given to our redemption laws as well as to the exercise of the right of redemption. In the instant case, the ends of justice would be better served by affording the Tolentinos the opportunity to redeem the properties in question other than the homestead

land, in line with the policy aforesaid, to which We adhere fully notwithstanding the reason advanced by the Court of Appeals in its Resolution, denying a reconsideration of its decision, which reads: We agree that the act of redeeming of a property mortgaged is not an obligation but a privilege, in the sense that the mortgagor may or may not redeem his property. That of course is a privilege. He may choose to give up the property and have the mortgage foreclosed, or redeem the property with the obligation of course to pay the loan or indebtedness. But where he elects to redeem the property and he has to pay the loan for which the mortgage was constituted, then Art. 1249 of the Civil Code applies because it involves now the 'payment of debts.' It is only the act of redeeming or not that is considered a privilege, but not the act of paying the obligation once the mortgagor has elected to redeem the property, in which case the check issued or drawn shall produce the effect of payment only when it has been cashed. 14 Under existing jurisprudence, what the redemptioner should pay, is not the amount of the "loan for which the mortgage was constituted" as stated by the Court of Appeals, but the auction purchase price plus 1 % interest per month on the said amount up to the time of redemption, together with the taxes or assessment paid by the purchaser after the purchase, if any. 15 And in this connection, a formal offer to redeem, accompanied by a bona fide tender of the redemption price, although proper, is not essential where, as in the instant case, the right to redeem is exercised thru the filing of judicial action, which as noted earlier was made simultaneously with the deposit of the redemption price with the Sheriff, within the period of redemption. The formal offer to redeem, accompanied by a bona fide tender of the redemption price within the period of redemption prescribed by law, is only essential to preserve the right of redemption for future enforcement even beyond such period of redemption. The filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. 16 Should the court allow redemption, the redemptioners should then pay the amount already adverted to. Moreover, when the action to redeem was filed, a simultaneous deposit of the redemption money was tendered to the Sheriff and under the last sentence of Section 31, Rule 39 of the Rules of Court, it is expressly provided that the tender of the redemption money may be made to the Sheriff who made the sale. 17 And the redemption is not rendered in valid by the fact that the said officer accepted a check for the amount necessary to make the redemption instead of requiring payment in money. It goes without saying that if he had seen fit to do so, the officer could have required payment to be made in lawful money, and he undoubtedly, in accepting a check, placed himself in a position where he could be liable to the purchaser at the public auction if any damage had been suffered by the latter as a result of the medium in which payment was made. But this cannot affect the validity of the payment. The check as a medium of payment in commercial transactions is too firmly established by usage to permit of any doubt upon this point at the present day. 18 No importance may thus be attached to the circumstance that a stoppayment order was issued against said check the day following the deposit, for the same will not militate against the right of the Tolentinos to redeem, in the same manner that a withdrawal of the redemption money being deposited cannot be deemed to have forfeited the right to redeem, such redemption being optional and not compulsory. 19 Withal, it is not clearly shown that said stop payment order was

made in bad faith. But while we uphold the right of redemption of the Tolentinos, the same does not apply to the homestead land, for the reason that shall be indicated in the discussion of the third issue. It is a matter beyond dispute that We can review decisions of the Court of Appeals only on errors of law, its findings 6f fact being generally conclusive. BPI argued that the default judgment in Civil Case No. 5432 (CA-G.R. No. 54004-R) had already become final and executory; that the lower court found, after an investigation was conducted on the matter, that petitioners were duly served with the default judgment; that this finding was affirmed by the Court of Appeals in CA G.R. No. SP46321 rendered on November 15, 1971, which decision G.R. No. SP-46321 rendered on November 15, 1971, which decision had already been final and, therefore, the question of whether or not petitioners were duly served with a copy of said judgment should now be considered closed, said question being factual. 20 As may be expected, the Tolentinos maintain that said question is one of law; that they did not in fact receive a copy of the default judgment; and that the only reason for the finding of the lower court that there was a valid service of default judgment was the sole testimony of BPI's counsel, who cannot even recall the date when the alleged service was made, and there is no evidence as to the mode of such service. 21 In resolving their diametrically opposed propositions, it should be remembered that for a question to be one of law, it must involve no examination of the probative value of the evidence presented by the litigants or any of them. 22The query here presented, necessarily invites calibration of the evidence to determine whether or not there was really such service. As such, the question must be deemed to be factual in character and content, and as correctly pointed out by BPI, the jurisprudence on the matter is that findings of facts of the lower court are accorded the highest degree of respect. 23 It is not the function of this Court to analyze or weight the evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court. 24 And as already intimated earlier, appreciation of evidence is within the domain of the respondent Court of Appeals because its findings of facts, as a general rule, are not reviewable by the Supreme Court. 25 This has been the oft-repeated and wellestablished rule which has been reiterated in a long line of cases enumerated in Chan v. Court of Appeals 26 and Tapas v. Court of Appeals, 27 and in the more recent cases of Baptista v. Carillo 28 andVda. de Catindig v. Heirs of Catalino Roque, 29 and We find no circumstance existing in this case, to justify a departure from the said rule, More importantly, the petitioners not having appealed therefrom, the decision had already attained the character of finality. The question of service cannot now be reopened or raised again in this proceedings for otherwise, there will be no end to a litigation. Public policy and sound practice demand that judgment of courts should become final at some definite date fixed by law. 30 Finally, We find no abuse of discretion, much less a grave abuse thereof, committed by the lower court in issuing an order, which was affirmed by respondent Court of Appeals, denying the Tolentinos' petition for relief from judgment for lack of merit, the same being supported by substantial evidence.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed consolidated decision and resolution of the Court of Appeals are hereby MODIFIED and judgment is hereby rendered authorizing the petitioners to redeem the properties subject matter hereof, other than the homestead land, within thirty (30) days from entry of judgment, and ordering private respondent BPI to execute a deed of absolute conveyance thereof in favor of the petitioners upon payment by the latter of the purchase price thereof, with 1% per month interest thereon in addition, up to the time of redemption, together with the amount of any taxes or assessments which BPI may have paid thereon after purchase, if any. In all other respects, the aforesaid consolidated decision and resolution of the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs at this instance. SO ORDERED. G.R. No. 93397 March 3, 1997 TRADERS ROYAL BANK, petitioner, vs. COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents.

TORRES, JR., J.: Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29, 1990, 1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of P500,000.00, from the Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement 3 dated February 4, 1981, and a Detached Assignment 4 dated April 27, 1981. Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB). In the said petition, TRB stated that: 3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment" . . ., whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00); 4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer

in the name of PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably authorized the said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal agent; 5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4year, 8th series, Serial No. D891 with a face value of P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition; 6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to repurchase CBCI Serial No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981; 7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds; 8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to enable the latter to have its title completed and registered in the books of the respondent. And by means of said Detachment, Philfinance transferred and assigned all, its rights and title in the said CBCI (Annex "C") to petitioner and, furthermore, it did thereby "irrevocably authorize the said issuer (respondent herein) to transfer the said bond/certificate on the books of its fiscal agent." . . . 9. Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned Detached Assignments (Annexes "B" and "D"), to the Securities Servicing Department of the respondent, and requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the name of petitioner as absolute owner thereof; 10. Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing, the latest of which is hereto attached as Annex "E" and made an integral part hereof; 11. The express provisions governing the transfer of the CBCI were substantially complied with the petitioner's request for registration, to wit: "No transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by the registered owner hereof, in

person or by his attorney duly authorized in writing, and similarly noted hereon, and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered holder thereof." and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the above-quoted provision; 12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the respondent; Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name. On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central Bank of the Philippines' Motion for Admission of Amended Answer with Counter Claim for Interpleader 6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation (Filriters), the registered owner of the subject CBCI as respondent. For its part, Filriters interjected as Special Defenses the following: 11. Respondent is the registered owner of CBCI No. 891; 12. The CBCI constitutes part of the reserve investment against liabilities required of respondent as an insurance company under the Insurance Code; 13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust fund doctrine and to the prejudice of policyholders and to all who have present or future claim against policies issued by Filriters, Alfredo Banaria, then Senior VicePresident-Treasury of Filriters, without any board resolution, knowledge or consent of the board of directors of Filriters, and without any clearance or authorization from the Insurance Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to Philfinance; xxx xxx xxx 14. Subsequently, Alberto Fabella, Senior Vice-PresidentComptroller are Pilar Jacobe, Vice-President-Treasury of Filriters (both of whom were holding the same positions in Philfinance), without any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy holders and all who have

present or future claims against its policies, executed similar detached assignment forms transferring the CBCI to plaintiff; xxx xxx xxx 15. The detached assignment is patently void and inoperative because the assignment is without the knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as requiring by Article V, Section 3 of CB Circular No. 769; 16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of Filriters and such null and void; a) The assignment was executed without consideration and for that reason, the assignment is void from the beginning (Article 1409, Civil Code); b) The assignment was executed without any knowledge and consent of the board of directors of Filriters; c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under the Insurance Code for its existence as an insurance company and the pursuit of its business operations. The assignment of the CBCI is illegal act in the sense of malum in se or malum prohibitum, for anyone to make, either as corporate or personal act; d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is immoral and against public policy; e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship), an inevitable result known to the officer who executed assignment. 17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment. a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to bearer but is a registered in the name of Filriters; b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the registered owner as the absolute owner and that the value of the registered certificates shall be payable only to the registered owner; a sufficient notice to plaintiff that the assignments do not give them the registered owner's right as absolute owner of the CBCI's;

c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the registered certificates are payable only to the registered owner (Article II, Section 1). 18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a regular transaction made in the usual of ordinary course of business; a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by the Insurance Code and its assignment or transfer is expressly prohibited by law. There was no attempt to get any clearance or authorization from the Insurance Commissioner; b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its business; c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all or substantially all" of the assets of Filriters, which requires the affirmative action of the stockholders (Section 40, Corporation [sic] Code. 7 In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. The dispositive portion of the decision reads: ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank: (a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and effect; (b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation; (c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. The sum of P10,000 as attorney's fees; and (d) to pay the costs. SO ORDERED. 9

The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their appeals likewise failed. The findings of the fact of the said court are hereby reproduced: The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its right and the title to CBCI No. D891. Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its name before the Security and Servicing Department of the Central Bank (CB). Central Bank, however, refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters. Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in the Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is entitled to the ownership of CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this Court on appeal. 11 In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having acquired the said certificate from Philfinance as a holder in due course, its possession of the same is thus free fro any defect of title of prior parties and from any defense available to prior parties among themselves, and it may thus, enforce payment of the instrument for the full amount thereof against all parties liable thereon. 12 In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the instrument clearly stated that it was payable to Filriters, the registered owner, whose name was inscribed thereon, and that the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation. Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made without consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness", which provided that any "assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing."

Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was inexistent, having acquired the certificate through simulation. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its financing operations. Said the Court: In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated as the same time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778). In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank. WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant. SO ORDERED.
13

Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and the two corporations have identical corporate officers, thus demanding the application of the doctrine or piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from registered owner to petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as actual payment to Filriters. Thus, there is no merit to the lower court's ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of consideration. Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031). The pertinent portions of the subject CBCI read: xxx xxx xxx The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS. xxx xxx xxx

Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is properly understood as acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans. The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that: As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the registered owner hereof." Very clearly, the instrument is payable only to Filriters, the registered owner, whose name is inscribed thereon. It lacks the words of negotiability which should have served as an expression of consent that the instrument may be transferred by negotiation. 15 A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioner's submission that the same is a negotiable instrument, and that it is a holder in due course of the certificate. The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchtone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time. As held in Caltex (Philippines), Inc. v. Court of Appeals,
16

The following are the appellate court's pronouncements on the matter: Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for "value received", there was really no consideration involved. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a complete nullity. What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central Bank Circular No. 769, series of 1980, otherwise known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness", under which the note was issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that any assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing. In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778). In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent Filriters and Philfinance, though separate corporate entities on paper, have used their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now is refused registration by the Central Bank. Says the petitioner; Since Philfinance own about 90% of Filriters and the two companies have the same corporate officers, if the principle of piercing the veil of corporate entity were to be applied in this case, then TRB's payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it has, that it never received any payment for that CBCI sold and that said CBCI was sold without its authority. xxx xxx xxx

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstance in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said. Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law. The pertinent question then is, was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank?

We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely borrowed by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing operations, if it were to be consistent therewith, on the issued raised by TRB that there was a piercing a veil of corporate entity, the Court of Appeals should have ruled that such veil of corporate entity was, in fact, pierced, and the payment by TRB to Philfinance should be construed as payment to Filriters. 17 We disagree with Petitioner. Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. 18 Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine. The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall be maintained as to the other, there is nothing else which could lead the court under circumstance to disregard their corporate personalities. Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and from other corporations may be disregarded, 19 in the absence of such grounds, the general rule must upheld. The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities. In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance. On its face the subject certificates states that it is registered in the name of Filriters. This should have put the petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to assign the certificate. As it is, there is no showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the certificate. The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:

TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at any office of the Bank or any agency duly authorized by the Bank, and such registration is noted hereon. After such registration no transfer thereof shall be valid unless made at said office (where the Certificates has been registered) by the registered owner hereof, in person, or by his attorney, duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered owner thereof. The bank or any agency duly authorized by the Bank may deem and treat the bearer of this Certificate, or if this Certificate is registered as herein authorized, the person in whose name the same is registered as the absolute owner of this Certificate, for the purpose of receiving payment hereof, or on account hereof, and for all other purpose whether or not this Certificate shall be overdue. This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an authorization from Filriters. Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI. Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that: Sec. 3. Assignment of Registered Certificates. Assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in writing. For this purpose, the transferee may be designated as the representative of the registered owner. Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority, may not hold the corporation liable. 22 This is only fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. 23 The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which for all intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to Philfinance was fictitious, and therefore void and inexistent, as there was no consideration for the same. This is fatal to the

petitioner's cause, for then, Philfinance had no title over the subject certificate to convey the Traders Royal Bank. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully. Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves, which are required by law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia, Manager-in-Charge of respondent Filriters, in his testimony given before the court on May 30, 1986. Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the face value of P5000,000.00 subject of this case? A Yes, sir. Q Why do you know this? A Well, this was CBCI of the company sought to be examined by the Insurance Commission sometime in early 1981 and this CBCI No. 891 was among the CBCI's that were found to be missing. Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891 before 1981? A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of the company. Q Legal reserve for the purpose of what? A Well, you see, the Insurance companies are required to put up legal reserves under Section 213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance Commission requires this reserve to be invested preferably in government securities or government binds. This is how this CBCI came to be purchased by the company. It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus, the anauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation, not without the approval of its Board of Directors, and the maintenance of the required reserve fund. Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is hereby AFFIRMED. SO ORDERED. PHILIPPINE AIRLINES, INC., petitioner, vs. HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance of Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and AMELIA TAN,respondents.

GUTIERREZ, JR., J.: Behind the simple issue of validity of an alias writ of execution in this case is a more fundamental question. Should the Court allow a too literal interpretation of the Rules with an open invitation to knavery to prevail over a more discerning and just approach? Should we not apply the ancient rule of statutory construction that laws are to be interpreted by the spirit which vivifies and not by the letter which killeth? This is a petition to review on certiorari the decision of the Court of Appeals in CAG.R. No. 07695 entitled "Philippine Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the petition for certiorari against the order of the Court of First Instance of Manila which issued an alias writ of execution against the petitioner. The petition involving the alias writ of execution had its beginnings on November 8, 1967, when respondent Amelia Tan, under the name and style of Able Printing Press commenced a complaint for damages before the Court of First Instance of Manila. The case was docketed as Civil Case No. 71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc. After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge Jesus P. Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan and against petitioner Philippine Airlines, Inc. (PAL) as follows: WHEREFORE, judgment is hereby defendant Philippine Air Lines: rendered, ordering the

1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual damages, with legal interest thereon from plaintiffs extra-judicial demand made by the letter of July 20, 1967; 2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest thereon from July 20,1967;

3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for moral damages, with legal interest thereon from July 20, 1 967; 4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and for attorney's fee. Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed. With costs against the defendant. (CA Rollo, p. 18) On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as CA-G.R. No. 51079-R. On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which reads: IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff the sum of P25,000.00 as damages and P5,000.00 as attorney's fee, judgment is affirmed, with costs. (CA Rollo, p. 29) Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent thereto, a motion for reconsideration was filed by respondent Amelia Tan, duly opposed by petitioner PAL. On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for reconsideration for lack of merit. No further appeal having been taken by the parties, the judgment became final and executory and on May 31, 1977, judgment was correspondingly entered in the case. The case was remanded to the trial court for execution and on September 2,1977, respondent Amelia Tan filed a motion praying for the issuance of a writ of execution of the judgment rendered by the Court of Appeals. On October 11, 1977, the trial court, presided over by Judge Galano, issued its order of execution with the corresponding writ in favor of the respondent. The writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of the Court of First Instance of Manila for enforcement. Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an alias writ of execution stating that the judgment rendered by the lower court, and affirmed with modification by the Court of Appeals, remained unsatisfied. On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of execution stating that it had already fully paid its obligation to plaintiff through the deputy sheriff of the respondent court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed and receipted by said Emilio Z. Reyes.

On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature, ordering the executing sheriff Emilio Z. Reyes to appear with his return and explain the reason for his failure to surrender the amounts paid to him by petitioner PAL. However, the order could not be served upon Deputy Sheriff Reyes who had absconded or disappeared. On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by respondent Amelia Tan. On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ of Execution" with Substitute Motion for Alias Writ of Execution. On May 1, 1978, the respondent Judge issued an order which reads: As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial Alias Writ of Execution with Substitute Motion for Alias Writ of Execution is hereby granted, and the motion for partial alias writ of execution is considered withdrawn. Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of the judgment rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for the enforcement thereof. (CA Rollo, p. 34) On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the same day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with legal interest thereon from July 20,1967 when respondent Amelia Tan made an extra-judicial demand through a letter. Levy was also ordered for the further sum of P5,000.00 awarded as attorney's fees. On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution stating that no return of the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and that the judgment debt had already been fully satisfied by the petitioner as evidenced by the cash vouchers signed and receipted by the server of the writ of execution, Deputy Sheriff Emilio Z. Reyes. On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the depository bank of petitioner, Far East Bank and Trust Company, Rosario Branch, Binondo, Manila, through its manager and garnished the petitioner's deposit in the said bank in the total amount of P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by the Philippine Airlines, Inc., on the grounds that: I AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING OFFICER. II

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE WRIT OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT. III INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE PAYMENT THEREOF. IV SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY JUDGMENT. Can an alias writ of execution be issued without a prior return of the original writ by the implementing officer? We rule in the affirmative and we quote the respondent court's decision with approval: The issuance of the questioned alias writ of execution under the circumstances here obtaining is justified because even with the absence of a Sheriffs return on the original writ, the unalterable fact remains that such a return is incapable of being obtained (sic) because the officer who is to make the said return has absconded and cannot be brought to the Court despite the earlier order of the court for him to appear for this purpose. (Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking cognizance of this circumstance, the order of May 11, 1978 directing the issuance of an alias writ was therefore issued. (Annex D. Petition). The need for such a return as a condition precedent for the issuance of an alias writ was justifiably dispensed with by the court below and its action in this regard meets with our concurrence. A contrary view will produce an abhorent situation whereby the mischief of an erring officer of the court could be utilized to impede indefinitely the undisputed and awarded rights which a prevailing party rightfully deserves to obtain and with dispatch. The final judgment in this case should not indeed be permitted to become illusory or incapable of execution for an indefinite and over extended period, as had already transpired. (Rollo, pp. 35-36) Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be illusory it ought to have its proper effect). Indeed, technicality cannot be countenanced to defeat the execution of a judgment for execution is the fruit and end of the suit and is very aptly called the life of the law (Ipekdjian Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Internal Revenue v. Visayan Electric Co., 19 SCRA 697, 698 [1967]). A judgment cannot be rendered nugatory by the unreasonable application of a strict rule of procedure. Vested rights were never intended to rest on the

requirement of a return, the office of which is merely to inform the court and the parties, of any and all actions taken under the writ of execution. Where such information can be established in some other manner, the absence of an executing officer's return will not preclude a judgment from being treated as discharged or being executed through an alias writ of execution as the case may be. More so, as in the case at bar. Where the return cannot be expected to be forthcoming, to require the same would be to compel the enforcement of rights under a judgment to rest on an impossibility, thereby allowing the total avoidance of judgment debts. So long as a judgment is not satisfied, a plaintiff is entitled to other writs of execution (Government of the Philippines v. Echaus and Gonzales, 71 Phil. 318). It is a well known legal maxim that he who cannot prosecute his judgment with effect, sues his case vainly. More important in the determination of the propriety of the trial court's issuance of an alias writ of execution is the issue of satisfaction of judgment. Under the peculiar circumstances surrounding this case, did the payment made to the absconding sheriff by check in his name operate to satisfy the judgment debt? The Court rules that the plaintiff who has won her case should not be adjudged as having sued in vain. To decide otherwise would not only give her an empty but a pyrrhic victory. It should be emphasized that under the initial judgment, Amelia Tan was found to have been wronged by PAL. She filed her complaint in 1967. After ten (10) years of protracted litigation in the Court of First Instance and the Court of Appeals, Ms. Tan won her case. It is now 1990. Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have solemnly declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has been deprived of what, technically, she should have been paid from the start, before 1967, without need of her going to court to enforce her rights. And all because PAL did not issue the checks intended for her, in her name. Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in his name did not operate as a satisfaction of the judgment debt. In general, a payment, in order to be effective to discharge an obligation, must be made to the proper person. Article 1240 of the Civil Code provides: Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. (Emphasis supplied) Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment (Ulen v. Knecttle 50

Wyo 94, 58 [2d] 446, 111 ALR 65). Payment made to one having apparent authority to receive the money will, as a rule, be treated as though actual authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34 LRA 283). The receipt of money due on ajudgment by an officer authorized by law to accept it will, therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275). The theory is where payment is made to a person authorized and recognized by the creditor, the payment to such a person so authorized is deemed payment to the creditor. Under ordinary circumstances, payment by the judgment debtor in the case at bar, to the sheriff should be valid payment to extinguish the judgment debt. There are circumstances in this case, however, which compel a different conclusion. The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in checks. The checks were not payable to Amelia Tan or Able Printing Press but to the absconding sheriff. Did such payments extinguish the judgment debt? Article 1249 of the Civil Code provides: The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance. In the absence of an agreement, either express or implied, payment means the discharge of a debt or obligation in money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402). Consequently, unless authorized to do so by law or by consent of the obligee a public officer has no authority to accept anything other than money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioner's checks, in the case at bar, does not, per se, operate as a discharge of the judgment debt. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check,

whether a manager's check or ordinary cheek, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3). If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would have been no payment. After dishonor of the checks, Ms. Tan could have run after other properties of PAL. The theory is that she has received no value for what had been awarded her. Because the checks were drawn in the name of Emilio Z. Reyes, neither has she received anything. The same rule should apply. It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in decision making. We should not follow rulings to their logical extremes if in doing so we arrive at unjust or absurd results. In the first place, PAL did not pay in cash. It paid in cheeks. And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of cash in a careless and inane manner. Mature thought is given to the possibility of the cash being lost, of the bearer being waylaid or running off with what he is carrying for another. Payment in checks is precisely intended to avoid the possibility of the money going to the wrong party. The situation is entirely different where a Sheriff seizes a car, a tractor, or a piece of land. Logic often has to give way to experience and to reality. Having paid with checks, PAL should have done so properly. Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment debt but the Court has never, in the least bit, suggested that judgment debtors should settle their obligations by turning over huge amounts of cash or legal tender to sheriffs and other executing officers. Payment in cash would result in damage or interminable litigations each time a sheriff with huge amounts of cash in his hands decides to abscond. As a protective measure, therefore, the courts encourage the practice of payments by cheek provided adequate controls are instituted to prevent wrongful payment and illegal withdrawal or disbursement of funds. If particularly big amounts are involved, escrow arrangements with a bank and carefully supervised by the court would be the safer procedure. Actual transfer of funds takes place within the safety of bank premises. These practices are perfectly legal. The object is always the safe and incorrupt execution of the judgment. It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name of another. Making the checks payable to the judgment creditor would have prevented the encashment or the taking of undue advantage by the sheriff, or any person into whose hands the checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in the name of the sheriff clearly made possible the misappropriation of the funds that were withdrawn. As explained and held by the respondent court:

... [K]nowing as it does that the intended payment was for the private party respondent Amelia Tan, the petitioner corporation, utilizing the services of its personnel who are or should be knowledgeable about the accepted procedures and resulting consequences of the checks drawn, nevertheless, in this instance, without prudence, departed from what is generally observed and done, and placed as payee in the checks the name of the errant Sheriff and not the name of the rightful payee. Petitioner thereby created a situation which permitted the said Sheriff to personally encash said checks and misappropriate the proceeds thereof to his exclusive personal benefit. For the prejudice that resulted, the petitioner himself must bear the fault. The judicial guideline which we take note of states as follows: As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss. (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625) Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act made possible the loss had but itself to blame. The attention of this Court has been called to the bad practice of a number of executing officers, of requiring checks in satisfaction of judgment debts to be made out in their own names. If a sheriff directs a judgment debtor to issue the checks in the sheriff's name, claiming he must get his commission or fees, the debtor must report the sheriff immediately to the court which ordered the execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions, and salaries are paid through regular channels. This improper procedure also allows such officers, who have sixty (60) days within which to make a return, to treat the moneys as their personal finds and to deposit the same in their private accounts to earn sixty (60) days interest, before said finds are turned over to the court or judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). Quite as easily, such officers could put up the defense that said checks had been issued to them in their private or personal capacity. Without a receipt evidencing payment of the judgment debt, the misappropriation of finds by such officers becomes clean and complete. The practice is ingenious but evil as it unjustly enriches court personnel at the expense of litigants and the proper administration of justice. The temptation could be far greater, as proved to be in this case of the absconding sheriff. The correct and prudent thing for the petitioner was to have issued the checks in the intended payee's name. The pernicious effects of issuing checks in the name of a person other than the intended payee, without the latter's agreement or consent, are as many as the ways that an artful mind could concoct to get around the safeguards provided by the law on negotiable instruments. An angry litigant who loses a case, as a rule, would not want the winning party to get what he won in the judgment. He would think of ways to delay the winning party's getting what has been adjudged in his favor. We cannot condone that practice especially in cases where the courts and their officers are involved. We rule against the petitioner. Anent the applicability of Section 15, Rule 39, as follows:

Section 15. Execution of money judgments. The officer must enforce an execution of a money judgment by levying on all the property, real and personal of every name and nature whatsoever, and which may be disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient amount of such property, if they be sufficient, and selling the same, and paying to the judgment creditor, or his attorney, so much of the proceeds as will satisfy the judgment. ... the respondent court held: We are obliged to rule that the judgment debt cannot be considered satisfied and therefore the orders of the respondent judge granting the alias writ of execution may not be pronounced as a nullity. xxx xxx xxx It is clear and manifest that after levy or garnishment, for a judgment to be executed there is the requisite of payment by the officer to the judgment creditor, or his attorney, so much of the proceeds as will satisfy the judgment and none such payment had been concededly made yet by the absconding Sheriff to the private respondent Amelia Tan. The ultimate and essential step to complete the execution of the judgment not having been performed by the City Sheriff, the judgment debt legally and factually remains unsatisfied. Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual circumstances as those obtaining in this petition, the distinction comes out clearly. Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's Law Dictionary), whereas the satisfaction of a judgment is the payment of the amount of the writ, or a lawful tender thereof, or the conversion by sale of the debtor's property into an amount equal to that due, and, it may be done otherwise than upon an execution (Section 47, Rule 39). Levy and delivery by an execution officer are not prerequisites to the satisfaction of a judgment when the same has already been realized in fact (Section 47, Rule 39). Execution is for the sheriff to accomplish while satisfaction of the judgment is for the creditor to achieve. Section 15, Rule 39 merely provides the sheriff with his duties as executing officer including delivery of the proceeds of his levy on the debtor's property to satisfy the judgment debt. It is but to stress that the implementing officer's duty should not stop at his receipt of payments but must continue until payment is delivered to the obligor or creditor. Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to be recovered under the alias writ of execution. This logically follows from our ruling that PAL is liable for both the lost checks and interest. The respondent court's decision in CA-G.R. No. 51079-R does not totally supersede the

trial court's judgment in Civil Case No. 71307. It merely modified the same as to the principal amount awarded as actual damages. WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The judgment of the respondent Court of Appeals is AFFIRMED and the trial court's issuance of the alias writ of execution against the petitioner is upheld without prejudice to any action it should take against the errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to follow up the actions taken against Emilio Z. Reyes. SO ORDERED. Fernan, C.J., Cruz, Paras, Bidin, Grio-Aquino, Medialdea and Regalado, JJ., concur. G.R. No. 112392 February 29, 2000

Benjamin D. Napiza IV, who is private respondent's son, to inform his father that the check bounced.9 Reyes himself sent a telegram to private respondent regarding the dishonor of the check. In turn, private respondent's son wrote to Reyes stating that the 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. 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.10 Private respondent's son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, 1984, Reyes reminded private respondent of his son's promise and warned that should he fail to return that amount within seven (7) days, the matter would be referred to the bank's lawyers for appropriate action to protect the bank's interest.11 This was followed by a letter of the bank's lawyer dated April 8, 1985 demanding the return of the $2,500.00.12 In reply, private respondent wrote petitioner's counsel on April 20, 198513 stating that he deposited the check "for clearing purposes" only to accommodate Chan. He added: 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.1wphi1.nt 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. xxx xxx xxx

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents. YNARES-SANTIAGO, J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial Court of Makati, Branch 139,2 which dismissed the complaint filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C. Napiza for sum of money. On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-1873 which he maintained in petitioner bank's Buendia Avenue Extension Branch, Continental Bank Manager's Check No. 000147574 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.5 It appears that the check belonged to a certain Henry 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 respondent's presentation to the bank of his passbook. 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 check7 because it was "not of the type or style of checks issued by Continental Bank International."8 Consequently, Mr. Ariel Reyes, the manager of petitioner's Buendia Avenue Extension Branch, instructed one of its employees,

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 draft's 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 petitioner's 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" . . . "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 attorney's 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 respondent's passbook. Thus, private respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay attorney's 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, whenever 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 respondent's 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 check's 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 latter's 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. On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held that petitioner committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondent's passbook and, before the check was cleared and in crediting the amount indicated therein in private respondent's account. It stressed that the mere deposit of a check in private respondent's account did not mean that the check was already private respondent's property. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the bank's rules and regulations. Furthermore, petitioner's contention that private respondent warranted the check's 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,14 where this Court stated that a personal check is not legal tender or money, and 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 ALLOWING THE WITHDRAWAL. WAS GROSSLY NEGLIGENT IN

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. 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.15 In People v. Maniego,16 this Court described the liabilities of an indorser as follows: Appellant's 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 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 thereof, 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.17 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. 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 respondent's 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."18 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. 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 depositor's written authority duly authenticated; and neither a deposit nor a withdrawal will be permitted except upon the presentation of the depositor's 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 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 withdrawal only in the manner above provided, upon presentation of the depositor's savings passbook and with the withdrawal form supplied by the Bank at the counter.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 depositor's passbook. Private respondent admits 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 respondent's two signatures affixed on the proper spaces is buttressed by petitioner's 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, petitioner's personnel should have been duly warned that Gayon, who was also employed in petitioner's Buendia Ave. Extension branch,21 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 petitioner's clear admission that the withdrawal slip was a blank one except for private respondent's 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. 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 bank's interest and as a reminder to the depositor, the withdrawal shall be entered in the depositor's passbook. The fact that private respondent's passbook was not presented during the withdrawal is 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 accented as subject to collection only and credited to the account only upon receipt of the notice of final payment. Collection charges by the Bank's 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. (Emphasis and underlining supplied.) 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 manager's check or ordinary check, is not legal tender.23 As such, after receiving the deposit, under its own rules, petitioner shall credit the amount in private respondent's 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 Court's pronouncement that "the collecting bank or last endorser generally suffers the loss because 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."24 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 manager's check.25 In Banco Atlantico v. Auditor General,26 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 Atlantico's foreign department. The Court held that the encashment of the checks without prior 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 General's denial of Banco Atlantico's 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."27 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.28 In the case at bar, petitioner, in allowing the withdrawal of private respondent's deposit, failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioner's personnel negligently handled private respondent's account to petitioner's 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 that 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 respondent's dollar deposits that had yet to be cleared. The bank's ledger on private respondent's account shows that before he deposited $2,500.00, private respondent had a balance of only $750.00.30 Upon private respondent's 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 $3,250.00.31 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 $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 $109.92.32 On November 19, 1984 the word "hold" was written beside the balance of $109.92.33 That must have been the time when Reyes, petitioner's branch manager, was informed unofficially of the fact that the check deposited was a counterfeit, but petitioner's Buendia Ave. Extension Branch received a copy of the communication thereon from Wells Fargo Bank International in New York the following day, November 20, 1984.34 According to Reyes, Wells Fargo Bank International handled the clearing of checks drawn against U.S. banks that were deposited with petitioner.35 From these facts on record, it is at once apparent that petitioner's 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,36 is untenable. Said practice amounts to a disregard of the clearance requirement of the banking system. While it is true that private respondent'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 petitioner'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." 37 The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioner's part was its personnel's 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.1wphi1.nt 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.