Cases in Full Text - Negotiable Instruments Law

7/27/2019 Cases in Full Text - Negotiable Instruments Law

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BPI EXPRESS CARD CORPORATION,petitioner, vs. COURT OF APPEALS and RICARDO J.MARASIGAN, respondents.

D E C I S I O N

KAPUNAN,J.:

The question before this Court is whether private respondent can recover moral damages arising from the

cancellation of his credit card by petitioner credit card corporation.

The facts of the case are as stated in the decision of the respondent court,i[1] to wit:

The case arose from the dishonor of the credit card of the plaintiff Atty. Ricardo J. Marasigan by CafeAdriatico, a business establishment accredited with the defendant-appellant BPI Express CardCorporation (BECC for brevity) on December 8, 1989 when the plaintiff entertained some gueststhereat.

The records of this case show that plaintiff, who is a lawyer by profession was a complimentarymember of BECC from February 1988 to February 1989 and was issued Credit Card No. 100-012-5534

with a credit limit of P3,000.00 and with a monthly billing every 27th of the month (Exh. N), subject tothe terms and conditions stipulated in the contract (Exh. 1-b). His membership was renewed foranother year or until February 1990 and the credit limit was increased to P5,000.00 (Exh. A). Theplaintiff oftentimes exceeded his credit limits (Exhs. I, I-1 to I-12) but this was never taken against himby the defendant and even his mode of paying his monthly bills in check was tolerated. Theircontractual relations went on smoothly until his statement of account for October, 1989 amounting toP8,987.84 was not paid in due time. The plaintiff admitted having inadvertently failed to pay hisaccount for the said month because he was in Quezon province attending to some professional andpersonal commitments. He was informed by his secretary that defendant was demanding immediatepayment of his outstanding account, was requiring him to issue a check for P15,000.00 which wouldinclude his future bills, and was threatening to suspend his credit card. Plaintiff issued Far East Bankand Trust Co. Check No. 494675 in the amount of P15,000.00, postdated December 15, 1989 whichwas received on November 23, 1989 by Tess Lorenzo, an employee of the defendant (Exhs. J and J-1),who in turn gave the said check to Jeng Angeles, a co-employee who handles the account of theplaintiff. The check remained in the custody of Jeng Angeles. Mr. Roberto Maniquiz, head of thecollection department of defendant was formally informed of the postdated check about a week later.On November 28, 1989, defendant served plaintiff a letter by ordinary mail informing him of thetemporary suspension of the privileges of his credit card and the inclusion of his account number intheir Caution List. He was also told to refrain from further use of his credit card to avoid anyinconvenience/embarrassment and that unless he settles his outstanding account with the defendantwithin 5 days from receipt of the letter, his membership will be permanently cancelled (Exh. 3). Thereis no showing that the plaintiff received this letter before December 8, 1989. Confident that he hadsettled his account with the issuance of the postdated check, plaintiff invited some guests on December8, 1989 and entertained them at Caf Adriatico. When he presented his credit card to Caf Adriaticofor the bill amounting to P735.32, said card was dishonored. One of his guests, Mary Ellen Ringler,paid the bill by using her own credit card, a Unibankard (Exhs. M, M-1 and M-2).

In a letter addressed to the defendant dated December 12, 1989, plaintiff requested that he be sent theexact billing due him as of December 15, 1989, to withhold the deposit of his postdated check and thatsaid check be returned to him because he had already instructed his bank to stop the payment thereof asthe defendant violated their agreement that the plaintiff issue the check to the defendant to cover hisaccount amounting to only P8,987.84 on the condition that the defendant will not suspend theeffectivity of the card (Exh. D). A letter dated December 16, 1989 was sent by the plaintiff to themanager of FEBTC, Ramada Branch, Manila requesting the bank to stop the payment of the check


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(Exhs. E, E-1). No reply was received by plaintiff from the defendant to his letter dated December 12,1989. Plaintiff sent defendant another letter dated March 12, 1990 reminding the latter that he had longrescinded and cancelled whatever arrangement he entered into with defendant and requesting for hiscorrect billing, less the improper charges and penalties, and for an explanation within five (5) days fromreceipt thereof why his card was dishonored on December 8, 1989 despite assurance to the contrary bydefendant's personnel-in-charge, otherwise the necessary court action shall be filed to hold defendantresponsible for the humiliation and embarrassment suffered by him (Exh. F). Plaintiff alleged furtherthat after a few days, a certain Atty. Albano, representing himself to be working with office of Atty.

Lopez, called him inquiring as to how the matter can be threshed out extrajudicially but the latter saidthat such is a serious matter which cannot be discussed over the phone. The defendant served its finaldemand to the plaintiff dated March 21, 1990 requiring him to pay in full his overdue account,including stipulated fees and charges, within 5 days from receipt thereof or face court action also toreplace the postdated check with cash within the same period or face criminal suit for violation of theBouncing Check Law (Exh. G/Exh. 13). The plaintiff, in a reply letter dated April 5, 1990 (Exh. H),demanded defendant's compliance with his request in his first letter dated March 12, 1990 within three(3) days from receipt, otherwise the plaintiff will file a case against them, x x x.ii[2]

Thus, on May 7, 1990 private respondent filed a complaint for damages against petitioner before the RegionalTrial Court of Makati, Branch 150, docketed as Civil Case No. 90-1174.

After trial, the trial court ruled for private respondent, finding that herein petitioner abused its right incontravention of Article 19 of the Civil Code.iii[3] The dispositive portion of the decision reads:

Wherefore, judgment is hereby rendered ordering the defendant to pay plaintiff the following:

1. P100,000.00 as moral damages;2. P50,000.00 as exemplary damages; and3. P20,000.00 by way of attorney's fees.

On the other hand, plaintiff is ordered to pay defendant its outstanding obligation in the amount ofP14,439.41, amount due as of December 15, 1989.iv[4]

The trial court's ruling was based on its findings and conclusions, to wit:

There is no question that plaintiff had been in default in the payment of his billings for more than twomonths, prompting defendant to call him and reminded him of his obligation. Unable to personally talkwith him, this Court is convinced that somehow one or another employee of defendant called him upmore than once.

However, while it is true that, as indicated in the terms and conditions of the application for BPI creditcard, upon failure of the cardholder to pay his outstanding obligation for more than thirty (30) days, thedefendant can automatically suspend or cancel the credit card, that reserved right should not have been

abused, as it was in fact abused, in plaintiff's case. What is more peculiar here is that there have beenadmitted communications between plaintiff and defendant prior to the suspension or cancellation ofplaintiff's credit card and his inclusion in the caution list. However, nowhere in any of thesecommunications was there ever a hint given to plaintiff that his card had already been suspended orcancelled. In fact, the Court observed that while defendant was trying its best to persuade plaintiff toupdate its account and pay its obligation, it had already taken steps to suspend/cancel plaintiff's cardand include him in the caution list. While the Court admires defendant's diplomacy in dealing with itsclients, it cannot help but frown upon the backhanded way defendant dealt with plaintiff's case. Fordespite Tess Lorenzo's denial, there is reason to believe that plaintiff was indeed assured by defendantof the continued honoring of his credit card so long as he pays his obligation of P15,000.00. Worst,upon receipt of the postdated check, defendant kept the same until a few days before it became due and


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said check was presented to the head of the collection department, Mr. Maniquiz, to take steps thereon,resulting to the embarrassing situation plaintiff found himself in on December 8, 1989. Moreover, Mr.Maniquiz himself admitted that his request for plaintiff to replace the check with cash was not becauseit was a postdated check but merely to tally the payment with the account due.

Likewise, the Court is not persuaded by the sweeping denials made by Tess Lorenzo and her claim thather only participation was to receive the subject check. Her immediate superior, Mr. Maniquiz testifiedthat he had instructed Lorenzo to communicate with plaintiff once or twice to request the latter to

replace the questioned check with cash, thus giving support to the testimony of plaintiff's witness,Dolores Quizon, that it was one Tess Lorenzo who she had talked over the phone regarding plaintiff'saccount and plaintiff's own statement that it was this woman who assured him that his card has not yetbeen and will not be cancelled/suspended if he would pay defendant the sum of P15,000.00.

Now, on the issue of whether or not upon receipt of the subject check, defendant had agreed that thecard shall remain effective, the Court takes note of the following:

1. An employee of defendant corporation unconditionally accepted the subject check upon its delivery, despiteits being a postdated one; and the amount did not tally with plaintiff's obligation;

2. Defendant did not deny nor controvert plaintiff's claim that all his payments were made in checks;

3. Defendant's main witness, Mr. Maniquiz, categorically stated that the request for plaintiff to replace hispostdated check with cash was merely for the purpose of tallying plaintiff's outstanding obligation with hispayment and not to question the postdated check;

4. That the card was suspended almost a week after receipt of the postdated check;

5. That despite the many instances that defendant could have informed plaintiff over the phone of thecancellation or suspension of his credit card, it did not do so, which could have prevented the incident ofDecember 8, 1989, the notice allegedly sent thru ordinary mail is not only unreliable but takes a long time.Such action as suspension of credit card must be immediately relayed to the person affected so as to avoid

embarrassing situations.

6. And that the postdated check was deposited on December 20, 1989.

In view of the foregoing observations, it is needless to say that there was indeed an arrangementbetween plaintiff and the defendant, as can be inferred from the acts of the defendant's employees, thatthe subject credit card is still good and could still be used by the plaintiff as it would be honored by theduly accredited establishment of defendant.v[5]

Not satisfied with the Regional Trial Court's decision, petitioner appealed to the Court of Appeals, which, in adecision promulgated on March 9, 1995 ruled in its dispositive portion:

WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED with theMODIFICATION that the defendant-appellant shall pay the plaintiff-appellee the following:P50,000.00 as moral damages; P25,000.00 as exemplary damages; and P10,000.00 by way of attorney'sfees.

SO ORDERED.vi[6]

Hence, the present petition on the following assignment of errors:

I


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THE LOWER COURT ERRED IN DECLARING THAT THERE WAS INDEED AN AGREEMENTOR ARRANGEMENT ENTERED INTO BETWEEN THE PARTIES WHEREIN THEDEFENDANT REQUIRED THE PLAINTIFF TO ISSUE A POSTDATED CHECK IN ITS FAVORIN THE AMOUNT OF P15,000.00 AS PAYMENT FOR HIS OVERDUE ACCOUNTS, WITH THECONDITION THAT THE PLAINTIFF'S CREDIT CARD WILL NOT BE SUSPENDED ORCANCELLED.

II

THE LOWER COURT ERRED IN HOLDING DEFENDANT LIABLE FOR DAMAGES ANDATTORNEY'S FEES ARISING OUT FROM THE DISHONOR OF THE PLAINTIFF'S CREDITCARD.vii[7]

We find the petition meritorious.

The first issue to be resolved is whether petitioner had the right to suspend the credit card of the privaterespondent.

Under the terms and conditions of the credit card, signed by the private respondent, any card with outstanding

balances after thirty (30) days from original billing/statement shall automatically be suspended, thus:

PAYMENT OF CHARGES - BECC shall furnish the Cardholder a monthly statement of account madethrough the use of the CARD and the Cardholder agrees that all charges made through the use of theCARD shall be paid by the Cardholder on or before the last day for payments, which is twenty (20)days from the date of the said statement of account, and such payment due date may be changed to anearlier date if the Cardholder's account is considered overdue and/or with balances in excess of theapproved credit limit; or to such other date as may be deemed proper by the CARD issuer with noticeto the Cardholder on the same monthly statement of account. If the last day for payment falls on aSaturday, Sunday or Holiday, the last day for payment automatically becomes the last working dayprior to said payment date. However, notwithstanding the absence or lack of proof of service of the

statement of charges to the Cardholder, the latter shall pay any or all charges made through the use ofthe CARD within thirty (30) days from the date or dates thereof. Failure of Cardholder to pay any andall charges made through the CARD within the payment period as stated in the statement of charges orwithin thirty (30) days from actual date or dates whichever occur earlier, shall render him in defaultwithout the necessity of demand from BECC, which the Cardholder expressly waives. These chargesor balance thereof remaining unpaid after the payment due date indicated on the monthly statement ofaccount shall bear interest at the rate of 3% per month and an additional penalty fee equivalent toanother 3% of the amount due for every month or a fraction of a month's delay. PROVIDED, that ifthere occurs any change on the prevailing market rates. BECC shall have the option to adjust the rateof interest and/or penalty fee due on the outstanding obligation with prior notice to the Cardholder.

xxx xxx xxx

Any CARD with outstanding balances unpaid after thirty (30) days from original billing/statement dateshall automatically be suspended, and those with accounts unpaid after sixty (60) days from saidoriginal billing/statement date shall automatically be cancelled, without prejudice to BECC's right tosuspend or cancel any CARD any time and for whatever reason. In case of default in his obligation asprovided for in the preceding paragraph, Cardholder shall surrender his CARD to BECC and shall inaddition to the interest and penalty charges aforementioned, pay the following liquidated damagesand/or fees (a) a collection fee of 25% of the amount due if the account is referred to a collectionagency or attorney; (b) a service fee of P100 for every dishonored check issued by the Cardholder inpayment of his account, with prejudice, however, to BECC's right of considering Cardholder'sobligation unpaid, cable cost for demanding payment or advising cancellation of membership shall also


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be for Cardholder's account; and (c) a final fee equivalent to 25% of the unpaid balance, exclusive oflitigation expenses and judicial costs, if the payment of the account is enforced through courtaction.viii[8]

The aforequoted provision of the credit card cannot be any clearer. By his own admission, private respondentmade no payment within thirty days for his original billing/statement dated 27 September 1989. Neither did hemake payment for his original billing/statement dated 27 October 1989. Consequently, as early as 28 October1989, thirty days from the non-payment of his billing dated 27 September 1989, petitioner corporation could

automatically suspend his credit card.

The next issue is whether prior to the suspension of private respondent's credit card on 28 November 1989, theparties entered into an agreement whereby the card could still be used and would be duly honored by dulyaccredited establisments.

We agree with the findings of the respondent court, that there was an arrangement between the parties, whereinthe petitioner required the private respondent to issue a check worth P15,000 as payment for the latter's billings.However, we find that the private respondent was not able to comply with his obligation.

As the testimony of private respondent himself bears out, the agreement was for the immediate payment of the

outstanding account:

Q In said statement of account that you are supposed to pay the P8,974.84 the charge of interest andpenalties, did you note that?

A Yes, sir. I noted the date.

Q When?

A When I returned from the Quezon province, sir.

Q When?

A I think November 22, sir.

Q So that before you used again the credit card you were not able to pay immediately this P8,987.84 incash?

A I paid P15,000.00, sir.

Q My question Mr. Witness is, did you pay this P8,987.84 in charge of interest and penalties immediatelyin cash?

A In cash no, but in check, sir.

Q You said that you noted the word "immediately" in bold letters in your statement of account, why didyou not pay immediately?

A Because I received that late, sir.

Q Yes, on November 22 when you received from the secretary of the defendant telling you to pay theprincipal amount of P8,987.84, why did you not pay?


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A There was a communication between me and the defendant, I was required to pay P8,000.00 but I paidin check for P15,000.00, sir.

Q Do you have any evidence to show that the defendant required you to pay in check for P15,000.00?

A Yes, sir.

Q Where is it?

A It was by telecommunication, sir.

Q So there is no written communication between you and the defendant?

A There was none, sir.

Q There is no written agreement which says that P8,987.84 should be paid for P15,000.00 in check, thereis none?

A Yes, no written agreement, sir.

Q And you as a lawyer you know that a check is not considered as cash specially when it is postdated sentto the defendant?

A That is correct, sir.

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

As agreed upon by the parties, on the following day, private respondent did issue a check for P15,000.However, the check was postdated 15 December 1989. Settled is the doctrine that a check is only a substitute

for money and not money, the delivery of such an instrument does not, by itself operate as payment.ix[9] This isespecially true in the case of a postdated check.

Thus, the issuance by the private respondent of the postdated check was not effective payment. It did notcomply with his obligation under the arrangement with Miss Lorenzo. Petitioner corporation was thereforejustified in suspending his credit card.

Finally, we find no legal and factual basis for private respondent's assertion that in canceling the credit card ofthe private respondent, petitioner abused its right under the terms and conditions of the contract.

To find the existence of an abuse of right under Article 19 the following elements must be present: (1) There is

a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuringanother.x[10]

Time and again this Court has held that good faith is presumed and the burden of proving bad faith is on theparty alleging it.xi[11] This private respondent failed to do. In fact, the action of the petitioner belies theexistence of bad faith. As early as 28 October 1989, petitioner could have suspended private respondent's cardoutright. Instead, petitioner allowed private respondent to use his card for several weeks. Petitioner had evennotified private respondent of the impending suspension of his credit card and made special accommodationsfor him for settling his outstanding account. As such, petitioner cannot be said to have capriciously andarbitrarily canceled the private respondent's credit card.


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We do not dispute the findings of the lower court that private respondent suffered damages as a result of thecancellation of his credit card. However, there is a material distinction between damages and injury. Injury isthe illegal invasion of a legal right; damage is the loss, hurt, or harm which results from the injury; and damagesare the recompense or compensation awarded for the damage suffered. Thus, there can be damage withoutinjury in those instances in which the loss or harm was not the result of a violation of a legal duty. In suchcases, the consequences must be borne by the injured person alone, the law affords no remedy for damagesresulting from an act which does not amount to a legal injury or wrong. These situations are often calleddamnum absque injuria.xii[12]

In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he mustestablish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff - aconcurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying basis forthe award of tort damages is the premise that an individual was injured in contemplation of law. Thus, theremust first be a breach of some duty and the imposition of liability for that breach before damages may beawarded;xiii[13] and the breach of such duty should be the proximate cause of the injury.

We therefore disagree with the ruling of the respondent court that the dishonor of the credit card of the privaterespondent by Caf Adriatico is attributable to petitioner for its willful or gross neglect to inform the privaterespondent of the suspension of his credit card, the unfortunate consequence of which brought social

humiliation and embarrassment to the private respondent.xiv[14]

It was petitioner's failure to settle his obligation which caused the suspension of his credit card and subsequentdishonor at Caf Adriatico. He can not now pass the blame to the petitioner for not notifying him of thesuspension of his card. As quoted earlier, the application contained the stipulation that the petitioner couldautomatically suspend a card whose billing has not been paid for more than thirty days. Nowhere is it stated inthe terms and conditions of the application that there is a need of notice before suspension may be effected asprivate respondent claims.xv[15]

This notwithstanding, on November 28, 1989, the day of the suspension of private respondent's card, petitionersent a letter by ordinary mail notifying private respondent that his card had been temporarily suspended. Under

the Rules on Evidence, there is a disputable presumption that letters duly directed and mailed were received onthe regular course of mail.xvi[16] Aside from the private respondent's bare denial, he failed to present evidenceto rebut the presumption that he received said notice. In fact upon cross examination, private respondentadmitted that he did received the letter notifying him of the cancellation:

Q Now you were saying that there was a first letter sent to you by the defendant?

A Your letter, sir.

Q Was that the first letter that you received?

A Yes, sir.

Q Is it that there was a communication first between you and the defendant?

A There was none, sir. I received a cancellation notice but that was after November 27.xvii[17]

As it was private respondent's own negligence which was the proximate cause of his embarrassing andhumiliating experience, we find the award of damages by the respondent court clearly unjustified. We take noteof the fact that private respondent has not yet paid his outstanding account with petitioner.


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IN VIEW OF THE FOREGOING, the decision of the Court of Appeals ordering petitioner to pay privaterespondent P100,000.00 as moral damages, P50,000.00 as exemplary damages and P20,000.00 as attorney'sfees, is SET ASIDE. Private respondent is DIRECTED to pay his outstanding obligation with the petitioner inthe amount of P14,439.41.

SO ORDERED

Caltex Philippines v. Court of AppealsChester Cabalza recommends his visitors to please read the original & full text of the case cited. Xie xie!

How Negotiability is Determined?

Caltex (Philippines) vs CA212 SCRA 448August 10, 1992

Facts:

On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificatesof time deposit (CTDs) in favor of one Angel dela Cruz who is tasked to deposit aggregate amounts.

One time Mr. dela Cruz delivered the CTDs to Caltex Philippines in connection with his purchased of fuelproducts from the latter. However, Sometime in March 1982, he informed Mr. Timoteo Tiangco, the SucatBranch Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor toexecute and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he desiredreplacement of said lost CTDs

Angel dela Cruz negotiated and obtained a loan from defendant bank and executed a notarized Deed of

Assignment of Time Deposit, which stated, among others, that he surrenders to defendant bank "full control ofthe 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

In 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branchand presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were deliveredto herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor

Mr dela Cruz received a letter from the plaintiff formally informing of its possession of the CTDs in questionand of its decision to pre-terminate the same. ccordingly, defendant bank rejected the plaintiff's demand and

claim for payment of the value of the CTDs in a letter dated February 7, 1983.

The loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan. However, the plaintiff filed theinstant complaint, praying that defendant bank be ordered to pay it the aggregate value of the certificates of timedeposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum, moral andexemplary damages as well as attorney's fees

On appeal, CA affirmed the lower court's dismissal of the complaint, and ruled (1) that the subject certificates ofdeposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not become aholder in due course of the said certificates of deposit; and (3) in disregarding the pertinent provisions of the


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Code of Commerce relating to lost instruments payable to bearer

Issues:

a) Whether certificates of time deposit (CTDs) are negotiable instruments?

b) Is the depositor also the bearer of the document?

c) Whether petitioner can rightfully recover on the CTDs?

Held:

The CTDs in question are not negotiable instruments. Section 1 Act No. 2031, otherwise known as theNegotiable 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 withreasonable certainty

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 tocontrol, 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 thewriting to be the only outward and visible expression of their meaning, no other words are to be added to it orsubstituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretlyintended as contradistinguished from what their words express, but what is the meaning of the words they haveused. What the parties meant must be determined by what they said

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable InstrumentsLaw, an instrument is negotiated when it is transferred from one person to another in such a manner as toconstitute the transferee the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is inpossession of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of atransfer 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 purchasesof Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed) could at themost constitute petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for suchpurpose cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and thesubsequent disposition of such security, in the event of non-payment of the principal obligation, must becontractually provided for.BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OFCOMMUNICATIONS, respondents.

ROMERO,J.:


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This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of the RegionalTrial Court of Misamis Oriental, Branch 18,ii[1] which disposed of Civil Case No. 10507 for collection of asum of money and damages, as follows:

"WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily liable and ordered to payto the plaintiff Philippine Bank of Communications, Cagayan de Oro City, the amount of FIFTY THOUSANDPESOS (P50,000.00),with interest thereon from May 5, 1983 at 16% per annum until fully paid; and 6% per

annum on the total amount due, as liquidated damages or penalty from May 5, 1983 until fully paid; plus 10%of the total amount due for expenses of litigation and attorney's fees; and to pay the costs.The counterclaim, as well as the cross claim, are dismissed for lack of merit.SO ORDERED."

Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which he signed with ReneC. Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointly and severally liable toprivate respondent Philippine Bank of Communications, Cagayan de Oro City branch. The promissory notewas due on May 5, 1983.Said due date expired without the promissors having paid their obligation. Consequently, on November 141983 and on June 8, 1984, private respondent sent petitioner telegrams demanding payment thereof.ii[2] On

December 11, 1984 private respondent also sent by registered mail a final letter of demand to Rene C. NaybeSince both obligors did not respond to the demands made, private respondent filed on January 24, 1986 acomplaint for collection of the sum of P50,000.00 against the three obligors.On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the case. Howeveron January 9, 1987, the lower court reconsidered the dismissal order and required the sheriff to serve thesummonses. On January 27, 1987, the lower court dismissed the case against defendant Pantanosas as prayedfor by the private respondent herein. Meanwhile, only the summons addressed to petitioner was served as thesheriff learned that defendant Naybe had gone to Saudi Arabia.In his answer, petitioner alleged that sometime in January 1983, he was approached by his friend, RudyCampos, who told him that he was a partner of Pio Tio, the branch manager of private respondent in Cagayande Oro City, in the falcata logs operation business. Campos also intimated to him that Rene C. Naybe was

interested in the business and would contribute a chainsaw to the venture. He added that, although Naybe hadno money to buy the equipment Pio Tio had assured Naybe of the approval of a loan he would make withprivate respondent. Campos then persuaded petitioner to act as a "co-maker" in the said loan. Petitionerallegedly acceded but with the understanding that he would only be a co-maker for the loan of P5,000.00.Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos at hisoffice. He affixed his signature thereto but in one copy, he indicated that he bound himself only for the amountof P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made liable for the amount ofP50,000.00.In the aforementioned decision of the lower court, it noted that the typewritten figure "P50,000-" clearly appearsdirectly below the admitted signature of the petitioner in the promissory note.ii[3] Hence, the latter'suncorroborated testimony on his limited liability cannot prevail over the presumed regularity and fairness of the

transaction, under Sec. 5 (q) of Rule 131. The lower court added that it was "rather odd" for petitioner to haveindicated in a copy and not in the original, of the promissory note, his supposed obligation in the amount ofP5,000.00 only. Finally, the lower court held that even granting that said limited amount had actually beenagreed upon, the same would have been merely collateral between him and Naybe and, therefore, not bindingupon the private respondent as creditor-bank.The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a labor consultant whowas supposed to take due care of his concerns, and that, on the witness stand, Pio Tio denied having participatedin the alleged business venture although he knew for a fact that the falcata logs operation was encouraged by thebank for its export potential.


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Petitioner appealed the said decision to the Court of Appeals which, in its decision of August 31, 1990, affirmedthat of the lower court. His motion for reconsideration of the said decision having been denied, he filed theinstant petition for review on certiorari.On February 6,1991, the Court denied the petition for failure of petitioner to comply with the Rules of Courtand paragraph 2 of Circular No. 1-88, and to sufficiently show that respondent court had committed anyreversible error in its questioned decision.ii[4] His motion for the reconsideration of the denial of his petitionwas likewise denied with finality in the Resolution of April 24, 1991.ii[5] Thereafter, petitioner filed a motion

for leave to file a second motion for reconsideration which, in the Resolution of May 27, 1991, the Courtdenied. In the same Resolution, the Court ordered the entry of judgment in this case.ii[6]Unfazed, petitioner filed a motion for leave to file a motion for clarification. In the latter motion, he assertedthat he had attached Registry Receipt No. 3268 to page 14 of the petition in compliance with Circular No. 1-88.Thus, on August 7,1991, the Court granted his prayer that his petition be given due course and reinstated thesame.ii[7]Nonetheless, we find the petition unmeritorious.Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after the rendition of the decisionof the lower court, by Gregorio Pantanosas, Jr., an MTCC judge and petitioner's co-maker in the promissorynote. It supports petitioner's allegation that they were induced to sign the promissory note on the belief that itwas only for P5,000.00, adding that it was Campos who caused the amount of the loan to be increased to

P50,000.00.The affidavit is clearly intended to buttress petitioner's contention in the instant petition that the Court ofAppeals should have declared the promissory note null and void on the following grounds: (a) the promissorynote was signed in the office of Judge Pantanosas, outside the premises of the bank; (b) the loan was incurredfor the purpose of buying a second-hand chainsaw which cost only P5,000.00; (c) even a new chainsaw wouldcost only P27,500.00; (d) the loan was not approved by the board or credit committee which was the practice, atit exceeded P5,000.00; (e) the loan had no collateral; (f) petitioner and Judge Pantanosas were not present at thetime the loan was released in contravention of the bank practice, and (g) notices of default are sentsimultaneously and separately but no notice was validly sent to him.ii[8] Finally, petitioner contends that insigning the promissory note, his consent was vitiated by fraud as, contrary to their agreement that the loan wasonly for the amount of P5,000. 00, the promissory note stated the amount of P50,000.00.

The above-stated points are clearly factual. Petitioner is to be reminded of the basic rule that this Court is not atrier of facts. Having lost the chance to fully ventilate his factual claims below, petitioner may no longer beaccorded the same opportunity in the absence of grave abuse of discretion on the part of the court below. Hadhe presented Judge Pantanosas' affidavit before the lower court, it would have strengthened his claim that thepromissory note did not reflect the correct amount of the loan.Nor is there merit in petitioner's assertion that since the promissory note "is not a public deed with theformalities prescribed by law but x x x a mere commercial paper which does not bear the signature of x x xattesting witnesses," parol evidence may "overcome" the contents of the promissory note.ii[9] The firstparagraph of the parol evidence ruleii[10] states:

"When the terms of an agreement have been reduced to writing, it is considered as containing all the terms

agreed upon and there can be, between the parties and their successors-in-interest, no evidence of such termsother than the contents of the written agreement."

Clearly, the rule does not specify that the written agreement be a public document.What is required is that agreement be in writingas the rule is in fact founded on "long experience that writtenevidence is so much more certain and accurate than that which rests in fleeting memory only, that it would beunsafe, when parties have expressed the terms of their contract in writing, to admit weaker evidence to controland vary the stronger and to show that the parties intended a different contract from that expressed in thewriting signed by them."ii[11] Thus, for the parol evidence rule to apply, a written contract need not be in anyparticular form, or be signed by both parties.ii[12] As a general rule, bills, notes and other instruments of asimilar nature are not subject to be varied or contradicted by parol or extrinsic evidence.ii[13]


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By alleging fraud in his answer,ii[14] petitioner was actually in the right direction towards proving that he andhis co-makers agreed to a loan of P5,000.00 only considering that, where a parol contemporaneous agreementwas the inducing and moving cause of the written contract, it may be shown by parol evidence.ii[15] Howeverfraud must be established by clear and convincing evidence, mere preponderance of evidence, not even beingadequate.ii[16] Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced only by his ownuncorroborated and, expectedly, self-serving testimony.Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against

Pantanosas, his co-maker, constituted a release of his obligation, especially because the dismissal of the caseagainst Pantanosas was upon the motion of private respondent itself. He cites as basis for his argument, Article2080 of the Civil Code which provides that:

"The guarantors, even though they be solidary, are released from their obligation whenever by some act of thecreditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter."

It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as aguarantor. This is patent even from the first sentence of the promissory note which states as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the

PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sumof FIFTY THOUSAND ONLY (P50,000. 00) Pesos, Philippine Currency, together with interest x x x at the rateof SIXTEEN (16) per cent per annum until fully paid."

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and eachcreditor is entitled to demand the whole obligation.ii[17] On the other hand, Article 2047 of the Civil Codestates:

"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principaldebtorin case the latter should fail to do so.If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of

this Book shall be observed, In such a case the contract is called a suretyship." (Italics supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is differentfrom that of a solidary debtor. Thus, Tolentino explains:

"A guarantor who binds himself in solidum with the principal debtor under the provisions of the secondparagraph does not become a solidary co-debtor to all intents and purposes. There is a difference between asolidary co-debtor, and a fiador in solidum (surety). The later, outside of the liability he assumes to pay thedebt before the property of the principal debtor has been exhausted, retains all the other rights, actions andbenefits which pertain to him by reason of thefiansa; while a solidary co-debtor has no other rights than thosebestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code."ii[18]

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. UnderArt. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is thatthe obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is asolidarity liability only when the obligation expressly so states, when the law so provides or when the nature ofthe obligation so requires.ii[19]Because the promissory note involved in this case expressly states that the three signatories therein are jointlyand severally liable, any one, some or all of them may be proceeded against for the entire obligation.ii[20] Thechoice is left to the solidary creditor to determine against whom he will enforce collection.ii[21] Consequently,the dismissal of the case against Judge Pontanosas may not be deemed as having discharged petitioner from


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On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same Atty. Franciscowrote the petitioner a formal request7 that her company be allowed to pay the principal amount of P100,000.00in three (3) equal installments of six (6) months each with the first installment and the accrued interest ofP24,000.00 to be paid immediately upon approval of the said request.On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez, formally denied the said requestof the private respondent, but granted the latter a grace period of five (5) days from the receipt of the denial8 to

pay the total balance of P124,000.00, otherwise, the provisions of the contract regarding cancellation, forfeitureand reconveyance would be implemented.On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote9 the counsel of thepetitioner requesting an extension of 30 days from said date to fully settle its account. The counsel for thepetitioner, Atty. Fernandez, received the said letter on the same day. Upon consultation with the petitioner inMalolos, Bulacan, Atty. Fernandez, as instructed, wrote the private respondent a letter10 dated August.Consequently, Atty. Francisco, the private respondents president, wrote a letter11 dated August 22, 1975,

directly addressed to the petitioner, protesting the alleged refusal of the latter to accept tender of paymentpurportedly made by the former on August 5, 1975, the last day of the grace period. In the same letter of August22, 1975, received on the following day by the petitioner, the private respondent demanded the execution of adeed of absolute sale over the land in question and after which it would pay its account in full, otherwise,

judicial action would be resorted to.

On August 27, 1975, the petitioners counsel, Atty. Fernandez, wrote a reply12 to the private respondent statingthe refusal of his client to execute the deed of absolute sale due to its (private respondents) failure to pay its full

obligation. Moreover, the petitioner denied that the private respondent had made any tender of paymentwhatsoever within the grace period. In view of this alleged breach of contract, the petitioner cancelled thecontract and considered all previous payments forfeited and the land as ipso facto reconveyed.

From a perusal of the foregoing facts, we find that both the contending parties have conflicting versions on themain question of tender of payment.

The trial court, in its ratiocination, preferred not to give credence to the evidence presented by the privaterespondent. According to the trial court:

x x x What made Atty. Francisco suddenly decide to pay plaintiffs obligation on August 5, 1975, go todefendants office at Malolos, and there tender her payment, when her request of August 4, 1975 had not yet

been acted upon until August 7, 1975? If Atty. Francisco had decided to pay the obligation and had availablefunds for the purpose on August 5, 1975, then there would have been no need for her to write defendant onAugust 4, 1975 to request an extension of time. Indeed, Atty. Franciscos claim that she made a tender ofpayment on August 5, 1975such alleged act, considered in relation to the circumstances both antecedent andsubsequent thereto, being not in accord with the normal pattern of human conductis not worthy ofcredence.13

The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of the privaterespondent, who earlier testified that a certain Mila Policarpio accompanied her on August 5, 1975 to the officeof the petitioner. Another person, however, named Aurora Oracion, was presented to testify as the secretary-companion of Atty. Francisco on that same occasion.

Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court the certifiedpersonal check allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof. Finally,the trial court found that the private respondent had insufficient funds available to fulfill the entire obligationconsidering that the latter, through its president, Atty. Francisco, only had a savings account deposit of


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P64,840.00, and although the latter had a money-market placement of P300,000.00. the same was to matureonly after the expiration of the 5-day grace period.

Based on the above considerations, the trial court rendered a decision in favor of the petitioner, the dispositiveportion of which reads:

WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares the subject

contract cancelled and plaintiffs down payment of P23,930.00 forfeited in favor of defendant, and herebydismisses the complaint; and on the counterclaim, the Court orders plaintiff to pay defendant.

(1) Attorneys fees of P10,000.00;(2) Litigation expenses of P2,000.00; and(3) Judicial costs.

SO ORDERED.14

Not satisfied with the said decision, the private respondent appealed to the respondent Intermediate AppellateCourt (now Court of Appeals) assigning as reversible errors, among others, the findings of the trial court that

the available funds of the private respondent were insufficient and that the latter did not effect a valid tender ofpayment and consignation.The respondent court, in reversing the decision of the trial court, essentially relies on the following findings:

x x x We are convinced from the testimony of Atty. Adalia Francisco and her witnesses that in behalf of theplaintiff-appellant they have a total available sum of P364,840.00 at her and at the plaintiffs disposal on orbefore August 4, 1975 to answer for the obligation of the plaintiff-appellant. It was not correct for the trial courtto conclude that the plaintiff-appellant had only about P64,840.00 in savings deposit on or before August 5,1975, a sum not enough to pay the outstanding account of P124,000.00. The plaintiff-appellant, through AttyFrancisco proved and the trial court even acknowledged that Atty. Adalia Francisco had about P300,000.00 inmoney market placement. The error of the trial court lies in concluding that the money market placement of

P300,000.00 was out of reach of Atty. Francisco. But as testified to by Mr. Catalino Estrella, a representative ofthe Insular Bank of Asia and America, Atty. Francisco could withdraw anytime her money market placementand place it at her disposal, thus proving her financial capability of meeting more than the whole ofP124,000.00 then due per contract. This situation, We believe, proves the truth that Atty. Franciscoapprehensive that her request for a 30-day grace period would be denied, she tendered payment on August 4,1975 which offer defendant through its representative and counsel refused to receive. x x x15 (Italics supplied)In other words, the respondent court, finding that the private respondent had sufficient available funds, ipsofacto concluded that the latter had tendered payment. Is such conclusion warranted by the facts proven? Thepetitioner submits that it is not.Hence, this petition.16

The petitioner presents the following issues for resolution:A. Is a finding that private respondent had sufficient available funds on or before the grace period for the

payment of its obligation proof that it (private respondent) did tender of (sic) payment for its said obligationwithin said period?

x x x x x x x x xB. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in favor of the

private respondent (as vendee) before the latter has actually paid the complete consideration of the salewherethe contract between and executed by the parties stipulatesThat upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall causethe execution of a Deed of Absolute Sale in favor of the VENDEE.


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x x x x x x x x x

C. Is an offer of a check a valid tender of payment of an obligation under a contract which stipulates that theconsideration of the sale is in Philippine Currency?17

We find the petition impressed with merit.

With respect to the first issue, we agree with the petitioner that a finding that the private respondent hadsufficient available funds on or before the grace period for the payment of its obligation does not constituteproof of tender of payment by the latter for its obligation within the said period. Tender of payment involves apositive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for theformers obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumedby a mere inference from surrounding circumstances. At most, sufficiency of available funds is only affirmativeof the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor availshimself of such funds to settle his outstanding account remains to be proven by independent and credibleevidence. Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, inthe act of performing his obligation. Ab posse ad actu non vale illatio. A proof that an act could have been

done is no proof that it was actually done.

The respondent court was therefore in error to have concluded from the sheer proof of sufficient available fundson the part of the private respondent to meet more than the total obligation within the grace period, the allegedtruth of tender of payment. The same is a classic case of non-sequitur.

On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more importantfindings of fact made by the trial court which we have earlier mentioned and which as a rule, are entitled togreat weight on appeal and should be accorded full consideration and respect and should not be disturbed unlessfor strong and cogent reasons.18While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at variance withthose of the trial court,19 or when the inference of the Court of Appeals from its findings of fact is manifestly

mistaken,20 the Court has to review the evidence in order to arrive at the correct findings based on the record.

Apropos the second issue raised, although admittedly the documents for the deed of absolute sale had not beenprepared, the subject contract clearly provides that the full payment by the private respondent is an a priorcondition for the execution of the said documents by the petitioner.That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause theexecution of a Deed of Absolute Sale in favor of the VENDEE.21The private respondent is therefore in estoppel to claim otherwise as the latter did in the testimony in cross-examination of its president, Atty. Francisco, which reads:Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final deed of sale beforeyou would given (sic) the personal certified check in payment of your balance, is that correct?

A Yes, sir.22x x x x x x x x xArt. 1159 of the Civil Code of the Philippines provides that obligations arising from contracts have the force oflaw between the contractingparties and should be complied with in good faith. And unless the stipulations insaid contract are contrary to law, morals, good customs, public order, or public policy, the same are binding asbetween the parties.23

What the private respondent should have done if it was indeed desirous of complying with its obligations wouldhave been to pay the petitioner within the grace period and obtain a receipt of such payment duly issued by thelatter. Thereafter, or, allowing a reasonable time, the private respondent could have demanded from the


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petitioner the execution of the necessary documents. In case the petitioner refused, the private respondent couldhave had always resorted to judicial action for the legitimate enforcement of its right. For the failure of theprivate respondent to undertake this more judicious course of action, it alone shall suffer the consequences.With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding issues,the case of the private respondent still can not succeed in view of the fact that the latter used a certified personalcheck which is not legal tender nor the currency stipulated, and therefore, can not constitute valid tender ofpayment. The first paragraph of Art. 1249 of the Civil Code provides that the payment of debts in money shall

be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency whichis legal tender in the Philippines.The Court en banc in the recent case of Philippine Airlines v. Court of Appeals,24 G.R. No. L-49188, statedthus:Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrumentdoes not, by itself, operate as payment (citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; BryanLondon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check,whether a managers check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is

not a valid tender of payment and may be refused receipt by the obligee or creditor.

Hence, where the tender of payment by the private respondent was not valid for failure to comply with the

requisite payment in legal tender or currency stipulated within the grace period and as such, was validly refusedreceipt by the petitioner, the subsequent consignation did not operate to discharge the former from its obligationto the latter.

In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject contract,did validly order therefore the cancellation of the said contract, the forfeiture of the previous payment, and thereconveyance ipso facto of the land in question.

WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the respondent courtpromulgated on April 25, 1985 is hereby SET ASIDE and ANNULLED and the DECISION of the trial courtdated May 25, 1981 is hereby REINSTATED. Costs against the private respondent.

SO ORDERED.

G.R. No. 45125 April 22, 1991LORETA SERRANO, petitionervs.COURT OF APPEALS and LONG LIFE PAWNSHOP, INC., respondents.Cecilio D. Ignacio for petitioner.Hildawa & Gomez for private respondent.

R E S O L U T I O N

FELICIANO, J.:pSometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00 fromNiceta Ribaya. On 21 March 1968, petitioner, then in need of money, instructed her private secretary, JosefinaRocco, to pawn the jewelry. Josefina Rocco went to private respondent Long Life Pawnshop, Inc. ("LongLife"), pledged the jewelry for P22,000.00 with its principal owner and General Manager, Yu An Kiong, andthen absconded with said amount and the pawn ticket. The pawnshop ticket issued to Josefina Rocco stipulatedthat it was redeemable "on presentation by the bearer."Three (3) months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket issuedby private respondent was being offered for sale. They told Niceta the ticket probably covered jewelry onceowned by the latter which jewelry had been pawned by one Josefina Rocco. Suspecting that it was the same


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jewelry she had sold to petitioner, Niceta informed the latter of this offer and suggested that petitioner go to theLong Life pawnshop to check the matter out. Petitioner claims she went to private respondent pawnshop,verified that indeed her missing jewelry was pledged there and told Yu An Kiong not to permit anyone toredeem the jewelry because she was the lawful owner thereof. Petitioner claims that Yu An Kiong agreed.On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first forqualified theft and later changed to estafa was subsequently filed against Josefina Rocco. On the same date,Detective Corporal Oswaldo Mateo of the Manila Police also claims to have gone to the pawnshop, showed Yu

An Kiong petitioner's report and left the latter a note asking him to hold the jewelry and notify the police in casesome one should redeem the same. The next day, on 10 July 1968, Yu An Kiong permitted one Tomasa deLeon, exhibiting the appropriate pawnshop ticket, to redeem the jewelry.On 4 October 1968, petitioner filed a complaint with the then Court of First Instance of Manila for damagesagainst private respondent Long Life for failure to hold the jewelry and for allowing its redemption without firstnotifying petitioner or the police. After trial, the trial judge, Hon. Luis B. Reyes, rendered a decision in favor ofpetitioner, awarding her P26,500.00 as actual damages, with legal interest thereon from the date of the filing ofthe complaint, P2,000.00 as attorney's fees, and the costs of the suit.Judge L.B. Reyes' decision was reversed on appeal and the complaint dismissed by the public respondent Courtof Appeals in a Decision promulgated on 26 September 1976.The Court of Appeals gave credence to Yu An Kiong's testimony that neither petitioner nor Detective Mateo

ever apprised him of the misappropriation of petitioner's loan, or obtained a commitment from him not to permiredemption of the jewelry, prior to 10 July 1968. Yu An Kiong claims to have become aware of the loan'smisappropriation only on 16 August 1968 when a subpoena duces tecum was served by the Manila Fiscal'sOffice requiring him to bring the record of the pledge in connection with the preliminary investigation of theestafa charge against Josefina Rocco. Consequently, the appellate court ruled, there could have been nonegligence, much less a grave one amounting to bad faith, imputable to Yu An Kiong as the basis for an awardof damages.In this Petition for Review, petitioner seeks reversal of the Public respondent's findings relating to thecredibility of witnesses and the restoration of the trial court's decision.Deliberating on the present Petition for Review, the Court considers that the public respondent Court of Appealscommitted reversible error in rendering its questioned Decision.

It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility ofwitnesses are entitled to great respect from the appellate courts because the trial court had an opportunity toobserve the demeanor of witnesses while giving testimony which may indicate their candor or lack thereof. 1

While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that being a questionof fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in exceptionalsituations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusionson questions of fact and the credibility of witnesses. 2The Court of Appeals rejected what it considered to be the incredible testimony of petitioner and DetectiveMateo. It faulted petitioner for failing to report to the police authorities the loss of her jewelry immediately on21 March 1968 when Josefina Rocco failed to return to her either the loan proceeds or the jewelry. But it mustbe noted that Josefina Rocco simply disappeared without a trace on said date. Petitioner had no way of knowing

if Josefina had misappropriated her jewelry, or had first pledged the jewelry as instructed and thenmisappropriated the proceeds of the loan. In the latter case, which was in fact what had occurred, petitionercould have had no idea as to the identity of the pawnbroker. Moreover, this Court has several times recognizedthat different people may have diverse reasons for failing to report promptly to the police their having beenvictimized by some criminal or fraudulent scheme and that such failure does not by itself render theirsubsequent testimony unworthy of credence. 3The Court of Appeals also found it hard to believe that DetectiveMateo had failed to obtain a written acknowledgment from Yu An Kiong of the receipt of the note ascorroboration for his testimony. However, absent evidence that it was an established practice for police officersto obtain such acknowledgment in situations like the one here, it is difficult to see why Detective Mateo'sbehavior should be considered unbelievable. On the other hand, as the trial court pointed out, it would nothave


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been sensible for Detective Mateo to leave a note reminding Yu An Kiong to hold unto the jewelry if the latterhad in factthen told the policeman that the jewelry had already been redeemed.The public respondent apparently believed petitioner had failed to establish her ownership of the jewelrypledged by Josefina Rocco, such failure purportedly engendering doubt that Tomasa de Leon may haveredeemed jewelry different from that owned by petitioner. This is curious and untenable because the record onappeal indicates that Yu An Kiong had admitted in his answer and memorandum before the trial court that hereceived pledged jewelry from Josefina Rocco and, in his memorandum, that such jewelry had been entrusted to

Josefina by petitioner as the latter's employer. It is clear from these judicial admissions that he consideredpetitioner to have been the true owner of the jewelry.Finally, the Court of Appeals did not believe petitioner's testimony because of a claimed material inconsistencytherein. On direct examination, petitioner said she "immediately" went to the private respondent's establishmentupon being informed by Niceta Ribaya of the possible whereabouts of her jewelry. On cross-examination, shesaid she went to the establishment "a few days later." If this is an inconsistency, it relates to an unimportantdetail. What is clear is that in any event, petitioner testified that she went to the respondent's pawnshop to meetYu An Kiong and notify him of the misappropriation before anyone had redeemed the jewelry.We must also note that the Court of Appeals apparently over-looked a fact of substance which did not escapethe attention of the trial court. Petitioner's version of events was corroborated by Police Detective Mateo and byNiceta Ribaya. These were two (2) individuals who had nothing to gain from the outcome of the case. Certainly

their disinterested testimony should have been accorded more probative weight than the negativeuncorroborated and self-serving testimony of Yu An Kiong, which presented a diametrically opposed version ofevents calculated to show that in permitting redemption of the jewelry, he was acting in good faith. 4 Thetestimony of Detective Mateo was moreover supported by the presumption that he had acted in the regularperformance of his official duty as a police officer, a presumption that Yu An Kiong did not try to rebut.This being a civil case, it was enough for petitioner to show, by a preponderance of evidence, that her version ofevents did in fact occur. We agree with the trial court that this burden of proof had been discharged bypetitioner because her evidence was direct and more credible and persuasive than that propounded by Yu AnKiong,

5and corroborated by disinterested witnesses.

Turning to the substantive legal rights and duties of the parties, we believe and so hold that, having beennotified by petitioner and the police that jewelry pawned to it was either stolen or involved in an embezzlement

of the proceeds of the pledge, private respondent pawnbroker became duty bound to hold the things pledged andto give notice to petitioner and the police of any effort to redeem them. Such a duty was imposed by Article 21of the Civil Code. 6The circumstance that the pawn ticket stated that the pawn was redeemable by the bearer,did not dissolve that duty. The pawn ticket was not a negotiable instrument under the Negotiable InstrumentsLaw nor a negotiable document of title under Articles 1507 et seq. of the Civil Code. If the third person Tomasade Leon, who redeemed the things pledged a day after petitioner and the police had notified Long Life, claimedto be owner thereof, the prudent recourse of the pawnbroker was to file an interpleader suit, impleading bothpetitioner and Tomasa de Leon. The respondent pawnbroker was, of course, entitled to demand payment of theloan extended on the security of the pledge before surrendering the jewelry, upon the assumption that it hadgiven the loan in good faith and was not a "fence" for stolen articles and had not conspired with the faithlessJosefina Rocco or with Tomasa de Leon. Respondent pawnbroker acted in reckless disregard of that duty in the

instant case and must bear the consequences, without prejudice to its right to recover damages from JosefinaRocco.The trial court correctly held that private respondent was liable to petitioner for actual damages whichcorresponded to the difference in the value of the jewelry (P48,500.00) and the amount of the loan(P22,000.00), or the sum of P26,500.00. Petitioner is entitled to collect the balance of the value of the jewelrycorresponding to the amount of the loan, in an appropriate action against Josefina Rocco. Private respondentLong Life in turn is entitled to seek reimbursement from Josefina Rocco of the amount of the damages it mustpay to petitioner.ACCORDINGLY, the Petition is GRANTED. The Decision of the Court of Appeals dated 23 September 1976is hereby REVERSED and SET ASIDE. The Decision of the Court of First Instance dated 22 May 1970 ishereby REINSTATED in toto. No pronouncement as to costs.


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G.R. No. 89252 May 24, 1993RAUL SESBREO, petitionervs.

HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK,respondents.Salva, Villanueva & Associates for Delta Motors Corporation.

Reyes, Salazar & Associates for Pilipinas Bank.

FELICIANO, J.:On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of P300,000.00with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a termof thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9 February 1981, issued thefollowing documents to petitioner:(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors Corporation

Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 topetitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per DenominatedCustodian Receipt ("DCR") No. 10805 dated 9 February 1981; and(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment), withpetitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amountof P304,533.33.On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, thechecks were dishonored for having been drawn against insufficient funds.On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondentPilipinas Bank ("Pilipinas"). It reads as follows:

PILIPINAS BANKMakati Stock Exchange Bldg.Ayala Avenue, MakatiMetro ManilaFebruary 9, 1981VALUE DATETO Raul SesbreoApril 6, 1981MATURITY DATE

NO. 10805DENOMINATED CUSTODIAN RECEIPTThis confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITESFINANCE CORPORATION, we have in our custody the following securities to you [sic] the extent hereinindicated.SERIAL MAT. FACE ISSUED REGISTERED AMOUNTNUMBER DATE VALUE BY HOLDER PAYEE2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33UNDERWRITERSFINANCE CORP.


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We further certify that these securities may be inspected by you or your duly authorized representative at anytime during regular banking hours.Upon your written instructions we shall undertake physical delivery of the above securities fully assigned to youshould this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days after itsmaturity.PILIPINAS BANK(By Elizabeth De Villa

Illegible Signature) 1On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branchand handed her a demand letter informing the bank that his placement with Philfinance in the amount reflectedin the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for the physicaldelivery of the underlying promissory note. Petitioner then examined the original of the DMC PN No. 2731 andfound: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had aface value of P2,300,833.33, with the Philfinance as "payee" and private respondent Delta Motors Corporation("Delta") as "maker;" and that on face of the promissory note was stamped "NON NEGOTIABLE." Pilipinasdid not deliver the Note, nor any certificate of participation in respect thereof, to petitioner.Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking privaterespondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all

of petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed upon in"Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not provide theappropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in respectthereof, to petitioner.Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the partialsatisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Noteto the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note, andexplained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along withDMC 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 andexchange 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 actionfor damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private respondents Deltaand Pilipinas. 5 The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaimsfor 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 March1989, the Court of Appeals denied the appeal and held: 6Be 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:This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No. 2731 whenits entire face value was already obligated or earmarked for set-off or compensation is difficult to comprehend

and may have been motivated with bad faith. Philfinance, therefore, is solely and legally obligated to return theinvestment of plaintiff, together with its earnings, and to answer all the damages plaintiff has suffered incidentthereto. Unfortunately for plaintiff, Philfinance was not impleaded as one of the defendants in this case at barhence, this Court is without jurisdiction to pronounce judgement against it. (p. 11, Decision)WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in totoCost 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 givedue course to the petition and required the parties to file their respective memoranda. 7


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Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that respondentcourt of Appeals gravely erred: (i) in concluding that he cannot recover from private respondent Delta hisassigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarily liable onthe DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r of petitioner,and (iii) in refusing to pierce the veil of corporate entity between Philfinance, and private respondents Delta andPilipinas, considering that the three (3) entities belong to the "Silverio Group of Companies" under theleadership of Mr. Ricardo Silverio, Sr. 8

There are at least two (2) sets of relationships which we need to address: firstly, the relationship of petitionervis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course, there is athird relationship that is of critical importance: the relationship of petitioner and Philfinance. However, sincePhilfinance has not been impleaded in this case, neither the trial court nor the Court of Appeals acquiredjurisdiction over the person of Philfinance. It is, consequently, not necessary for present purposes to deal withthis third relationship, except to the extent it necessarily impinges upon or intersects the first and secondrelationships.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 Deltapromissory 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 PN 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 personto 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.) 9Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been validlytransferred, 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.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 Note10

and because maker Delta andpayee Philfinance intended that this Note would be offset against the outstanding obligation of Philfinancerepresented 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 itsinstructions; and(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took theNote subject to the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731 againstPhilfinance PN No. 143-A. 11We consider Delta's argumentsseriatim.Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished fromthe assignmentortransferof an instrument whether that be negotiable or non-negotiable. Only an instrument

qualifying as a negotiable instrument under the relevant statute may be negotiatedeither by indorsement thereofcoupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiableinstrument may, however, instead of being negotiated, also be assignedortransferred. The legal consequencesof negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent anexpress prohibition against assignment or transfer written in the face of the instrument:The words "not negotiable,"stamped on the face of the bill of lading, did not destroy its assignability, but thesole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though nonegotiable, may be transferred by assignment; the assignee taking subject to the equities between the originalparties. 12 (Emphasis added)


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DMC PN No. 2731, while marked "non-negotiable," was notat the same time stamped "non-transferable" or"non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, inwhole or in part, that Note.Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be quotedin full:April 10, 1980Philippine Underwriters Finance Corp

Benavidez St., MakatiMetro Manila.Attention: Mr. Alfredo O. BanariaSVP-TreasurerGENTLEMEN:This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No. 143-A,dated April 10, 1980, to mature on April 6, 1981.As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00 each,dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity.Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.Very Truly Yours,

(Sgd.)Florencio B. BiaganSenior Vice President 13We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition uponPhilfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcelynecessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of transfer uponPhilfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note who parted withvaluable consideration in good faith and without notice of such prohibition. It is not disputed that petitioner wassuch an assignee or transferee. Our conclusion on this point is reinforced by the fact that what Philfinance andDelta were doing by their exchange of their promissory notes was this: Delta invested, by making a moneymarket placement with Philfinance, approximately P4,600,000.00 on 10 April 1980; but promptly, on the same

day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notesDMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with notP4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effectedwithout the consent of Delta, we note that such consent was not necessary for the validity and enforceability ofthe assignment in favor of petitioner. 14 Delta's argument that Philfinance's sale or assignment of part of itsrights to DMC PN No. 2731 constituted conventional subrogation, which required its (Delta's) consent, is quitemistaken. Conventional subrogation, which in the first place is never lightly inferred, 15 must be clearlyestablished by the unequivocal terms of the substituting obligation or by the evident incompatibility of the newand 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, andmore generally, in money market transactions. In Perez v. Court of Appeals, 17 the Court, speaking throughMme. Justice Herrera, made the following important statement:There is another aspect to this case. What is involved here is a money market transaction. As defined byLawrence Smith "the money market is a market dealing in standardized short-term credit instruments (involvinglarge amounts) where lenders and borrowers do not deal directly with each other but through a middle manor adealer in the open market." It involves "commercial papers" which are instruments "evidencing indebtness ofany person or entity. . ., which are issued, endorsed, sold or transferred or in any manner conveyed to anotherperson or entity, with or without recourse". The fundamental function of the money market device in itsoperation is to match and bring together in a most impersonal manner both the "fund users" and the "fund


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suppliers." The money market is an "impersonal market", free from personal considerations. "The marketmechanism is intended to provide quick mobility of money and securities."The impersonal character of the money market device overlooks the individuals or entities concerned. Theissuer of a commercial paper in the money market necessarily knows in advance that it would be expenditiously

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.xxx xxx xxx

There is need to individuate a money market transaction, a relatively novel institution in the Philippinecommercial 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 andeffective protection in availing of the credit of a borrower in the commercial paper market.

18 (Citationsomitted; emphasis supplied)We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 andPhilfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under DMCPN 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 as follows:Art. 1279. In order that compensation may be proper, it is necessary:(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 consists in a sum of money, or if the things due are consumable, they be of the same kind,and also of the same quality if the latter has been stated;(3) That the two debts are due;(4) That they be liquidated and demandable;(5) That over neither of them there be any retention or controversy, commenced by third persons andcommunicated in due time to the debtor. (Emphasis supplied)On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitlyrecognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledgedthat the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-A upon co-terminal maturity."

As noted, the assignment to peti

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