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G.R. No.

L-16968             July 31, 1962

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. CONCEPCION MINING COMPANY, INC., ET


AL., defendants-appellants.

LABRADOR, J.:

Facts:

Appeal from a judgment or decision of the Court of First Instance of Manila, Hon. Gustavo
Victoriano, presiding, sentencing defendants Concepcion Mining Company and Jose Sarte to pay
jointly and severally to the plaintiff the amount of P7,197.26 with interest up to September 29, 1959,
plus a daily interest of P1.3698 thereafter up to the time the amount is fully paid, plus 10% of the
amount as attorney's fees, and costs of this suit.

The present action was instituted by the plaintiff to recover from the defendants the face of a
promissory note.

Upon the filing of the complaint the defendants presented their answer in which they allege that the
co-maker of the promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate
is in the process of judicial determination in Special Proceedings No. 29060 of the Court of First
Instance of Manila. On the basis of this allegation, it is prayed, as a special defense, that the estate
of said deceased Vicente L. Legarda be included as party-defendant. The court in its decision ruled
that the inclusion of said defendant is unnecessary and immaterial, in accordance with the provisions
of Article 1216 of the Deny Civil Code and section 17 (g) of the Negotiable Instruments Law.

A motion to reconsider this decision was denied and thereupon defendants presented a petition for
relief, asking that the effects of the judgment be suspended for the reason that the deceased Vicente
L. Legarda should have been included as a party-defendant and his liability should be determined in
pursuance of the provisions of the promissory note. This motion for relief was also denied, hence
defendant appealed to this Court.

Issue: Whether or not the deceased Legarda’s estate should be included as a party-defendant to the
case. (NO)

Ruling:

Section 17 (g) of the Negotiable Instruments Law provides as follows:

SEC. 17. Construction where instrument is ambiguous. — Where the language of the


instrument is ambiguous or there are omissions therein, the following rules of construction
apply:

xxx     xxx     xxx

(g) Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.

And Article 1216 of the Civil Code of the Philippines also provides as follows:
ART. 1216. The creditor may proceed against any one of the solidary debtors or some of
them simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others so long as the debt has not
been fully collected.

In view of the above quoted provisions, and as the promissory note was executed jointly and
severally by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda
and Jose S. Sarte, the payee of the promissory note had the right to hold any one or any two of the
signers of the promissory note responsible for the payment of the amount of the note. This judgment
of the lower court should be affirmed.

Our attention has been attracted to the discrepancies in the printed record on appeal. We note, first,
that the names of the defendants, who are evidently the Concepcion Mining Co., Inc. and Jose S.
Sarte, do not appear in the printed record on appeal. The title of the complaint set forth in the record
on appeal does not contain the name of Jose Sarte, when it should, as two defendants are named in
the complaint and the only defense of the defendants is the non-inclusion of the deceased Vicente L.
Legarda as a defendant in the action. We also note that the copy of the promissory note which is set
forth in the record on appeal does not contain the name of the third maker Jose S. Sarte.
Fortunately, the brief of appellee on page 4 sets forth said name of Jose S. Sarte as one of the co-
maker of the promissory note. Evidently, there is an attempt to mislead the court into believing that
Jose S. Sarte is no one of the co-makers. The attorney for the defendants Atty. Jose S. Sarte
himself and he should be held primarily responsible for the correctness of the record on appeal. We,
therefore, order the said Atty. Jose S. Sarte to explain why in his record on appeal his own name as
one of the defendants does not appear and neither does his name appear as one of the co-signers
of the promissory note in question. So ordered.

G.R. No. 16454           September 29, 1921

GEORGE A. KAUFFMAN, plaintiff-appellee,
vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.

Roman J. Lacson for appellant.


Ross and Lawrence for appellee.

STREET, J.:

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

October 9th, 1918.

CABLE TRANSFER BOUGHT FROM


            PHILIPPINE NATIONAL BANK,
           Manila, P.I.                       Stamp P18

Foreign             Amount                 Rate


$45,000.            3/8 %             P90,337.50

Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total
P90,355.50. Account of Philippine Fiber and Produce Company. Sold to Messrs. Philippine
Fiber and Produce Company, Manila.

        (Sgd.) Y LERMA,
Manager, Foreign Department.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to
the following effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.)
PHILIPPINE NATIONAL BANK, Manila.

Upon receiving this telegraphic message, the bank's representative in New York sent a cable
message in reply suggesting the advisability of withholding this money from Kauffman, in view of his
reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine
National Bank acquiesced in this and on October 11 dispatched to its New York agency another
message to withhold the Kauffman payment as suggested.

Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman
in New York, advising him that $45,000 had been placed to his credit in the New York agency of the
Philippine National Bank; and in response to this advice Kauffman presented himself at the office of
the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By
this time, however, the message from the Philippine National Bank of October 11, directing the
withholding of payment had been received in New York, and payment was therefore refused.

In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First
Instance of the city of Manila to recover said sum, with interest and costs; and judgment having been
there entered favorably to the plaintiff, the defendant appealed.
Among additional facts pertinent to the case we note the circumstance that at the time of the
transaction above-mentioned, the Philippines Fiber and Produce Company did not have on deposit
in the Philippine National Bank money adequate to pay the check for P90,355.50, which was
delivered in payment of the telegraphic order; but the company did have credit to that extent, or
more, for overdraft in current account, and the check in question was charged as an overdraft
against the Philippine Fiber and Produce Company and has remained on the books of the bank as
an interest-bearing item in the account of said company.

It is furthermore noteworthy that no evidence has been introduced tending to show failure of
consideration with respect to the amount paid for said telegraphic order. It is true that in the
defendant's answer it is suggested that the failure of the bank to pay over the amount of this
remittance to the plaintiff in New York City, pursuant to its agreement, was due to a desire to protect
the bank in its relations with the Philippine Fiber and Produce Company, whose credit was secured
at the bank by warehouse receipts on Philippine products; and it is alleged that after the exchange in
question was sold the bank found that it did not have sufficient to warrant payment of the remittance.
In view, however, of the failure of the bank to substantiate these allegations, or to offer any other
proof showing failure of consideration, it must be assumed that the obligation of the bank was
supported by adequate consideration.

In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as
the plaintiff Kauffman was not a party to the contract with the bank for the transmission of this credit,
no right of action can be vested in him for the breach thereof. "In this situation," — we here quote the
words of the appellant's brief, — "if there exists a cause of action against the defendant, it would not
be in favor of the plaintiff who had taken no part at all in the transaction nor had entered into any
contract with the plaintiff, but in favor of the Philippine Fiber and Produce Company, the party which
contracted in its own name with the defendant."

The question thus placed before us is one purely of law; and at the very threshold of the discussion it
can be stated that the provisions of the Negotiable Instruments Law can come into operation there
must be a document in existence of the character described in section 1 of the Law; and no rights
properly speaking arise in respect to said instrument until it is delivered. In the case before us there
was an order, it is true, transmitted by the defendant bank to its New York branch, for the payment of
a specified sum of money to George A. Kauffman. But this order was not made payable "to order or
"to bearer," as required in subsection (d) of that Act; and inasmuch as it never left the possession of
the bank, or its representative in New York City, there was no delivery in the sense intended in
section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt
delivered by the bank to the purchaser of the telegraphic order, and already set out above, cannot
itself be viewed in the light of a negotiable instrument, although it affords complete proof of the
obligation actually assumed by the bank.

Stated in bare simplicity the admitted facts show that the defendant bank for a valuable
consideration paid by the Philippine Fiber and Produce Company agreed on October 9, 1918, to
cause a sum of money to be paid to the plaintiff in New York City; and the question is whether the
plaintiff can maintain an action against the bank for the nonperformance of said undertaking. In other
words, is the lack of privity with the contract on the part of the plaintiff fatal to the maintenance of an
action by him?

The only express provision of law that has been cited as bearing directly on this question is the
second paragraph of article 1257 of the Civil Code; and unless the present action can be maintained
under the provision, the plaintiff admittedly has no case. This provision states an exception to the
more general rule expressed in the first paragraph of the same article to the effect that contracts are
productive of effects only between the parties who execute them; and in harmony with this general
rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibañez de
Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad
Co. vs. Compañia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.)

The paragraph introducing the exception which we are now to consider is in these words:

Should the contract contain any stipulation in favor of a third person, he may demand its
fulfillment, provided he has given notice of his acceptance to the person bound before the
stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.)

In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation
upon the history and interpretation of the paragraph above quoted and so complete is the discussion
contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say
that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions
governing the right of the person for whose benefit a contract is made to maintain an action for the
breach thereof in the following words:

So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the
interest of a third person in a contract is a stipulation pour autrui, or merely an incidental
interest, is to rely upon the intention of the parties as disclosed by their contract.

If a third person claims an enforcible interest in the contract, the question must be settled by
determining whether the contracting parties desired to tender him such an interest. Did they
deliberately insert terms in their agreement with the avowed purpose of conferring a favor
upon such third person? In resolving this question, of course, the ordinary rules of
construction and interpretation of writings must be observed. (Uy Tam and Uy
Yet vs. Leonard, supra.)

Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters
not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the
promise to the third person. That no such obligation exists may in some degree assist in determining
whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and
Uy Yet vs. Leonard, supra.)

In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is
clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be
paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph
above quoted; and the circumstances under which that promise was given disclose an evident
intention on the part of the contracting parties that the plaintiff should have the money upon demand
in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies
in our opinion the right in him to maintain an action to recover it; and indeed if the provision in
question were not applicable to the facts now before us, it would be difficult to conceive of a case
arising under it.

It will be noted that under the paragraph cited a third person seeking to enforce compliance with a
stipulation in his favor must signify his acceptance before it has been revoked. In this case the
plaintiff clearly signified his acceptance to the bank by demanding payment; and although the
Philippine National Bank had already directed its New York agency to withhold payment when this
demand was made, the rights of the plaintiff cannot be considered to as there used, must be
understood to imply revocation by the mutual consent of the contracting parties, or at least by
direction of the party purchasing he exchange.
In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank
(130 N.E. Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921,
wherein it is held that, by selling a cable transfer of funds on a foreign country in ordinary course, a
bank incurs a simple contractual obligation, and cannot be considered as holding the money which
was paid for the transfer in the character of a specific trust. Thus, it was said, "Cable transfers,
therefore, mean a method of transmitting money by cable wherein the seller engages that he has the
balance at the point on which the payment is ordered and that on receipt of the cable directing the
transfer his correspondent at such point will make payment to the beneficiary described in the cable.
All these transaction are matters of purchase and sale create no trust relationship."

As we view it there is nothing in the decision referred to decisive of the question now before us, wish
is merely that of the right of the beneficiary to maintain an action against the bank selling the
transfer.

Upon the considerations already stated, we are of the opinion that the right of action exists, and the
judgment must be affirmed. It is so ordered, with costs against the appellant. Interest will be
computed as prescribed in section 510 of the Code of Civil Procedure.

G.R. No. L-40824 February 23, 1989

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,


vs.
COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.

The Government Corporate Counsel for petitioner.

Lorenzo A. Sales for private respondents.

REGALADO , J.:

Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs
Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner
Government Service Insurance System (hereinafter referred to as GSIS) and subsequently, another
deed of mortgage, dated April 14, 1958, in connection with two loans granted by the latter in the
sums of P 11,500.00 and P 3,000.00, respectively.   A parcel of land covered by Transfer Certificate
1

of Title No. 38989 of the Register of Deed of Quezon City, co-owned by said mortgagor spouses,
was given as security under the aforesaid two deeds.   They also executed a 'promissory note" which
2

states in part:

... for value received, we the undersigned ... JOINTLY, SEVERALLY and
SOLIDARILY, promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM
the sum of . . . (P 11,500.00) Philippine Currency, with interest at the rate of six (6%)
per centum compounded monthly payable in . . . (120)equal monthly installments
of . . . (P 127.65) each. 
3

On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of
Mortgage" under which they obligated themselves to assume the aforesaid obligation to the GSIS
and to secure the release of the mortgage covering that portion of the land belonging to herein
private respondents and which was mortgaged to the GSIS.   This undertaking was not fulfilled. 
4 5

Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the
payment of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the
mortgaged property to be sold at public auction on December 3, 1962.  6

More than two years thereafter, or on August 23, 1965, herein private respondents filed a complaint
against the petitioner and the Lagasca spouses in the former Court of

First Instance of Quezon City,   praying that the extrajudicial foreclosure "made on, their property and
7

all other documents executed in relation thereto in favor of the Government Service Insurance
System" be declared null and void. It was further prayed that they be allowed to recover said
property, and/or the GSIS be ordered to pay them the value thereof, and/or they be allowed to
repurchase the land. Additionally, they asked for actual and moral damages and attorney's fees.

In their aforesaid complaint, private respondents alleged that they signed the mortgage contracts not
as sureties or guarantors for the Lagasca spouses but they merely gave their common property to
the said co-owners who were solely benefited by the loans from the GSIS.

The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to
establish a cause of action. 
8

Said decision was reversed by the respondent Court of Appeals   which held that:
9

... although formally they are co-mortgagors, they are so only for accomodation (sic)
in that the GSIS required their consent to the mortgage of the entire parcel of land
which was covered with only one certificate of title, with full knowledge that the loans
secured thereby were solely for the benefit of the appellant (sic) spouses who alone
applied for the loan.

xxxx

'It is, therefore, clear that as against the GSIS, appellants have a valid cause for
having foreclosed the mortgage without having given sufficient notice to them as
required either as to their delinquency in the payment of amortization or as to the
subsequent foreclosure of the mortgage by reason of any default in such payment.
The notice published in the newspaper, 'Daily Record (Exh. 12) and posted pursuant
to Sec 3 of Act 3135 is not the notice to which the mortgagor is entitled upon the
application being made for an extrajudicial foreclosure. ... 10

On the foregoing findings, the respondent court consequently decreed that-

In view of all the foregoing, the judgment appealed from is hereby reversed, and
another one entered (1) declaring the foreclosure of the mortgage void insofar as it
affects the share of the appellants; (2) directing the GSIS to reconvey to appellants
their share of the mortgaged property, or the value thereof if already sold to third
party, in the sum of P 35,000.00, and (3) ordering the appellees Flaviano Lagasca
and Esther Lagasca to pay the appellants the sum of P 10,00.00 as moral damages,
P 5,000.00 as attorney's fees, and costs. 
11

The case is now before us in this petition for review.

In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No.
2031, otherwise known as the Negotiable Instruments Law, which provide that an accommodation
party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving
value therefor, but is held liable on the instrument to a holder for value although the latter knew him
to be only an accommodation party.

This approach of both parties appears to be misdirected and their reliance misplaced. The
promissory note hereinbefore quoted, as well as the mortgage deeds subject of this case, are clearly
not negotiable instruments. These documents do not comply with the fourth requisite to be
considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor
to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the
provisions of Act No. 2031 would not apply; governance shall be afforded, instead, by the provisions
of the Civil Code and special laws on mortgages.

As earlier indicated, the factual findings of respondent court are that private respondents signed the
documents "only to give their consent to the mortgage as required by GSIS", with the latter having
full knowledge that the loans secured thereby were solely for the benefit of the Lagasca
spouses.   This appears to be duly supported by sufficient evidence on record. Indeed, it would be
12

unusual for the GSIS to arrange for and deduct the monthly amortizations on the loans from the
salary as an army officer of Flaviano Lagasca without likewise affecting deductions from the salary of
Isabelo Racho who was also an army sergeant. Then there is also the undisputed fact, as already
stated, that the Lagasca spouses executed a so-called "Assumption of Mortgage" promising to
exclude private respondents and their share of the mortgaged property from liability to the
mortgagee. There is no intimation that the former executed such instrument for a consideration, thus
confirming that they did so pursuant to their original agreement.

The parol evidence rule   cannot be used by petitioner as a shield in this case for it is clear that there
13

was no objection in the court below regarding the admissibility of the testimony and documents that
were presented to prove that the private respondents signed the mortgage papers just to
accommodate their co-owners, the Lagasca spouses. Besides, the introduction of such evidence
falls under the exception to said rule, there being allegations in the complaint of private respondents
in the court below regarding the failure of the mortgage contracts to express the true agreement of
the parties.  14

However, contrary to the holding of the respondent court, it cannot be said that private respondents
are without liability under the aforesaid mortgage contracts. The factual context of this case is
precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect
that third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property

So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca
spouses would not invalidate the mortgage with respect to private respondents' share in the
property. In consenting thereto, even assuming that private respondents may not be assuming
personal liability for the debt, their share in the property shall nevertheless secure and respond for
the performance of the principal obligation. The parties to the mortgage could not have intended that
the same would apply only to the aliquot portion of the Lagasca spouses in the property, otherwise
the consent of the private respondents would not have been required.

The supposed requirement of prior demand on the private respondents would not be in point here
since the mortgage contracts created obligations with specific terms for the compliance thereof. The
facts further show that the private respondents expressly bound themselves as solidary debtors in
the promissory note hereinbefore quoted.

Coming now to the extrajudicial foreclosure effected by GSIS, We cannot agree with the ruling of
respondent court that lack of notice to the private respondents of the extrajudicial foreclosure sale
impairs the validity thereof. In Bonnevie, et al. vs. Court of appeals, et al.,   the Court ruled that Act
15

No. 3135, as amended, does not require personal notice on the mortgagor, quoting the requirement
on notice in such cases as follows:

Section 3. Notice shall be given by posting notices of sale for not less than twenty
days in at least three public places of the municipality where the property is situated,
and if such property is worth more than four hundred pesos, such notice shall also be
published once a week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city.

There is no showing that the foregoing requirement on notice was not complied with in the
foreclosure sale complained of .

The respondent court, therefore, erred in annulling the mortgage insofar as it affected the share of
private respondents or in directing reconveyance of their property or the payment of the value
thereof Indubitably, whether or not private respondents herein benefited from the loan, the mortgage
and the extrajudicial foreclosure proceedings were valid.

WHEREFORE, judgment is hereby rendered REVERSING the decision of the respondent Court of
Appeals and REINSTATING the decision of the court a quo in Civil Case No. Q-9418 thereof.

G.R. No. L-15380             September 30, 1960

CHAN WAN, plaintiff-appellant,
vs.
TAN KIM and CHEN SO, defendants-appellees.

Manuel Domingo for appellant.


C.M. de los Reyes for appellees.

BENGZON, J.:

This suit to collect eleven checks totalling P4,290.00 is here for decision because it involves no issue
of fact.
Such checks payable to "cash or bearer" and drawn by defendant Tan Kim (the other defendant is
her husband) upon the Equitable Banking Corporation, were all presented for payment by Chan Wan
to the drawee bank, but they "were all dishonored and returned to him unpaid due to insufficient
funds and/or causes attributable to the drawer."

At the hearing of the case, in the Manila court of first instance, the plaintiff did not take the witness
stand. His attorney, however, testified only to identify the checks — which are Exhibits A to K — plus
the letters of demand upon defendants.

On the other hand, Tan Kim declared without contradiction that the checks had been issued to two
persons named Pinong and Muy for some shoes the former had promised to make and "were
intended as mere receipts".

In view of such circumstances, the court declined to order payment for two principal reasons: (a)
plaintiff failed to prove he was a holder in due course, and (b) the checks being crossed checks
should not have been deposited instead with the bank mentioned in the crossing.

It may be stated in this connection, that defendants asserted a counterclaim, the court dismissed it
for failure of proof, and from such dismissal they did not appeal.

The only issue is, therefore, the plaintiff's right to collect on the eleven commercial documents.

The Negotiable Instruments Law regulating the issuance of negotiable checks, the rights and the
liabilities arising therefrom, does not mention "crossed checks". Art. 541 of the Code of Commerce
refers to such instruments. 1 The bills of Exchange Act of England of 1882, contains several
provisions about them, some of which are quoted in the margin. 2 In the Philippine National Bank vs.
Zulueta, 101 Phil., 1071; 55 Off. Gaz., 222, we applied some provisions of said Bills of Exchange Act
because the Negotiable Law, originating from England and codified in the United States, permits
resort thereto in matters not covered by it and local legislation.3

Eight of the checks here in question bear across their face two parallel transverse lines between
which these words are written: non-negotiable — China Banking Corporation. These checks have,
therefore, been crossed specially to the China Banking Corporation, and should have been
presented for payment by China Banking, and not by Chan Wan.4 Inasmuch as Chan Wan did
present them for payment himself — the Manila court said — there was no proper presentment, and
the liability did not attach to the drawer.

We agree to the legal premises and conclusion. It must be remembered, at this point, that the
drawer in drawing the check engaged that "on due presentment, the check would be paid, and that if
it be dishonored . . . he will pay the amount thereof to the holder".5 Wherefore, in the absence of due
presentment, the drawer did not become liable.

Nevertheless we find, on the backs of the checks, endorsements which apparently show they had
been deposited with the China Banking Corporation and were, by the latter, presented to the drawee
bank for collection. For instance, on the back of the check Exhibit A (same as in Exh. B), this
endorsement appears:

For deposit to the account of White House Shoe Supply with the China Banking Corporation.

and then this:


Cleared through the clearing office of Central Bank of the Philippines. All prior endorsements
and/or lack of endorsements guaranteed. China Banking Corporation.

And on the back of Exh. G:

For deposit to the credit of our account. Viuda e Hijos de Chua Chiong Pio. People's Shoe
Company.

followed by the endorsement of China Banking Corporation as in Exhibits A and B. All the crossed
checks have the "clearance" endorsement of China Banking Corporation.

These circumstances would seem to show deposit of the checks with China Banking Corporation
and subsequent presentation by the latter through the clearing office; but as drawee had no funds,
they were unpaid and returned, some of them stamped "account closed". How they reached his
hands, plaintiff did not indicate. Most probably, as the trial court surmised, — this is not a finding of
fact — he got them after they had been thus returned, because he presented them in court with
such "account closed" stamps, without bothering to explain. Naturally and rightly, the lower court
held him not to be a holder in due course under the circumstances, since he knew, upon taking them
up, that the checks had already been dishonored.6

Yet it does not follow as a legal proposition, that simply because he was not a holder in due course
Chan Wan could not recover on the checks. The Negotiable Instruments Law does not provide that a
holder7 who is not a holder in due course, may not in any case, recover on the instrument. If B
purchases an overdue negotiable promissory note signed by A, he is not a holder in due course; but
he may recover from A,8 if the latter has no valid excuse for refusing payment. The only
disadvantage of holder who is not a holder in due course is that the negotiable instrument is subject
to defense as if it were non- negotiable.9

Now what defense did the defendant Tan Kim prove? The lower court's decision does not mention
any; evidently His Honor had in mind the defense pleaded in defendant's answer, but though it
unnecessary to specify, because the "crossing" and presentation incidents sufficed to bar recovery,
in his opinion.
1awphîl.nèt

Tan Kim admitted on cross-examination either that the checks had been issued as evidence of debts
to Pinong and Muy, and/or that they had been issued in payment of shoes which Pinong had
promised to make for her.

Seeming to imply that Pinong had to make the shoes, she asserted Pinong had "promised to pay the
checks for me". Yet she did not complete the idea, perhaps because she was just answering cross-
questions, her main testimony having referred merely to their counter-claim.

Needless to say, if it were true that the checks had been issued in payment for shoes that were
never made and delivered, Tan Kim would have a good defense as against a holder who is not a
holder in due course. 10

Considering the deficiency of important details on which a fair adjudication of the parties' right
depends, we think the record should be and is hereby returned, in the interest of justice, to the court
below for additional evidence, and such further proceedings as are not inconsistent with this opinion.
With the understanding that, as defendants did not appeal, their counterclaim must be and is hereby
definitely dismissed. So ordered.
-

G.R. No. 175851               July 4, 2012

EMILIA LIM, Petitioner,
vs.
MINDANAO WINES & LIQUOR GALLERIA, a Single Proprietorship Business Outfit Owned by
Evelyn S. Valdevieso, Respondent.

DECISION

DEL CASTILLO, J.:

Acquittal from a crime does not necessarily mean absolution from civil liability.

Despite her acquittal from the charges of violation of Batas Pambansa Bilang 22 (BP 22) or the
Bouncing Checks Law, the lower courts still found petitioner Emilia Lim (Emilia) civilly liable and
ordered her to pay the value of the bounced checks, a ruling which was upheld by the Court of
Appeals (CA) in its June 30, 2006 Decision and November 9, 2006 Resolution in CA-G.R. SP No.
1  2 

64897.

In this Petition for Review on Certiorari, Emilia prays for the reversal and setting aside of the said
rulings of the CA. She contends that since her acquittal was based on insuffiency of evidence, it
should then follow that the civil aspect of the criminal cases filed against her be likewise dismissed.
Hence, there is no basis for her adjudged civil liability.

Factual Antecedents

Sales Invoice No. 1711 dated November 24, 1995, as well as Statement of Accounts No.

076 indicate that respondent Mindanao Wines and Liquor Galleria (Mindanao Wines) delivered

several cases of liquors to H & E Commercial owned by Emilia, for which the latter issued four
Philippine National Bank (PNB) postdated checks worth ₱25,000.00 each. When two of these
checks, particularly PNB Check Nos. 951453 and 951454 dated October 10, 1996 and October 20,
5  6 

1996, respectively, bounced for the reasons ‘ACCOUNT CLOSED’ and ‘DRAWN AGAINST
INSUFFICIENT FUNDS’, Mindanao Wines, thru its proprietress Evelyn Valdevieso, demanded from
H & E Commercial the payment of their value through two separate letters both dated November 18,
1996. When the demands went unheeded, Mindanao Wines filed before Branch 2 of the Municipal

Trial Court in Cities (MTCC) of Davao City Criminal Case Nos. 68,309-B-98 and 68,310-B-98 against
Emilia for violations of BP 22.8

During trial, the prosecution presented its sole witness, Nieves Veloso

(Nieves), accountant and officer-in-charge of Mindanao Wines. She testified that Emilia has been a
customer of Mindanao Wines who purchased from it assorted liquors. In fact, Sales Invoice No. 1711
covered the orders made by Emilia from Mindanao Wines and these orders were delivered by the
latter’s salesman Marcelino Bersaluna (Marcelino) to H & E Commercial in San Francisco, Agusan

del Sur. For the same, Marcelino received the four PNB checks and accordingly endorsed them to
Mindanao Wines. Out of these four PNB checks, two were already paid, i.e., one was collected while
the other redeemed in court. 10

With regard to the bounced PNB Check Nos. 951453 and 951454, Nieves claimed that upon her
instructions Marcelino went to H & E Commercial more than 10 times to collect their value. But since
his efforts were in vain, two demand letters were thus sent to Emilia which were duly received by her
as the same were ‘signed by the recipient of the letters’. 11

On cross, Nieves admitted that she neither saw Emilia issue the checks nor accompanied Marcelino
in delivering the orders to H & E Commercial or in collecting the unpaid checks. Asked about the
12 

corresponding sales order covering Sales Invoice No. 1711, she acknowledged that the sales order
was unsigned and explained that sales orders of customers are handled by the Credit and Collection
Department of Mindanao Wines. 13

After the prosecution rested its case, Emilia filed a Demurrer to Evidence claiming insufficiency of
14 

evidence. She asserted that not one of the elements of BP 22 was proven because the witness
merely relied upon the reports of the salesman; that the purchases covered by Sales Invoice No.
1711 were unauthorized because the corresponding job order was unsigned; and that it was never
established that the bank dishonored the checks or that she was even sent a notice of dishonor.

Ruling of the Municipal Trial Court in Cities

In its December 10, 1999 Order, the MTCC granted the Demurrer to Evidence. It ruled that while
15 

Emilia did issue the checks for value, the prosecution nevertheless miserably failed to prove one
essential element that consummates the crime of BP 22, i.e., the fact of dishonor of the two subject
checks. It noted that other than the checks, no bank representative testified about presentment and
dishonor. Hence, the MTCC acquitted Emilia of the criminal charges. However, the MTCC still found
her civilly liable because when she redeemed one of the checks during the pendency of the criminal
cases, the MTCC considered the same as an acknowledgement on her part of her obligation with
Mindanao Wines. Pertinent portions of the MTCC Order read:

The elements of B.P. Blg. 22 must concur before one can be convicted of this offense. Since one
element is wanting, it is believed that the guilt of the accused has not been established beyond
reasonable doubt. The Court, however, opines that the accused is civilly liable. There is evidence on
record that an account was contracted. She should, therefore, pay.

WHEREFORE, the demurrer to evidence is granted and these cases are ordered DISMISSED.

Accused, however, is adjudged to pay complainant the total amounts of the 2 checks which is
₱50,000.00, with interest at the rate of 12% per annum to be computed from the date of notice which
is November 18, 1996 until the amount is paid in full; to reimburse complainant of the expenses
incurred in filing these cases in the amount of ₱1,245.00, and to pay attorney’s fees of ₱10,000.00.

SO ORDERED. 16

Ruling of the Regional Trial Court

Dissatisfied that her acquittal did not carry with it her exoneration from civil liability, Emilia appealed
to the Regional Trial Court (RTC) of Davao City, Branch 13. Emilia contended that since the MTCC
dismissed the criminal cases ‘on the ground of insufficient evidence,’ the civil aspect of the criminal
cases should likewise be automatically dismissed. She argued that the court may only award
damages for the civil aspect of BP 22 if the criminal cases have been dismissed on ‘reasonable
doubt’ upon proof of preponderance of evidence.

The RTC was not persuaded by Emilia’s contentions. The RTC clarified that the MTCC dismissed
the criminal cases based on ‘reasonable doubt’ and not on ‘insufficiency of evidence.’ And while the
prosecution failed to prove criminal liability beyond reasonable doubt, Emilia’s indebtedness was
nonetheless proven by preponderance of evidence, the quantum of evidence required to prove the
same. Thus, the RTC declared in its January 5, 2001 Order that: 17 

The prosecution however had established that the accused had issued the checks subject of these
cases. The accused had impliedly admitted that she was the maker of the checks subject of [these]
case[s] when she redeemed a third check from the complainant. In fact, the accused had never
categorically denied having issued the checks subject of these cases. When the accused filed the
Demurrer to Evidence, she had hypothetically admitted the evidence presented by the prosecution to
be true, and this includes the allegation of the prosecution that the accused issued the checks
subject of these cases for value. 18

Thus, it dismissed the appeal, viz:

WHEREFORE, in view of the foregoing, the appeal of the accused in these cases is hereby
DISMISSED, and the decision appealed from is hereby AFFIRMED IN TOTO.

SO ORDERED. 19

Ruling of the Court of Appeals

Undeterred, Emilia filed before the CA a Petition for Review still insisting that the MTCC’s dismissal
20 

was based on ‘insufficiency of evidence’ and that same pertains to both the criminal and civil aspects
of BP 22. She reiterated that there was no basis for the civil award made by the MTCC since the
prosecution failed to show evidence of her civil liability and that a court can only award civil liability in
cases of acquittals based on reasonable doubt and not on insufficiency of evidence.

In its June 30, 2006 Decision, the CA emphasized that even if acquitted, an accused may still be
held civilly liable if a) the acquittal was based on reasonable doubt or b) the court declared that the
liability of the accused is only civil. Just like the RTC, the CA ruled that the dismissal of the criminal
cases against Emilia was expressly based on reasonable doubt, hence, she is not free from civil
liability because the same is not automatically extinguished by acquittal based on said ground. The
CA further declared that even granting that her acquittal was for ‘insufficiency of evidence,’ the same
is still akin to a dismissal based on reasonable doubt.

Respecting the factual conclusions of the lower courts anent Emilia’s civil liability, the CA noted that
Emilia had never denied issuing the subject checks for value which, in themselves constituted
evidence of indebtedness. Moreover, she failed to refute the prosecution’s evidence when she filed a
Demurrer to Evidence. The CA therefore affirmed the assailed Order of the RTC except that it
deleted the award of attorney’s fees, thus:

WHEREFORE, premises considered, the assailed Order of the Regional Trial Court (RTC), Br. 13,
Davao City, affirming in toto the Order of the Municipal Trial Court in Cities (MTCC), Br. 2, Davao
City as to the civil liability of Emilia Lim, is hereby AFFIRMED with the sole modification that the
award of attorney’s fees in favor of the Respondent is DELETED.
SO ORDERED.  21

On Motion for Reconsideration, Emilia asserted that by granting her Demurrer to Evidence based on
22 

insufficiency of evidence, the MTCC acknowledged that there is absolutely no case against her. She
alleged that the ‘preponderance of evidence’ required in determining civil liability does not apply to
her as she never presented any evidence at all, implying that in such a determination, both parties
should have presented their respective evidence for the purpose of ascertaining as to which of the
evidence presented is superior.

The CA, however, rejected the motion in its Resolution dated November 9, 2006. It held that
23 

‘insufficiency’ does not mean the ‘total absence of evidence,’ but that ‘evidence is lacking of what is
necessary or required to make out her case.’ The CA explained that the MTCC acquitted Emilia
because the quantum of evidence required for a finding of guilt beyond reasonable doubt was
insufficient to convict her of BP 22. However, the extinction of the civil aspect does not necessarily
follow such acquittal. The CA also disregarded Emilia’s argument that a ‘preponderance of evidence’
should be a comparison of evidence of the opposing parties as such interpretation would lead to
absurdity because by simply refusing to present evidence, a defendant can then be easily absolved
from a civil suit.

Hence, this petition raising the following assignment of errors:

1) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT


THE AWARD OF CIVIL LIABILITY IN FAVOR OF THE RESPONDENT AND AGAINST THE
PETITIONER IS A NULLITY FOR LACK OF DUE PROCESS, APART FROM THE FACT
THAT THE COMPLAINANT IS NOT A JURIDICAL PERSON OR IS NOT THE REAL PARTY
IN INTEREST.

2) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT


BECAUSE THE GROUND FOR THE DISMISSAL WAS FOR "INSUFFICIENCY OF
EVIDENCE" AND NOT ON "REASONABLE DOUBT," THE DISMISSAL OF THE CRIMINAL
CASES CARRIES WITH IT THE DISMISSAL OF THE CIVIL CASES DEEMED INSTITUTED
THEREIN.

3) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS APPLICATION OF


THE CONCEPT OF "PREPONDERANCE OF EVIDENCE."

4) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT


THERE IS NO PIECE OF "ADMISSIBLE EVIDENCE" PRESENTED THAT MAY BE TAKEN
INTO ACCOUNT TO PROVE CIVIL LIABILITY. 24

In sum, the core issue in this petition is whether the dismissal of Emilia’s BP 22 cases likewise
includes the dismissal of their civil aspect.

Our Ruling

The petition lacks merit.

Emilia’s allegations that she was denied due process and that Mindanao Wines is not the real party
in interest do not merit our attention as these were never raised for resolution before the courts
below.
Emilia claims that she was deprived of due process when the courts below declared her civilly liable.
In support of this, she cites Salazar v. People wherein it was held that a court cannot rule upon the
25 

civil aspect of the case should it grant a demurrer to evidence with leave of court since the accused
is entitled to adduce controverting evidence on the civil liability. Emilia likewise contends that
Mindanao Wines is not a juridical person, it being a single proprietorship only and thus, not the real
party in interest in this case.

We note, however, that Emilia had never invoked before the courts below the ruling in
Salazar.  Neither did she specify in her pleadings filed therein whether her demurrer was filed with or
1âwphi1

without leave of court. It is only now that Emilia is claiming that the same was filed with leave of court
in an apparent attempt to conform the facts of this case with that in Salazar. The same goes true
with regard to the questioned locus standi of Mindanao Wines. Emilia likewise did not raise in her
pleadings filed with the RTC or the CA that the civil aspect is dismissible for lack of cause of action
because Mindanao Wines is not a juridical person and thus not a real party in interest. In fact, the
courts below all along considered Mindanao Wines as the plaintiff and the trial proceeded as such.

Obviously, these new issues are mere afterthoughts.  They were raised only for the first time in this
1âwphi1

petition for review on certiorari. Never were they presented before the RTC and the CA for
resolution. To allow Emilia to wage a legal blitzkrieg and blindside Mindanao Wines is a violation of
the latter’s due process rights:

It is well-settled that no question will be entertained on appeal unless it has been raised in the
proceedings below. Points of law, theories, issues and arguments not brought to the attention of the
lower court, administrative agency or quasi-judicial body, need not be considered by a reviewing
court, as they cannot be raised for the first time at that late stage. Basic considerations of fairness
and due process impel this rule. Any issue raised for the first time on appeal is barred by estoppel. 26

For this reason, the said issues do not merit the Court’s consideration.

Notwithstanding her acquittal, Emilia is civilly liable.

"The extinction of the penal action does not carry with it the extinction of the civil liability where x x x
the acquittal is based on reasonable doubt as only preponderance of evidence is required" in civil
27 

cases. On this basis, Emilia insists that the MTCC dismissed the BP 22 cases against her not on the
ground of reasonable doubt but on insufficiency of evidence. Hence, the civil liability should likewise
be extinguished. Emilia’s Demurrer to Evidence, however, betrays this claim. Asserting insufficiency
of evidence as a ground for granting said demurrer, Emilia herself argued therein that the
prosecution has not proven [her] guilt beyond reasonable doubt. And in consonance with such
28 

assertion, the MTCC in its judgment expressly stated that her guilt was indeed not established
beyond reasonable doubt, hence the acquittal. 29

In any case, even if the Court treats the subject dismissal as one based on insufficiency of evidence
as Emilia wants to put it, the same is still tantamount to a dismissal based on reasonable doubt. As
may be recalled, the MTCC dismissed the criminal cases because one essential element of BP 22
was missing, i.e., the fact of the bank’s dishonor. The evidence was insufficient to prove said
element of the crime as no proof of dishonor of the checks was presented by the prosecution. This,
however, only means that the trial court cannot convict Emilia of the crime since the prosecution
failed to prove her guilt beyond reasonable doubt, the quantum of evidence required in criminal
cases. Conversely, the lack of such proof of dishonor does not mean that Emilia has no existing debt
with Mindanao Wines, a civil aspect which is proven by another quantum of evidence, a mere
preponderance of evidence.
Emilia also avers that a court’s determination of preponderance of evidence necessarily entails the
presentation of evidence of both parties. She thus believes that she should have been first required
to present evidence to dispute her civil liability before the lower courts could determine
preponderance of evidence.

We disagree.

"Preponderance of evidence is [defined as] the weight, credit, and value of the aggregate evidence
on either side and is usually considered to be synonymous with the term ‘greater weight of the
evidence’ or ‘greater weight of the credible evidence’. It is evidence which is more convincing to the
court as worthy of belief than that which is offered in opposition thereto." Contrary to Emilia’s
30 

interpretation, a determination of this quantum of evidence does not need the presentation of
evidence by both parties. As correctly reasoned out by the CA, Emilia’s interpretation is absurd as
this will only encourage defendants to waive their presentation of evidence in order for them to be
absolved from civil liability for lack of preponderance of evidence. Besides, Emilia should note that
even when a respondent does not present evidence, a complainant in a civil case is nevertheless
burdened to substantiate his or her claims by preponderance of evidence before a court may rule on
the reliefs prayed for by the latter. Settled is the principle that "parties must rely on the strength of
their own evidence, not upon the weakness of the defense offered by their opponent." 31

Lastly, we see no reason to disturb the ruling of the CA anent Emilia’s civil liability. As may be
recalled, the CA affirmed the lower courts’ factual findings on the matter. Factual findings of the trial
court, when affirmed by the CA, will not be disturbed. Also, "[i]t is a settled rule that in a petition for
32 

review on certiorari under Rule 45 of the Rules of [Court], only questions of law may be raised by the
parties and passed upon by this Court." Moreover, "it is well to remember that a check may be
33 

evidence of indebtedness. A check, the entries of which are in writing, could prove a loan
transaction." While Emilia is acquitted of violations of BP 22, she should nevertheless pay the debt
34 

she owes.

WHEREFORE, the petition for review on certiorari is DENIED. The challenged June 30, 2006
Decision and November 9, 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 64897 are
hereby AFFIRMED in toto.

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