FIRST DIVISION

[G.R. No. 148789. January 16, 2003.]

BPI FAMILY SAVINGS BANK, INC. and HEDZELITO NOEL BAYABORDA, Petitioners, v. ROMEO
MANIKAN, Respondent.
DECISION

VITUG, J.:

Petitioners seek a review of the decision of the Court of Appeals in C.A. G.R. SP. No. 48011 which has affirmed the
judgment of the Regional Trial Court, Branch 26, of Iloilo City, dismissing the complaint of petitioners for mandamus
and ordering them to pay respondent the sum of P30,000.00 by way of attorneys fees.

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It would appear that respondent, being the City Treasurer of Iloilo City, assessed petitioner bank business taxes for
the years 1992 and 1993. On 26 January 1994, the bank issued two managers checks payable to the City Treasurer
of Iloilo City, the first, Managers Check No. 010649 for P462,270.60, was to cover the business tax for the year 1992,
and the second, Managers Check No. 010650 in the amount of P482,988.45, was to settle the business tax for the
year 1993. Hedzelito Bayaborda, then manager of the banks Iloilo Branch, instructed an employee, Edmund Sabio, to
deliver the two managers checks to the Secretary to the City Mayor, a certain Toto Espinosa, who, in turn, handed
them over to his secretary, Leila Salcedo, for transmittal to the City Treasurer. The value of the checks were eventually
credited to the account of the City Treasurer of Iloilo City. The checks, however, were not applied to satisfy the tax
liabilities of petitioner but of other taxpayers.
The misapplication of the proceeds of the checks came to the knowledge of respondent City Treasurer who, thereupon,
created a committee to look into the matter. The investigation revealed that it was upon the representation of Leila
Salcedo that the managers checks were used to pay tax liabilities of other taxpayers and not those of petitioner bank.
Meanwhile, the bank, through counsel, made a demand on respondent to issue official receipts to show that it had
paid its business taxes for the years 1992 and 1993 covered by the diverted managers checks. When he refused to
issue the receipts requested, respondent was sued by petitioners for mandamus and damages.
The Regional Trial Court dismissed the complaint for mandamus and ruled that petitioners had no clear legal right to
demand the issuance of official receipts nor could respondent, given the circumstances, be compelled to issue another
set of receipts in the name of the bank. The trial court further ordered petitioners to pay respondent the sum of
P30,000.00 by way of attorneys fees.
The Court of Appeals, on appeal by petitioners, sustained the trial court in toto.

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In their petition for review before this Court, petitioners urge a reversal of the decision of the appellate court
contending that
"a) AN ACTION FOR MANDAMUS NECESSARILY INCLUDES INDEMNIFICATION FOR DAMAGES AND IS ASSESSED ON A
PUBLIC OFFICIALS PRIVATE CAPACITY, HENCE, SUING A PUBLIC OFFICIAL IN HIS PRIVATE CAPACITY DOES NOT AS A
MATTER OF RIGHT ENTITLE HIM TO AN AWARD OF ATTORNEYS FEES BY WAY OF COUNTERCLAIM.

b) THE RECEIPT BY THE CITY TREASURERS OFFICE OF ILOILO OF THE FACE VALUE OF THE TWO MANAGERS CHECKS
INTENDED FOR PAYMENT OF ITS BUSINESS TAXES FOR THE YEAR 1992 AND 1993 ENTITLES IT TO THE ISSUANCE OF
AN OFFICIAL RECEIPT ENFORCEABLE BY A WRIT OF MANDAMUS."

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In order that a writ of mandamus may aptly issue, it is essential that, on the one hand, the person petitioning for it
has a clear legal right to the claim that is sought and that, on the other hand, the respondent has an imperative duty
to perform that which is demanded of him. 1 Mandamus will not issue to enforce a right, or to compel compliance with
a duty, which is questionable or over which a substantial doubt exists. The principal function of the writ of mandamus
is to command and to expedite, not to inquire and to adjudicate; thus, it is neither the office nor the aim of the writ to
secure a legal right but to implement that which is already established. Unless the right to the relief sought is
unclouded, mandamus will not issue. 2
The checks delivered by petitioner bank to Toto Espinosa were managers checks. A managers check, like a cashiers
check, is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor
behind its issuance. By its peculiar character and general use in commerce, a managers check or a cashiers check is
regarded substantially to be as good as the money it represents. 3
By allowing the delivery of the subject checks to a person who is not directly charged with the collection of its tax
liabilities, the bank must be deemed to have assumed the risk of a possible misuse thereof even as it appears to have
fallen short of the diligence ordinarily expected of it. The bank, of course, is not precluded from pursuing a right of
action against those who could have been responsible for the wrongdoing or who might have been unjustly benefited
thereby.
The award of attorneys fees in favor of respondent City Treasurer, however, should be deleted. Such an award, in the
concept of damages under Article 2208 of the Civil Code, demands factual and legal justifications. 4 While the law
allows some degree of discretion on the part of the courts in awarding attorneys fees and expenses of litigation, the
use of that judgment, however, must be done with great care approximating as closely as possible the instances
exemplified by the law. Attorneys fees in the concept of damages are not recoverable against a party just because of
an unfavorable judgment. Repeatedly, it has been said that no premium should be placed on the right to litigate. 5
WHEREFORE, the instant petition is partly granted. The appealed decision is affirmed save for the award of attorneys
fees in favor of private respondent which is ordered deleted. No costs.
SO ORDERED.
Davide, Jr., C.J., Ynares-Santiago, Carpio and Azcuna, JJ., concur.

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SECOND DIVISION
[G.R. No. 97753. August 10, 1992.]
CALTEX (PHILIPPINES), INC., Petitioner, v. COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, Respondents.
Bito, Lozada, Ortega & Castillo, for Petitioners.
Nepomuceno, Hofilea & Guingona for private.

SYLLABUS

1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; REQUIREMENTS FOR NEGOTIABILITY; CERTIFICATE OF TIME
DEPOSIT AS NEGOTIABLE INSTRUMENT; CASE AT BAR. Section 1 of 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 Banks Branch Manager way back in 1982, testified in open court that the depositor
referred to in the CTDs is no other than Mr. Angel de la Cruz. . . . 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.
2. ID.; ID.; DETERMINATION OF NEGOTIABILITY OR NON-NEGOTIABILITY OF INSTRUMENT; RULES. 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. In the construction of a bill or note, the intention of the parties is to control, if it
can be legally ascertained. While the writing may be read in the light of surrounding 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.
3. ID.; ID.; NEGOTIATION, DEFINED; HOLDER, DEFINED; IN CASE AT BAR, DELIVERY OF INSTRUMENT CONSTITUTED
THE TRANSFEREE A MERE HOLDER FOR VALUE BY REASON OF HIS LIEN. Petitioners 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, and a
holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof, 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.
4. ID.; CODE OF COMMERCE; RULES TO BE FOLLOWED IN CASE OF LOST INSTRUMENT PAYABLE TO BEARER; MERELY
PERMISSIVE AND NOT MANDATORY. 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." 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. The word "may" is usually permissive, not mandatory. It is an auxiliary verb indicating liberty,
opportunity, permission and possibility.
5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF OBSCURE WORDS OR STIPULATIONS IN
CONTRACT; SHALL NOT FAVOR THE PARTY WHO CAUSE THE OBSCURITY; CASE AT BAR. 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, petitioners 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.
6. ID.; ID.; ESTOPPEL; EFFECTS; CASE AT BAR. 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 petitioners 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.) 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. A
party may not go back on his own acts and representations to the prejudice of the other party who relied upon them.

7. ID.; ID.; CHARACTER OF TRANSACTION DETERMINED BY INTENTION OF THE PARTIES. This disquisition in
Integrated Realty Corporation, Et. Al. v. Philippine National Bank, Et. Al. is apropos: ". . . Adverting again to the
Courts 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
existence 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."
8. ID.; PLEDGE OF INCORPOREAL RIGHTS; REQUISITES; REQUIREMENT FOR PLEDGE TO TAKE EFFECT AGAINST
THIRD PERSONS; NOT OBSERVED IN CASE AT BAR. 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, 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. 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.
9. ID.; ASSIGNMENT OF INCORPOREAL RIGHTS; REQUIREMENT FOR ASSIGNMENT TO TAKE EFFECT AGAINST THIRD
PERSONS; OBSERVED IN CASE AT BAR. The assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument. 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 lienholder 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 privateRespondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over the
CTDs in question.
10. REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF AND PRESUMPTIONS; ESTOPPEL IN PAIS; EFFECT. 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.
11. ID.; ID.; ID.; EVIDENCE WILLFULLY SUPPRESSED WOULD BE ADVERSE IF PRODUCED; CASE AT BAR. When
respondent bank, as defendant in the court below, moved for a bill of particulars therein 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 latters alleged indebtedness to it, plaintiff
corporation opposed the motion. 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.
12. ID.; CIVIL PROCEDURE; APPEALS; ISSUES NOT RAISED IN TRIAL COURT CANNOT BE RAISED FOR THE FIRST
TIME ON APPEAL; CASE AT BAR. 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. To accept petitioners suggestion that respondent banks 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 petitioners 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 banks supposed negligence is only one. Hence, petitioners
submission, if accepted, would render a pre-trial delimitation of issues a useless exercise.

DECISION

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 private
respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of
record:

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"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;
Defendants Exhibits 1 to 280):

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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 deposit (CTDs) to herein plaintiff in connection with his
purchase 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 Manager, 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 banks procedure, if he desired replacement of said lost CTDs (TSN,
February 9, 1987. pp. 48-50).

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"4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss
(Defendants Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said
depositor (Defendants 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 (dela Cruz) surrenders to defendant
bank `full control of the indicated time deposits from and after date of the assignment and further authorizes said
bank to pre-terminate, set-off and apply the said time deposits to the payment of whatever amount or amounts may
be due on the loan upon its maturity (TSN, February 9, 1987, pp. 60-62).
"6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc. went to the defendant
banks 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 (Defendants Exhibit 563) from herein plaintiff formally
informing it of its possession of the CTDs in question and of its decision to preterminate 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 obligations
against which plaintiff proposed to apply the time deposits (Defendants Exhibit 564).
"9. No copy of the requested documents was furnished herein defendant.
"10. Accordingly, defendant bank rejected the plaintiffs demand and claim for payment of the value of the CTDs in a
letter dated February 7, 1983 (Defendants 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 attorneys 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 courts dismissal of the complaint, hence this
petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are nonnegotiable 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.

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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 No. 90101
6778 Ayala Ave., Makati
Metro Manila, Philippines
SUCAT OFFICE P 4.000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB 23, 1984 FEB 22 1982, 19___
This is to Certify that BEARER has deposited in this Bank the sum of PESOS: FOUR SECURITY BANK THOUSAND ONLY.
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, rationalizing as follows:

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". . . While it may be true that the word `bearer appears rather boldly in the CTDs issued, it is important to note that
after the word `BEARER stamped on the space provided supposedly for the name of the depositor, the words `has
deposited a certain amount follows. The document further provides that the amount deposited shall be `repayable to
said depositor on the period indicated. Therefore, the text of the instrument(s) themselves manifest with clarity that
they are payable, not to whoever purports to be the `bearer but only to the specified person indicated therein, the
depositor. In effect, the appellee bank acknowledges its depositor Angel dela Cruz as the person who made the
deposit and further engages itself to pay said depositor the amount 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 of Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:

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"(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."

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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 Banks Branch Manager
way back in 1982, testified in open court that the depositor referred to in the CTDs is no other than Mr. Angel de la
Cruz.

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"Atty. Calida:

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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:

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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:

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q And no other person or entity or company, Mr. Witness?

witness:

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a None, your Honor." 7

x

"Atty. Calida:

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q Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as the bank is
concerned?
witness:

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a Angel dela Cruz is the depositor." 8

x

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, petitioners 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 petitioners own authorized and responsible
representative himself.

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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" (Underscoring 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, petitioners 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 particulars 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 latters 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 Integrated Realty Corporation, Et. Al. v. Philippine National
Bank, Et. Al. 20 is apropos:

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". . . Adverting again to the Courts pronouncements in Lopez, supra, we quote therefrom:

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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 existence 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."
Petitioners 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 nonpayment 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:

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"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."

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"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."

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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:

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"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."

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Respondent bank duly complied with this statutory requirement Contrarily, Petitioner, whether as purchaser, assignee
or lienholder 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.

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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 raise that issue in the lower court. 28

On this matter, we uphold respondent courts 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. 29
The issues agreed upon by them for resolution in this case are:

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"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 depositors 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
depositors 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, attorneys fees and litigation expenses from each other."

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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 petitioners suggestion that respondent banks 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 petitioners
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 banks supposed negligence is only one. Hence, petitioners 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:

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"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." (Emphases ours.)

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 banks 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.

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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.

FIRST DIVISION
[G.R. No. 88866. February 18, 1991.]
METROPOLITAN BANK & TRUST COMPANY, Petitioner, v. 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.

DECISION

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all nonessentials, 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 counter-signed 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 Glorias 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:

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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. attorneys 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 attorneys 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:

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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) Metrobanks 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 courts 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 gosignal 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 Gomezs 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.

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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.

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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:

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Kindly note that in receiving items on deposit, the bank obligates itself only as the depositors 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 depositors 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 depositors 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.

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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.

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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.
Metrobanks 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.

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The belated notification aggravated the petitioners 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:

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SECTION 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following
requirements:

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(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.
x

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.
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 v. Auditor General 11 where the Court held:

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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 non-negotiable 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."

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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.

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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.

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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:

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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.

EN BANC
[G.R. No. L-22405. June 30, 1971.]
PHILIPPINE EDUCATION CO., INC., Plaintiff-Appellant, v. MAURICIO A. SORIANO, ET AL., Defendants-Appellees.
Marcial Esposo, for Plaintiff-Appellant.
Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and Attorney Concepcion
Torrijos-Agapinan for Defendants-Appellees.
SYLLABUS
1. COMMERCIAL LAW; POSTAL LAW; NATURE OF POSTAL MONEY ORDERS. It is not disputed that our postal
statutes were patterned after similar 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 v. U.S., 189 Fed. 395; U.S. v. 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).
2. ADMINISTRATIVE LAW; ID.; A LETTER OF THE DIRECTOR OF POSTS SETTING CONDITIONS FOR THE
REDEMPTION BY A BANK OF POSTAL MONEY ORDERS RECEIVED BY IT FROM ITS DEPOSITORS IS NOT
COVERED BY SEC. 79 (B) OF THE REVISED ADMINISTRATIVE CODE, BUT BY SEC. 1190 OF THE SAME CODE.
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 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.." . .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 America to accept and pay postal money orders presented its depositors,
instead of the same being 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.
DECISION
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 with address at Lucena, Quezon. After the postal teller had made out money orders
numbered 124685, 124687-124695, Montinola offered to pay for them with a private check. As 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 the 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 Blank 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, Post-master 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 banks clearing account. For its part, on August 2 of the same year, the Bank of
America debited appellants 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 appellants
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:jgc:chanrobles.com.ph
"WHEREFORE, plaintiff prays that after hearing defendants be ordered:chanrob1es virtual 1aw library
(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting from the said Banks
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 8-1/2% 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, attorneys 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."cralaw virtua1aw library
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:jgc:chanrobles.com.ph
"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 Banks 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 8-1/2% per annum from September 27, 1961 until fully paid; without any pronouncement as
to costs and attorneys fees."cralaw virtua1aw library
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 complaints with costs, was rendered.
The first, second and fifth assignments of error discussed in appellants brief are related to each 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 endorsees, on the other.
It is not disputed that our postal statutes were patterned after similar 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
Status is that postal money orders are not negotiable instruments (Bolognesi v. U. S., 189 Fed. 395; U. S. v. 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
suffered 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 America to accept and pay postal money orders presented by its depositors, instead of the same
being 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.

FIRST DIVISION
[G.R. No. L-18103. June 8, 1922. ]
PHILIPPINE NATIONAL BANK, Plaintiff-Appellee, v. MANILA OIL REFINING & BY-PRODUCTS
COMPANY, INC., Defendant-Appellant.
Antonio Gonzalez for Appellant.
Roman J. Lacson for Appellee.
Hartigan & Welch; Fisher & DeWitt; Perkins & Kincaid; Gibbs, McDonough & Johnson; Julian
Wolfson; Ross & Lawrence; Francis B. Mahoney, and Jose A. Espiritu, amici curiae.
SYLLABUS
1. JUDGMENTS; JUDGMENTS BY CONFESSION; ORIGIN. The practice of entering judgments in debt on
warrants of attorney is ancient origin.
2. ID.; ID.; COMMON LAW PRACTICE. In the course of time a warrant of attorney to confess judgment
became a familiar common law security.
3. ID.; ID.; KINDS. At common law, there were two kinds of judgments by confession; the one a
judgment by cognovit actionem, and the other by confession relicta verificatione.
4. ID.; ID.; ADVANTAGES. Judgments by confession as appeared at common law were considered an
amicable, easy, and cheap way settle and secure debts.
5. ID.; ID.; DISADVANTAGES. The recognition of such a form of obligation would bring about a
complete reorganization of commercial customs and practices, with reference to short-term obligations.
Instead of resulting to the advantage of commercial life in the Philippines, judgment notes might be the
source of abuse and oppression, and make the involuntary parties thereto.
6. ID.; ID.; VALIDITY OF; IN THE UNITED STATES. A number of jurisdictions in the United States have
accepted the common law view of judgment by confession, while still other jurisdictions have refused to
sanction them.
7. ID.; ID.; ID.; ID. In the absence of statute, there is a conflict of authority as to the validity of a
warrant of attorney for the confession of judgment. The weight of opinion is that unless authorized by
statute, warrants of attorney to confess judgment are void, as against public policy.
8. ID.; ID.; ID.; IN THE PHILIPPINE ISLANDS; STATUTORY PROVISIONS. Neither the Code of Civil
Procedure nor any other remedial statute expressly or tacitly recognizes a confession of judgment
commonly called a judgment note.

9. ID.; ID.; ID.; ID.; ID.; RIGHT TO A DAY IN COURT. The provisions of the Code of Civil Procedure, in
relation to constitutional safeguards relating to the right to take a mans property only after a day in court
and after due process of law, contemplate that all defendants shall have opportunity to be heard.
10. ID.; ID.; ID.; ID.; ID.; COUNTERCLAIMS. The provisions of the Code of Civil Procedure pertaining to
counterclaims argue against judgment notes, especially as the Code provides that in case the defendant or
his assignee omits to set up a counterclaim, he cannot afterwards maintain an action against the plaintiff
therefor.
11. ID.; ID.; ID.; ID.; ID.; ARTICLE 1256, CIVIL CODE. At least one provision of the substantive law,
namely, that the validity and fulfillment of contracts cannot be left to the will of one of the contracting
parties (Civil Code, art. 1256), constitutes another indication of fundamental legal purpose.
12. ID.; ID.; ID.; ID.; ID.; NEGOTIABLE INSTRUMENTS LAW (ACT No. 2031), SECTION 5 (b) OF
negotiable Instrument otherwise negotiable is not affected by a provision which authorizes a confession of
judgment if the instrument be not paid at maturity, cannot be taken to sanction judgments by confession.
13. ID.; ID.; ID.; ID. Warrants of attorney to confess judgment are void as against public policy,
because they enlarge the field for fraud, because under these instruments the promissor bargains away
his right to a day in court, and because the effect of the instrument is to strike down the right of appeal
accorded by statute.
14. ID.; ID.; ID.; ID. Warrants of attorney to confess judgment are not authorized nor contemplated by
our law.
15. BILLS AND NOTES; JUDGMENT NOTE, VALIDITY OF. In the absence of express legislative sanction,
provisions in notes authorizing attorneys to appear and confess judgments against makers should not be
recognized in this jurisdiction by implication.
16. ID.; ID. A provision in a promissory note whereby in case the same is not paid at maturity, the
maker authorizes any attorney to appear and confess judgment thereon for the principal amount, with
interest, costs, and attorneys fees, and waives all errors, rights to inquisition, and appeal, and all property
exemptions, is not valid in this jurisdiction.

DECISION

MALCOLM, J.:

The question of first impression raised in this case concerns the validity in this jurisdiction of a provision in
a promissory note whereby in case the same is not paid at maturity, the maker authorizes any attorney to
appear and confess judgment thereon for the principal amount, with interest, costs, and attorneys fees,
and waives all errors, rights to inquisition, and appeal, and all property exemptions.
On May 8, 1920, the manager and the treasurer of the Manila Oil Refining & By-Products Company, Inc,.
executed and delivered to the Philippine National Bank, a written instrument reading as
follows:jgc:chanrobles.com.ph

"RENEWAL.
"P61,000.00
"MANILA, P.I., May 8, 1920.
"On demand after date we promise to pay to the order of the Philippine National Bank sixty-one thousand
only pesos at Philippine National Bank, Manila, P.I.
"Without defalcation, value received; and do hereby authorize any attorney in the Philippine Islands, in
case this note be not paid at maturity, to appear in my name and confess judgment for the above sum
with interest, cost of suit and attorneys fees of ten (10) per cent for collection, a release of all errors and
waiver of all rights to inquisition and appeal, and to the benefit of all laws exempting property, real or
personal, from levy or sale. Value received. No. Due
"MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) "VICENTE SOTELO,
"Manager.
"MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) "RAFAEL LOPEZ.
"Treasurer."cralaw virtua1aw library
The Manila Oil Refining & By-Products Company, Inc. failed to pay the promissory note on demand. The
Philippine National Bank brought action in the Court of First Instance of Manila, to recover P61,000, the
amount of the note, together with interest and costs. Mr. Elias N. Recto, an attorney associated with the
Philippine National Bank, entered his appearance in representation of the defendant, and filed a motion
confessing judgment. The defendant, however, in a sworn declaration, objected strongly to the unsolicited
representation of attorney Rect. Later, attorney Antonio Gonzalez appeared for the defendant and filed a
demurrer, and when this was overruled, presented an answer. The trial judge rendered judgment on the
motion of attorney Recto in the terms of the complaint.
The foregoing facts, and appellants three assignments of error, raise squarely the question which was
suggested in the beginning of this opinion. In view of the importance of the subject to the business
community, the advice of prominent attorneys-at-law with banking connections, was solicited. These
members of the bar responded promptly to the request of the court, and their memoranda have proved
highly useful in the solution of the question. It is to the credit of the bar that although the sanction of
judgment notes in the Philippines might prove of immediate value to clients, every one of the attorneys
has looked upon the matter in a big way, with the result that out of their independent investigations has
come a practically unanimous protest against the recognition in this jurisdiction of judgment notes. 1
Neither the Code of Civil Procedure nor any other remedial statute expressly or tacitly recognizes a
confession of judgment commonly called a judgment note. On the contrary, the provisions of the Code of
Civil Procedure, in a relation to constitutional safeguards relating to the right to take a mans property only
after a day in court and after due process of law, contemplate that all defendants shall have an
opportunity to be heard. Further, the provisions of the Code of Civil Procedure pertaining to counterclaims
argue against judgment notes, especially as the Code provides that in case the defendant or his assignee

omits to set up a counterclaim, he cannot afterwards maintain an action against the plaintiff therefor.
(Secs. 95, 96, 97.) At least one provision of the substantive law, namely, that the validity and fulfillment
of contracts cannot be left to the will of one of the contracting parties (Civil Code, art. 1256), constitutes
another indication of fundamental legal purpose.
The attorney for the appellee contends that the Negotiable Instruments Law (Act No. 2031) expressly
recognized judgment notes, and that they are enforcible under the regular procedure. The Negotiable
Instruments Law, in section 5, provides that "The negotiable character of an instrument otherwise
negotiable is not affected by a provision which." . . (b) Authorizes confession of judgment if the
instrument be not paid at maturity. We do not believe, however, that this provision of law can be taken to
sanction judgments by confession, because it is a portion of a uniform law which merely provides that, in
jurisdictions where judgments notes are recognized, such clauses shall not affect the negotiable character
of the instrument. Moreover, the same section of the Negotiable Instruments Law concludes with these
words: "But nothing in this section shall validate any provision or stipulation otherwise illegal."cralaw
virtua1aw library
The court is thus put in the position of having to determine the validity in the absence of statute of a
provision in a note authorizing an attorney to appear and confess judgment against the maker. This
situation, in reality, has its advantages for it permits us to reach that solution which is best grounded in
the solid principles of the law, and which will best advance the public interest.
The practice of entering judgments in debt on warrants of attorney is of ancient origin. In the course of
time a warrant of attorney to confess judgment became a familiar common law security. At common law,
there were two kinds of judgments by confession; the one a judgment by cognovit actionem, and the
other by confession relicta verificatione. A number of jurisdictions in the United States have accepted the
common law view of judgments by confession, while still other jurisdictions have refused to sanction them.
In some States, statutes have been passed which have either expressly authorized confession of judgment
on warrant of attorney, without antecedent process, or have forbidden judgments of this character. In the
absence of statute, there is a conflict of authority as to the validity of a warrant of attorney for the
confession of judgment. The weight of opinion is that, unless authorized by statute, warrants of attorney
to confess judgment are void, as against public policy.
Possibly the leading case on the subject is First National Bank of Kansas City v. White [(1909], 220 Mo.,
717; 16 Ann. Cas., 889; 120 S. W., 36; 132 Am. St. Rep., 612). The record in this case discloses that on
October 4, 1900, the defendant executed and delivered to the plaintiff an obligation in which the
defendant authorized any attorney-at-law to appear for him in an action on the note at any time after the
note became due in any court of record in the State of Missouri, or elsewhere, to waive the issuing and
service of process, and to confess judgment in favor of the First National Bank of Kansas City for the
amount that might then be due thereon, with interest at the rate therein mentioned and the costs of suit,
together with an attorneys fee of 10 per cent and also to waive and release all errors in said proceedings
and judgment, and all proceedings, appeals, or writs of error thereon. Plaintiff filed a petition in the Circuit
Court to which was attached the above-mentioned instrument. An attorney named Denham appeared
pursuant to the authority given by the note sued on, entered the appearance of the defendant, and
consented that judgment be rendered in favor of the plaintiff as prayed in the petition. After the Circuit
Court had entered a judgment, the defendant, through counsel, appeared specially and filed a motion to
set it aside. The Supreme Court of Missouri, speaking through Mr. Justice Graves, in part
said:jgc:chanrobles.com.ph
"But going beyond the mere technical question in our preceding paragraph discussed, we come to a
question urged which goes to the very root of this case, and whilst new and novel in this state, we do not
fell that the cause should be disposed of without discussing and passing upon that question.

"And if this instrument be considered as a security for a debt, as it was by the common law, it has never
so found recognition in this state. The policy of our law has been against such hidden securities for debt.
Our Recorders Act is such that instruments intended as security for debt should find a place in the public
records, and if not, they have often been viewed with suspicion, and their bona fides often questioned.
"Nor do we think that the policy of our law is such as to thus place a debtor in the absolute power of his
creditor. The field for fraud is too far enlarged by such an instrument. Oppression and tyranny would follow
the footsteps of such a diversion in the way of security for debt. Such instruments procured by duress
could shortly be placed in judgment in a foreign court and much distress result therefrom.
"Again, under the law the right to appeal to this court or some other appellate court is granted to all
persons against whom an adverse judgment is rendered, and this statutory right is by the instrument
stricken down. True it is that such right is not claimed in this case, but it is a part of the bond and we
hardly know why this pound of flesh has not been demanded. Courts guard with jealous eye any contract
innovations upon their jurisdiction. The instrument before us, considered in the light of a contract, actually
reduces the courts to mere clerks to enter and record the judgment called for therein. By our statute (Rev.
St. 1899, sec. 645) a party to a written instrument of this character has the right to show a failure of
consideration, but this right is brushed to the wind by this instrument and the jurisdiction of the court to
hear that controversy is by the contract divested. In 9 Cyc., 510, it is said: Agreements whose object is to
oust the jurisdiction of the courts are contrary to public policy and will not be enforced. Thus it is held that
any stipulation between parties to a contract distinguishing between the different courts of the country is
contrary to public policy. The principle has also been applied to a stipulation in a contract that a party who
breaks it may not be sued, to an agreement designating a person to be sued for its breach who is nowise
liable and prohibiting action against any but him, to a provision in a lease that the landlord shall have the
right to take immediate judgment against the tenant in case of a default on his part, without giving the
notice and demand for possession and filing the complaint required by stature, to a by-law of a benefit
association that the decisions of its officers on a claim shall be final and conclusive, and to many other
agreements of a similar tendency. In some courts, any agreement as to the time for suing different from
the time allowed by the statute of limitations within which suit shall be brought or the right to sue be
barred is held void.
x
x
x

"We shall not pursue this question further. This contract, in so far as it goes beyond the usual provisions of
a note, is void as against the public policy of the state, as such public policy is found expressed in our laws
and decisions. Such agreements are iniquitous to the uttermost and should be promptly condemned by
the courts, until such time as they may receive express statutory recognition, as they have in some
states.
x
x
x

"From what has been said, it follows that the Circuit Court never had jurisdiction of the defendant, and the
judgment is reversed."cralaw virtua1aw library
The case of Farquhar & Co. v. Dehaven ([1912], 70 W. Va., 738; 40 L. R. A. [N. S. ], 956; 75 S. E., 65;
Ann. Cas. [1914--A], is another well-considered authority. The notes referred to in the record contained
waiver of presentment and protest, homestead and exemption rights real and personal, and other rights,
and also the following material provision:" And we do hereby empower and authorize the said A. B.

Farquhar Co. Limited, or agent, or any prothonotary or attorney of any Court of Record to appear for us
and in our name to confess judgment against us and in favor of said A. B. Farquhar Co., Limited, for the
above named sum with costs of suit and release of all errors and without stay of execution after the
maturity of this note." The Supreme Court of West Virginia, on consideration of validity of the judgment
note above described, speaking through Mr. Justice Miller, in part said:jgc:chanrobles.com.ph
"As both sides agree the question presented is one of first impression in this State. We have no Statute, as
has Pennsylvania and many other states, regulating the subject. In the decision we are called upon to
render, we must law, in force here, and to our statute law, applicable, and to such judicial decisions and
practices in Virginia, in force at the time of the separation, as are properly binding on us. It is pertinent to
remark in this connection, that after nearly fifty years of judicial history in this State no case has been
brought here involving this question, strong evidence, we think, that such notes, if at all, have never been
in very general use in this commonwealth. And in most states where they are current the use of them has
grown up under statutes authorizing them, and regulating the practice of employing them in commercial
transactions.
x
x
x

"It is contended, however, that the old legal maxim, qui facit per alium, facit per se, is as applicable here
as in other cases. We do not think so. Strong reasons exist, as we have shown, for denying its application,
when holders of contracts of this character seek the aid of the courts and of their execution process them,
defendant having had no day in court or opportunity to be heard. We need not say in this case that a
debtor may not, by proper power of attorney duly executed, authorize another to appear in court, and by
proper endorsement upon the writ waive service of process, and confess judgment. But we do not wish to
be understood as approving or intending to countenance the practice of employing in this state
commercial paper of the character here involved. Such paper has heretofore had little if any currency
here. If the practice is adopted into this state it ought to be, we think, by act of the Legislature, with all
proper safeguards thrown around it, to prevent fraud and imposition. The policy of our law is, that no man
shall suffer judgment at the hands of our courts without proper process and a day to be heard. To give
currency to such paper by judicial pronouncement would be to open the door to fraud and imposition, and
subject the people to wrongs and injuries not heretofore contemplated. This we are unwilling to do."cralaw
virtua1aw library
A case typical of those authorities which lend support to judgment notes is First National Bank of Las
Cruces v. Baker ([1919], 180 Pac., 291). The Supreme Court of New Mexico, in a per curiam decision, in
part, said:jgc:chanrobles.com.ph
"In some of the states the judgments upon warrants of attorney are condemned as being against public
policy. (Farquhar & Co. v. Dehaven, 70 W. Va., 738; 75 S. E., 65; 40 L. R. A. [N. S. ], 956; Ann. Cas.
[1914 A], 640, and First National Bank of Kansas City v. White, 220 Mo., 717; 120 S. W., 35; 132 Am. St.
Rep., 612; 16 Ann. Cas., 889, are examples of such holding.) By just what course of reasoning it can be
said by the courts that such judgments are against public policy we are unable to understand. It was a
practice from time immemorial at common law, and the common law comes down to us sanctioned as
justified by the reason and experience of English-speaking people. If conditions have arisen in this country
which make the application of the common law undesirable, it is for the Legislature to so announce, and to
prohibit the taking of judgments of this kind. Until the Legislature has spoken along that line, we know of
no theory upon which such judgments can be declared as against the public policy of the state. We are
aware that the argument against them is that they enable the unconscionable credit to take advantage of
the necessities of the poor debtor and cut him off from his ordinary day in court. On the other hand, it
may be said in their favor that it frequently enables a debtor to obtain money which he could by no
possibility otherwise obtain. It strengthens his credit, and may be most highly beneficial to him at times.

In some of the states these judgments have been condemned by statute and of course in that case are
not allowed.
"Our conclusion in this case is that a warrant of attorney given as security to a creditor accompanying a
promissory note confers a valid power, and authorizes a confession of judgments in any court of
competent jurisdiction in an action to be brought upon said note; that our cognovit statute does not cover
the same field as that occupied by the common-law practice of taking judgments upon warrant of
attorney, and does not impliedly or otherwise abrogate such practice; and that the practice of taking
judgments upon warrant of attorney, and does not impliedly or otherwise abrogate such practice; and that
the practice of taking judgments upon warrants of attorney as it was pursued in this case is not against
any public policy of the state, as declared by its laws."cralaw virtua1aw library
With reference to the conclusiveness of the decision here mentioned, it may be said that they are based
on the practice of the English-American common law, and that the doctrines of the common law are
binding upon Philippine courts only in so far as they are founded on sound principles applicable to local
conditions.
Judgments by confession as appeared at common law were considered an amicable, easy, and cheap way
to settle and secure debts. They are quick remedy serve to save the courts time. Time also save time and
money of the litigants and the government the expenses that a long litigation entails. In one sense,
instruments of this character may be considered as special agreements, with power to enter up judgments
on them, binding the parties to the result as they themselves viewed it.
On the other hand, are disadvantages to the commercial world which outweigh the considerations just
mentioned. Such warrants of attorney are void as against public policy, because they enlarge the field for
fraud, because under these instruments the promissor bargains away his right to a day in court, and
because the effect of the instrument is to strike down the right of appeal accorded by statute. The
recognition of such form of obligation would bring about a complete reorganization of commercial customs
and practices, with reference to short-term obligations. It can readily be seen that judgment notes,
instead of resulting to the advantage of commercial life the Philippines might be the source of abuse and
oppression, and make the courts involuntary parties thereto. If the bank has a meritorious case, the
judgment is ultimately certain in the courts.
We are of the opinion that warrants of attorney to confess judgment are not authorized nor contemplated
by our law. We are further of the opinion that provisions in notes authorizing attorneys to appear and
confess judgments against makers should not be recognized in this jurisdiction by implication and should
only be considered as valid when given express legislative sanction.
The judgment appealed from is set aside, and the case is remanded to the lower court for further
proceedings in accordance with this decision. Without special finding as to costs in this instance, it is so
ordered.
Araullo, C.J., Avancea, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

THIRD DIVISION
[G.R. No. 76788. January 22, 1990.]
JUANITA SALAS, Petitioner, v. HON. COURT OF APPEALS and FILINVEST FINANCE & LEASING
CORPORATION, Respondents.
Arsenio C. Villalon, Jr. for Petitioner.
Labaguis, Loyola, Angara & Associates for Private Respondent.

SYLLABUS

1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENT; REQUISITES; SATISFIED IN CASE AT BAR. The questioned
promissory note shows that it is a negotiable instrument, having complied with the requisites under the law as
follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the
amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36
months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;"
[d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with
certainty.
2. ID.; NEGOTIABLE AND NON-NEGOTIABLE INSTRUMENT, DISTINGUISHED. In the case of Consolidated Plywood
Industries Inc. v. IFC Leasing and Acceptance Corp., this Court had the occasion to clearly distinguish between a
negotiable and a non-negotiable instrument. Among others, the instrument in order to be considered negotiable must
contain the so-called "words of negotiability i.e., must be payable to order or bearer." Under Section 8 of the
Negotiable Instruments Law, there are only two ways by which an instrument may be made payable to order. There
must always be a specified person named in the instrument and the bill or note is to be paid to the person designated
in the instrument or to any person to whom he has indorsed and delivered the same. Without the words "or order" or
"to the order of", the instrument is payable only to the person designated therein and is therefore non-negotiable. Any
subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will
merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available
against the latter.
3. ID.; NEGOTIABLE INSTRUMENTS; REQUISITES OF HOLDER IN DUE COURSE. A holder in due course, having
taken the instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the
holder thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same
in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the
instrument or defect in the title of VMS Corporation.
4. ID.; ID.; RIGHT OF A HOLDER IN DUE COURSE; APPLICABLE IN THE CASE AT BAR. Respondent corporation
holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties

among themselves, and may enforce payment of the instrument for the full amount thereof. This being so, petitioner
cannot set up against respondent the defense of nullity of the contract of sale between her and VMS. Even assuming
for the sake of argument that there is an iota of truth in petitioners allegation that there was in fact deception made
upon her in that the vehicle she purchased was different from that actually delivered to her, this matter cannot be
passed upon in the case before us, where the VMS was never impleaded as a party.

DECISION

FERNAN, C.J.:

Assailed in this petition for review on certiorari is the decision of the Court of Appeals in C.A.-G.R. CV No. 00757
entitled "Filinvest Finance & Leasing Corporation v. Salas", which modified the decision of the Regional Trial Court of
San Fernando, Pampanga in Civil Case No. 5915, a collection suit between the same parties.
Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner) bought a motor vehicle
from the Violago Motor Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory note. This
note was subsequently endorsed to Filinvest Finance & Leasing Corporation (hereinafter referred to as private
respondent) which financed the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy in the engine and
chassis numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of registration and
deed of chattel mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of money against petitioner
before the Regional Trial Court of San Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held, thus:

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"WHEREFORE, and in view of all the foregoing, judgment is hereby rendered ordering the defendant to pay the
plaintiff the sum of P28,414.40 with interest thereon at the rate of 14% from October 2, 1980 until the said sum is
fully paid; and the further amount of P1,000.00 as attorneys fees.
"The counterclaim of defendant is dismissed.
"With costs against defendant." 1
Both petitioner and private respondent appealed the aforesaid decision to the Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner, the
latter prayed for a reversal of the trial courts decision so that she may be absolved from the obligation under the
contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision, the pertinent portion of which is quoted
hereunder:

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"The allegations, statements, or admissions contained in a pleading are conclusive as against the pleader. A party

cannot subsequently take a position contradictory of, or inconsistent with his pleadings (Cunanan v. Amparo, 80 Phil.
227). Admissions made by the parties in the pleadings, or in the course of the trial or other proceedings, do not
require proof and cannot be contradicted unless previously shown to have been made through palpable mistake (Sec.
2, Rule 129, Revised Rules of Court; Sta. Ana v. Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018).
"When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading
as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted
unless the adverse party, under oath, specifically denied them, and sets forth what he claims to be the facts (Sec. 8,
Rule 8, Revised Rules of Court; Hibbered v. Rohde and Mc Millian, 32 Phil. 476).
"A perusal of the evidence shows that the amount of P58,138.20 stated in the promissory note is the amount
assumed by the plaintiff in financing the purchase of defendants motor vehicle from the Violago Motor Sales Corp.,
the monthly amortization of which is P1,614.95 for 36 months. Considering that the defendant was able to pay twice
(as admitted by the plaintiff, defendants account became delinquent only beginning May, 1980) or in the total sum of
P3,229.90, she is therefore liable to pay the remaining balance of P54,908.30 at 14% per annum from October 2,
1980 until full payment.
"WHEREFORE, considering the foregoing, the appealed decision is hereby modified ordering the defendant to pay the
plaintiff the sum of P54,908.30 at 14% per annum from October 2, 1980 until full payment. The decision is AFFIRMED
in all other respects. With costs to defendant." 2
Petitioners motion for reconsideration was denied; hence, the present recourse.

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In the petition before us, petitioner assigns twelve (12) errors which focus on the alleged fraud, bad faith and
misrepresentation of Violago Motor Sales Corporation in the conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability to private respondent who should instead proceed
against VMS. 3
Petitioner argues that in the light of the provision of the law on sales by description 4 which she alleges is applicable
here, no contract ever existed between her and VMS and therefore none had been assigned in favor of
private Respondent.
She contends that it is not necessary, as opined by the appellate court, to implead VMS as a party to the case before
it can be made to answer for damages because VMS was earlier sued by her for "breach of contract with damages"
before the Regional Trial Court of Olongapo City, Branch LXXII, docketed as Civil Case No. 2916-0. She cites as
authority the decision therein where the court originally ordered petitioner to pay the remaining balance of the motor
vehicle installments in the amount of P31,644.30 representing the difference between the agreed consideration of
P49,000.00 as shown in the sales invoice and petitioners initial downpayment of P17,855.70 allegedly evidenced by a
receipt. Said decision was however reversed later on, with the same court ordering defendant VMS instead to return
to petitioner the sum of P17,855.70. Parenthetically, said decision is still pending consideration by the First Civil Case
Division of the Court of Appeals, upon an appeal by VMS, docketed as AC-G.R. No. 02922. 5
Private respondent in its comment, prays for the dismissal of the petition and counters that the issues raised and the
allegations adduced therein are a mere rehash of those presented and already passed upon in the court below, and
that the judgment in the "breach of contract" suit cannot be invoked as an authority as the same is still pending
determination in the appellate court.
We see no cogent reason to disturb the challenged decision.

The pivotal issue in this case is whether the promissory note in question is a negotiable instrument which will bar
completely all the available defenses of the petitioner against private Respondent.
Petitioners liability on the promissory note, the due execution and genuineness of which she never denied under oath
is, under the foregoing factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of credit as petitioner would have it appear,
where the assignee merely steps into the shoes of, is open to all defenses available against and can enforce payment
only to the same extent as, the assignor-vendor.
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., 6 this Court had
the occasion to clearly distinguish between a negotiable and a non-negotiable instrument.

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Among others, the instrument in order to be considered negotiable must contain the so-called "words of negotiability
i.e., must be payable to order or bearer." Under Section 8 of the Negotiable Instruments Law, there are only two
ways by which an instrument may be made payable to order. There must always be a specified person named in the
instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he
has indorsed and delivered the same. Without the words "or order" or "to the order of", the instrument is payable only
to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the
advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the person
designated in the instrument and will thus be open to all defenses available against the latter. Such being the situation
in the above-cited case, it was held that therein private respondent is not a holder in due course but a mere assignee
against whom all defenses available to the assignor may be raised. 7
In the case at bar, however, the situation is different. Indubitably, the basis of private respondents claim against
petitioner is a promissory note which bears all the earmarks of negotiability.
The pertinent portion of the note reads:

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"PROMISSORY NOTE
(MONTHLY)
"P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
"For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or order, at its office in
San Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 20/100 ONLY
(P58,138.20) Philippine currency, which amount includes interest at 14% per annum based on the diminishing
balance, the said principal sum, to be payable, without need of notice or demand, in installments of the amounts
following and at the dates hereinafter set forth, to wit: P1,614.95 months for "36" monthly due and payable on the
21st day of each month starting March 21, 1980 thru and inclusive of February 21, 1983. P __________ monthly for
___________ month due and payable on the ___________ day of each months starting _____________,

___________ 198 __________ thru and inclusive of _______, 198 __________ provided that interest at 14% per
annum shall be added on each unpaid installment from maturity hereof until fully paid.
x

"Maker: Co-Maker:

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(SIGNED) JUANITA SALAS _____________________________

Address:

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______________________ _____________________________
"WITNESSES
SIGNED: LLEGIBLE SIGNED: ILLEGIBLE
TAN # TAN #
"PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION
"VIOLAGO MOTOR SALES CORPORATION
By: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager" 8
A careful study of the questioned promissory note shows that it is a negotiable instrument, having complied with the
requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an
unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which
is "P1,614.95 monthly for 36 months due and payable on the 21st day of each month starting March 21, 1980 thru
and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the
drawee is named or indicated with certainty. 9
It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and
Leasing Corporation 10 and it is an indorsement of the entire instrument. 11
Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the
instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the holder
thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same in good
faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the
instrument or defect in the title of VMS Corporation. 12
Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from
defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount

thereof. 13 This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale
between her and VMS.

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Even assuming for the sake of argument that there is an iota of truth in petitioners allegation that there was in fact
deception made upon her in that the vehicle she purchased was different from that actually delivered to her, this
matter cannot be passed upon in the case before us, where the VMS was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved in the "breach of contract" case.
Hence, we reach a similar opinion as did respondent court when it held:

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"We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate incident. Indeed, there is
nothing We can do as far as the Violago Motor Sales Corporation is concerned since it is not a party in this case. To
even discuss the issue as to whether or not the Violago Motor Sales Corporation is liable in the transaction in question
would amount, to denial of due process, hence, improper and unconstitutional. She should have impleaded Violago
Motor Sales." 14
IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against petitioner.

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SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.

EN BANC
[G.R. No. L-2516. September 25, 1950. ]
ANG TEK LIAN, Petitioner, v. THE COURT OF APPEALS, Respondent.
Laurel, Sabido, Almario & Laurel, for Petitioner.
Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz, for Respondent.
SYLLABUS
1. CRIMINAL LAW; ESTAFA" ; ISSUING CHECK WITH INSUFFICIENT BANK DEPOSIT TO COVER THE SAME. One who
issues a check payable to cash to accomplish deceit and knows that at the time had no sufficient deposit with the bank
to cover the amount of the check and without informing the payee of such circumstances, is guilty of estafa as
provided by article 315, paragraph (d), subsection 2 of the Revised Penal Code.
2. NEGOTIABLE INSTRUMENTS; CHECK DRAWN PAYABLE TO THE ORDER OF "CASH" ; INDORSEMENT. A check
payable to the order of "cash to the person presenting it for payment without the drawers indorsement.

DECISION

BENGZON, J.:

For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First Instance of Manila. The
Court of Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November 16, 1946, the check
Exhibit A upon the China Banking Corporation for the sum of P4,000, payable to the order of "cash." He delivered it to
Lee Hua Hong in exchange for money which the latter handed in the act. On November 18, 1946, the next business
day, the check was presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for
insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16, 1946, appellant
went to his (complainants) office, at 1217 Herran, Paco, Manila, and asked him to exchange Exhibit A which he
(appellant) then brought with him with cash alleging that he needed badly the sum of P4,000 represented by the
check, but could not withdraw it from the bank, it being then already closed; that in view of this request and relying
upon appellants assurance that he had sufficient funds in the bank to meet Exhibit A, and because they used to
borrow money from each other, even before the war, and appellant owns a hotel and restaurant known as the North
Bay Hotel, said complainant delivered to him, on the same date, the sum of P4,000 in cash; that despite repeated
efforts to notify him that the check had been dishonored by the bank, appellant could not be located any-where, until
he was summoned in the City Fiscals Office in view of the complaint for estafa filed in connection therewith; and that
appellant has not paid as yet the amount of the check, or any part thereof."

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Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for decision is whether
under the facts found, estafa had been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling committed "By post-dating a
check, or issuing such check in payment of an obligation the offender knowing that at the time he had no funds in the

bank, or the funds deposited by him in the bank were not sufficient to cover the amount of the check, and without
informing the payee of such circumstances"
We believe that under this provision of law Ang Tek Lian was properly held liable. In this connection, it must be stated
that, as explained in People v. Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated check or
an ordinary check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and had not been endorsed by Ang Tek
Lian, the defendant is not guilty of the offense charged. Based on the proposition that "by uniform practice of all
banks in the Philippines a check so drawn is invariably dishonored," the following line of reasoning is advanced in
support of the argument:

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". . . When, therefore, he (the offended party) accepted the check (Exhibit A) from the appellant, he did so with full
knowledge that it would be dishonored upon presentment. In that sense, the appellant could not be said to have acted
fraudulently because the complainant, in so accepting the check as it was drawn, must be considered, by every
rational consideration, to have done so fully aware of the risk he was running thereby." (Brief for the appellant, p.
11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly occurred wherein the Bank required
the indorsement of the drawer before honoring a check payable to "cash." But cases there are too, where no such
requirement had been made. It depends upon the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a check payable to
bearer, and the bank may pay it to the person presenting it for payment without the drawers indorsement.
"A check payable to the order of cash is a bearer instrument. Bacal v. National City Bank of New York (1933), 146
Misc., 732; 262 N. Y. S., 839; Cleary v. Da Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N. Y. S., 831;
Massachusetts Bonding & Insurance Co. v. Pittsburgh Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d), 818.
See also H. Cook & Son v. Moody (1916), 17 Ga. App., 465; 87 S. E., 713."

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"Where a check is made payable to the order of cash, the word cash does not purport to be the name of any person,
and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but
may pay it to the person presenting it without any indorsement. . . ." (Zollmann, Banks and Banking, Permanent
Edition, Vol. 6, p. 494.)
Of course, if the bank is not sure of the bearers identity or financial solvency, it has the right to demand identification
and/or assurance against possible complications, for instance, (a) forgery of drawers signature, (b) loss of the
check by the rightful owner, (c) raising of the amount payable, etc. The bank may therefore require, for its protection,
that the indorsement of the drawer or of some other person known to it be obtained. But where the Bank is
satisfied of the identity and/or the economic standing of the bearer who tenders the check for collection, it will pay the
instrument without further question; and it would incur no liability to the drawer in thus acting.
"A check payable to bearer is authority for payment to the holder. Where a check is in the ordinary form, and is
payable to bearer, so that no indorsement is required, a bank, to which it is presented for payment, need not have the
holder identified, and is not negligent in failing to do so. . . ." (Michie on Banks and Banking, Permanent Edition, Vol.
5, p. 343.)
". . . Consequently, a drawee bank to which a bearer check is presented for payment need not necessarily have the

holder identified and ordinarily may not be charged with negligence in failing to do so. See Opinions 6C:2 and 6C:3. If
the bank has no reasonable cause for suspecting any irregularity, it will be protected in paying a bearer check, no
matter what facts unknown to it may have occurred prior to the presentment. 1 Morse, Banks and Banking, sec. 393.
"Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is entirely reasonable for
the bank to insist that the holder give satisfactory proof of his identity . . . ." (Patons Digest, Vol. I, p. 1089.)
Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally unconnected with its dishonor.
The Court of Appeals declared that it was returned unsatisfied because the drawer had insufficient funds not
because the drawers indorsement was lacking.
Wherefore, there being no question as to the correctness of the penalty imposed on the appellant, the writ
of certiorari is denied and the decision of the Court of Appeals is hereby affirmed, with costs.
Moran, C.J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur.

THIRD DIVISION
[G.R. No. 126568. April 30, 2003.]
QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO GONZALES and EUFEMIA
GONZALES, Petitioners, v. THE COURT OF APPEALS (CA) and REPUBLIC PLANTERS BANK, Respondents.
DECISION

CARPIO MORALES, J.:

In the expansion of its logging business, petitioner Quirino Gonzales Logging Concessionaire (QGLC), through its
proprietor, general manager co-petitioner Quirino Gonzales, applied on October 15, 1962 for credit accommodations
1 with respondent Republic Bank (the Bank), later known as Republic Planters Bank.

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The Bank approved QGLCs application on December 21, 1962, granting it a credit line of P900,000.00 2 broken into
an overdraft line of P500,000.00 which was later reduced to P450,000.00 and a Letter of Credit (LC) line of
P400,000.00. 3
Pursuant to the grant, the Bank and petitioners QGLC and the spouses Quirino and Eufemia Gonzales executed ten
documents: two denominated "Agreement for Credit in Current Account," 4 four denominated "Application and
Agreement for Commercial Letter of Credit," 5 and four denominated "Trust Receipt." 6
Petitioners obligations under the credit line were secured by a real estate mortgage on four parcels of land: two in
Pandacan, Manila, one in Makati (then part of Rizal), and another in Diliman, Quezon City. 7
In separate transactions, Petitioners, to secure certain advances from the Bank in connection with QGLCs exportation
of logs, executed a promissory note in 1964 in favor of the Bank. They were to execute three more promissory notes
in 1967.
In 1965, petitioners having long defaulted in the payment of their obligations under the credit line, the Bank
foreclosed the mortgage and bought the properties covered thereby, it being the highest bidder in the auction sale
held in the same year. Ownership over the properties was later consolidated in the Bank on account of which new
titles thereto were issued to it. 8
On January 27, 1977, alleging non-payment of the balance of QGLCs obligation after the proceeds of the foreclosure
sale were applied thereto, and non-payment of the promissory notes despite repeated demands, the Bank filed a
complaint for "sum of money" (Civil Case No. 106635) against petitioners before the Regional Trial Court (RTC) of
Manila.

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The complaint listed ten causes of action. The first concerns the overdraft line under which the Bank claimed that

petitioners withdrew amounts (unspecified) at twelve percent per annum which were unpaid at maturity and that after
it applied the proceeds of the foreclosure sale to the overdraft debt, there remained an unpaid balance of
P1,224,301.56.
The Banks second to fifth causes of action pertain to the LC line under which it averred that on the strength of the
LCs it issued, the beneficiaries thereof drew and presented sight drafts to it which it all paid after petitioners
acceptance; and that it delivered the tractors and equipment subject of the LCs to petitioners who have not paid
either the full or part of the face value of the drafts.
Specifically with respect to its second cause of action, the Bank alleged that it issued LC No. 63-0055D on January 15,
1963 in favor of Monark International Incorporated 9 covering the purchase of a tractor 10 on which the latter
allegedly drew a sight draft with a face value of P71,500.00, 11 which amount petitioners have not, however, paid in
full.

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Under its third cause of action, the Bank charged that it issued LC No. 61-1110D on December 27, 1962 also in favor
of Monark International covering the purchase of another tractor and other equipment; 12 and that Monark
International drew a sight draft with a face value of P80,350.00, 13 and while payments for the value thereof had
been made by petitioners, a balance of P68,064.97 remained.
Under the fourth cause of action, the Bank maintained that it issued LC No. 63-0182D on February 11, 1963 in favor
of J.B.L. Enterprises, Inc. 14 covering the purchase of two tractors, 15 and J.B.L. Enterprises drew on February 13,
1963 a sight draft on said LC in the amount of P155,000.00 but petitioners have not paid said amount.
On its fifth cause of action, the Bank alleged that it issued LC No. 63-0284D on March 14, 1963 in favor of Super
Master Auto Supply (SMAS) covering the purchase of "Eight Units GMC (G.I.) Trucks" ; that on March 14, 1963, SMAS
drew a sight draft with a face value of P64,000.00 16 on the basis of said LC; and that the payments made by
petitioners for the value of said draft were deficient by P45,504.74.
The Bank thus prayed for the settlement of the above-stated obligations at an interest rate of eleven percent per
annum, and for the award of trust receipt commissions, attorneys fees and other fees and costs of collection.
The sixth to ninth causes of action are anchored on the promissory notes issued by petitioners allegedly to secure
certain advances from the Bank in connection with the exportation of logs as reflected above. 17 The notes were
payable 30 days after date and provided for the solidary liability of petitioners as well as attorneys fees at ten percent
of the total amount due 18 in the event of their non-payment at maturity.
The note dated June 18, 1964, subject of the sixth cause of action, has a face value of P55,000.00 with interest rate
of twelve percent per annum; 19 that dated July 7, 1967 subject of the seventh has a face value of P20,000.00; 20
that dated July 18, 1967 subject of the eighth has a face value of P38,000.00; 21 and that dated August 23, 1967
subject of the ninth has a face value of P11,000.00. 22 The interest rate of the last three notes is pegged at thirteen
percent per annum. 23
On its tenth and final cause of action, the Bank claimed that it has accounts receivable from petitioners in the amount
of P120.48.
In their Answer 24 of March 3, 1977, petitioners admit the following: having applied for credit accommodations
totaling P900,000.00 to secure which they mortgaged real properties; opening of the LC/Trust Receipt Line; the
issuance by the Bank of the various LCs; and the foreclosure of the real estate mortgage and the consolidation of

ownership over the mortgaged properties in favor of the Bank. They deny, however, having availed of the credit
accommodations and having received the value of the promissory notes, as they do deny having physically received
the tractors and equipment subject of the LCs.

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As affirmative defenses, petitioners assert that the complaint states no cause of action, and assuming that it does, the
same is/are barred by prescription or null and void for want of consideration.
By Order of March 10, 1977, Branch 36 of the Manila RTC attached the preferred shares of stocks of the spouses
Quirino and Eufemia Gonzales with the Bank with a total par value of P414,000.00.
Finding for petitioners, the trial court rendered its Decision of April 22, 1992 the dispositive portion of which reads:
WHEREFORE, judgment is rendered as follows:

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1. All the claims of plaintiff particularly those described in the first to the tenth causes of action of its complaint are
denied for the reasons earlier mentioned in the body of this decision;
2. As regards the claims of defendants pertaining to their counterclaim (Exhibits "1", "2" and "3"), they are hereby
given ten (10) years from the date of issuance of the torrens title to plaintiff and before the transfer thereof in good
faith to a third party buyer within which to ask for the reconveyance of the real properties foreclosed by plaintiff,
3. The order of attachment which was issued against the preferred shares of stocks of defendants-spouses Quirino
Gonzales and Eufemia Gonzales with the Republic Bank now known as Republic Planters Bank dated March 21, 1977 is
hereby dissolved and/or lifted, and
4. Plaintiff is likewise ordered to pay the sum of P20,000.00, as and for attorneys fees, with costs against plaintiff.
SO ORDERED.

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In finding for petitioners, the trial court ratiocinated:25

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Art. 1144 of the Civil Code states that an action upon a written contract prescribes in ten (10) years from the time the
right of action accrues. Art. 1150 states that prescription starts to run from the day the action may be brought. The
obligations allegedly created by the written contracts or documents supporting plaintiffs first to the sixth causes of
action were demandable at the latest in 1964. Thus when the complaint was filed on January 27, 1977 more than ten
(10) years from 1964 [when the causes of action accrued] had already lapsed. The first to the sixth causes of action
are thus barred by prescription. . . .
As regards the seventh and eight causes of action, the authenticity of which documents were partly in doubt in the
light of the categorical and uncontradicted statements that in 1965, defendant Quirino Gonzales logging concession
was terminated based on the policy of the government to terminate logging concessions covering less than 20,000
hectares. If this is the case, the Court is in a quandary why there were log exports in 1967? Because of the foregoing,
the Court does not find any valid ground to sustain the seventh and eight causes of action of plaintiffs complaint.
As regards the ninth cause of action, the Court is baffled why plaintiff extended to defendants another loan when
defendants according to plaintiffs records were defaulting creditors? The above facts and circumstances has (sic)
convinced this Court to give credit to the testimony of defendants witnesses that the Gonzales spouses signed the
documents in question in blank and that the promised loan was never released to them. There is therefore a total

absence of consent since defendants did not give their consent to loans allegedly procured, the proceeds of which
were never received by the alleged debtors, defendants herein. . . .
Plaintiff did not present evidence to support its tenth cause of action. For this reason, it must consequently be denied
for lack of evidence.

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On the matter of [the] counterclaims of defendants, they seek the return of the real and personal properties which
they have given in good faith to plaintiff. Again, prescription may apply. The real properties of defendants acquired by
plaintiff were foreclosed in 1965 and consequently, defendants had one (1) year to redeem the property or ten (10)
years from issuance of title on the ground that the obligation foreclosed was fictitious.
x

On appeal, 26 the Court of Appeals (CA) reversed the decision of the trial court by Decision 27 of June 28, 1996 which
disposed as follows: 28
WHEREFORE, premises considered, the appealed decision (dated April 22, 1992) of the Regional Trial Court (Branch
36) in Manila in Civil Case No. 82-4141 is hereby REVERSED and let the case be remanded back to the court a quo
for the determination of the amount(s) to be awarded to the [the Bank]-appellant relative to its claims against the
appellees.
SO ORDERED.
With regard to the first to sixth causes of action, the CA upheld the contention of the Bank that the notices of
foreclosure sale were "tantamount" to demand letters upon the petitioners which interrupted the running of the
prescriptive period. 29
As regards the seventh to ninth causes of action, the CA also upheld the contention of the Bank that the written
agreements-promissory notes prevail over the oral testimony of petitioner Quirino Gonzales that the cancellation of
their logging concession in 1967 made it unbelievable for them to secure in 1967 the advances reflected in the
promissory notes. 30
With respect to petitioners counterclaim, the CA agreed with the Bank that: 31
Certainly, failure on the part of the trial court to pass upon and determine the authenticity and genuineness of [the
Banks] documentary evidence [the trial court having ruled on the basis of prescription of the Banks first to sixth
causes of action] makes it impossible for the trial court to eventually conclude that the obligation foreclosed (sic) was
fictitious. Needless to say, the trial courts ruling averses (sic) the well-entrenched rule that courts must render
verdict on their findings of facts." (China Banking Co. v. CA, 70 SCRA 398)
Furthermore, the defendants-appellees [herein petitioners] counterclaim is basically an action for the reconveyance
of their properties, thus, the trial courts earlier ruling that the defendants-appellees counterclaim has prescribed is
itself a ruling that the defendants-appellees separate action for reconveyance has also prescribed.
The CA struck down the trial courts award of attorneys fees for lack of legal basis. 32
Hence, petitioners now press the following issues before this Court by the present petition for review on certiorari:

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1. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT RESPONDENT-APPELLEES (SIC.) REPUBLIC
PLANTERS BANK[S] FIRST, SECOND, THIRD, FOURTH, FIFTH AND SIXTH CAUSES OF ACTION HAVE NOT PRESCRIBED
CONTRARY TO THE FINDINGS OF THE LOWER COURT, RTC BRANCH 36 THAT THE SAID CAUSES OF ACTION HAVE
ALREADY PRESCRIBED.

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2. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT RESPODNENT-APPELLEES (SIC.) REPUBLIC
PLANTERS BANK[S] SEVENTH, EIGHT AND NINTH CAUSES OF ACTION APPEARS (SIC.) TO BE IMPRESSED WITH
MERIT CONTRARY TO THE FINDINGS OF THE LOWER COURT RTC BRANCH 36 THAT THE SAID CAUSES HAVE NO
VALID GROUND TO SUSTAIN [THEM] AND FOR LACK OF EVIDENCE.
3. WHETHER OR NOT RESPONDENT COURT [ERRED] IN REVERSING THE FINDINGS OF THE REGIONAL TRIAL COURT
BRANCH 36 OF MANILA THAT PETITIONERS-APPELLANT (SIC.) MAY SEEK THE RETURN OF THE REAL AND PERSONAL
PROPERTIES WHICH THEY MAY HAVE GIVEN IN GOOD FAITH AS THE SAME IS BARRED BY PRESCRIPTION AND THAT
PETITIONERS-APPELLANT (SIC.) HAD ONE (1) YEAR TO REDEEM THE PROPERTY OR TEN (10) YEARS FROM ISSUANCE
OF THE TITLE ON THE GROUND THAT THE OBLIGATION FORECLOSED WAS FICTITIOUS.
4. WHETHER OR NOT RESPONDENT COURT ERRED IN SO HOLDING THAT PEITIONERS-APPELLANTS [SIC] ARE NOT
ENTITLED TO AN AWARD OF ATTORNEYS FEES.
The petition is partly meritorious.
On the first issue. The Civil Code provides that an action upon written contract, an obligation created by law, and a
judgment must be brought within ten years from the time the right of action accrues. 33
The finding of the trial court that more than ten years had elapsed since the right to bring an action on the Banks first
to sixth causes had arisen 34 is not disputed. The Bank contends, however, that "the notices of foreclosure sale in the
foreclosure proceedings of 1965 are tantamount to formal demands upon petitioners for the payment of their past due
loan obligations with the Bank, hence, said notices of foreclosure sale interrupted/forestalled the running of the
prescriptive period." 35
The Banks contention does not impress. Prescription of actions is interrupted when they are filed before the court,
when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the
debt by the debtor. 36
The law specifically requires a written extrajudicial demand by the creditors which is absent in the case at bar. The
contention that the notices of foreclosure are "tantamount" to a written extrajudicial demand cannot be appreciated,
the contents of said notices not having been brought to light.
But even assuming arguendo that the notices interrupted the running of the prescriptive period, the argument would
still not lie for the following reasons:

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With respect to the first to the fifth causes of action, as gleaned from the complaint, the Bank seeks the recovery of
the deficient amount of the obligation after the foreclosure of the mortgage. Such suit is in the nature of a mortgage
action because its purpose is precisely to enforce the mortgage contract. 37 A mortgage action prescribes after ten
years from the time the right of action accrued. 38
The law gives the mortgagee the right to claim for the deficiency resulting from the price obtained in the sale of the

property at public auction and the outstanding obligation at the time of the foreclosure proceedings. 39 In the present
case, the Bank, as mortgagee, had the right to claim payment of the deficiency after it had foreclosed the mortgage in
1965. 40 In other words, the prescriptive period started to run against the Bank in 1965. As it filed the complaint only
on January 27, 1977, more than ten years had already elapsed, hence, the action on its first to fifth causes had by
then prescribed. No other conclusion can be reached even if the suit is considered as one upon a written contract or
upon an obligation to pay the deficiency which is created by law, 41 the prescriptive period of both being also ten
years. 42
As regards the promissory note subject of the sixth cause of action, its period of prescription could not have been
interrupted by the notices of foreclosure sale not only because, as earlier discussed, petitioners contention that the
notices of foreclosure are tantamount to written extra-judicial demand cannot be considered absent any showing of
the contents thereof, but also because it does not appear from the records that the said note is covered by the
mortgage contract.
Coming now to the second issue, petitioners seek to evade liability under the Banks seventh to ninth causes of action
by claiming that petitioners Quirino and Eufemia Gonzales signed the promissory notes in blank; that they had not
received the value of said notes, and that the credit line thereon was unnecessary in view of their money deposits,
they citing "Exhibits 2 to 2-B," 43 in, and unremitted proceeds on log exports from, the Bank. In support of their
claim, they also urge this Court to look at Exhibits "B" (the Banks recommendation for approval of petitioners
application for credit accommodations), "P" (the "Application and Agreement for Commercial Letter of Credit" dated
January 16, 1963) and "T" (the "Application and Agreement for Commercial Letter of Credit" dated February 14,
1963).

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The genuineness and due execution of the notes had, however, been deemed admitted by petitioners, they having
failed to deny the same under oath. 44 Their claim that they signed the notes in blank does not thus lie.
Petitioners admission of the genuineness and due execution of the promissory notes notwithstanding, they raise want
of consideration 45 thereof. The promissory notes, however, appear to be negotiable as they meet the requirements of
Section 1 46 of the Negotiable Instruments Law. Such being the case, the notes are prima facie deemed to have been
issued for consideration. 47 It bears noting that no sufficient evidence was adduced by petitioners to show otherwise.
Exhibits "2" to "2-B" to which petitioners advert in support of their claim that the credit line on the notes was
unnecessary because they had deposits in, and remittances due from, the Bank deserve scant consideration. Said
exhibits are merely claims by petitioners under their then proposals for a possible settlement of the case dated
February 3, 1978. Parenthetically, the proposals were not even signed by petitioners but by certain Attorneys
Osmundo R. Victoriano and Rogelio P. Madriaga.
In any case, it is no defense that the promissory notes were signed in blank as Section 14 48 of the Negotiable
Instruments Law concedes the prima facie authority of the person in possession of negotiable instruments, such as
the notes herein, to fill in the blanks.
As for petitioners reliance on Exhibits "B", "P" and "T," they have failed to show the relevance thereof to the seventh
up to the ninth causes of action of the Bank.
On the third issue, petitioners asseverate that with the trial courts dismissal of the Banks complaint and the denial of
its first to sixth causes of action, it is but fair and just that the real properties which were mortgaged and foreclosed
be returned to them. 49 Such, however, does not lie. It is not disputed that the properties were foreclosed under Act
No. 3135 (An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate

Mortgages), as amended. Though the Banks action for deficiency is barred by prescription, nothing irregular attended
the foreclosure proceedings to warrant the reconveyance of the properties covered thereby.
As for petitioners prayer for moral and exemplary damages, it not having been raised as issue before the courts
below, it can not now be considered. Neither can the award of attorneys fees for lack of legal basis.
WHEREFORE, the CA Decision is hereby AFFIRMED with MODIFICATION.
Republic Banks Complaint with respect to its first to sixth causes of action is hereby DISMISSED. Its complaint with
respect to its seventh to ninth causes of action is REMANDED to the court of origin, the Manila Regional Trial Court,
Branch 36, for it to determine the amounts due the Bank thereunder.

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SO ORDERED.
Puno, Panganiban, Sandoval-Gutierrez and Corona, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

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

CAMPOS, JR., J.:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a sum of money
against respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic
Corporation (Plastic Corporation for short) and the Producers Bank of the Philippines, on two causes of action:

(1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed 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 PLAINTIFF-PETITIONER HAS NO
CAUSE OF ACTION AGAINST DEFENDANTS-RESPONDENTS HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3 OF THE
REVISED RULES OF COURT ON ALTERNATIVE DEFENDANTS IS 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 petitionerpayee 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.

FIRST DIVISION
[G.R. Nos. L-25836-37. January 31, 1981.]
THE PHILIPPINE BANK OF COMMERCE, Plaintiff-Appellee, v. JOSE M. ARUEGO, Defendant-Appellant.
Sumulong, Sumulong and Libongco for Plaintiff-Appellee.
Aruego, Benitez-Mamaril, for Defendant-Appellant.
SYNOPSIS
Plaintiff bank instituted an action against defendant Jose M. Aruego for recovery of money it had paid on various
drafts drawn against it and signed by defendant as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO." The
complaint was dismissed upon motion of defendant filed on the last day for filing his answer. The court, however,
reconsidered its dismissal order and defendant received the order setting it aside at 5:00 oclock in the afternoon on
March 11, 1960, he filed his answer on March 12, 1960 interposing as defenses that he signed the drafts in a
representative capacity, that he signed only as accommodation party, and that the drafts were really no bills of
exchange. Declared in default for having filed his answer one day late, defendant moved to set the order aside
alleging that it could not have been possible for him to file his answer on March 11, 1960, and that he had good and
substantial defenses. The court denied the motion and rendered judgment by default. Defendant appealed from both
the orders denying his motions to set aside the default order and the judgment by default, which appeals were
consolidated and certified to the Supreme Court by the Court of Appeals.
The Supreme Court affirmed the appealed judgment holding that although it has been shown that defendants failure
to answer on time is excusable, his defenses are nil and ineffective.

SYLLABUS

1. REMEDIAL LAW; JUDGMENTS RELIEF THEREFROM; REQUISITES. To entitle a party to relief from judgment taken
against him, through his mistake, inadvertence, supervise or excusable neglect, he must show to the court that he
has a meritorious defense. In other words, in order to set aside the order of default, the defendant must not only
show that his failure to answer was due to fraud, accident, mistake or excusable negligence but also that he has a
meritorious defense.
2. ID.; ID.; ID.; ID.; FAILURE TO FILE ANSWER EXCUSABLE IN CASE AT BAR. The failure of the defendant to file his
answer on the last day for pleading is excusable where the order setting aside the dismissal of the complaint was
received at 5:00 oclock in the afternoon of such last day for pleading, and it was therefore impossible for him to have
filed his answer on that same day because the courts then held office only up to 5:00 oclock in the afternoon; and
where the defendant immediately filed his answer on the following day.
3. ID.; ID.; ID.; ID.; CASE AT BAR FAILS TO SHOW MERITORIOUS DEFENSE. Where the defense interposed by the
defendant who has been declared in default is not meritorious, his petition for relief from judgment should be denied;
for, to grant the defendants prayer will result in a new trial which will serve no purpose and will just waste the time of
the courts as well as the parties because the defense is nil or ineffective.
4. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; BILLS OF EXCHANGE; PERSONS SIGNING IN
REPRESENTATIVE CAPACITY SHOULD DISCLOSE PRINCIPAL. Where an inspection of the drafts accepted by the
defendant shows that nowhere has he disclosed that he was signing as a representative of the Philippine Education
Foundation Company, and he merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO", he is
personally liable for the drafts accepted by him and he may not interpose as a defense that he signed the drafts
merely as an agent of the Philippines Education Foundation Company of which he is president.
5. ID.; ID.; ID.; ACCOMMODATION PARTY DIFFERENTIATED FROM DRAWEE/ACCEPTOR; CASE AT BAR. An
accommodation party is one who has signed the instrument as maker, drawer, acceptor, indorser, without receiving
value thereof and for the purpose of lending his name to some other person. Such person is liable on the instrument
to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an
accommodation party. In lending his name to the party accommodated, the accommodation party is in effect a surety
for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no
part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to
accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable
Instruments Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, really intended to be secondarily
liable only, he should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable
for the drafts.
6. ID.; ID.; ID.; NATURE OF ACCEPTANCE NOT DETERMINATE AS TO WHETHER COMMERCIAL PAPER IS BILL OF
EXCHANGE OR NOT. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to
party on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. As long as a
commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The
nature of acceptance is important only in determination of whether a commercial paper is a bill of exchange or not.
Thus, in the case at bar, defendants contentions that the drafts signed by him were not really bills of exchange but
mere pieces of evidence of indebtedness because payments were made before acceptance, is not meritorious.

DECISION

FERNANDEZ, J.:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of
Manila, Branch XIII, in Civil Case No. 42066 denying his motion to set aside the order declaring him in default, 1 and
from the order of said court in the same case denying his motion to set aside the judgment rendered after he was
declared in default. 2 These two appeals of the defendant were docketed as CA-G.R. No. 27734-R and CA-G.R. No.
27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of Appeals to file one consolidated
record on appeal of CA-G.R. No. 27734-R and CA-G.R. No. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division, certified the consolidated appeal to
the Supreme Court on the ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No. 42066 for
the recovery of the total sum of about P35,000.00 with daily interest thereon from November 17, 1959 until fully paid
and commission equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorneys fees equivalent to
10% of the total amount due and costs. 6 The complaint filed by the Philippine Bank of Commerce contains twentytwo (22) causes of action referring to twenty-two (22) transactions entered into by the said Bank and Aruego on
different dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought to be recovered
represents the cost of the printing of "World Current Events," a periodical published by the defendant. To facilitate the
payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing of
the "World Current Events," the printer, Encal Press and Photo-Engraving, collected the cost of printing by drawing a
draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an added security for the
payment of the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also required defendant
Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff
the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of the sale of said
publication to answer for the payment of all obligations arising from the draft. 8
Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On December 14, 1959
the defendant filed an urgent motion for extension of time to plead, and set the hearing on December 16, 1959. 10 At
the hearing, the court denied defendants motion for extension. Whereupon, the defendant filed a motion to dismiss
the complaint on December 17, 1959 on the ground that the complaint states no cause of action because:

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a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts
thereof had already been paid by the plaintiff in the drawer (Encal Press and Photo-Engraving), without knowledge or
consent of the defendant drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an accommodating
party only for the drawer (Encal Press and Photo-Engraving) and will be liable in the event that the accommodating
party (drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of which was received by the defendant on
December 24, 1959. 12

On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7, 1960, acting upon the motion for
reconsideration filed by the plaintiff, the trial court set aside its order dismissing the complaint and set the case for
hearing on March 15, 1960 at 8:00 in the morning. 14 A copy of the order setting aside the order of dismissal was
received by the defendant on March 11, 1960 at 5:00 oclock in the afternoon according to the affidavit of the deputy
sheriff of Manila, Mamerto de la Cruz. On the following day, March 12, 1960, the defendant filed a motion to postpone
the trial of the case on the ground that there having been no answer as yet, the issues had not yet been joined. 15 On
the same date, the defendant filed his answer to the complaint interposing the following defenses; That he signed the
document upon which the plaintiff sues in his capacity as President of the Philippine Education Foundation; that his
liability is only secondary; and that he believed that he was signing only as an accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on the ground that the
defendant should have filed his answer on March 11, 1960. He contends that by filing his answer on March 12, 1960,
defendant was one day late. 17 On March 19, 1960 the trial court declared the defendant in default. 18 The defendant
learned of the order declaring him in default on March 21, 1960. On March 22, 1960 the defendant filed a motion to
set aside the order of default alleging that although the order of the court dated March 7, 1960 was received on March
11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected of the defendant to file his answer on
the last day of the reglementary period, March 11, 1960, within office hours, especially because the order of the court
dated March 7, 1960 was brought to the attention of counsel only in the early hours of March 12, 1960. The defendant
also alleged that he has a good and substantial defense. Attached to the motion are the affidavits of deputy sheriff
Mamerto de la Cruz that he served the order of the court dated March 7, 1960 on March 11, 1960, at 5:00 oclock in
the afternoon and the affidavit of the defendant Aruego that he has a good and substantial defense. 19 The trial court
denied the defendants motion on March 25, 1960. 20 On May 6, 1960, the trial court rendered judgment sentencing
the defendant to pay to the plaintiff the sum of P35,444.35 representing the total amount of his obligation to the said
plaintiff under the twenty-two (22) causes of action alleged in the complaint as of November 15, 1957 and the sum of
P10,000.00 as attorneys fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25, 1961 denying his motion to set
aside the order declaring him in default, an appeal bond in the amount of P60.00, and his record on appeal. The
plaintiff filed his opposition to the approval of defendants record on appeal on May 13, 1960. The following day, May
14, 1960, the lower court dismissed defendants appeal from the order dated March 25, 1960 denying his motion to
set aside the order of default. 22 On May 19, 1960, the defendant filed a motion for reconsideration of the trial courts
order dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the defendants motion for reconsideration of
the order dismissing appeal. 24 On May 21, 1960, the trial court reconsidered its previous order dismissing the appeal
and approved the defendants record on appeal. 25 On May 30, 1960, the defendant received a copy of a notice from
the Clerk of Court dated May 26, 1960, informing the defendant that the record on appeal filed by the defendant was
forwarded to the Clerk of the Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was declared in default reiterating
the same ground previously advanced by him in his motion for relief from the order of default. 27 Upon opposition of
the plaintiff filed on June 3, 1960, 28 the trial court denied the defendants motion to set aside the judgment by
default in an order of June 11, 1960. 29 On June 20, 1960, the defendant filed his notice of appeal from the order of
the court denying his motion to set aside the judgment by default, his appeal bond, and his record on appeal. The
defendants record on appeal was approved by the trial court on June 25, 1960. 30 Thus, the defendant had two
appeals with the Court of Appeals; (1) Appeal from the order of the lower court denying his motion to set aside the
order of default docketed as CA-G.R. No. 27734-R; (2) Appeal from the order denying his motion to set aside the
judgment by default docketed as CA-G.R. No. 27940-R.
In his brief, the defendant-appellant assigned the following errors:

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"I

THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN DEFAULT.
"II

THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE DEFENDANT IN DEFAULT ALTHOUGH AT THE
TIME THERE WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN AN
APPROPRIATE ACTION.
"III

THE LOWER COURT ERRED IN DENYING DEFENDANTS PETITION FOR RELIEF OF ORDER OF DEFAULT AND FROM
JUDGMENT BY DEFAULT AGAINST DEFENDANT." 31
It has been held that to entitle a party to relief from a judgment taken against him through his mistake, inadvertence,
surprise or excusable neglect, he must show to the court that he has a meritorious defense. 32 In other words, in
order to set aside the order of default, the defendant must not only show that his failure to answer was due to fraud,
accident, mistake or excusable negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together with the summons on December 2, 1960;
that on December 17, 1960, the last day for filing his answer, Aruego filed a motion to dismiss; that on December 22,
1960 the lower court dismissed the complaint; that on January 23, 1960, the plaintiff filed a motion for
reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the trial court issued an order
setting aside the order of dismissal; that a copy of the order was received by the defendant on March 11, 1960 at
5:00 oclock in the afternoon as shown in the affidavit of the deputy sheriff; and that on the following day, March 12,
1960, the defendant filed his answer to the complaint.

cralawnad

The failure then of the defendant to file his answer on the last day for pleading is excusable. The order setting aside
the dismissal of the complaint was received at 5:00 oclock in the afternoon. It was therefore impossible for him to
have filed his answer on that same day because the courts then held office only up to 5:00 oclock in the afternoon.
Moreover, the defendant immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to answer was due to excusable negligence, he has
failed to show that he has a meritorious defense.
The defendant does not have a good and substantial defense. Defendant Aruegos defenses consist of the following:

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library

a) The defendant signed the bills of exchange referred to in the plaintiffs complaint in a representative capacity, as
the then President of the Philippine Education Foundation Company, publisher of "World Current Events and Decision
Law Journal," printed by Encal Press and Photo-Engraving, drawer of the said bills of exchange in favor of the plaintiff
bank;
b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or additional party

obligor, to add to the security of said plaintiff bank. The reason for this statement is that unlike real bills of exchange,
where payment of the face value is advanced to the drawer only upon acceptance of the same by the drawee, in the
case in question, payment for the supposed bills of exchange were made before acceptance; so that in effect,
although these documents are labelled bills of exchange, legally they are not bills of exchange but mere instruments
evidencing indebtedness of the drawee who received the face value thereof, with the defendant as only additional
security of the same. 33
The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine
Education Foundation Company where he is president. Section 20 of the Negotiable Instruments Law provides that
"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."

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An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as
representative of the Philippine Education Foundation Company. 34 He merely signed as follows: "JOSE ARUEGO
(Acceptor) (SGD) JOSE ARUEGO." For failure to disclose his principal, Aruego is personally liable for the drafts he
accepted.
The defendant also contends that he signed the drafts only as an accommodation party and as such, should be made
liable only after a showing that the drawer is incapable of paying. This contention is also without merit.
An accommodation party is one who has signed the instrument as maker, drawer, acceptor, indorser, without receiving
value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument
to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an
accommodation party. 35 In lending his name to the accommodated party, the accommodation party is in effect a
surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he
wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable
Instruments Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer, really intended to be secondarily
liable only, he should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable
for the drafts.
The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of
evidence of indebtedness because payments were made before acceptance. This is also without merit. Under the
Negotiable Instruments Law, a bill of exchange is an unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed
or determinable future time a sum certain in money to order or to bearer. 36 As long as a commercial paper conforms
with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is
important only in the determination of the kind of liabilities of the parties involved, but not in the determination of
whether a commercial paper is a bill of exchange or not.

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It is evident then that the defendants appeal can not prosper. To grant the defendants prayer will result in a new trial
which will serve no purpose and will just waste the time of the courts as well as of the parties because the defense is
nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila denying the
petition for relief from the judgment rendered in said case is hereby affirmed, without pronouncement as to costs.

SO ORDERED.
Teehankee, Makasiar, Guerrero and Melencio-Herrera, JJ., concur.