G.R. No.

L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and
Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by
the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael
Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money
orders of P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon. After the postal
teller had made out money ordersnumbered 124685, 124687-124695, Montinola offered to pay for
them with a private checks were not generally accepted in payment of money orders, the teller
advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave building with his own check and the ten(10) money orders without the knowledge
of the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders,
an urgent message was sent to all postmasters, and the following day notice was likewise served
upon all banks, instructing them not to pay anyone of the money orders aforesaid if presented for
payment. The Bank of America received a copy of said notice three days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by
appellant as part of its sales receipts. The following day it deposited the same with the Bank of
America, and one day thereafter the latter cleared it with the Bureau of Posts and received from the
latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the
Manila Post Office, acting for and in behalf of his co-appellee, Postmaster Enrico Palomar, notified
the Bank of America that money order No. 124688 attached to his letter had been found to have
been irregularly issued and that, in view thereof, the amount it represented had been deducted from
the bank's clearing account. For its part, on August 2 of the same year, the Bank of America debited
appellant's account with the same amount and gave it advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by
his office deducting the sum of P200.00 from the clearing account of the Bank of America, but his
request was denied. So was appellant's subsequent request that the matter be referred to the
Secretary of Justice for advice. Thereafter, appellant elevated the matter to the Secretary of Public
Works and Communications, but the latter sustained the actions taken by the postal officers.

In connection with the events set forth above, Montinola was charged with theft in the Court of First
Instance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground of
reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila
praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on September 27, 1961,
deducting from the said Bank's clearing account the sum of P200.00 represented by
postal money order No. 124688, or in the alternative indemnify the plaintiff in the
same amount with interest at 8-% per annum from September 27, 1961, which is
the rate of interest being paid by plaintiff on its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual
and moral damages in the amount of P1,000.00 or in such amount as will be proved
and/or determined by this Honorable Court: exemplary damages in the amount of
P1,000.00, attorney's fees of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and
equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages
12 to 15 of the Record on Appeal, the above-named court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to
countermand the notice given to the Bank of America on September 27, 1961,
deducting from said Bank's clearing account the sum of P200.00 representing the
amount of postal money order No. 124688, or in the alternative, to indemnify the
plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-% per
annum from September 27, 1961 until fully paid; without any pronouncement as to
cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties had
resubmitted the same stipulation of facts, the appealed decision dismissing the complaint, with
costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are related to the other
and will therefore be discussed jointly. They raise this main issue: that the postal money order in
question is a negotiable instrument; that its nature as such is not in anyway affected by the letter
dated October 26, 1948 signed by the Director of Posts and addressed to all banks with a clearing
account with the Post Office, and that money orders, once issued, create a contractual relationship
of debtor and creditor, respectively, between the government, on the one hand, and the remitters
payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the United States.
For this reason, ours are generally construed in accordance with the construction given in the United
States to their own postal statutes, in the absence of any special reason justifying a departure from
this policy or practice. The weight of authority in the United States is that postal money orders are
not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank,
30 Fed. 912), the reason behind this rule being that, in establishing and operating a postal money

order system, the government is not engaging in commercial transactions but merely exercises a
governmental power for the public benefit.
It is to be noted in this connection that some of the restrictions imposed upon money orders by
postal laws and regulations are inconsistent with the character of negotiable instruments. For
instance, such laws and regulations usually provide for not more than one endorsement; payment of
money orders may be withheld under a variety of circumstances (49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid down in the
letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the
redemption of postal money orders received by it from its depositors. Among others, the condition is
imposed that "in cases of adverse claim, the money order or money orders involved will be returned
to you (the bank) and the, corresponding amount will have to be refunded to the Postmaster, Manila,
who reserves the right to deduct the value thereof from any amount due you if such step is deemed
necessary." The conditions thus imposed in order to enable the bank to continue enjoying the
facilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The latter is
therefore bound by them. That it is so is clearly referred from the fact that, upon receiving advice that
the amount represented by the money order in question had been deducted from its clearing
account with the Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal officers, on the one
hand, and the Bank of America, on the other, appellant has no right to assail the terms and
conditions thereof on the ground that the letter setting forth the terms and conditions aforesaid is
void because it was not issued by a Department Head in accordance with Sec. 79 (B) of the Revised
Administrative Code. In reality, however, said legal provision does not apply to the letter in question
because it does not provide for a department regulation but merely sets down certain conditions
upon the privilege granted to the Bank of Amrica to accept and pay postal money orders presented
for payment at the Manila Post Office. Such being the case, it is clear that the Director of Posts had
ample authority to issue it pursuant to Sec. 1190 of the Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and
fourth assignments of error.
WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed
with costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor,
JJ., concur.
Castro and Makasiar, JJ., took no part

G.R. No. L-49188 January 30, 1990

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 CA-G.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 rendered, ordering the defendant Philippine Air
Lines:
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.

Separate Opinions

NARVASA, J., dissenting:

The execution of final judgments and orders is a function of the sheriff, an officer of the court whose
authority is by and large statutorily determined to meet the particular exigencies arising from or
connected with the performance of the multifarious duties of the office. It is the acknowledgment of
the many dimensions of this authority, defined by statute and chiselled by practice, which compels
me to disagree with the decision reached by the majority.
A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court most
directly involved with the implementation and execution of final judgments and orders persuades me
that PAL's payment to the sheriff of its judgment debt to Amelia Tan, though made by check issued
in said officer's name, lawfully satisfied said obligation and foreclosed further recourse therefor
against PAL, notwithstanding the sheriffs failure to deliver to Tan the proceeds of the check.
It is a matter of history that the judiciary .. is an inherit or of the Anglo-American
tradition. While the common law as such .. "is not in force" in this jurisdiction, "to
breathe the breath of life into many of the institutions, introduced [here] under
American sovereignty, recourse must be had to the rules, principles and doctrines of
the common law under whose protecting aegis the prototypes of these institutions
had their birth" A sheriff is "an officer of great antiquity," and was also called the shire
reeve. A shire in English law is a Saxon word signifying a division later called a
county. A reeve is an ancient English officer of justice inferior in rank to an alderman
.. appointed to process, keep the King's peace, and put the laws in execution. From a
very remote period in English constitutional history .. the shire had another officer,
namely the shire reeve or as we say, the sheriff. .. The Sheriff was the special
representative of the legal or central authority, and as such usually nominated by the
King. .. Since the earliest times, both in England and the United States, a sheriff has
continued his status as an adjunct of the court .. . As it was there, so it has been in
the Philippines from the time of the organization of the judiciary .. . (J. Fernando's
concurring opinion in Bagatsing v. Herrera, 65 SCRA 434)
One of a sheriff s principal functions is to execute final judgments and orders. The Rules of Court
require the writs of execution to issue to him, directing him to enforce such judgments and orders in
the manner therein provided (Rule 39). The mode of enforcement varies according to the nature of
the judgment to be carried out: whether it be against property of the judgment debtor in his hands or
in the hands of a third person i e. money judgment), or for the sale of property, real or personal (i.e.
foreclosure of mortgage) or the delivery thereof, etc. (sec. 8, Rule 39).

Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much of the judgment
debtor's property as may be sufficient to enforce the money judgment and sell these properties at
public auction after due notice to satisfy the adjudged amount. It is the sheriff who, after the auction
sale, conveys to the purchaser the property thus sold (secs. 25, 26, 27, Rule 39), and pays the
judgment creditor so much of the proceeds as will satisfy the judgment. When the property sold by
him on execution is an immovable which consequently gives rise to a light of redemption on the part
of the judgment debtor and others (secs. 29, 30, Rule 39), it is to him (or to the purchaser or
redemptioner that the payments may be made by those declared by law as entitled to redeem (sec.
31, Rule 39); and in this situation, it becomes his duty to accept payment and execute the certificate
of redemption (Enage v. Vda. y Hijos de Escano, 38 Phil. 657, cited in Moran, Comments on the
Rules of Court, 1979 ed., vol. 2, pp. 326-327). It is also to the sheriff that "written notice of any
redemption must be given and a duplicate filed with the registrar of deeds of the province, and if any
assessments or taxes are paid by the redemptioner or if he has or acquires any lien other than that
upon which the redemption was made, notice thereof must in like manner be given to the officer and
filed with the registrar of deeds," the effect of failure to file such notice being that redemption may be
made without paying such assessments, taxes, or liens (sec. 30, Rule 39).
The sheriff may likewise be appointed a receiver of the property of the judgment debtor where the
appointment of the receiver is deemed necessary for the execution of the judgment (sec. 32, Rule
39).
At any time before the sale of property on execution, the judgment debtor may prevent the sale by
paying the sheriff the amount required by the execution and the costs that have been incurred
therein (sec. 20, Rule 39).
The sheriff is also authorized to receive payments on account of the judgment debt tendered by "a
person indebted to the judgment debtor," and his "receipt shall be a sufficient discharge for the
amount so paid or directed to be credited by the judgment creditor on the execution" (sec. 41, Rule
39).
Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in fun, if the
price paid by the highest bidder is equal to, or more than the amount of the judgment or pro tanto if
the price fetched at the sale be less. Such extinction is not in any way dependent upon the judgment
creditor's receiving the amount realized, so that the conversion or embezzlement of the proceeds of
the sale by the sheriff does not revive the judgment debt or render the judgment creditor liable anew
therefor.
So, also, the taking by the sheriff of, say, personal property from the judgment debtor for delivery to
the judgment creditor, in fulfillment of the verdict against him, extinguishes the debtor's liability; and
the conversion of said property by the sheriff, does not make said debtor responsible for replacing
the property or paying the value thereof.
In the instances where the Rules allow or direct payments to be made to the sheriff, the payments
may be made by check, but it goes without saying that if the sheriff so desires, he may require
payment to be made in lawful money. If he accepts the check, he places himself in a position where
he would be liable to the judgment creditor if any damages are suffered by the latter as a result of
the medium in which payment was made (Javellana v. Mirasol, et al., 40 Phil. 761). The validity of
the payment made by the judgment debtor, however, is in no wise affected and the latter is
discharged from his obligation to the judgment creditor as of the moment the check issued to the
sheriff is encashed and the proceeds are received by Id. office. The issuance of the check to a
person authorized to receive it (Art. 1240, Civil Code; See. 46 of the Code of Civil Procedure; Enage

v. Vda y Hijos de Escano, 38 Phil. 657, cited in Javellana v. Mirasol, 40 Phil. 761) operates to
release the judgment debtor from any further obligations on the judgment.
The sheriff is an adjunct of the court; a court functionary whose competence involves both discretion
and personal liability (concurring opinion of J. Fernando, citing Uy Piaoco v. Osmena, 9 Phil. 299, in
Bagatsing v. Herrera, 65 SCRA 434). Being an officer of the court and acting within the scope of his
authorized functions, the sheriff s receipt of the checks in payment of the judgment execution, may
be deemed, in legal contemplation, as received by the court itself (Lara v. Bayona, 10 May 1955, No.
L- 10919).
That the sheriff functions as a conduit of the court is further underscored by the fact that one of the
requisites for appointment to the office is the execution of a bond, "conditioned (upon) the faithful
performance of his (the appointee's) duties .. for the delivery or payment to Government, or the
person entitled thereto, of all properties or sums of money that shall officially come into his hands"
(sec. 330, Revised Administrative Code).
There is no question that the checks came into the sheriffs possession in his official capacity. The
court may require of the judgment debtor, in complying with the judgment, no further burden than his
vigilance in ensuring that the person he is paying money or delivering property to is a person
authorized by the court to receive it. Beyond this, further expectations become unreasonable. To my
mind, a proposal that would make the judgment debtor unqualifiedly the insurer of the judgment
creditor's entitlement to the judgment amount which is really what this case is all about begs the
question.
That the checks were made out in the sheriffs name (a practice, by the way, of long and common
acceptance) is of little consequence if juxtaposed with the extent of the authority explicitly granted
him by law as the officer entrusted with the power to execute and implement court judgments. The
sheriffs requirement that the checks in payment of the judgment debt be issued in his name was
simply an assertion of that authority; and PAL's compliance cannot in the premises be faulted merely
because of the sheriffs subsequent malfeasance in absconding with the payment instead of turning it
over to the judgment creditor.
If payment had been in cash, no question about its validity or of the authority and duty of the sheriff
to accept it in settlement of PAL's judgment obligation would even have arisen. Simply because it
was made by checks issued in the sheriff s name does not warrant reaching any different
conclusion.
As payment to the court discharges the judgment debtor from his responsibility on the judgment, so
too must payment to the person designated by such court and authorized to act in its behalf, operate
to produce the same effect.
It is unfortunate and deserving of commiseration that Amelia Tan was deprived of what was
adjudged to her when the sheriff misappropriated the payment made to him by PAL in dereliction of
his sworn duties. But I submit that her remedy lies, not here and in reviving liability under a judgment
already lawfully satisfied, but elsewhere.
ACCORDINGLY, I vote to grant the petition.
Melencio-Herrera, Gancayco, J., concurs.

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO,
MAGNO CASTILLO and GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:p
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned
of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines
and even abroad. Golden Savings and Loan Association was, at the time these events happened,
operating in Calapan, Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited
over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared
to have been indorsed by their respective payees, followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No.
2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch
office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for
special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to
ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was
meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's
repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally
decided to allow Golden Savings to withdraw from the proceeds of the
warrants. 3 The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on
July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account,
eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the
amount it had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro. 5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion
for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court
modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden
Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and
Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of
the sum of P1,754,089.00 and to reinstate and credit to such account such amount
existing before the debit was made including the amount of P812,033.37 in favor of
defendant Golden Savings and Loan Association, Inc. and thereafter, to allow
defendant Golden Savings and Loan Association, Inc. to withdraw the amount
outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association,
Inc. attorney's fees and expenses of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia
Castillo attorney's fees and expenses of litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition
for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear
contractual terms and conditions on the deposit slips allowing Metrobank to charge
back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or
treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere
collecting agent which cannot be held liable for its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals,
Metrobank is made to pay for warrants already dishonored, thereby perpetuating the
fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and
Golden Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved
in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent
in giving Golden Savings the impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even
have incurred liability for its refusal to return the money that to all appearances belonged to the
depositor, who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them
to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on
Metrobank to determine the validity of the warrants through its own services. The proceeds of the
warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them
from its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by
Golden Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the
personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez
who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover,
the treasury warrants were subject to clearing, pending which the depositor could not withdraw its
proceeds. There was no question of Gomez's identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the
forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be
faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling
more than one and a half million pesos (and this was 1979). There was no reason why it should
not have waited until the treasury warrants had been cleared; it would not have lost a single centavo
by waiting. Yet, despite the lack of such clearance and notwithstanding that it had not received a
single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses it
allowed Golden Savings to withdraw not once, not twice, but thrice from the uncleared treasury
warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance
and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been
cleared simply because of "the lapse of one week." 8 For a bank with its long experience, this
explanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the
dorsal side of the deposit slips through which the treasury warrants were deposited by Golden
Savings with its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the
depositor's collecting agent, assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall have come into
possession of this bank, the right is reserved to charge back to the depositor's
account any amount previously credited, whether or not such item is returned. This

also applies to checks drawn on local banks and bankers and their branches as well
as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized
overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent
for Golden Savings and give it the right to "charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also applies to checks ". . . which are
unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is
claimed that the said conditions are in the nature of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have
apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it
could be argued that the depositor, in signing the deposit slip, does so only to identify himself and
not to agree to the conditions set forth in the given permit at the back of the deposit slip. We do not
have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were
considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the
light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged 'with more or less rigor by the courts, according to whether the
agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw
the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There
may have been no express clearance, as Metrobank insists (although this is refuted by Golden
Savings) but in any case that clearance could be implied from its allowing Golden Savings to
withdraw from its account not only once or even twice but three times. The total withdrawal was in
excess of its original balance before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have
been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There
would have been no need for it to wait until the warrants had been cleared before paying the
proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not
binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is
considered that the supposed dishonor of the warrants was not communicated to Golden Savings
before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least
implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But
that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer corporation, has not been
established. 9 This was the finding of the lower courts which we see no reason to disturb. And as we said
in MWSS v. Court of Appeals: 10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing evidence. This was not done in the
present case.
A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and
this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund
501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. An unqualified order or promise to pay is
unconditional within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable.
There should be no question that the exception on Section 3 of the Negotiable Instruments Law is
applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the
Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable
instrument and is entitled to the rights and privileges of a holder in due course, free
from defenses. But this treasury warrant is not within the scope of the negotiable
instrument law. For one thing, the document bearing on its face the words "payable
from the appropriation for food administration, is actually an Order for payment out of
"a particular fund," and is not unconditional and does not fulfill one of the essential

requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of

the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that
they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not applicable to the nonnegotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the
warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust
Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we
feel this case is inapplicable to the present controversy. That case involved checks whereas this case
involves treasury warrants. Golden Savings never represented that the warrants were negotiable but
signed them only for the purpose of depositing them for clearance. Also, the fact of forgery was proved in
that case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent in
accepting the checks without question from one Antonio Ramirez notwithstanding that the payee was the
Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar
negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as
it directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited
to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was
allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount
he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden
Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit
because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance
to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has
already been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter
allowing defendant Golden Savings & Loan Association, Inc. to withdraw the amount
outstanding thereon, if any, after the debit.
SO ORDERED.
Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

Footnotes
1 Rollo, pp. 12-13.
2 Ibid., p. 52.

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier
decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein
by herein petitioner against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted by respondent
court, appears of record:
1. On various dates, defendant, a commercial banking institution, through its Sucat
Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz
who deposited with herein defendant the aggregate amount of P1,120,000.00, as
follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records,
p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in
connection with his purchased of fuel products from the latter (Original Record, p.
208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
Sucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr.
Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,
as required by defendant bank's procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank
the required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit
of loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's
Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos
(P875,000.00). On the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la
Cruz) surrenders to defendant bank "full control of the indicated time deposits from
and after date" of the assignment and further authorizes said bank to pre-terminate,
set-off and "apply the said time deposits to the payment of whatever amount or
amounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 6062).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex
(Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification
the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to
herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said
depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from
herein plaintiff formally informing it of its possession of the CTDs in question and of
its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the
former "a copy of the document evidencing the guarantee agreement with Mr. Angel
dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which
plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983 (Defendant's
Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and
fell due and on August 5, 1983, the latter set-off and applied the time deposits in
question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates of time
deposit of P1,120,000.00 plus accrued interest and compounded interest therein at
16% per annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant complaint. 3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint,
hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates
of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not
become a holder in due course of the said certificates of deposit; and (3) in disregarding the
pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum
of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to
said depositor 731 days. after date, upon presentation and surrender
of this certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as
follows:
. . . While it may be true that the word "bearer" appears rather boldly in the CTDs
issued, it is important to note that after the word "BEARER" stamped on the space
provided supposedly for the name of the depositor, the words "has deposited" a
certain amount follows. The document further provides that the amount deposited
shall be "repayable to said depositor" on the period indicated. Therefore, the text of
the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the "bearer" but only to the specified person indicated
therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel
dela Cruz as the person who made the deposit and further engages itself to pay said
depositor the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments
Law, enumerates the requisites for an instrument to become negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties'
bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the
bank, the depositor referred (sic) in these certificates states that it
was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela
Cruz was the one who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx

Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these
certificates of time deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx

On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. 9 In the construction of a bill
or note, the intention of the parties is to control, if it can be legally ascertained. 10 While the writing may be
read in the light of surrounding circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in 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. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The documents
provide that the amounts deposited shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer
at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each
CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to
the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind
the plain import of what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation
of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in
the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this
suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are
bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and
De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although
petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment
for the fuel products or as a security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr.,
Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel
dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission is
conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission
or representation is rendered conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon. 14 A party may not go back on his own acts and representations to
the prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a party has, by
his own declaration, act, or omission, intentionally and deliberately led another to believe a particular
thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit
manager could have easily said so, instead of using the words "to guarantee" in the letter
aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill of
particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to aver with
sufficient definiteness or particularity (a) the due date or dates of payment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were
delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation
opposed the motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly was the
fact, that the CTDs were delivered as payment and not as security. Having opposed the motion, petitioner
now labors under the presumption that evidence willfully suppressed would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote
therefrom:
The character of the transaction between the parties is to be
determined by their intention, regardless of what language was used
or what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was
some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its
object and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of
property by the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a pledge if the
debt continues in inexistence and is not discharged by the transfer,
and that accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect in such
a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of
absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case, however,
there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in
which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact
that the amount involved was not disclosed) could at the most constitute petitioner only as a holder for
value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere
delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal obligation, must be contractually provided for.

The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral
security, he would be a pledgee but the requirements therefor and the effects thereof, not being provided
for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of
incorporeal rights, 24 which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be

pledged. The instrument proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective
against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge
contract, but a rule of substantive law prescribing a condition without which the execution of a pledge
contract cannot affect third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent
bank was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code
specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded
in the Registry of Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent
of its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better
right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable instruments
and the issuance of replacement certificates therefor, on the ground that petitioner failed to raised
that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted
by them to the trial court. 29The issues agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs
against the depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount
covered by the CTDs and the depositor's outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before
the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and litigation
expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank. An
issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. 30 Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case
are properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a
pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as
may involve privileged or impeaching matters. The determination of issues at a pre-trial conference
bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would
be tantamount to saying that petitioner could raise on appeal any issue. We agree with private
respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned
certificates can be premised on a multitude of other legal reasons and causes of action, of which
respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted,
would render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner
still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce
laying down the rules to be followed in case of lost instruments payable to bearer, which it invokes,
will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar, are
merely permissive and not mandatory. The very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it may be, may apply to
the judge or court of competent jurisdiction, asking that the principal, interest or
dividends due or about to become due, be not paid a third person, as well as in order
to prevent the ownership of the instrument that a duplicate be issued him. (Emphasis
ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but discretionary on the
part of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the
issuance of a duplicate of the lost instrument. Where the provision reads "may," this word shows that
it is not mandatory but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an
auxiliary verb indicating liberty, opportunity, permission and possibility.

36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of
Commerce, on which petitioner seeks to anchor respondent bank's supposed negligence, merely
established, on the one hand, a right of recourse in favor of a dispossessed owner or holder of a bearer
instrument so that he may obtain a duplicate of the same, and, on the other, an option in favor of the party
liable thereon who, for some valid ground, may elect to refuse to issue a replacement of the instrument.
Significantly, none of the provisions cited by petitioner categorically restricts or prohibits the issuance a
duplicate or replacement instrument sans compliance with the procedure outlined therein, and none
establishes a mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed
decision is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Nocon, JJ., concur.
G.R. No. L-2526

September 10, 1907

PEDRO PAMINTUAN, ET AL., petitioners-appellees,

vs.
THE INSULAR GOVERNMENT, ET AL., respondents-appellants.
Attorney-General Araneta for appellants.
Ledesma & Sumulong for appellees.
WILLARD, J.:
The appellees, Pedro Pamintuan and others, filed a petition in the Court of Land Registration, asking
that a tract of land in the pueblo of Angeles, Province of Pampanga, having an area of 626 hectares
38 ares and 95 centares be inscribed in their names as owners. The Solicitor-General opposed the
granting of the petition on the ground that as to all of the land except 92 hectares and 10 ares no title
was shown by the petitioners, and that all of the land except 92 hectares and 10 ares belonged to
the Government. The case was tried in the court below and judgment entered for a petitioners as
prayed for in the petition. From this judgment the Government has appealed.
On the 14th of December, 1885, the Spanish Government, in accordance with the provisions of the
royal decree of the 25th of June, 1880, granted to Wenceslao Pamintuan a tract of land having an
area of 92 hectares and 10 ares, described as follows:
Bounded on the north by the Pasig water course; on the east by land owned by Filomeno
Pamintuan and by Government forests; on the south by Government forests, by land owned
by Fulgencio Tuason, and by the pueblo of Porac; on the west by pueblo of Porac.
This is the deed under which the present petitioners claim.
It appears in the case that in 1879 Wenceslao Pamintuan took proceeding to obtain a summary
information ad perpetuam. The land described therein has an area of
98 quiones 1 balita 7 loanes and 54 square brazas, but as suggested by the Attorney-General in
his brief in his court it is evident that he was not able , in his proceedings for obtaining a deed under
the royal decree of 1880, to prove his possession of all this land, much greater in extent than 92
hectares, and that the only land that possession of which he was able to prove was the land
described in the deed of 1885. The petitioners claim in this case must, therefore, rest on that deed.
The court below decided that the land described in that deed is the identical land described in the
petition, although the land included in this petition is almost seven times as great in area as the land
set forth in the deed. It based its decision upon the proposition of law that where there is a difference
between the area of a tract of land and the natural boundaries thereof, the latter must govern.
In order to determine whether the result arrived at by the court below was or was not correct, it
becomes necessary to examine with some care the evidence of these two witnesses. One of them,

Juan Daluson, gave the names of the adjoining owners at the time when the Government grant was
made and at the present time. This witness did not state upon which side of the land any one of
these adjoining owners lived. He did not mention in his testimony the water course Pasig, which,
according to said deed bounds the land upon the west and forms a part of its southern boundary.
The other witness, Cesareo Tolentino, gave he names of some of the adjoining owners and
indicated upon which side of the land in question they had lives or are now living. He mentioned the
name of Filomeno Pamintuan, which is found in the Government deed, but he said that he was an
adjoining owner toward the south. He did not mention by name the water course Pasig; nor did he
mention the lands in Angeles and in Mabalacat, which, according to the plan attached to the petition,
form more than one-third of the boundary of the tract sought to be registered. After giving the names
of several adjoining owners he was asked who were the others. and he answered that all the others
were in the jurisdiction of Porac and that he did not know the boundaries of that part of the land. This
statement becomes most significant when it is observed that according to the Government deed the
entire western boundary and part of the southern boundary is the same district of Porac. Another
significant statement if this witness was to the effect that the land of Pamintuan is almost entire
surrounded by a canal. An examination of the map attached to the petition will show that if the 92
hectares described in the Government deed are situated, as we believe they are, in the extreme
eastern end of the land sought to be registered, this statement would be partially true. According to
that plan, while there are water courses upon the northeast and southeast of the land, there is no
indication of any water course toward the west of the land, which seems to be three-quarters of the
whole.
It also appears from the testimony of this two witnesses that all of the persons whom they name as
former or present owners of adjoining land, with one exception, lived to the east and southeast of
this land, and as to more than three-fifths of the land described in the plan they name no adjoining
owners at all.
The last witness, Tolentino was the person who served as a guide for the surveyor who made the
plan above mentioned in 1903, and was the person who pointed out the boundaries to him. It is
apparent from his own testimony, as has been said above, that he did not know anything about the
boundaries of a large portion of the land, and was, therefore, not a competent person to give any
information thereon.
It is true that those witnesses were asked if the boundaries of the land at the time the deed was
given were the same as the present boundaries and that to this question they answered "yes" but
this answer can not prevail against the testimony which they had before given in detail and which
showed conclusively that they did not know, or a least did not give the boundaries of more than a
very small portion of the land described in the petition.
While the proposition of the law laid down by the court below may be true to the effect that natural
boundaries will, prevail over area, yet when the land sought to be registered is almost seven times
as much as that described in the deed, the evidence as to natural boundaries must be very clear and
convincing before the rule can be applied. No such evidence was given in this case, and the
judgment of the court below can not stand.
It seems apparent, however, that the petitioners are the owners of a tract of land in the eastern and
southeastern part of the land described in their plan, about 92 hectares in extent, and upon proof of
boundaries of this tract they would be entitled to have it registered.
The judgment of the court below is reversed, and the case is remanded to the court for further
proceedings therein, and without prejudice to the right of the petitioners to present an amended

petition, accompanied by a new plan, and to have a new trial upon the questions raised by the new
petition. No costs will be allowed to either party in this court. So ordered.
Arellano, C.J., Torres, Johnson, and Tracey, JJ., concur.

G.R. No. 93073 December 21, 1992

REPUBLIC PLANTERS BANK, petitioner,
vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.

CAMPOS, JR., J.:

This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in
CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and
Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin
Canlas from liability under the promissory notes and reduced the award for damages and attorney's fees. The RTC decision, rendered on
June 20, 1985, is quoted hereunder:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing Corporation
(formerly Worldwide Garment Manufacturing, Inc.) and defendants Shozo
Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank the
following sums with interest thereon at 16% per annum from the dates indicated, to
wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from
January 29, 1981 until fully paid; under promissory note (Exhibit "B"), the sum of
P40,000.00 with interest from November 27, 1980; under the promissory note
(Exhibit "C"), the sum of P166,466.00 which interest from January 29, 1981; under
the promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January
29, 1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with
interest from November 27, 1980; under the promissory note (Exhibit "H"), the sum of
P281,875.91 with interest from January 29, 1981; and under the promissory note
(Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation
(formerly named Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi
are ordered to pay jointly and severally, the plaintiff bank the sum of P367,000.00
with interest of 16% per annum from January 29, 1980 until fully paid
Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly
Worldwide) is ordered to pay the plaintiff bank the sum of P140,000.00 with interest
at 16% per annum from November 27, 1980 until fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of
P231,120.81 with interest at 12% per annum from July 1, 1981, until fully paid and
the sum of P331,870.97 with interest from March 28, 1981, until fully paid.

All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum
of P100,000.00 as and for reasonable attorney's fee and the further sum equivalent
to 3% per annum of the respective principal sums from the dates above stated as
penalty charge until fully paid, plus one percent (1%) of the principal sums as service
charge.
With costs against the defendants.
SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court
(now the Court Appeals). His contention was that inasmuch as he signed the promissory notes in his
capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he should not be held
personally liable for such authorized corporate acts that he performed. It is now the contention of the
petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory notes
with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo
Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent
Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide
Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant
Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit
facilities with the petitioner Republic Planters Bank in the forms of export advances and letters of
credit/trust receipts accommodations. Petitioner bank issued nine promissory notes, marked as
Exhibits A to I inclusive, each of which were uniformly worded in the following manner:
___________, after date, for value received, I/we, jointly and severaIly promise to
pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila,
Philippines, the sum of ___________ PESOS(....) Philippine Currency...
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi
and Fermin Canlas above their printed names with the phrase "and (in) his personal capacity"
typewritten below. At the bottom of the promissory notes appeared: "Please credit proceeds of this
note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran horizontally
across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment
Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant and private
respondent.

On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate
name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered
among others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty
charges. The complainant was originally brought against Worldwide Garment Manufacturing,
Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as defendant and
substitute Pinch Manufacturing Corporation it its place. Defendants Pinch Manufacturing Corporation
and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pretrial conference despite due notice. Only private respondent Fermin Canlas filed an Amended
Answer wherein he, denied having issued the promissory notes in question since according to him,
he was not an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment
Manufacturing, Inc., and that when he issued said promissory notes in behalf of Worldwide Garment
Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein prior to the
time he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private
respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing
Corporation and Shozo Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes
bearing his signature for the following reasons:
The promissory motes are negotiable instruments and must be governed by the Negotiable
Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory
notes are makers and are liable as such. 3 By signing the notes, the maker promises to pay to the order
of the payee or any holder 4according to the tenor thereof. 5 Based on the above provisions of law, there is
no denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As
such, he cannot escape liability arising therefrom.

Where an instrument containing the words "I promise to pay" is signed by two or more persons, they
are deemed to be jointly and severally liable thereon. 6 An instrument which begins" with "I" ,We" , or
"Either of us" promise to, pay, when signed by two or more persons, makes them solidarily liable. 7 The
fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning
that each of the co-signers is deemed to have made an independent singular promise to pay the notes in
full.

In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and
certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing
the unconditional promise to pay to the order of Republic Planters Bank. A joint and several note is
one in which the makers bind themselves both jointly and individually to the payee so that all may be
sued together for its enforcement, or the creditor may select one or more as the object of the suit. 8 A
joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise
9
that each is liable for the entire amount, and not merely for his proportionate share. By making a joint and several promise to

pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary
liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with
Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.

As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of
the makers in the notes will affect the liability of the makers, We do not find it necessary to resolve
and decide, because it is immaterial and will not affect to the liability of private respondent Fermin

Canlas as a joint and several debtor of the notes. With or without the presence of said phrase,
private respondent Fermin Canlas is primarily liable as a co-maker of each of the notes and his
liability is that of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's
Articles of Incorporation effecting a change of corporate name, in this case from Worldwide Garment
manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality of the original
corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the successor
of the original corporation. It is the same corporation with a different name, and its character is in no
respect changed. 10
A change in the corporate name does not make a new corporation, and whether effected by special
act or under a general law, has no affect on the identity of the corporation, or on its property, rights,
or liabilities. 11
The corporation continues, as before, responsible in its new name for all debts or other liabilities
which it had previously contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear no personal liability for
acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as
such officers acted in their capacity as agent of the old corporation and the change of name meant
only the continuation of the old juridical entity, the corporation bearing the same name is still bound
by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the
liability of a person signing as an agent is specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument
contains or a person adds to his signature words indicating that he signs for or on
behalf of a principal , or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words describing him
as an agent, or as filling a representative character, without disclosing his principal,
does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is
acting in a representative capacity or the name of the third party for whom he might have acted as
agent, the agent is personally liable to take holder of the instrument and cannot be permitted to
prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible
to avoid the agent's personal liability. 13
On the private respondent's contention that the promissory notes were delivered to him in blank for
his signature, we rule otherwise. A careful examination of the notes in question shows that they are
the stereotype printed form of promissory notes generally used by commercial banking institutions to
be signed by their clients in obtaining loans. Such printed notes are incomplete because there are
blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate
of interest, date of issue and the maturity date. The terms and conditions of the loan are printed on
the note for the borrower-debtor 's perusal. An incomplete instrument which has been delivered to
the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law which
provides, in so far as relevant to this case, thus:
Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any
material particular, the person in possesion thereof has a prima facie authority to

complete it by filling up the blanks therein. ... In order, however, that any such
instrument when completed may be enforced against any person who became a
party thereto prior to its completion, it must be filled up strictly in accordance with the
authority given and within a reasonable time...
Proof that the notes were signed in blank was only the self-serving testimony of private respondent
Fermin Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas)
signed in blank the promissory notes". We chose to believe the bank's testimony that the notes were
filled up before they were given to private respondent Fermin Canlas and defendant Shozo
Yamaguchi for their signatures as joint and several promissors. For signing the notes above their
typewritten names, they bound themselves as unconditional makers. We take judicial notice of the
customary procedure of commercial banks of requiring their clientele to sign promissory notes
prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the
loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed
and to sign as makers or co-makers. When the notes were given to private respondent Fermin
Canlas for his signature, the notes were complete in the sense that the spaces for the material
particular had been filled up by the bank as per agreement. The notes were not incomplete
instruments; neither were they given to private respondent Fermin Canlas in blank as he claims.
Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.
The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest
rate on the promissory notes from 16% to 12% per annum does not squarely apply to the instant
petition. In the abovecited case, the rate of 12% was applied to forebearances of money, goods or
credit and court judgemets thereon, only in the absence of any stipulation between the parties.
In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum,
which interest rate the plaintiff may at any time without notice, raise within the limits allowed law. And
so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree No.
116, are applicable only to interests by way of compensation for the use or forebearance of money.
Article 2209 of the Civil Code, on the other hand, governs interests by way of damages. 15 This fine
distinction was not taken into consideration by the appellate court, which instead made a general
statement that the interest rate be at 12% per annum.

Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling
prescribed by the Usury Law, the appellate court erred in limiting the interest rates at 12% per
annum. Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest
rates. 16
In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence
on the matter, the decision of the respondent: Court of Appeals absolving private respondent Fermin
Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent
Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums
and at 16% interest per annum from the dates indicated, to wit:
Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January
29, 1981 until fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with
interest from November 27, 1980: under the promissory note denominated as Exhibit C, the amount
of P166,466.00 with interest from January 29, 1981; under the promissory note denominated as
Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the
promissory note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981;

under the promissory note marked as Exhibit F, the sum of P140,000.00 with interest from
November 27, 1980 until fully paid; under the promissory note marked as Exhibit G, the amount of
P12,703.70 with interest from November 27, 1980; the promissory note marked as Exhibit H, the
sum of P281,875.91 with interest from January 29, 1981; and the promissory note marked as Exhibit
I, the sum of P200,000.00 with interest on January 29, 1981.
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment
Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial
court, shall be adjudged in accordance with the judgment rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private respondent Fermin
Canlas is hereby held jointly and solidarity liable with defendants for the amounts found, by the
Court a quo. With costs against private respondent.
SO ORDERED.
Narvasa, C.J., (Chairman), Feliciano, Regalado and Nocon, JJ., concur.

G.R. No. 148864

August 21, 2003

SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, Petitioners,

vs.
MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMEC'S** REALTY AND DEVELOPMENT
CORP. and the REGISTER OF DEEDS OF BULACAN, Respondents.
DECISION
PUNO, J.:
Petitioners, Spouses Evangelista ("Petitioners"), are before this Court on a Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court, assailing the decision of the Court of
Appeals dismissing their petition.
Petitioners filed a complaint1 for annulment of titles against respondents, Mercator Finance
Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation, and the Register of
Deeds of Bulacan. Petitioners claimed being the registered owners of five (5) parcels of
land2 contained in the Real Estate Mortgage3 executed by them and Embassy Farms, Inc.
("Embassy Farms"). They alleged that they executed the Real Estate Mortgage in favor of Mercator
Financing Corporation ("Mercator") only as officers of Embassy Farms. They did not receive the
proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they
contended that the mortgage was without any consideration as to them since they did not personally
obtain any loan or credit accommodations. There being no principal obligation on which the
mortgage rests, the real estate mortgage is void.4 With the void mortgage, they assailed the validity
of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the
public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same
parcels of land to respondent Lydia P. Salazar ("Salazar"), and the transfer of the titles to her name,
and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development
Corporation ("Lamecs").

Mercator admitted that petitioners were the owners of the subject parcels of land. It, however,
contended that "on February 16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator
Finance Corporation for and in consideration of certain loans, and/or other forms of credit
accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation)
amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE &
78/100 (P844,625.78) PESOS, Philippine Currency and to secure the payment of the same and
those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x."5 It
contended that since petitioners and Embassy Farms signed the promissory note6 as co-makers,
aside from the Continuing Suretyship Agreement7 subsequently executed to guarantee the
indebtedness of Embassy Farms, and the succeeding promissory notes8 restructuring the loan, then
petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the
obligation, the foreclosure and subsequent sale of the mortgaged properties are valid.
Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good
faith, relying on the validity of the title of Mercator. Lamecs admitted the prior ownership of
petitioners of the subject parcels of land, but alleged that they are the present registered owner. Both
respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse
of almost ten (10) years from the foreclosure of the property and the subsequent sales that they
made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of
laches.9
During pre-trial, the parties agreed on the following issues:
a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant
Mercator Finance Corp. is null and void;
b. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of
land to satisfy the indebtedness of Embassy Farms, Inc. is (sic) null and void;
c. Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia
Salazar and that executed by the latter in favor of defendant Lamecs Realty and
Development Corp. are null and void;
d. Whether or not the parties are entitled to damages.10
After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of
damages, there is no factual issue to be litigated. Mercator argued that petitioners had admitted in
their pre-trial brief the existence of the promissory note, the continuing suretyship agreement and the
subsequent promissory notes restructuring the loan, hence, there is no genuine issue regarding their
liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the
complaint must be dismissed.11
Petitioners opposed the motion for summary judgment claiming that because their personal liability
to Mercator is at issue, there is a need for a full-blown trial.12
The RTC granted the motion for summary judgment and dismissed the complaint. It held:
A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in
view of the phrase "jointly and severally." On the promissory note appears (sic) the signatures of
Eduardo B. Evangelista, Epifania C. Evangelista and another signature of Eduardo B. Evangelista
below the words Embassy Farms, Inc. It is crystal clear then that the plaintiffs-spouses signed the
promissory note not only as officers of Embassy Farms, Inc. but in their personal capacity as well(.)

Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound themselves as solidary
debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the amount of
indebtedness. That the principal contract of loan is void for lack of consideration, in the light of the
foregoing is untenable.13
Petitioners motion for reconsideration was denied for lack of merit.14 Thus, petitioners went up to the
Court of Appeals, but again were unsuccessful. The appellate court held:
The appellants insistence that the loans secured by the mortgage they executed were not
personally theirs but those of Embassy Farms, Inc. is clearly self-serving and misplaced. The fact
that they signed the subject promissory notes in the(ir) personal capacities and as officers of the said
debtor corporation is manifest on the very face of the said documents of indebtedness (pp. 118, 128131, Orig. Rec.). Even assuming arguendo that they did not, the appellants lose sight of the fact that
third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own
property (Lustan vs. Court of Appeals, 266 SCRA 663, 675). x x x. In constituting a mortgage over
their own property in order to secure the purported corporate debt of Embassy Farms, Inc., the
appellants undeniably assumed the personality of persons interested in the fulfillment of the principal
obligation who, to save the subject realities from foreclosure and with a view towards being
subrogated to the rights of the creditor, were free to discharge the same by payment (Articles 1302
[3] and 1303, Civil Code of the Philippines).15 (emphases in the original)
The appellate court also observed that "if the appellants really felt aggrieved by the foreclosure of
the subject mortgage and the subsequent sales of the realties to other parties, why then did they
commence the suit only on August 12, 1997 (when the certificate of sale was issued on January 12,
1987, and the certificates of title in the name of Mercator on September 27, 1988)?" Petitioners
"procrastination for about nine (9) years is difficult to understand. On so flimsy a ground as lack of
consideration, (w)e may even venture to say that the complaint was not worth the time of the
courts."16
A motion for reconsideration by petitioners was likewise denied for lack of merit.17 Thus, this petition
where they allege that:
The court a quo erred and acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in affirming in toto the May 4, 1998 order of the trial court granting respondents motion
for summary judgment despite the existence of genuine issues as to material facts and its nonentitlement to a judgment as a matter of law, thereby deciding the case in a way probably not in
accord with applicable decisions of this Honorable Court.18
we affirm.
Summary judgment "is a procedural technique aimed at weeding out sham claims or defenses at an
early stage of the litigation."19 The crucial question in a motion for summary judgment is whether the
issues raised in the pleadings are genuine or fictitious, as shown by affidavits, depositions or
admissions accompanying the motion. A genuine issue means "an issue of fact which calls for the
presentation of evidence, as distinguished from an issue which is fictitious or contrived so as not to
constitute a genuine issue for trial."20 To forestall summary judgment, it is essential for the nonmoving party to confirm the existence of genuine issues where he has substantial, plausible and
fairly arguable defense, i.e., issues of fact calling for the presentation of evidence upon which a
reasonable finding of fact could return a verdict for the non-moving party. The proper inquiry would
therefore be whether the affirmative defenses offered by petitioners constitute genuine issue of fact
requiring a full-blown trial.21

In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that
they obtained a loan from Mercator. They merely claim that they got the loan as officers of Embassy
Farms without intending to personally bind themselves or their property. However, a simple perusal
of the promissory note and the continuing suretyship agreement shows otherwise. These
documentary evidence prove that petitioners are solidary obligors with Embassy Farms.
The promissory note22 states:
For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE
CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND
SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x x x, in
installments as follows:
September 16, 1982 - P154,267.87
October 16, 1982

- P154,267.87

November 16, 1982

- P154,267.87

December 16, 1982

- P154,267.87

January 16, 1983

- P154,267.87

February 16, 1983

- P154,267.87
xxx

xxx

xxx

The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C.
Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it.
The Continuing Suretyship Agreement23 also proves the solidary obligation of petitioners, viz:
(Embassy Farms, Inc.)
Principal
(Eduardo B. Evangelista)
Surety
(Epifania C. Evangelista)
Surety
(Mercator Finance Corporation)
Creditor
To: MERCATOR FINANCE COPORATION
(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and
EPIFANIA C. EVANGELISTA (hereinafter called Surety), jointly and severally
unconditionally guarantees (sic) to MERCATOR FINANCE COPORATION
(hereinafter called Creditor), the full, faithful and prompt payment and discharge of
any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called Principal) to
the Creditor.

xxx

xxx

xxx

(3) The obligations hereunder are joint and several and independent of the
obligations of the Principal. A separate action or actions may be brought and
prosecuted against the Surety whether or not the action is also brought and
prosecuted against the Principal and whether or not the Principal be joined in any
such action or actions.
xxx

xxx

xxx

The agreement was signed by petitioners on February 16, 1982. The promissory
notes24 subsequently executed by petitioners and Embassy Farms, restructuring their loan, likewise
prove that petitioners are solidarily liable with Embassy Farms.
Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim
that since it was Mercator who provided the form, then the ambiguity should be resolved against it.
Courts can interpret a contract only if there is doubt in its letter.25 But, an examination of the
promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity,
Section 17 of the Negotiable Instruments Law states, viz:
SECTION 17. Construction where instrument is ambiguous. Where the language of the instrument
is ambiguous or there are omissions therein, the following rules of construction apply:
xxx

xxx

xxx

(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons,
they are deemed to be jointly and severally liable thereon.
Petitioners also insist that the promissory note does not convey their true intent in executing the
document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers
of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing
suretyship agreement. A surety is one who is solidarily liable with the principal.26 Petitioners cannot
claim that they did not personally receive any consideration for the contract for well-entrenched is
the rule that the consideration necessary to support a surety obligation need not pass directly to the
surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same
consideration that makes the contract effective between the principal parties thereto.27 Having
executed the suretyship agreement, there can be no dispute on the personal liability of petitioners.
1w phi 1

Lastly, the parol evidence rule does not apply in this case.28 We held in Tarnate v. Court of
Appeals,29 that where the parties admitted the existence of the loans and the mortgage deeds and
the fact of default on the due repayments but raised the contention that they were misled by
respondent bank to believe that the loans were long-term accommodations, then the parties could
not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those
stipulated in the loan documents because when they reduced their agreement in writing, it is
presumed that they have made the writing the only repository and memorial of truth, and whatever is
not found in the writing must be understood to have been waived and abandoned.
IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.
SO ORDERED.

Panganiban, and Sandoval-Gutierrez, JJ., concur.

Corona, and Carpio-Morales, JJ., on official leave.

G.R. No. 111190 June 27, 1995

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

BELLOSILLO, J.:
RAUL H. SESBREO filed a complaint for damages against Assistant City Fiscals Bienvenido N.
Mabanto, Jr., and Dario D. Rama, Jr., before the Regional Trial Court of Cebu City. After trial
judgment was rendered ordering the defendants to pay P11,000.00 to the plaintiff, private
respondent herein. The decision having become final and executory, on motion of the latter, the trial
court ordered its execution. This order was questioned by the defendants before the Court of
Appeals. However, on 15 January 1992 a writ of execution was issued.
On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as City
Fiscal of Mandaue City where defendant Mabanto, Jr., was then detailed. The notice directed
petitioner not to disburse, transfer, release or convey to any other person except to the deputy sheriff
concerned the salary checks or other checks, monies, or cash due or belonging to Mabanto, Jr.,
under penalty of law. 1 On 10 March 1992 private respondent filed a motion before the trial court for
examination of the garnishees.

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

On 24 November 1992 private respondent filed a motion to require petitioner to explain why he
should not be cited in contempt of court for failing to comply with the order of 4 November 1992.
On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment
claiming that he was not in possession of any money, funds, credit, property or anything of value
belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet
properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still
public funds which could not be subject to garnishment.
On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply
with its order of 4 November 1992. 3 It opined that the checks of Mabanto, Jr., had already been
released through petitioner by the Department of Justice duly signed by the officer concerned. Upon
service of the writ of garnishment, petitioner as custodian of the checks was under obligation to hold them
for the judgment creditor. Petitioner became a virtual party to, or a forced intervenor in, the case and the
trial court thereby acquired jurisdiction to bind him to its orders and processes with a view to the complete

satisfaction of the judgment. Additionally, there was no sufficient reason for petitioner to hold the checks
because they were no longer government funds and presumably delivered to the payee, conformably with
the last sentence of Sec. 16 of the Negotiable Instruments Law.

With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt.
For, while his explanation suffered from procedural infirmities nevertheless he took pains in
enlightening the court by sending a written explanation dated 22 July 1992 requesting for the lifting
of the notice of garnishment on the ground that the notice should have been sent to the Finance
Officer of the Department of Justice. Petitioner insists that he had no authority to segregate a portion
of the salary of Mabanto, Jr. The explanation however was not submitted to the trial court for action
since the stenographic reporter failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it was not
the duty of the garnishee to inquire or judge for himself whether the issuance of the order of
execution, writ of execution and notice of garnishment was justified. His only duty was to turn over
the garnished checks to the trial court which issued the order of execution. 5
Petitioner raises the following relevant issues: (1) whether a check still in the hands of the maker or
its duly authorized representative is owned by the payee before physical delivery to the latter: and,
(2) whether the salary check of a government official or employee funded with public funds can be
subject to garnishment.
Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because
they were not yet delivered to him, and that petitioner as garnishee has no legal obligation to hold
and deliver them to the trial court to be applied to Mabanto, Jr.'s judgment debt. The thesis of
petitioner is that the salary checks still formed part of public funds and therefore beyond the reach of
garnishment proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for reaching credits belonging to the
judgment debtor owing to him from a stranger to the litigation. 6 Emphasis is laid on the phrase
"belonging to the judgment debtor" since it is the focal point in resolving the issues raised.

As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his
compensation in the form of checks from the Department of Justice through petitioner as City Fiscal
of Mandaue City and head of office. Under Sec. 16 of the Negotiable Instruments Law, every
contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for
the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the
possession of the instrument by the maker or drawer with intent to transfer title to the payee and
recognize him as the holder thereof. 7
According to the trial court, the checks of Mabanto, Jr., were already released by the Department of
Justice duly signed by the officer concerned through petitioner and upon service of the writ of
garnishment by the sheriff petitioner was under obligation to hold them for the judgment creditor. It
recognized the role of petitioner ascustodian of the checks. At the same time however it considered
the checks as no longer government funds and presumed delivered to the payee based on the last
sentence of Sec. 16 of the Negotiable Instruments Law which states: "And where the instrument is
no longer in the possession of a party whose signature appears thereon, a valid and intentional
delivery by him is presumed." Yet, the presumption is not conclusive because the last portion of the
provision says "until the contrary is proved." However this phrase was deleted by the trial court for no
apparent reason. Proof to the contrary is its own finding that the checks were in the custody of

petitioner. Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong
to him and still had the character of public funds. In Tiro v. Hontanosas 8 we ruled that
The salary check of a government officer or employee such as a teacher does not
belong to him before it is physically delivered to him. Until that time the check
belongs to the government. Accordingly, before there is actual delivery of the check,
the payee has no power over it; he cannot assign it without the consent of the
Government.
As a necessary consequence of being public fund, the checks may not be garnished to satisfy the
judgment. 9 The rationale behind this doctrine is obvious consideration of public policy. The Court
succinctly stated in Commissioner of Public Highways v. San Diego 10 that

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

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

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL
PLASTIC CORPORATION and PRODUCERS BANK OF THE PHILIPPINES, defendantsrespondents.
Yngson & Associates for petitioner.

Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR., J.:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a
sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung,
Asian Industrial Plastic Corporation (Plastic Corporation for short) and the Producers Bank of the
Philippines, on two causes of action:
(1) To enforce payment of the balance of P1,032,450.02 on a promissory note
executed by respondent Sima Wei on June 9, 1983; and
(2) To enforce payment of two checks executed by Sima Wei, payable to petitioner,
and drawn against the China Banking Corporation, to pay the balance due on the
promissory note.
Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a common
ground that the complaint states no cause of action. The trial court granted the defendants' Motions
to Dismiss. The Court of Appeals affirmed this decision, * to which the petitioner Bank, represented
by its Legal Liquidator, filed this Petition for Review by Certiorari, assigning the following as the
alleged errors of the Court of Appeals: 1
(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFFPETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTSRESPONDENTS HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3
OF THE REVISED RULES OF COURT ON ALTERNATIVE DEFENDANTS IS NOT
APPLICABLE TO HEREIN DEFENDANTS-RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed
and delivered to the former a promissory note, engaging to pay the petitioner Bank or order the
amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum. Sima Wei
made partial payments on the note, leaving a balance of P1,032,450.02. On November 18, 1983,
Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking
Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and
384935, for the amount of P500,000.00. The said checks were allegedly issued in full settlement of
the drawer's account evidenced by the promissory note. These two checks were not delivered to the
petitioner-payee or to any of its authorized representatives. For reasons not shown, these checks
came into the possession of respondent Lee Kian Huat, who deposited the checks without the
petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic

Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch
Manager of the Balintawak branch of Producers Bank, relying on the assurance of respondent
Samson Tung, President of Plastic Corporation, that the transaction was legal and regular,
instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the
account of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to
petitioner Bank and bore no indorsement of the latter. Hence, petitioner filed the complaint as
aforestated.
The main issue before Us is whether petitioner Bank has a cause of action against any or all of the
defendants, in the alternative or otherwise.
A cause of action is defined as an act or omission of one party in violation of the legal right or rights
of another. The essential elements are: (1) legal right of the plaintiff; (2) correlative obligation of the
defendant; and (3) an act or omission of the defendant in violation of said legal right. 2
The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long
recognized the business custom of using printed checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer has
to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere
fact that he has done these does not give rise to any liability on his part, until and unless the check is
delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only
a written evidence of a contract right but is also a species of property. Just as a deed to a piece of
land must be delivered in order to convey title to the grantee, so must a negotiable instrument be
delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the
Negotiable Instruments Law, which governs checks, provides in part:
Every contract on a negotiable instrument is incomplete and revocable until delivery
of the instrument for the purpose of giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery
to him. 3Delivery of an instrument means transfer of possession, actual or constructive, from one person
to another. 4 Without the initial delivery of the instrument from the drawer to the payee, there can be no
liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument.

The allegations of the petitioner in the original complaint show that the two (2) China Bank checks,
numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. Without the
delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein
and cannot therefore assert any cause of action, founded on said checks, whether against the
drawer Sima Wei or against the Producers Bank or any of the other respondents.
In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory
note, and the alternative defendants, including Sima Wei, on the two checks. On appeal from the
orders of dismissal of the Regional Trial Court, petitioner Bank alleged that its cause of action was
not based on collecting the sum of money evidenced by the negotiable instruments stated but
on quasi-delict a claim for damages on the ground of fraudulent acts and evident bad faith of the
alternative respondents. This was clearly an attempt by the petitioner Bank to change not only the
theory of its case but the basis of his cause of action. It is well-settled that a party cannot change his
theory on appeal, as this would in effect deprive the other party of his day in court. 5
Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from
liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Her
allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank

has no merit for, as We have earlier explained, these checks were never delivered to petitioner
Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the delivery of
checks in payment of an obligation does not constitute payment unless they are cashed or their
value is impaired through the fault of the creditor. 6 None of these exceptions were alleged by
respondent Sima Wei.

Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the
promissory note by some other cause, petitioner Bank has a right of action against her for the
balance due thereon.
However, insofar as the other respondents are concerned, petitioner Bank has no privity with them.
Since petitioner Bank never received the checks on which it based its action against said
respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything
which the respondents may have done with respect to said checks could not have prejudiced
petitioner Bank. It had no right or interest in the checks which could have been violated by said
respondents. Petitioner Bank has therefore no cause of action against said respondents, in the
alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action
against her
co-respondents, if the allegations in the complaint are found to be true.
With respect to the second assignment of error raised by petitioner Bank regarding the applicability
of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to discuss the same in view of
Our finding that the petitioner Bank did not acquire any right or interest in the checks due to lack of
delivery. It therefore has no cause of action against the respondents, in the alternative or otherwise.
In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's
complaint is AFFIRMED insofar as the second cause of action is concerned. On the first cause of
action, the case is REMANDED to the trial court for a trial on the merits, consistent with this
decision, in order to determine whether respondent Sima Wei is liable to the Development Bank of
Rizal for any amount under the promissory note allegedly signed by her.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.

G.R. No. L-39641 February 28, 1983

METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee,
vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendantsappellants.
Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee.
Diosdado Garingalao for defendants-appellants.

DE CASTRO, J.:

The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this
Court the issue issued therein being one purely of law.
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons
Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments,
beginning May 18, 1969, with interest at the rate of one percent per month. It is further provided that
in case on non-payment of any of the installments, the total principal sum then remaining unpaid
shall become due and payable with an additional interest equal to twenty-five percent of the total
amount due.
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company
of Ng Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated
and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation with the
following indorsement:
Pay to the order of Metropol Bacolod Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By:
RODOLFO G. NONILLO Asst. General Manager
The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on
October 30, 1969 plaintiff formally presented the promissory note for payment to the maker. Dr.
Villaruel failed to pay the promissory note as demanded, hence plaintiff notified Sambok as indorsee
of said note of the fact that the same has been dishonored and demanded payment.
Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of
money before the Court of First Instance of Iloilo, Branch I. Sambok did not deny its liability but
contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been
declared insolvent.
During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October
24, 1972 the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section 21,
Rule 3 of the Rules of Court. 1
On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12,
1973, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered:
(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00
plus the legal rate of interest from October 30, 1969;
(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of
P15,939.00 plus interest thereon until fully paid; and
(c) To pay the cost of suit.

Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone
assignment of error as follows:
The trial court erred in not dismissing the complaint by finding defendant appellant
Sambok Motors Company as assignor and a qualified indorsee of the subject
promissory note and in not holding it as only secondarily liable thereof.
Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it
becomes a qualified indorser that being a qualified indorser, it does not warrant that if said note is
dishonored by the maker on presentment, it will pay the amount to the holder; that it only warrants
the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is
genuine and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior
parties had capacity to contract; (d) that he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
The appeal is without merit.
A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may
be made by adding to the indorser's signature the words "without recourse" or any words of similar
import. 2 Such an indorsement relieves the indorser of the general obligation to pay if the instrument is
dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of
the Negotiable Instruments Law already mentioned herein. However, appellant Sambok indorsed the note
"with recourse" and even waived the notice of demand, dishonor, protest and presentment.

"Recourse" means resort to a person who is secondarily liable after the default of the person who is
primarily liable.3 Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser
but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr.
Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement
is that the note was indorsed without qualification. A person who indorses without qualification engages
that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be
dishonored, he will pay the amount thereof to the holder. 4 Appellant Sambok's intention of indorsing the
note without qualification is made even more apparent by the fact that the notice of demand, dishonor,
protest and presentment were an waived. The words added by said appellant do not limit his liability, but
rather confirm his obligation as a general indorser.

Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after
an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be
such and becomes a principal debtor. 5 His liabiliy becomes the same as that of the original
obligor. 6 Consequently, the holder need not even proceed against the maker before suing the indorser.

WHEREFORE, the decision of the lower court is hereby affirmed. No costs.

SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Guerrero and Escolin, JJ., concur.
Aquino, J., is on leave.