Nego Cases
Nego Cases
Nego Cases
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, Postmaster Enrico Palomar, notified the Bank of America that money order No. 124688
attached to his letter had been found to have been irregularly issued and that, in view
thereof, the amount it represented had been deducted from the bank's clearing
account. For its part, on August 2 of the same year, the Bank of America debited
appellant's account with the same amount and gave it advice thereof by means of a
debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the
action taken by his office deducting the sum of P200.00 from the clearing account of
the Bank of America, but his request was denied. So was appellant's subsequent
request that the matter be referred to the Secretary of Justice for advice. Thereafter,
appellant elevated the matter to the Secretary of Public Works and Communications,
but the latter sustained the actions taken by the postal officers.
In connection with the events set forth above, Montinola was charged with theft in the
Court of First Instance of Manila (Criminal Case No. 43866) but after trial he was
acquitted on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court
of Manila praying for judgment as follows:
"WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(b) To pay to the plaintiff out of their own personal funds, jointly and
severally, actual and moral damages in the amount of
P1,000.00 or in such amount as will be proved and/or
determined by this Honorable Court: exemplary
damages in the amount of P1,000.00, attorney's fees of
P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed
just and equitable."
On November 17, 1962, after the parties had submitted the stipulation of facts
reproduced at pages 12 to 15 of the Record on Appeal, the above-named court
rendered judgment as follows:
"WHEREFORE, judgment is hereby rendered, ordering the defendants to
countermand the notice given to the Bank of America on
September 27, 1961, deducting from said Bank's
clearing account the sum of P200.00 representing the
amount of postal money order No. 124688, or in the
alternative, to indemnify the plaintiff in the said sum of
P200.00 with interest thereon at the rate of 8-1/2% per
annum from September 27, 1961 until fully paid; without
any pronouncement as to costs and attorney's fees."
The case was appealed to the Court of First Instance of Manila where, after the parties
had resubmitted the same stipulation of facts, the appealed decision dismissing the
complaints with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's 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 vs. U. S., 189 Fed. 395; U. S. vs. Stock Drawers National
Bank, 30 Fed. 912), the reason behind this rule being that, in establishing and
operating a postal money order system, the government is not engaging in commercial
transactions but merely exercises a governmental power for the public benefit.
It is to be noted in this connection that some of the restrictions imposed upon money
orders by postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, such laws and regulations usually provide for not more than
one endorsement; payment of money orders may be withheld under a variety of
circumstances (49 C. J. 1153).
Of particular application to the postal money order in question are the conditions laid
down in the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of
America for the redemption of postal money orders received by it from its depositors.
Among others, the condition is imposed that "in cases of adverse claim, the money
order or money orders involved will be returned to you (the bank) and the
corresponding amount will have to be refunded to the Postmaster, Manila, who
reserves the right to deduct the value thereof from any amount due you if such step is
deemed necessary." The conditions thus imposed in order to enable the bank to
continue enjoying the facilities theretofore enjoyed by its depositors, were accepted by
the Bank of America. The latter is therefore bound by them. That it is so is clearly
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.
||| (Philippine Education Co., Inc. v. Soriano, G.R. No. L-22405, [June 30, 1971], 148-A
PHIL 521-527)
CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and SECURITY
BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.
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 Bank's 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. Petitioner's insistence that the
CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law,
an instrument is negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder thereof, 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, petitioner's
aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the
bank is concerned," but obviously other parties not privy to the transaction between
them would not be in a position to know that the depositor is not the bearer stated in
the CTDs. Hence, the situation would require any party dealing with the CTDs to go
behind the plain import of what is written thereon to unravel the agreement of the
parties thereto through facts aliunde. This need for resort to extrinsic evidence is what
is sought to be avoided by the Negotiable Instruments Law and calls for the application
of the elementary rule that the interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity.
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 petitioner's own authorized and
responsible representative himself. In a letter dated November 26, 1982 addressed to
respondent Security Bank, J. Q. Aranas, Jr., Caltex Credit Manager, wrote: " . . . These
certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his
purchases of fuel products" (Emphasis ours.) 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. vs. Philippine
National Bank, et al. is apropos: " . . . Adverting again to the Court's pronouncements
in Lopez, supra, we quote therefrom: 'The character of the transaction between the
parties is to be determined by their intention, regardless of what language was used or
what the form of the transfer was. If it was intended to secure the payment of money, it
must be construed as a pledge; but if there was some other intention, it is not a
pledge. However, even though a transfer, if regarded by itself, appears to have been
absolute, its object and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the property as
collateral security. It has been said that a transfer of property by the debtor to a
Cruz as payment of the latter's 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. Pretrial 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 petitioner's suggestion that respondent bank's
supposed negligence may be considered encompassed by the issues on its right to
preterminate and receive the proceeds of the CTDs would be tantamount to saying
that petitioner could raise on appeal any issue. We agree with private respondent that
the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned
certificates can be premised on a multitude of other legal reasons and causes of
action, of which respondent bank's supposed negligence is only one. Hence,
petitioner's submission, if accepted, would render a pre-trial delimitation of issues a
useless exercise.
DECISION
REGALADO, J p:
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:
"1. On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time
deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount
of P1,120,000.00, as follows: (Joint Partial Stipulation of
Facts and Statement of Issues, Original Records, p.
207; Defendant's Exhibits 1 to 280):
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
"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).
"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
bank's procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987. pp. 48-50). LexLib
"4. On March 18, 1982, Angel dela Cruz executed and delivered to
defendant bank the required Affidavit of Loss
(Defendant's Exhibit 281). On the basis of said affidavit
of loss, 280 replacement CTDs were issued in favor of
said depositor (Defendant's Exhibits 282-561).
"12. In view of the foregoing, plaintiff filed the instant complaint, praying
that defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of P1,120,000.00
plus accrued interest and compounded interest therein
at 16% per annum, moral and exemplary damages as
well as attorney's fees.
Rate 16%
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of
the complaint, hence this petition wherein petitioner faults respondent court in ruling
(1) that the subject certificates of deposit are non-negotiable despite being clearly
negotiable instruments; (2) that petitioner did not become a holder in due course of the
said certificates of deposit; and (3) in disregarding the pertinent provisions of the Code
of Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit. cdrep
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
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.
rationalizing as follows:
" . . . While it may be true that the word `bearer' appears rather boldly in
the CTDs issued, it is important to note that after the
word `BEARER' stamped on the space provided
supposedly for the name of the depositor, the words
`has deposited' a certain amount follows. The document
further provides that the amount deposited shall be
`repayable to said depositor' on the period indicated.
Therefore, the text of the instrument(s) themselves
manifest with clarity that they are payable, not to
whoever purports to be the `bearer' but only to the
specified person indicated therein, the depositor. In
effect, the appellee bank acknowledges its depositor
Angel dela Cruz as the person who made the deposit
and further engages itself to pay said depositor the
amount indicated thereon at the stipulated date." 6
The CTDs in question undoubtedly meet the requirements of the law for negotiability.
The parties' bone of contention is with regard to requisite (d) set forth above. It is noted
that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982,
testified in open court that the depositor referred to in the CTDs is no other than Mr.
Angel de la Cruz. Cdpr
xxx xxx xxx
"Atty. Calida:
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:
"(a) It must be in writing and signed by the maker or drawer;
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:
Atty. Calida:
witness:
"Atty. Calida:
witness:
'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
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under
the Negotiable Instruments Law, an instrument is negotiated when it is transferred
from one person to another in such a manner as to constitute the transferee the holder
thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof, 22 In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner
in which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la
Cruz (and we even disregard the fact that the amount involved was not disclosed)
could at the most constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the
instrument since, necessarily, the terms thereof and the subsequent disposition of
such security, in the event of non-payment of the principal obligation, must be
contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument
arising from contract, he is deemed a holder for value to the extent of his lien. 23 As
such holder of collateral security, he would be a pledgee but the requirements therefor
and the effects thereof, not being provided for by the Negotiable Instruments Law,
shall be governed by the Civil Code provisions on pledge of incorporeal rights, 24
which inceptively provide:
"Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . .
may also be pledged. The instrument proving the right
pledged shall be delivered to the creditor, and if
negotiable, must be indorsed."
"Art. 2096. A pledge shall not take effect against third persons if a
Aside from the fact that the CTDs were only delivered but not indorsed, the factual
findings of respondent court quoted at the start of this opinion show that petitioner
failed to produce any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the
CTDs did not legally vest in petitioner any right effective against and binding upon
respondent bank. The requirement under Article 2096 aforementioned is not a mere
rule of adjective law prescribing the mode whereby proof may be made of the date of a
pledge contract, but a rule of substantive law prescribing a condition without which the
execution of a pledge contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument. 27 With regard to this other
mode of transfer, the Civil Code specifically declares:
"Art. 1625. An assignment of credit, right or action shall produce no effect
as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry
of Property in case the assignment involves real
property."
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner,
whether as purchaser, assignee or 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. LibLex
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 court's finding that the aspect of alleged
negligence of private respondent was not included in the stipulation of the parties and
in the statement of issues submitted by them to the trial court. 29 The issues agreed
upon by them for resolution in this case are:
"1. Whether or not the CTDs as worded are negotiable instruments.
3. Whether or not there was legal compensation or set off involving the
amount covered by the CTDs and the depositor's
outstanding account with defendant, if any.
6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other."
appeal any issue. We agree with private respondent that the broad ultimate issue of
petitioner's entitlement to the proceeds of the questioned certificates can be premised
on a multitude of other legal reasons and causes of action, of which respondent bank's
supposed negligence is only one. Hence, petitioner's submission, if accepted, would
render a pre-trial delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court
below, petitioner still cannot have the odds in its favor. A close scrutiny of the
provisions of the Code of Commerce laying down the rules to be followed in case of
lost instruments payable to bearer, which it invokes, will reveal that said provisions,
even assuming their applicability to the CTDs in the case at bar, are merely permissive
and not mandatory. The very first article cited by petitioner speaks for itself:
"Art. 548. The dispossessed owner, no matter for what cause it may be,
may apply to the judge or court of competent
jurisdiction, asking that the principal, interest or
dividends due or about to become due, be not paid a
third person, as well as in order to prevent the
ownership of the instrument that a duplicate be issued
him." (Emphases ours.)
DECISION
ROMERO, J p:
This petition for certiorari seeks to annul the decision of
respondent Court of Appeals dated October 29, 1992 in CA GR
CV No. 26571 affirming the decision of the Regional Trial Court of
Lipa, Batangas Branch XIII for damages, and the Resolution dated
November 11, 1993 denying petitioner's motion for reconsideration of
the aforesaid decision.
The use of the word "may" in said provision shows that it is not mandatory but
discretionary on the part of the "dispossessed owner" to apply to the judge or court of
competent jurisdiction for the issuance of a duplicate of the lost instrument. Where the
provision reads "may," this word shows that it is not mandatory but discretional. 34 The
word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating
liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the
Code of Commerce, on which petitioner seeks to anchor respondent bank's supposed
negligence, merely established, on the one hand, a right of recourse in favor of a
dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate
of the same, and, on the other, an option in favor of the party liable thereon who, for
some valid ground, may elect to refuse to issue a replacement of the instrument,
Significantly, none of the provisions cited by petitioner categorically restricts or
prohibits the issuance a duplicate or replacement instrument sans compliance with the
procedure outlined therein, and none establishes a mandatory precedent requirement
therefor. LLjur
WHEREFORE, on the modified premises above set forth, the petition is DENIED and
the appealed decision is hereby AFFIRMED.
SO ORDERED.
||| (Caltex (Philippines), Inc. v. Court of Appeals, G.R. No. 97753, [August 10, 1992])
SO ORDERED.
||| (Metropolitan Bank and Trust Co. v. Court of Appeals, G.R. No. 112576, [October
26, 1994])
[G.R. No. 89252. May 24, 1993.]
RAUL SESBREO, petitioner, vs. HON. COURT OF APPEALS, DELTA MOTORS
and securities.' The impersonal character of the money market device overlooks the
individual or entities concerned. The issuer of a commercial paper in the money
market necessarily knows in advance that it would be expeditiously transacted and
transferred to any investor/lender without need of notice to said issuer. In practice, no
notification is given to the borrower or issuer of commercial paper of the sale or
transfer to the investor. . . . There is need to individuate a money market transaction, a
relatively novel institution in the Philippine commercial scene. It has been intended to
facilitate the flow and acquisition of capital on an impersonal basis. And as specifically
required by Presidential Decree No. 678, the investing public must be given adequate
and effective protection in availing of the credit of a borrower in the commercial paper
market." (Perez v. Court of Appeals, 127 SCRA 636 [1984]).
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONDENSATION; EFFECTS
THEREOF NOT AFFECTED BY SUBSEQUENT ASSIGNMENT OF CREDIT; CASE
AT BAR. We turn to Delta's arguments concerning alleged compensation or
offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to
note that at the time Philfinance sold part of its rights under DMC PN No. 2731 to
petitioner on 9 February 1981, no compensation had as yet taken place and indeed
none could have taken place. The essential requirements of compensation are listed in
the Civil Code. On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No.
143-A was due. This was explicitly recognized by Delta in its 10 April 1980 "Letter of
Agreement" with Philfinance, where Delta acknowledged that the relevant promissory
notes were "to be off settled (sic) against [Philfinance] PN No. 143-A upon co-terminal
maturity." The record shows, however, that petitioner notified Delta of the fact of the
assignment to him only on 14 July 1981, that is, after the maturity not only of the
money market placement made by petitioner but also of both DMC PN No. 2731 and
Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights as
assignee after compensation had taken place by operation of law because the
offsetting instruments had both reached maturity. At the time that Delta was first put to
notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No. 2731 had
already been discharged by compensation. It bears some emphasis that petitioner
could have notified Delta of the assignment in his favor as soon as that assignment or
sale was effected on 9 February 1981. He could have also notified Delta as soon as
his money market placement matured on 13 March 1981 without payment thereof
being made by Philfinance; at that time, compensation had yet to set in and discharge
DMC PN No. 2731. Again, petitioner could have notified Delta on 26 March 1981 when
petitioner received from Philfinance the Denominated Custodianship Receipt ("DCR")
No. 10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner could,
in fine, have notified Delta at any time before the maturity date of DMC PN No. 2731.
Because petitioner failed to do so, and because the record is bare of any indication
that Philfinance had itself notified Delta of the assignment to petitioner, the Court is
compelled to uphold the defense of compensation raised by private respondent Delta.
Of course, Philfinance remains liable to petitioner under the terms of the assignment
made by Philfinance to petitioner.
8. ID.; ID.; ASSIGNMENT; VALID WHEN MADE BEFORE COMPENSATION TAKES
PLACE; CASE AT BAR. As noted, the assignment to petitioner was made on 9
February 1981 or from forty-nine (49) days before the "co-terminal maturity" date, that
is to say, before any compensation had taken place. Further, the assignment to
petitioner would have prevented compensation from taking place between Philfinance
and Delta, to the extent of P304,533.33, because upon execution of the assignment in
favor of petitioner, Philfinance and Delta would have ceased to be creditors and
debtors of each other in their own right to the extent of the amount assigned by
it were, of the vendors and placed safely beyond their reach, that those instruments
will be there available to the placers of funds should they have need of them.
12. ID.; ID.; ID.; ID.; DEPOSITARY OBLIGED TO RETURN THE SECURITY OR
THING DEPOSITED UPON DEMAND OF DEPOSITOR; RATIONALE. The
depositary in a contract of deposit is obliged to return the security or the thing
deposited upon demand of the depositor (or, in the present case, of the beneficiary) of
the contract, even though a term for such return may have been established in the said
contract. Accordingly, any stipulation in the contract of deposit or custodianship that
runs counter to the fundamental purpose of that agreement or which was not brought
to the notice of and accepted by the placer-beneficiary, cannot be enforced as against
such beneficiary-placer. We believe that the position taken above is supported by
considerations of public policy. If there is any party that needs the equalizing protection
of the law in money market transactions, it is the members of the general public who
place their savings in such market for the purpose of generating interest revenues. The
custodian bank, if it is not related either in terms of equity ownership or management
control to the borrower of the funds, or the commercial paper dealer, is normally a
preferred or traditional banker of such borrower or dealer (here, Philfinance). The
custodian bank would have every incentive to protect the interest of its client the
borrower or dealer as against the placer of funds. The providers of such funds must be
safeguarded from the impact of stipulations privately made between the borrowers or
dealers and the custodian banks, and disclosed to fund-providers only after trouble
has erupted.
13. ID.; ID.; ID.; ID.; ID.; DEPOSITARY LIABLE FOR DAMAGES FOR BREACH OF
DUTY; CASE AT BAR. In the case at bar, the custodian-depositary bank Pilipinas
refused to deliver the security deposited with it when petitioner first demanded physical
delivery thereof on 2 April 1981. We must again note, in this connection, that on 2 April
1981, DMC PN No. 2731 had not yet matured and therefore, compensation or
offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of
complying with the demand of petitioner, Pilipinas purported to require and await the
instructions of Philfinance, in obvious contravention of its undertaking under the DCR
to effect physical delivery of the Note upon receipt of "written instructions" from
petitioner Sesbreo. The ostensible term written into the DCR (i.e., "should this [DCR]
remain outstanding in your favor thirty [30] days after its maturity") was not a defense
against petitioner's demand for physical surrender of the Note on at least three
grounds: firstly, such term was never brought to the attention of petitioner Sesbreo at
the time the money market placement with Philfinance was made; secondly, such term
runs counter to the very purpose of the custodianship or depositary agreement as an
integral part of a money market transaction; and thirdly, it is inconsistent with the
provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner
became entitled to demand physical delivery of the Note held by Pilipinas as soon as
petitioner's money market placement matured on 13 March 1981 without payment
from Philfinance. We conclude, therefore, that private respondent Pilipinas must
respond to petitioner for damages sustained by him arising out of its breach of duty. By
failing to deliver the Note to the petitioner as depositor-beneficiary of the thing
deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited
with it. Whether or not Pilipinas itself benefited from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for present purposes.' Prima
facie, the damages suffered by petitioner consisted of P304,533.33, the portion of the
DMC PN No. 2731 assigned to petitioner but lost by him by reason of discharge of the
Note by compensation, plus legal interest of six percent (6%) per annum counting from
14 March 1981.
insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by
private respondent Pilipinas Bank ("Pilipinas"). It read as follows:
"PILIPINAS BANKMakati Stock Exchange Bldg.,Ayala Avenue, Makati,
Metro Manila
TO Raul Sesbreo
(b) the Certificate of Securities Delivery Receipt No. 16587 indicating the
sale of DMC PN No. 2731 to petitioner, with the notation
that the said security was in custodianship of Pilipinas
Bank, as per Denominated Custodian Receipt ("DCR")
No. 10805 dated 9 February 1981; and
DENOMINATED
CUSTODIAN
RECEIPT
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date
of petitioner's investment), with petitioner as payee,
Philfinance as drawer, and Insular Bank of Asia and
America as drawee, in the total amount of P304,533.33.
E BY HOLDER
PAYEE
ure)" 1
never did provide the appropriate instructions; Pilipinas never released DMC PN No.
2731, nor any other instrument in respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 1981 3 upon private respondent
Delta for the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as
payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta,
however, denied any liability to petitioner on the promissory note, and explained in turn
that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along
with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint
management of the Securities and Exchange Commission ("SEC") and the Central
Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date apparently
remains in the custody of the SEC. 4
As petitioner had failed to collect his investment and interest thereon, he filed on 28
September 1982 an action for damages with the Regional Trial Court ("RTC") of Cebu
City, Branch 21, against private respondents Delta and Pilipinas. 5 The trial court, in a
decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of
merit and for lack of cause of action, with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a
Decision dated 21 March 1989, the Court of Appeals denied the appeal and held; 6
"Be that as it may, from the evidence on record, if there is anyone that
appears liable for the travails of plaintiff-appellant, it is
Philfinance. As correctly observed by the trial court:
WHEREFORE, finding no reversible error in the decision appealed from, the same is
hereby affirmed in toto. Cost against plaintiff-appellant."
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the
Court resolved to give due course to the petition and required the parties to file their
respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and
contends that respondent Court of Appeals gravely erred: (i) in concluding that he
cannot recover from private respondent Delta his assigned portion of DMC PN No.
2731; (ii) in failing to hold private respondent Pilipinas solidarily liable on the DMC PN
No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor of
petitioner; and (iii) in refusing to pierce the veil of corporate entity between Philfinance,
and private respondents Delta and Pilipinas, considering that the three (3) entities
belong to the "Silverio Group of Companies" under the leadership of Mr. Ricardo
Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the
relationship of petitioner vis-a-vis Delta; secondly, the relationship of petitioner in
respect of Pilipinas. Actually, of course, there is a third relationship that is of critical
importance: the relationship of petitioner and Philfinance. However, since Philfinance
has not been impleaded in this case, neither the trial court nor the Court of Appeals
acquired jurisdiction over the person of Philfinance. It is, consequently, not necessary
for present purposes to deal with this third relationship, except to the extent it
necessarily impinges upon or intersects the first and second relationships.
I
We consider first the relationship between petitioner and Delta.
The Court of Appeals in effect held that petitioner acquired no rights vis-a-vis Delta in
respect of the Delta promissory note (DMC PN No. 2731) which Philfinance sold
"without recourse" to petitioner, to the extent of P304,533.33. The Court of Appeals
said on this point:
"Nor could plaintiff-appellant have acquired any right over DMC P.N. No.
2731 as the same is `non-negotiable' as stamped on its
face (Exhibit `6'), negotiation being defined as the
transfer of an instrument from one person to another so
as to constitute the transferee the holder of the
instrument (Sec. 30, Negotiable Instruments Law). A
person not a holder cannot sue on the instrument in his
own name and cannot demand or receive payment
(Section 51, id.)." 9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that that
Note had been validly transferred, in part, to him by assignment and that as a
result of such transfer, Delta as debtor-maker of the Note, was obligated to pay
petitioner the portion of that Note assigned to him by the payee Philfinance.
LLjur
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or
otherwise transferred by Philfinance as manifested by
the word "non-negotiable" stamp across the face of the
Note 10 and because maker Delta and payee
Philfinance intended that this Note would be offset
against the outstanding obligation of Philfinance
represented by Philfinance PN No. 143-A issued to
Delta as payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without
Delta's consent, if not against its instructions; and
instrument:
"The words 'not negotiable,' stamped on the face of the bill of lading, did
not destroy its assignability, but the sole effect was to
exempt the bill from the statutory provisions relative
thereto, and a bill, though not negotiable, may be
transferred by assignment; the assignee taking subject
to the equities between the original parties." 12
(Emphasis added)
Please deliver the proceeds of our PNs to our representative, Mr. Eric
Castillo.
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped
"non-transferrable" or "non-assignable." It contained no stipulation which prohibited
Philfinance from assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and
which should be quoted in full:
10, 1980
V
ery
Truly
Your
s,
(
Sgd.)Florencio
B.
Biagan
Senior
Vice
President" 13
GENTLEMEN:
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No.
2731 had been effected without the consent of Delta, we note that such consent was
not necessary for the validity and enforceability of the assignment in favor of petitioner.
14 Delta's argument that Philfinance's sale or assignment of part of its rights to DMC
PN No. 2731 constituted conventional subrogation, which required its (Delta's)
consent, is quite mistaken. Conventional subrogation, which in the first place is never
lightly inferred, 15 must be clearly established by the unequivocal terms of the
substituting obligation or by the evident incompatibility of the new and old obligations
on every point. 16 Nothing of the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC
PN No. 2731 to Philfinance, an entity engaged in the business of buying and selling
debt instruments and other securities, and more generally, in money market
transactions. In Perez v. Court of Appeals, 1 7 the Court, speaking through Mme.
Justice Herrera, made the following important statement: Cdpr
"There is another aspect to this case. What is involved here is a money
market transaction. As defined by Lawrence Smith `the
money market is a market dealing in standardized shortterm credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each
other but through a middle man or dealer in the open
market.' It involves 'commercial papers' which are
instruments 'evidencing indebtedness of any person or
entity . . ., which are issued, endorsed, sold or
transferred or in any manner conveyed to another
person or entity, with or without recourse'. The
fundamental function of the money market device in its
operation is to match and bring together in a most
impersonal manner both the 'fund users' and the 'fund
suppliers.' The money market is an 'impersonal market',
free from personal considerations.' The market
mechanism is intended to provide quick mobility of
money and securities.'
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the
same qualify if the latter has been stated;
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation
of debts previous to the cession, but not of subsequent
ones.
Article 1626 of the same Code states that: "the debtor who, before having
knowledge of the assignment, pays his creditor shall be released from the
obligation." In Sison v. Yap-Tico, 21 the Court explained that:
"[n]o man is bound to remain a debtor; he may pay to him with whom he
contracted to pay; and if he pay before notice that his
debt has been assigned, the law holds him exonerated,
for the reason that it is the duty of the person who has
acquired a title by transfer to demand payment of the
debt, to give his debtor notice." 22
At the time that Delta was first put to notice of the assignment in petitioner's favor
on 14 July 1981, DMC PN No. 2731 had already been discharged by
compensation. Since the assignor Philfinance could not have then compelled
payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of the
Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment in
his favor as soon as that assignment or sale was effected on 9 February 1981. He
could have also notified Delta as soon as his money market placement matured on 13
March 1981 without payment thereof being made by Philfinance; at that time,
compensation had yet to set in and discharge DMC PN No. 2731. Again, petitioner
could have notified Delta on 26 March 1981 when petitioner received from Philfinance
the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private
respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta
at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to
do so, and because the record is bare of any indication that Philfinance had itself
notified Delta of the assignment to petitioner, the Court is compelled to uphold the
defense of compensation raised by private respondent Delta. Of course, Philfinance
remains liable to petitioner under the terms of the assignment made by Philfinance to
petitioner.
II
We turn now to the relationship between petitioner and private respondent Pilipinas.
Petitioner contends that Pilipinas became solidarily liable with Philfinance and Delta
when Pilipinas issued DCR No. 10805 with the following words:
"Upon your written instructions, we [Pilipinas] shall undertake physical
delivery of the above securities fully assigned to you "
23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation
on the part of Pilipinas to pay petitioner the amount of P307,933.33 nor any
assumption of liability in solidum with Philfinance and Delta under DMC PN No. 2731.
We read the DCR as a confirmation on the part of Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No.
2731 of a certain face value, to mature on 6 April 1981
and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by
Philfinance to petitioner (9 February 1981), holding that
Note on behalf and for the benefit of petitioner, at least
to the extent it had been assigned to petitioner by payee
Philfinance; 24
Thus, we find nothing written in printers ink on the DCR which could reasonably be
read as converting Pilipinas into an obligor under the terms of DMC PN No. 2731
assigned to petitioner, either upon maturity thereof or at any other time. We note that
both in his complaint and in his testimony before the trial court, petitioner referred
merely to the obligation of private respondent Pilipinas to effect physical delivery to
him of DMC PN No. 2731. 25 Accordingly, petitioner's theory that Pilipinas had
assumed a solidary obligation to pay the amount represented by the portion of the
Note assigned to him by Philfinance, appears to be a new theory constructed only after
the trial court had ruled against him. The solidary liability that petitioner seeks to
impute to Pilipinas cannot, however, be lightly inferred. Under Article 1207 of the Civil
Code, "there is a solidary liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity." The record here exhibits no
express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas.
Petitioner has not pointed us to any law which imposed such liability upon Pilipinas nor
has petitioner argued that the very nature of the custodianship assumed by private
respondent Pilipinas necessarily implies solidary liability under the securities, custody
of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily
liable with Philfinance and private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in
respect of petitioner under the terms of the DCR. To the contrary, we find, after
prolonged analysis and deliberation, that private respondent Pilipinas had breached its
undertaking under the DCR to petitioner Sesbreo. llcd
We believe and so hold that a contract of deposit was constituted by the act of
Philfinance in designating Pilipinas as custodian or depositary bank. The depositor
was initially Philfinance; the obligation of the depositary was owed, however, to
petitioner Sesbreo as beneficiary of the custodianship or depositary agreement. We
do not consider that this is a simple case of a stipulation pour autrui. The
custodianship or depositary agreement was established as an integral part of the
money market transaction entered into by petitioner with Philfinance. Petitioner bought
a portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note
with Pilipinas in order that the thing sold would be placed outside the control of the
vendor. Indeed, the constituting of the depositary or custodianship agreement was
equivalent to constructive delivery of the Note (to the extent it had been sold or
assigned to petitioner) to petitioner. It will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis for
confidence on the part of the investors or placers that the instruments bought by them
are effectively taken out of the pocket, as it were, of the vendors and placed safely
beyond their reach, that those instruments will be there available to the placers of
funds should they have need of them. The depositary in a contract of deposit is obliged
to return the security or the thing deposited upon demand of the depositor (or, in the
present case, of the beneficiary) of the contract, even though a term for such return
may have been established in the said contract. 26 Accordingly, any stipulation in the
contract of deposit or custodianship that runs counter to the fundamental purpose of
that agreement or which was not brought to the notice of and accepted by the placerbeneficiary, cannot be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of public
policy. If there is any party that needs the equalizing protection of the law in money
market transactions, it is the members of the general public who place their savings in
such market for the purpose of generating interest revenues. 27 The custodian bank, if
it is not related either in terms of equity ownership or management control to the
borrower of the funds, or the commercial paper dealer, is normally a preferred or
traditional banker of such borrower or dealer (here, Philfinance). The custodian bank
would have every incentive to protect the interest of its client the borrower or dealer as
against the placer of funds. The providers of such funds must be safeguarded from the
impact of stipulations privately made between the borrowers or dealers and the
custodian banks, and disclosed to fund-providers only after trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the
security deposited with it when petitioner first demanded physical delivery thereof on 2
April 1981. We must again note, in this connection, that on 2 April 1981, DMC PN No.
2731 had not yet matured and therefore, compensation or offsetting against
Philfinance PN No. 143-A had not yet taken place. Instead of complying with the
demand of petitioner, Pilipinas purported to require and await the instructions of
Philfinance, in obvious contravention of its undertaking under the DCR to effect
physical delivery of the Note upon receipt of "written instructions" from petitioner
Sesbreo. The ostensible term written into the DCR (i.e., "should this [DCR] remain
outstanding in your favor thirty [30] days after its maturity") was not a defense against
petitioner's demand for physical surrender of the Note on at least three grounds: firstly,
such term was never brought to the attention of petitioner Sesbreo at the time the
money market placement with Philfinance was made; secondly, such term runs
counter to the very purpose of the custodianship or depositary agreement as an
integral part of a money market transaction; and thirdly, it is inconsistent with the
provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner
became entitled to demand physical delivery of the Note held by Pilipinas as soon as
petitioner's money market placement matured on 13 March 1981 without payment
from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for
damages sustained by him arising out of its breach of duty. By failing to deliver the
Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas
effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or
not Pilipinas itself benefited from such conversion or unlawful deprivation inflicted upon
petitioner, is of no moment for present purposes.' Prima facie, the damages suffered
by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned
to petitioner but lost by him by reason of discharge of the Note by compensation, plus
legal interest of six percent (6%) per annum counting from 14 March 1981.
The conclusion we have here reached is, of course, without prejudice to such right of
reimbursement as Pilipinas may have vis-a-vis Philfinance.
III
The third principal contention of petitioner that Philfinance and private respondents
Delta and Pilipinas should be treated as one corporate entity need not detain us for
long. LLphil
In the first place, as already noted, jurisdiction over the person of Philfinance was
never acquired either by the trial court nor by the respondent Court of appeals.
Petitioner similarly did not seek to implead Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and
Pilipinas have been organized as separate corporate entities. Petitioner asks us to
pierce their separate corporate entities, but has been able only to cite the presence of
a common Director Mr. Ricardo Silverio, Sr., sitting on the Boards of Directors of all
three (3) companies. Petitioner has neither alleged nor proved that one or another of
the three (3) concededly related companies used the other two (2) as mere alter egos
or that the corporate affairs of the other two (2) were administered and managed for
the benefit of one. There is simply not enough evidence of record to justify
disregarding the separate corporate personalities of Delta and Pilipinas and to hold
them liable for any assumed or undetermined liability of Philfinance to petitioner. 28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of
Appeals in C.A.-G.R. CV No. 15195 dated 21 March 1989 and 17 July 1989,
respectively, are hereby MODIFIED and SET ASIDE, to the extent that such Decision
and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private
respondent Pilipinas Bank is hereby ORDERED to indemnify petitioner for damages in
the amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%)
per annum counted from 2 April 1981. As so modified, the Decision and Resolution of
the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
||| (Sesbreo v. Court of Appeals, G.R. No. 89252, [May 24, 1993])
[G.R. No. 113236. March 5, 2001.]
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
DECISION
QUISUMBING, J p:
This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals
in CA-G.R. CV No. 29546, which affirmed the judgment 2 of the Regional Trial Court of
Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestone's complaint
for damages.
The facts of this case, adopted by the CA and based on findings by the trial court, are
as follows:
. . . [D]efendant is a banking corporation. It operates under a certificate of
authority issued by the Central Bank of the Philippines,
and among its activities, accepts savings and time
deposits. Said defendant had as one of its clientdepositors the Fojas-Arca Enterprises Company
("Fojas-Arca" for brevity). Fojas-Arca maintaining a
special savings account with the defendant, the latter
authorized and allowed withdrawals of funds therefrom
through the medium of special withdrawal slips. These
are supplied by the defendant to Fojas-Arca.
Petitioner's complaint 4 for a sum of money and damages with the Regional Trial Court
of Pasay City, Branch 113, docketed as Civil Case No. 29546, was dismissed together
with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that respondent
Luzon Development Bank was liable for damages under Article 2176 5 in relation to
Articles 19 6 and 20 7 of the Civil Code. As noted by the CA, petitioner alleged the
following tortious acts on the part of private respondent: 1) the acceptance and
payment of the special withdrawal slips without the presentation of the depositor's
passbook thereby giving the impression that the withdrawal slips are instruments
payable upon presentment; 2) giving the special withdrawal slips the general
appearance of checks; and 3) the failure of respondent bank to seasonably warn
petitioner that it would not honor two of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed decision. It
denied the appeal and affirmed the judgment of the trial court. According to the
appellate court, respondent bank notified the depositor to present the passbook
whenever it received a collection note from another bank, belying petitioner's claim
that respondent bank was negligent in not requiring a passbook under the subject
transaction. The appellate court also found that the special withdrawal slips in question
were not purposely given the appearance of checks, contrary to petitioner's assertions,
and thus should not have been mistaken for checks. Lastly, the appellate court ruled
that the respondent bank was under no obligation to inform petitioner of the dishonor
of the special withdrawal slips, for to do so would have been a violation of the law on
the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25. The CA grievously erred in holding that the [Luzon Development]
Bank was free from any fault or
negligence regarding the dishonor, or in
failing to give fair and timely advice of the
dishonor, of the two intermediate LDB
Slips and in failing to award damages to
Firestone pursuant to Article 2176 of the
New Civil Code. 8
The issue for our consideration is whether or not respondent bank should be held
liable for damages suffered by petitioner, due to its allegedly belated notice of nonpayment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca, whereby the
latter purchased tires from the former with special withdrawal slips drawn upon FojasArca's special savings account with respondent bank. Petitioner in turn deposited
these withdrawal slips with Citibank. The latter credited the same to petitioner's current
account, then presented the slips for payment to respondent bank. It was at this point
that the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos.
42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively, were
refused payment by respondent bank due to insufficiency of Fojas-Arca's funds on
deposit. That information came about six months from the time Fojas-Arca purchased
tires from petitioner using the subject withdrawal slips. Citibank then debited the
amount of these withdrawal slips from petitioner's account, causing the alleged
pecuniary damage subject of petitioner's cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in question were
non-negotiable. 9 Hence, the rules governing the giving of immediate notice of
dishonor of negotiable instruments do not apply in this case. 10 Petitioner itself
concedes this point. 11 Thus, respondent bank was under no obligation to give
immediate notice that it would not make payment on the subject withdrawal slips.
Citibank should have known that withdrawal slips were not negotiable instruments. It
could not expect these slips to be treated as checks by other entities. Payment or
notice of dishonor from respondent bank could not be expected immediately, in
contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon
Development Bank, had honored and paid the previous withdrawal slips, automatically
credited petitioner's current account with the amount of the subject withdrawal slips,
then merely waited for the same to be honored and paid by respondent bank. It
presumed that the withdrawal slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable nature of the
withdrawal slips. The essence of negotiability which characterizes a negotiable paper
as a credit instrument lies in its freedom to circulate freely as a substitute for money.
12 The withdrawal slips in question lacked this character.
A bank is under obligation to treat the accounts of its depositors with meticulous care,
whether such account consists only of a few hundred pesos or of millions of pesos. 13
The fact that the other withdrawal slips were honored and paid by respondent bank
was no license for Citibank to presume that subsequent slips would be honored and
paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its
clients with the highest degree of care. 14
In the ordinary and usual course of banking operations, current account deposits are
accepted by the bank on the basis of deposit slips prepared and signed by the
depositor, or the latter's agent or representative, who indicates therein the current
account number to which the deposit is to be credited, the name of the depositor or
current account holder, the date of the deposit, and the amount of the deposit either in
cash or in check. 15
The withdrawal slips deposited with petitioner's current account with Citibank were not
checks, as petitioner admits. Citibank was not bound to accept the withdrawal slips as
a valid mode of deposit. But having erroneously accepted them as such, Citibank
and petitioner as account-holder must bear the risks attendant to the acceptance of
these instruments. Petitioner and Citibank could not now shift the risk and hold private
respondent liable for their admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CAG.R. CV No. 29546 is AFFIRMED. Costs against petitioner.
SO ORDERED.
||| (Firestone Tire & Rubber Company of the Phil. v. Court of Appeals, G.R. No.
113236, [March 5, 2001], 406 PHIL 143-152)
[G.R. No. L-2516. September 25, 1950.]
ANG TEK LIAN, petitioner, vs. THE COURT OF APPEALS, respondent.
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the
right to demand identification and/or assurance against possible complications, for
instance, (a) forgery of drawer's 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.)
||| (Ang Tek Lian v. CA, G.R. No. L-2516, [September 25, 1950], 87 PHIL 383-387)