Negotiable Instrument Cases Full Text 1

8/9/2019 Negotiable Instrument Cases Full Text 1

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In connection with the events set forth above, Montinola was charged with theft in the Court of FirstInstance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground ofreasonable doubt.

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manilapraying for judgment as follows:

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a) To countermand the notice given to the Bank of America on September 27, 1961,deducting from the said Bank's clearing account the sum of P200.00 represented bypostal money order No. 124688, or in the alternative indemnify the plaintiff in thesame amount with interest at 8-½% per annum from September 27, 1961, which isthe rate of interest being paid by plaintiff on its overdraft account;

(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actualand moral damages in the amount of P1,000.00 or in such amount as will be provedand/or determined by this Honorable Court: exemplary damages in the amount of

P1,000.00, attorney's fees of P1,000.00, and the costs of action.

Plaintiff also prays for such other and further relief as may be deemed just andequitable.

On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages12 to 15 of the Record on Appeal, the above-named court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendants tocountermand the notice given to the Bank of America on September 27, 1961,deducting from said Bank's clearing account the sum of P200.00 representing theamount of postal money order No. 124688, or in the alternative, to indemnify the

plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-½% perannum from September 27, 1961 until fully paid; without any pronouncement as tocost and attorney's fees.

The case was appealed to the Court of First Instance of Manila where, after the parties hadresubmitted the same stipulation of facts, the appealed decision dismissing the complaint, withcosts, was rendered.

The first, second and fifth assignments of error discussed in appellant's brief are related to the otherand will therefore be discussed jointly. They raise this main issue: that the postal money order inquestion is a negotiable instrument; that its nature as such is not in anyway affected by the letterdated October 26, 1948 signed by the Director of Posts and addressed to all banks with a clearingaccount with the Post Office, and that money orders, once issued, create a contractual relationshipof debtor and creditor, respectively, between the government, on the one hand, and the remitterspayees or endorses, on the other.

It is not disputed that our postal statutes were patterned after statutes in force in the United States.For this reason, ours are generally construed in accordance with the construction given in the UnitedStates to their own postal statutes, in the absence of any special reason justifying a departure fromthis policy or practice. The weight of authority in the United States is that postal money orders arenot negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank,30 Fed. 912), the reason behind this rule being that, in establishing and operating a postal money


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order system, the government is not engaging in commercial transactions but merely exercises agovernmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders bypostal laws and regulations are inconsistent with the character of negotiable instruments. Forinstance, such laws and regulations usually provide for not more than one endorsement; payment of

money orders may be withheld under a variety of circumstances (49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid down in theletter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for theredemption of postal money orders received by it from its depositors. Among others, the condition isimposed that "in cases of adverse claim, the money order or money orders involved will be returnedto you (the bank) and the, corresponding amount will have to be refunded to the Postmaster, Manila,who reserves the right to deduct the value thereof from any amount due you if such step is deemednecessary." The conditions thus imposed in order to enable the bank to continue enjoying thefacilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The latter istherefore bound by them. That it is so is clearly referred from the fact that, upon receiving advice thatthe amount represented by the money order in question had been deducted from its clearingaccount with the Manila Post Office, it did not file any protest against such action.

Moreover, not being a party to the understanding existing between the postal officers, on the onehand, and the Bank of America, on the other, appellant has no right to assail the terms andconditions thereof on the ground that the letter setting forth the terms and conditions aforesaid isvoid because it was not issued by a Department Head in accordance with Sec. 79 (B) of the Revised

Administrative Code. In reality, however, said legal provision does not apply to the letter in questionbecause it does not provide for a department regulation but merely sets down certain conditionsupon the privilege granted to the Bank of Amrica to accept and pay postal money orders presentedfor payment at the Manila Post Office. Such being the case, it is clear that the Director of Posts hadample authority to issue it pursuant to Sec. 1190 of the Revised Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and

fourth assignments of error.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmedwith costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor,JJ., concur.

Castro and Makasiar, JJ., took no part

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

PHILIPPINE AIRLINES, INC., petitioner,vs.HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance of


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Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila,and AMELIA TAN, respondents.

GUTIERREZ, JR., J.:

Behind the simple issue of validity of an alias writ of execution in this case is a more fundamentalquestion. Should the Court allow a too literal interpretation of the Rules with an open invitation toknavery to prevail over a more discerning and just approach? Should we not apply the ancient ruleof statutory construction that laws are to be interpreted by the spirit which vivifies and not by theletter which killeth?

This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 07695entitled "Philippine Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the petition forcertiorari against the order of the Court of First Instance of Manila which issued an alias writ ofexecution against the petitioner.

The petition involving the alias writ of execution had its beginnings on November 8, 1967, whenrespondent Amelia Tan, under the name and style of Able Printing Press commenced a complaintfor damages before the Court of First Instance of Manila. The case was docketed as Civil Case No.71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc .

After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late JudgeJesus P. Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan andagainst petitioner Philippine Airlines, Inc. (PAL) as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine AirLines:

1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 asactual damages, with legal interest thereon from plaintiffs extra-judicial demandmade by the letter of July 20, 1967;

2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00,representing the unrealized profit of 10% included in the contract price ofP200,000.00 plus legal interest thereon from July 20,1967;

3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 asand for moral damages, with legal interest thereon from July 20, 1 967;

4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00

damages as and for attorney's fee.

Plaintiffs second and fifth causes of action, and defendant's counterclaim, aredismissed.

With costs against the defendant. (CA Rollo, p. 18)

On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed asCA-G.R. No. 51079-R.


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On February 3, 1977, the appellate court rendered its decision, the dispositive portion of whichreads:

IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff thesum of P25,000.00 as damages and P5,000.00 as attorney's fee, judgment isaffirmed, with costs. (CA Rollo, p. 29)

Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequentthereto, a motion for reconsideration was filed by respondent Amelia Tan, duly opposed by petitionerPAL.

On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion forreconsideration for lack of merit.

No further appeal having been taken by the parties, the judgment became final and executory andon May 31, 1977, judgment was correspondingly entered in the case.

The case was remanded to the trial court for execution and on September 2,1977, respondent

Amelia Tan filed a motion praying for the issuance of a writ of execution of the judgment rendered bythe Court of Appeals. On October 11, 1977, the trial court, presided over by Judge Galano, issued itsorder of execution with the corresponding writ in favor of the respondent. The writ was duly referredto Deputy Sheriff Emilio Z. Reyes of Branch 13 of the Court of First Instance of Manila forenforcement.

Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an aliaswrit of execution stating that the judgment rendered by the lower court, and affirmed withmodification by the Court of Appeals, remained unsatisfied.

On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ ofexecution stating that it had already fully paid its obligation to plaintiff through the deputy sheriff of

the respondent court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed andreceipted by said Emilio Z. Reyes.

On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature,ordering the executing sheriff Emilio Z. Reyes to appear with his return and explain the reason forhis failure to surrender the amounts paid to him by petitioner PAL. However, the order could not beserved upon Deputy Sheriff Reyes who had absconded or disappeared.

On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed byrespondent Amelia Tan.

On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ ofExecution" with Substitute Motion for Alias Writ of Execution. On May 1, 1978, the respondent Judgeissued an order which reads:

As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial Alias Writ of Execution with Substitute Motion for Alias Writ of Execution is herebygranted, and the motion for partial alias writ of execution is considered withdrawn.


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Let an Alias Writ of Execution issue against the defendant for the fall satisfaction ofthe judgment rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointedSpecial Sheriff for the enforcement thereof. (CA Rollo, p. 34)

On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on thesame day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of

P25,000.00 with legal interest thereon from July 20,1967 when respondent Amelia Tan made anextra-judicial demand through a letter. Levy was also ordered for the further sum of P5,000.00awarded as attorney's fees.

On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution statingthat no return of the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and that the

judgment debt had already been fully satisfied by the petitioner as evidenced by the cash voucherssigned and receipted by the server of the writ of execution, Deputy Sheriff Emilio Z. Reyes.

On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on thedepository bank of petitioner, Far East Bank and Trust Company, Rosario Branch, Binondo, Manila,through its manager and garnished the petitioner's deposit in the said bank in the total amount of

P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by the Philippine Airlines, Inc.,on the grounds that:

I

AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIORRETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.

II

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED INTHE WRIT OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.

III

INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THEPAYMENT THEREOF.

IV

SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OFJUDGMENT DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFYJUDGMENT.

Can an alias writ of execution be issued without a prior return of the original writ by the implementingofficer?

We rule in the affirmative and we quote the respondent court's decision with approval:

The issuance of the questioned alias writ of execution under the circumstances hereobtaining is justified because even with the absence of a Sheriffs return on theoriginal writ, the unalterable fact remains that such a return is incapable of beingobtained (sic) because the officer who is to make the said return has absconded and


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cannot be brought to the Court despite the earlier order of the court for him to appearfor this purpose. (Order of Feb. 21, 1978, Annex C, Petition). Obviously, takingcognizance of this circumstance, the order of May 11, 1978 directing the issuance ofan alias writ was therefore issued. (Annex D. Petition). The need for such a return asa condition precedent for the issuance of an alias writ was justifiably dispensed withby the court below and its action in this regard meets with our concurrence. A

contrary view will produce an abhorent situation whereby the mischief of an erringofficer of the court could be utilized to impede indefinitely the undisputed andawarded rights which a prevailing party rightfully deserves to obtain and withdispatch. The final judgment in this case should not indeed be permitted to becomeillusory or incapable of execution for an indefinite and over extended period, as hadalready transpired. (Rollo, pp. 35-36)

Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to beillusory it ought to have its proper effect).

Indeed, technicality cannot be countenanced to defeat the execution of a judgment for execution isthe fruit and end of the suit and is very aptly called the life of the law (Ipekdjian Merchandising Co. v.Court of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Internal Revenue v. Visayan Electric Co.,19 SCRA 697, 698 [1967]). A judgment cannot be rendered nugatory by the unreasonableapplication of a strict rule of procedure. Vested rights were never intended to rest on the requirementof a return, the office of which is merely to inform the court and the parties, of any and all actionstaken under the writ of execution. Where such information can be established in some other manner,the absence of an executing officer's return will not preclude a judgment from being treated asdischarged or being executed through an alias writ of execution as the case may be. More so, as inthe case at bar. Where the return cannot be expected to be forthcoming, to require the same wouldbe to compel the enforcement of rights under a judgment to rest on an impossibility, thereby allowingthe total avoidance of judgment debts. So long as a judgment is not satisfied, a plaintiff is entitled toother writs of execution (Government of the Philippines v. Echaus and Gonzales, 71 Phil. 318). It is awell known legal maxim that he who cannot prosecute his judgment with effect, sues his case vainly.

More important in the determination of the propriety of the trial court's issuance of an alias writ ofexecution is the issue of satisfaction of judgment.

Under the peculiar circumstances surrounding this case, did the payment made to the abscondingsheriff by check in his name operate to satisfy the judgment debt? The Court rules that the plaintiffwho has won her case should not be adjudged as having sued in vain. To decide otherwise wouldnot only give her an empty but a pyrrhic victory.

It should be emphasized that under the initial judgment, Amelia Tan was found to have beenwronged by PAL.

She filed her complaint in 1967.

After ten (10) years of protracted litigation in the Court of First Instance and the Court of Appeals,Ms. Tan won her case.

It is now 1990.

Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts havesolemnly declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has beendeprived of what, technically, she should have been paid from the start, before 1967 , without need of


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medium of payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St.Rep. 402). Consequently, unless authorized to do so by law or by consent of the obligee a publicofficer has no authority to accept anything other than money in payment of an obligation under a

judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioner's checks,in the case at bar, does not, per se, operate as a discharge of the judgment debt.

Since a negotiable instrument is only a substitute for money and not money, the delivery of such aninstrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249,Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21R.C.L. 60, 61). A check, whether a manager's check or ordinary cheek, is not legal tender, and anoffer of a check in payment of a debt is not a valid tender of payment and may be refused receipt bythe obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment.The obligation is not extinguished and remains suspended until the payment by commercialdocument is actually realized (Art. 1249, Civil Code, par. 3).

If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there wouldhave been no payment. After dishonor of the checks, Ms. Tan could have run after other propertiesof PAL. The theory is that she has received no value for what had been awarded her. Because thechecks were drawn in the name of Emilio Z. Reyes, neither has she received anything. The samerule should apply.

It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in fulllegal contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in decisionmaking. We should not follow rulings to their logical extremes if in doing so we arrive at unjust orabsurd results.

In the first place, PAL did not pay in cash. It paid in cheeks.

And second, payment in cash always carries with it certain cautions. Nobody hands over bigamounts of cash in a careless and inane manner. Mature thought is given to the possibility of thecash being lost, of the bearer being waylaid or running off with what he is carrying for another.Payment in checks is precisely intended to avoid the possibility of the money going to the wrongparty. The situation is entirely different where a Sheriff seizes a car, a tractor, or a piece of land.Logic often has to give way to experience and to reality. Having paid with checks, PAL should havedone so properly.

Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment debt but the Court has never, in the least bit, suggested that judgment debtors shouldsettle their obligations by turning over huge amounts of cash or legal tender to sheriffs and otherexecuting officers. Payment in cash would result in damage or interminable litigations each time asheriff with huge amounts of cash in his hands decides to abscond.

As a protective measure, therefore, the courts encourage the practice of payments by cheek

provided adequate controls are instituted to prevent wrongful payment and illegal withdrawal ordisbursement of funds. If particularly big amounts are involved, escrow arrangements with a bankand carefully supervised by the court would be the safer procedure. Actual transfer of funds takesplace within the safety of bank premises. These practices are perfectly legal. The object is alwaysthe safe and incorrupt execution of the judgment.

It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the nameof another. Making the checks payable to the judgment creditor would have prevented theencashment or the taking of undue advantage by the sheriff, or any person into whose hands the


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checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checksin the name of the sheriff clearly made possible the misappropriation of the funds that werewithdrawn.

As explained and held by the respondent court:

... [K]nowing as it does that the intended payment was for the private partyrespondent Amelia Tan, the petitioner corporation, utilizing the services of itspersonnel who are or should be knowledgeable about the accepted procedures andresulting consequences of the checks drawn, nevertheless, in this instance, withoutprudence, departed from what is generally observed and done, and placed as payeein the checks the name of the errant Sheriff and not the name of the rightful payee.Petitioner thereby created a situation which permitted the said Sheriff to personallyencash said checks and misappropriate the proceeds thereof to his exclusivepersonal benefit. For the prejudice that resulted, the petitioner himself must bear thefault. The judicial guideline which we take note of states as follows:

As between two innocent persons, one of whom must suffer the consequence of a

breach of trust, the one who made it possible by his act of confidence must bear theloss. (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)

Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act madepossible the loss had but itself to blame.

The attention of this Court has been called to the bad practice of a number of executing officers, ofrequiring checks in satisfaction of judgment debts to be made out in their own names. If a sheriffdirects a judgment debtor to issue the checks in the sheriff's name, claiming he must get hiscommission or fees, the debtor must report the sheriff immediately to the court which ordered theexecution or to the Supreme Court for appropriate disciplinary action. Fees, commissions, andsalaries are paid through regular channels. This improper procedure also allows such officers, whohave sixty (60) days within which to make a return, to treat the moneys as their personal finds and todeposit the same in their private accounts to earn sixty (60) days interest, before said finds areturned over to the court or judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). Quiteas easily, such officers could put up the defense that said checks had been issued to them in theirprivate or personal capacity. Without a receipt evidencing payment of the judgment debt, themisappropriation of finds by such officers becomes clean and complete. The practice is ingeniousbut evil as it unjustly enriches court personnel at the expense of litigants and the properadministration of justice. The temptation could be far greater, as proved to be in this case of theabsconding sheriff. The correct and prudent thing for the petitioner was to have issued the checks inthe intended payee's name.

The pernicious effects of issuing checks in the name of a person other than the intended payee,without the latter's agreement or consent, are as many as the ways that an artful mind could concoct

to get around the safeguards provided by the law on negotiable instruments. An angry litigant wholoses a case, as a rule, would not want the winning party to get what he won in the judgment. Hewould think of ways to delay the winning party's getting what has been adjudged in his favor. Wecannot condone that practice especially in cases where the courts and their officers are involved. Werule against the petitioner.

Anent the applicability of Section 15, Rule 39, as follows:


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Section 15. Execution of money judgments. — The officer must enforce an executionof a money judgment by levying on all the property, real and personal of every nameand nature whatsoever, and which may be disposed of for value, of the judgmentdebtor not exempt from execution, or on a sufficient amount of such property, if theybe sufficient, and selling the same, and paying to the judgment creditor , or hisattorney, so much of the proceeds as will satisfy the judgment. ...

the respondent court held:

We are obliged to rule that the judgment debt cannot be considered satisfied andtherefore the orders of the respondent judge granting the alias writ of execution maynot be pronounced as a nullity.

xxx xxx xxx

It is clear and manifest that after levy or garnishment, for a judgment to be executedthere is the requisite of payment by the officer to the judgment creditor, or hisattorney, so much of the proceeds as will satisfy the judgment and none such

payment had been concededly made yet by the absconding Sheriff to the privaterespondent Amelia Tan. The ultimate and essential step to complete the execution ofthe judgment not having been performed by the City Sheriff, the judgment debtlegally and factually remains unsatisfied.

Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusualcircumstances as those obtaining in this petition, the distinction comes out clearly.

Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's LawDictionary), whereas the satisfaction of a judgment is the payment of the amount of the writ, or alawful tender thereof, or the conversion by sale of the debtor's property into an amount equal to thatdue, and, it may be done otherwise than upon an execution (Section 47, Rule 39). Levy and deliveryby an execution officer are not prerequisites to the satisfaction of a judgment when the same hasalready been realized in fact (Section 47, Rule 39). Execution is for the sheriff to accomplish whilesatisfaction of the judgment is for the creditor to achieve. Section 15, Rule 39 merely provides thesheriff with his duties as executing officer including delivery of the proceeds of his levy on thedebtor's property to satisfy the judgment debt. It is but to stress that the implementing officer's dutyshould not stop at his receipt of payments but must continue until payment is delivered to the obligoror creditor.

Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to berecovered under the alias writ of execution. This logically follows from our ruling that PAL is liable forboth the lost checks and interest. The respondent court's decision in CA-G.R. No. 51079-R does nottotally supersede the trial court's judgment in Civil Case No. 71307. It merely modified the same as

to the principal amount awarded as actual damages.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The judgment ofthe respondent Court of Appeals is AFFIRMED and the trial court's issuance of the alias writ ofexecution against the petitioner is upheld without prejudice to any action it should take against theerrant sheriff Emilio Z. Reyes. The Court Administrator is ordered to follow up the actions takenagainst Emilio Z. Reyes.

SO ORDERED.


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Fernan, C.J., Cruz, Paras, Bidin, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Separate Opinions

NARVASA, J., dissenting:

The execution of final judgments and orders is a function of the sheriff, an officer of the court whoseauthority is by and large statutorily determined to meet the particular exigencies arising from orconnected with the performance of the multifarious duties of the office. It is the acknowledgment ofthe many dimensions of this authority, defined by statute and chiselled by practice, which compels

me to disagree with the decision reached by the majority.

A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court mostdirectly involved with the implementation and execution of final judgments and orders persuades methat PAL's payment to the sheriff of its judgment debt to Amelia Tan, though made by check issuedin said officer's name, lawfully satisfied said obligation and foreclosed further recourse thereforagainst PAL, notwithstanding the sheriffs failure to deliver to Tan the proceeds of the check.

It is a matter of history that the judiciary .. is an inherit or of the Anglo-Americantradition. While the common law as such .. "is not in force" in this jurisdiction, "tobreathe the breath of life into many of the institutions, introduced [here] under

American sovereignty, recourse must be had to the rules, principles and doctrines of

the common law under whose protecting aegis the prototypes of these institutionshad their birth" A sheriff is "an officer of great antiquity," and was also called the shirereeve. A shire in English law is a Saxon word signifying a division later called acounty. A reeve is an ancient English officer of justice inferior in rank to an alderman.. appointed to process, keep the King's peace, and put the laws in execution. From avery remote period in English constitutional history .. the shire had another officer,namely the shire reeve or as we say, the sheriff. .. The Sheriff was the specialrepresentative of the legal or central authority, and as such usually nominated by theKing. .. Since the earliest times, both in England and the United States, a sheriff hascontinued his status as an adjunct of the court .. . As it was there, so it has been inthe Philippines from the time of the organization of the judiciary .. . (J. Fernando'sconcurring opinion in Bagatsing v. Herrera, 65 SCRA 434)

One of a sheriff s principal functions is to execute final judgments and orders. The Rules of Courtrequire the writs of execution to issue to him, directing him to enforce such judgments and orders inthe manner therein provided (Rule 39). The mode of enforcement varies according to the nature ofthe judgment to be carried out: whether it be against property of the judgment debtor in his hands orin the hands of a third person i e. money judgment), or for the sale of property, real or personal (i.e.foreclosure of mortgage) or the delivery thereof, etc. (sec. 8, Rule 39).


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Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much of the judgmentdebtor's property as may be sufficient to enforce the money judgment and sell these properties atpublic auction after due notice to satisfy the adjudged amount. It is the sheriff who, after the auctionsale, conveys to the purchaser the property thus sold (secs. 25, 26, 27, Rule 39), and pays the

judgment creditor so much of the proceeds as will satisfy the judgment. When the property sold byhim on execution is an immovable which consequently gives rise to a light of redemption on the part

of the judgment debtor and others (secs. 29, 30, Rule 39), it is to him (or to the purchaser orredemptioner that the payments may be made by those declared by law as entitled to redeem (sec.31, Rule 39); and in this situation, it becomes his duty to accept payment and execute the certificateof redemption (Enage v. Vda. y Hijos de Escano, 38 Phil. 657, cited in Moran, Comments on theRules of Court, 1979 ed., vol. 2, pp. 326-327). It is also to the sheriff that "written notice of anyredemption must be given and a duplicate filed with the registrar of deeds of the province, and if anyassessments or taxes are paid by the redemptioner or if he has or acquires any lien other than thatupon which the redemption was made, notice thereof must in like manner be given to the officer andfiled with the registrar of deeds," the effect of failure to file such notice being that redemption may bemade without paying such assessments, taxes, or liens (sec. 30, Rule 39).

The sheriff may likewise be appointed a receiver of the property of the judgment debtor where theappointment of the receiver is deemed necessary for the execution of the judgment (sec. 32, Rule39).

At any time before the sale of property on execution, the judgment debtor may prevent the sale bypaying the sheriff the amount required by the execution and the costs that have been incurredtherein (sec. 20, Rule 39).

The sheriff is also authorized to receive payments on account of the judgment debt tendered by "aperson indebted to the judgment debtor," and his "receipt shall be a sufficient discharge for theamount so paid or directed to be credited by the judgment creditor on the execution" (sec. 41, Rule39).

Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in fun, if the

price paid by the highest bidder is equal to, or more than the amount of the judgment or pro tanto ifthe price fetched at the sale be less. Such extinction is not in any way dependent upon the judgmentcreditor's receiving the amount realized, so that the conversion or embezzlement of the proceeds ofthe sale by the sheriff does not revive the judgment debt or render the judgment creditor liable anewtherefor.

So, also, the taking by the sheriff of, say, personal property from the judgment debtor for delivery tothe judgment creditor, in fulfillment of the verdict against him, extinguishes the debtor's liability; andthe conversion of said property by the sheriff, does not make said debtor responsible for replacingthe property or paying the value thereof.

In the instances where the Rules allow or direct payments to be made to the sheriff, the payments

may be made by check, but it goes without saying that if the sheriff so desires, he may requirepayment to be made in lawful money. If he accepts the check, he places himself in a position wherehe would be liable to the judgment creditor if any damages are suffered by the latter as a result ofthe medium in which payment was made (Javellana v. Mirasol, et al., 40 Phil. 761). The validity ofthe payment made by the judgment debtor, however, is in no wise affected and the latter isdischarged from his obligation to the judgment creditor as of the moment the check issued to thesheriff is encashed and the proceeds are received by Id. office. The issuance of the check to aperson authorized to receive it (Art. 1240, Civil Code; See. 46 of the Code of Civil Procedure; Enage


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v. Vda y Hijos de Escano, 38 Phil. 657, cited in Javellana v. Mirasol, 40 Phil. 761) operates torelease the judgment debtor from any further obligations on the judgment.

The sheriff is an adjunct of the court; a court functionary whose competence involves both discretionand personal liability (concurring opinion of J. Fernando, citing Uy Piaoco v. Osmena, 9 Phil. 299, inBagatsing v. Herrera, 65 SCRA 434). Being an officer of the court and acting within the scope of his

authorized functions, the sheriff s receipt of the checks in payment of the judgment execution, maybe deemed, in legal contemplation, as received by the court itself (Lara v. Bayona, 10 May 1955, No.L- 10919).

That the sheriff functions as a conduit of the court is further underscored by the fact that one of therequisites for appointment to the office is the execution of a bond, "conditioned (upon) the faithfulperformance of his (the appointee's) duties .. for the delivery or payment to Government, or theperson entitled thereto, of all properties or sums of money that shall officially come into his hands"(sec. 330, Revised Administrative Code).

There is no question that the checks came into the sheriffs possession in his official capacity. Thecourt may require of the judgment debtor, in complying with the judgment, no further burden than his

vigilance in ensuring that the person he is paying money or delivering property to is a personauthorized by the court to receive it. Beyond this, further expectations become unreasonable. To mymind, a proposal that would make the judgment debtor unqualifiedly the insurer of the judgmentcreditor's entitlement to the judgment amount which is really what this case is all about begs thequestion.

That the checks were made out in the sheriffs name (a practice, by the way, of long and commonacceptance) is of little consequence if juxtaposed with the extent of the authority explicitly grantedhim by law as the officer entrusted with the power to execute and implement court judgments. Thesheriffs requirement that the checks in payment of the judgment debt be issued in his name wassimply an assertion of that authority; and PAL's compliance cannot in the premises be faulted merelybecause of the sheriffs subsequent malfeasance in absconding with the payment instead of turning itover to the judgment creditor.

If payment had been in cash, no question about its validity or of the authority and duty of the sheriffto accept it in settlement of PAL's judgment obligation would even have arisen. Simply because itwas made by checks issued in the sheriff s name does not warrant reaching any differentconclusion.

As payment to the court discharges the judgment debtor from his responsibility on the judgment, sotoo must payment to the person designated by such court and authorized to act in its behalf, operateto produce the same effect.

It is unfortunate and deserving of commiseration that Amelia Tan was deprived of what wasadjudged to her when the sheriff misappropriated the payment made to him by PAL in dereliction of

his sworn duties. But I submit that her remedy lies, not here and in reviving liability under a judgmentalready lawfully satisfied, but elsewhere.

ACCORDINGLY, I vote to grant the petition.

Melencio-Herrera, Gancayco, J., concurs.


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G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,vs.COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO,MAGNO CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.

Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J .: p

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned

of all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippinesand even abroad. Golden Savings and Loan Association was, at the time these events happened,operating in Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and depositedover a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were alldrawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager andcountersigned by its Auditor. Six of these were directly payable to Gomez while the others appearedto have been indorsed by their respective payees, followed by Gomez as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were subsequentlyindorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No.2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branchoffice to the principal office of Metrobank, which forwarded them to the Bureau of Treasury forspecial clearing. 2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times toask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez wasmeanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria'srepeated inquiries and also as an accommodation for a "valued client," the petitioner says it finallydecided to allow Golden Savings to withdraw from the proceeds of thewarrants. 3 The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on

July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount ofP150,000.00. The total withdrawal was P968.000.00. 4

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


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On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonoredby the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of theamount it had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court ofMindoro. 5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion

for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower courtmodified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant GoldenSavings and Loan Association, Inc. and defendant Spouses Magno Castillo andLucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of

the sum of P1,754,089.00 and to reinstate and credit to such account such amountexisting before the debit was made including the amount of P812,033.37 in favor ofdefendant Golden Savings and Loan Association, Inc. and thereafter, to allowdefendant Golden Savings and Loan Association, Inc. to withdraw the amountoutstanding thereon before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association,Inc. attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and LuciaCastillo attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petitionfor review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clearcontractual terms and conditions on the deposit slips allowing Metrobank to chargeback any amount erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks ortreasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a merecollecting agent which cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals,Metrobank is made to pay for warrants already dishonored, thereby perpetuating thefraud committed by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank andGolden Savings, the latter should bear the loss.


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4. Respondent Court of Appeals erred in holding that the treasury warrants involvedin this case are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent

in giving Golden Savings the impression that the treasury warrants had been cleared and that,consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.Without such assurance, Golden Savings would not have allowed the withdrawals; with suchassurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might evenhave incurred liability for its refusal to return the money that to all appearances belonged to thedepositor, who could therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited themto its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied onMetrobank to determine the validity of the warrants through its own services. The proceeds of thewarrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw themfrom its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by

Golden Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking thepersonal circumstances of Gomez before accepting his deposit does not hold water. It was Gomezwho was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover,the treasury warrants were subject to clearing, pending which the depositor could not withdraw itsproceeds. There was no question of Gomez's identity or of the genuineness of his signature aschecked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of theforgery of the signatures of the drawers, not of Gomez as payee or indorser. Under thecircumstances, it is clear that Golden Savings acted with due care and diligence and cannot befaulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling— more than one and a half million pesos (and this was 1979). There was no reason why it shouldnot have waited until the treasury warrants had been cleared; it would not have lost a single centavoby waiting. Yet, despite the lack of such clearance — and notwithstanding that it had not received asingle centavo from the proceeds of the treasury warrants, as it now repeatedly stresses — itallowed Golden Savings to withdraw — not once, not twice, but thrice— from the uncleared treasurywarrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearanceand it also wanted to "accommodate" a valued client. It "presumed" that the warrants had beencleared simply because of "the lapse of one week." 8 For a bank with its long experience, thisexplanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on thedorsal side of the deposit slips through which the treasury warrants were deposited by GoldenSavings with its Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as thedepositor's collecting agent, assuming no responsibility beyond care in selectingcorrespondents, and until such time as actual payment shall have come intopossession of this bank, the right is reserved to charge back to the depositor'saccount any amount previously credited, whether or not such item is returned. This


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also applies to checks drawn on local banks and bankers and their branches as wellas on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorizedoverdraft or any other reason. (Emphasis supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agentfor Golden Savings and give it the right to "charge back to the depositor's account any amount

previously credited, whether or not such item is returned. This also applies to checks ". . . which areunpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It isclaimed that the said conditions are in the nature of contractual stipulations and became binding onGolden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they haveapparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, itcould be argued that the depositor, in signing the deposit slip, does so only to identify himself andnot to agree to the conditions set forth in the given permit at the back of the deposit slip. We do nothave to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip wereconsidered a contract, the petitioner could still not validly disclaim responsibility thereunder in thelight of the circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to besuggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On thecontrary, Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence,which shall be judged 'with more or less rigor by the courts, according to whether theagency was or was not for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was theclearance given by it that assured Golden Savings it was already safe to allow Gomez to withdrawthe proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. Theremay have been no express clearance, as Metrobank insists (although this is refuted by GoldenSavings) but in any case that clearance could be implied from its allowing Golden Savings towithdraw from its account not only once or even twice but three times. The total withdrawal was inexcess of its original balance before the treasury warrants were deposited, which only added to itsbelief that the treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for anyreason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would havebeen no need at all for Golden Savings to deposit the treasury warrants with it for clearance. Therewould have been no need for it to wait until the warrants had been cleared before paying theproceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is notbinding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it isconsidered that the supposed dishonor of the warrants was not communicated to Golden Savings

before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at leastimplied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. Butthat is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of thesignatures of the general manager and the auditor of the drawer corporation, has not beenestablished. 9 This was the finding of the lower courts which we see no reason to disturb. And as we saidin MWSS v. Court of Appeals: 10


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Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must beestablished by clear, positive and convincing evidence. This was not done in thepresent case.

A no less important consideration is the circumstance that the treasury warrants in question are notnegotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and

this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, arepertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable mustconform to the following requirements:

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

(b) Must contain an unconditional promise or order to pay a sum certain in money ;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwiseindicated therein with reasonable certainty.

xxx xxx xxx

Sec. 3. When promise is unconditional . — An unqualified order or promise to pay isunconditional within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or aparticular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional .

The indication of Fund 501 as the source of the payment to be made on the treasury warrantsmakes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable.There should be no question that the exception on Section 3 of the Negotiable Instruments Law isapplicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the

Court held:

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


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

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed thatthey were "genuine and in all respects what they purport to be," in accordance with Section 66 of theNegotiable Instruments Law. The simple reason is that this law is not applicable to the non-

negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose ofguaranteeing the genuineness of the warrants but merely to deposit them with Metrobank forclearing. It was in fact Metrobank that made the guarantee when it stamped on the back of thewarrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & TrustCo., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but wefeel this case is inapplicable to the present controversy. That case involved checks whereas this caseinvolves treasury warrants. Golden Savings never represented that the warrants were negotiable butsigned them only for the purpose of depositing them for clearance. Also, the fact of forgery was proved inthat case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent inaccepting the checks without question from one Antonio Ramirez notwithstanding that the payee was theInter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar

negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar asit directs the petitioner to credit Golden Savings with the full amount of the treasury checks depositedto its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez wasallowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amounthe has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear theconsequences of its own negligence. But the balance of P586,589.00 should be debited to GoldenSavings, as obviously Gomez can no longer be permitted to withdraw this amount from his depositbecause of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance

to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it hasalready been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of thedispositive portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafterallowing defendant Golden Savings & Loan Association, Inc. to withdraw the amountoutstanding thereon, if any, after the debit.

SO ORDERED.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Footnotes

1 Rollo, pp. 12-13.

2 Ibid ., p. 52.


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G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,vs.COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

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

The undisputed background of this case, as found by the court a quo and adopted by respondentcourt, appears of record:

1. On various dates, defendant, a commercial banking institution, through its SucatBranch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruzwho deposited with herein defendant the aggregate amount of P1,120,000.00, asfollows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records,p. 207; Defendant's Exhibits 1 to 280);

CTD CTD Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,00026 Feb. 82 74602 to 74691 90 360,0002 Mar. 82 74701 to 74740 40 160,0004 Mar. 82 90127 to 90146 20 80,0005 Mar. 82 74797 to 94800 4 16,0005 Mar. 82 89965 to 89986 22 88,0005 Mar. 82 70147 to 90150 4 16,0008 Mar. 82 90001 to 90020 20 80,0009 Mar. 82 90023 to 90050 28 112,0009 Mar. 82 89991 to 90000 10 40,0009 Mar. 82 90251 to 90272 22 88,000——— ———— Total 280 P1,120,000===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff inconnection with his purchased of fuel products from the latter (Original Record, p.208).


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3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, theSucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr.Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,as required by defendant bank's procedure, if he desired replacement of said lostCTDs (TSN, February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bankthe required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavitof loss, 280 replacement CTDs were issued in favor of said depositor (Defendant'sExhibits 282-561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan fromdefendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos(P875,000.00). On the same date, said depositor executed a notarized Deed of

Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de laCruz) surrenders to defendant bank "full control of the indicated time deposits fromand 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 oramounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex(Phils.) Inc., went to the defendant bank's Sucat branch and presented for verificationthe CTDs declared lost by Angel dela Cruz alleging that the same were delivered toherein plaintiff "as security for purchases made with Caltex Philippines, Inc." by saiddepositor (TSN, February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) fromherein plaintiff formally informing it of its possession of the CTDs in question and ofits decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish theformer "a copy of the document evidencing the guarantee agreement with Mr. Angeldela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against whichplaintiff proposed to apply the time deposits (Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and claim forpayment of the value of the CTDs in a letter dated February 7, 1983 (Defendant'sExhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and

fell due and on August 5, 1983, the latter set-off and applied the time deposits inquestion to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).

12. In view of the foregoing, plaintiff filed the instant complaint, praying thatdefendant 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 at16% per annum, moral and exemplary damages as well as attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant complaint. 3


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On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint,hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificatesof deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did notbecome a holder in due course of the said certificates of deposit; and (3) in disregarding thepertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a betterunderstanding of the issues involved in this recourse.

SECURITY BANK AND TRUST COMPANY 6778 Ayala Ave., Makati No. 90101Metro Manila, PhilippinesSUCAT OFFICEP 4,000.00CERTIFICATE OF DEPOSITRate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sumof PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCATOFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable tosaid depositor 731 days. after date, upon presentation and surrenderof this certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing asfollows:

. . . While it may be true that the word "bearer" appears rather boldly in the CTDsissued, it is important to note that after the word "BEARER" stamped on the spaceprovided supposedly for the name of the depositor, the words "has deposited" acertain amount follows. The document further provides that the amount depositedshall be "repayable to said depositor" on the period indicated. Therefore, the text ofthe instrument(s) themselves manifest with clarity that they are payable, not towhoever purports to be the "bearer" but only to the specified person indicatedtherein, the depositor. In effect, the appellee bank acknowledges its depositor Angeldela Cruz as the person who made the deposit and further engages itself to pay saiddepositor the amount indicated thereon at the stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in question arenegotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable InstrumentsLaw, enumerates the requisites for an instrument to become negotiable, viz :


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

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwiseindicated therein with reasonable certainty.

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties'bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P.Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that thedepositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.

xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of thebank, the depositor referred (sic ) in these certificates states that itwas Angel dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that Angel delaCruz was the one who cause (sic ) the amount.

Atty. Calida:

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

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

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

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx


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If it were true that the CTDs were delivered as payment and not as security, petitioner's creditmanager could have easily said so, instead of using the words "to guarantee" in the letteraforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill ofparticularity therein 17 praying, among others, that petitioner, as plaintiff, be required to aver withsufficient definiteness or particularity (a) the due date or dates of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were

delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporationopposed the motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly was thefact, that the CTDs were delivered as payment and not as security. Having opposed the motion, petitionernow labors under the presumption that evidence willfully suppressed would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.Philippine National Bank, et al . 20 is apropos:

. . . Adverting again to the Court's pronouncements in Lopez, supra, we quotetherefrom:

The character of the transaction between the parties is to bedetermined by their intention, regardless of what language was usedor what the form of the transfer was. If it was intended to secure thepayment of money, it must be construed as a pledge; but if there wassome other intention, it is not a pledge. However, even though atransfer, if regarded by itself, appears to have been absolute, itsobject and character might still be qualified and explained bycontemporaneous writing declaring it to have been a deposit of theproperty as collateral security. It has been said that a transfer ofproperty by the debtor to a creditor, even if sufficient on its face tomake an absolute conveyance, should be treated as a pledge if thedebt continues in inexistence and is not discharged by the transfer,and that accordingly the use of the terms ordinarily importingconveyance of absolute ownership will not be given that effect in such

a transaction if they are also commonly used in pledges andmortgages and therefore do not unqualifiedly indicate a transfer ofabsolute ownership, in the absence of clear and unambiguouslanguage or other circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the NegotiableInstruments Law, an instrument is negotiated when it is transferred from one person to another insuch a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee orindorsee of a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case, however,there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner inwhich situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, thedelivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the factthat the amount involved was not disclosed) could at the most constitute petitioner only as a holder for

value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by meredelivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of suchsecurity, in the event of non-payment of the principal obligation, must be contractually provided for.

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


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Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also bepledged. The instrument proving the right pledged shall be delivered to the creditor,and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of thething pledged and the date of the pledge do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings ofrespondent court quoted at the start of this opinion show that petitioner failed to produce anydocument evidencing any contract of pledge or guarantee agreement between it and Angel de laCruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effectiveagainst and binding upon respondent bank. The requirement under Article 2096 aforementioned is not amere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledgecontract, but a rule of substantive law prescribing a condition without which the execution of a pledgecontract cannot affect third persons adversely. 26

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

Art. 1625. An assignment of credit, right or action shall produce no effect as againstthird persons, unless it appears in a public instrument, or the instrument is recordedin the Registry of Property in case the assignment involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether aspurchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extentof its lien nor the execution of any public instrument which could affect or bind private respondent.Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the betterright over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of whether or not

private respondent observed the requirements of the law in the case of lost negotiable instrumentsand the issuance of replacement certificates therefor, on the ground that petitioner failed to raisedthat issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of privaterespondent was not included in the stipulation of the parties and in the statement of issues submittedby them to the trial court. 29The issues agreed upon by them for resolution in this case are:

1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by the CTDsagainst the depositor's loan by virtue of the assignment (Annex "C").

3. Whether or not there was legal compensation or set off involving the amountcovered by the CTDs and the depositor's outstanding account with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs beforethe maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.


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6. Whether or not the parties can recover damages, attorney's fees and litigationexpenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, theforegoing enumeration does not include the issue of negligence on the part of respondent bank. Anissue raised for the first time on appeal and not raised timely in the proceedings in the lower court is

barred by estoppel.30

Questions raised on appeal must be within the issues framed by the parties and,consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a caseare properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at apre-trial conference all issues of law and fact which they intend to raise at the trial, except such asmay involve privileged or impeaching matters. The determination of issues at a pre-trial conferencebars the consideration of other questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be consideredencompassed by the issues on its right to preterminate and receive the proceeds of the CTDs wouldbe tantamount to saying that petitioner could raise on appeal any issue. We agree with private

respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questionedcertificates can be premised on a multitude of other legal reasons and causes of action, of whichrespondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted,would render a pre-trial delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitionerstill cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commercelaying down the rules to be followed in case of lost instruments payable to bearer, which it invokes,will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar, aremerely permissive and not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner , no matter for what cause it may be, may apply tothe judge or court of competent jurisdiction, asking that the principal, interest or

dividends due or about to become due, be not paid a third person, as well as in orderto prevent the ownership of the instrument that a duplicate be issued him. (Emphasisours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on thepart of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for theissuance of a duplicate of the lost instrument. Where the provision reads "may," this word shows thatit is not mandatory but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is anauxiliary verb indicating liberty, opportunity, permission and possibility. 36

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


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WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealeddecision is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

G.R. No. L-2526 September 10, 1907

PEDRO PAMINTUAN, ET AL., petitioners-appellees,vs.THE INSULAR GOVERNMENT, ET AL., respondents-appellants.

Attorney-General Araneta for appellants.Ledesma & Sumulong for appellees.

WILLARD, J.:

The appellees, Pedro Pamintuan and others, filed a petition in the Court of Land Registration, askingthat a tract of land in the pueblo of Angeles, Province of Pampanga, having an area of 626 hectares38 ares and 95 centares be inscribed in their names as owners. The Solicitor-General opposed thegranting of the petition on the ground that as to all of the land except 92 hectares and 10 ares no titlewas shown by the petitioners, and that all of the land except 92 hectares and 10 ares belonged tothe Government. The case was tried in the court below and judgment entered for a petitioners asprayed for in the petition. From this judgment the Government has appealed.

On the 14th of December, 1885, the Spanish Government, in accordance with the provisions of theroyal decree of the 25th of June, 1880, granted to Wenceslao Pamintuan a tract of land having anarea of 92 hectares and 10 ares, described as follows:

Bounded on the north by the Pasig water course; on the east by land owned by FilomenoPamintuan and by Government forests; on the south by Government forests, by land ownedby Fulgencio Tuason, and by the pueblo of Porac; on the west by pueblo of Porac.

This is the deed under which the present petitioners claim.

It appears in the case that in 1879 Wenceslao Pamintuan took proceeding to obtain a summaryinformation ad perpetuam. The land described therein has an area of98 quiñones 1 balita 7 loanes and 54 square brazas, but as suggested by the Attorney-General inhis brief in his court it is evident that he was not able , in his proceedings for obtaining a deed underthe royal decree of 1880, to prove his possession of all this land, much greater in extent than 92hectares, and that the only land that possession of which he was able to prove was the land

described in the deed of 1885. The petitioners claim in this case must, therefore, rest on that deed.

The court below decided that the land described in that deed is the identical land described in thepetition, although the land included in this petition is almost seven times as great in area as the landset forth in the deed. It based its decision upon the proposition of law that where there is a differencebetween the area of a tract of land and the natural boundaries thereof, the latter must govern.

In order to determine whether the result arrived at by the court below was or was not correct, itbecomes necessary to examine with some care the evidence of these two witnesses. One of them,


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Juan Daluson, gave the names of the adjoining owners at the time when the Government grant wasmade and at the present time. This witness did not state upon which side of the land any one ofthese adjoining owners lived. He did not mention in his testimony the water course Pasig, which,according to said deed bounds the land upon the west and forms a part of its southern boundary.

The other witness, Cesareo Tolentino, gave he names of some of the adjoining owners and

indicated upon which side of the land in question they had lives or are now living. He mentioned thename of Filomeno Pamintuan, which is found in the Government deed, but he said that he was anadjoining owner toward the south. He did not mention by name the water course Pasig; nor did hemention the lands in Angeles and in Mabalacat, which, according to the plan attached to the petition,form more than one-third of the boundary of the tract sought to be registered. After giving the namesof several adjoining owners he was asked who were the others. and he answered that all the otherswere in the jurisdiction of Porac and that he did not know the boundaries of that part of the land. Thisstatement becomes most significant when it is observed that according to the Government deed theentire western boundary and part of the southern boundary is the same district of Porac. Anothersignificant statement if this witness was to the effect that the land of Pamintuan is almost entiresurrounded by a canal. An examination of the map attached to the petition will show that if the 92hectares described in the Government deed are situated, as we believe they are, in the extremeeastern end of the land sought to be registered, this statement would be partially true. According tothat plan, while there are water courses upon the northeast and southeast of the land, there is noindication of any water course toward the west of the land, which seems to be three-quarters of thewhole.

It also appears from the testimony of this two witnesses that all of the persons whom they name asformer or present owners of adjoining land, with one exception, lived to the east and southeast ofthis land, and as to more than three-fifths of the land described in the plan they name no adjoiningowners at all.

The last witness, Tolentino was the person who served as a guide for the surveyor who made theplan above mentioned in 1903, and was the person who pointed out the boundaries to him. It isapparent from his own testimony, as has been said above, that he did not know anything about the

boundaries of a large portion of the land, and was, therefore, not a competent person to give anyinformation thereon.

It is true that those witnesses were asked if the boundaries of the land at the time the deed wasgiven were the same as the present boundaries and that to this question they answered "yes" butthis answer can not prevail against the testimony which they had before given in detail and whichshowed conclusively that they did not know, or a least did not give the boundaries of more than avery small portion of the land described in the petition.

While the proposition of the law laid down by the court below may be true to the effect that naturalboundaries will, prevail over area, yet when the land sought to be registered is almost seven timesas much as that described in the deed, the evidence as to natural boundaries must be very clear and

convincing before the rule can be applied. No such evidence was given in this case, and the judgment of the court below can not stand.

It seems apparent, however, that the petitioners are the owners of a tract of land in the eastern andsoutheastern part of the land described in their plan, about 92 hectares in extent, and upon proof ofboundaries of this tract they would be entitled to have it registered.

The judgment of the court below is reversed, and the case is remanded to the court for furtherproceedings therein, and without prejudice to the right of the petitioners to present an amended


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petition, accompanied by a new plan, and to have a new trial upon the questions raised by the newpetition. No costs will be allowed to either party in this court. So ordered.

Arellano, C.J., Torres, Johnson, and Tracey, JJ., concur.

G.R. No. 93073 December 21, 1992

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

CAMPOS, JR., J.:

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

WHEREFORE, premises considered, judgment is hereby rendered in favor of theplaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing Corporation(formerly Worldwide Gar

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