CELY YANG, petitioner, vs. HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., EQUITABLE BANKING CORPORATION, PREM CHANDIRAMANI and FERNANDO DAVID, respondents.

D E C I S I O N

QUISUMBING, J.:

For review on certiorari is the decision1[1] of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398, which affirmed with modification the joint decision of the Regional Trial Court (RTC) of Pasay City, Branch 117, dated July 4, 1995, in Civil Cases Nos. 54792[2] and 5492.3[3] The trial court dismissed the complaint against herein respondents Far East Bank & Trust Company (FEBTC), Equitable Banking Corporation (Equitable), and Philippine Commercial International Bank (PCIB) and ruled in favor of respondent Fernando David as to the proceeds of the two cashier’s checks, including the earnings thereof pendente lite. Petitioner Cely Yang was ordered to pay David moral damages of P100,000.00 and attorney’s fees also in the amount of P100,000.00.

The facts of this case are not disputed, to wit:

On or before December 22, 1987, petitioner Cely Yang and private respondent Prem Chandiramani entered into an agreement whereby the latter was to give Yang a PCIB manager’s check in the amount of P4.2 million in exchange for two (2) of Yang’s manager’s checks, each in the amount of P2.087 million, both payable to the order of private respondent Fernando David. Yang and Chandiramani agreed that the difference of P26,000.00 in the exchange would be their profit to be divided equally between them.

Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB FCDU Account No. 4195-01165-2, which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong.

Accordingly, on December 22, 1987, Yang procured the following:

a) Equitable Cashier’s Check No. CCPS 14-009467 in the sum of P2,087,000.00, dated December 22, 1987, payable to the order of Fernando David;

b) FEBTC Cashier’s Check No. 287078, in the amount of P2,087,000.00, dated December 22, 1987, likewise payable to the order of Fernando David; and

c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00, dated December 22, 1987, payable to PCIB FCDU Account No. 4195-01165-2.

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At about one o’clock in the afternoon of the same day, Yang gave the aforementioned cashier’s checks and dollar drafts to her business associate, Albert Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala Avenue, Makati City, Metro Manila where he would turn over Yang’s cashier’s checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB manager’s check in the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange.

Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashier’s checks and the dollar draft bought by petitioner. Ranigo reported the alleged loss of the checks and the dollar draft to Liong at half past four in the afternoon of December 22, 1987. Liong, in turn, informed Yang, and the loss was then reported to the police.

It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said instruments, without delivering the exchange consideration consisting of the PCIB manager’s check and the Hang Seng Bank dollar draft.

At three o’clock in the afternoon or some two (2) hours after Chandiramani and Ranigo were to meet in Makati City, Chandiramani delivered to respondent Fernando David at China Banking Corporation branch in San Fernando City, Pampanga, the following: (a) FEBTC Cashier’s Check No. 287078, dated December 22, 1987, in the sum of P2.087 million; and (b) Equitable Cashier’s Check No. CCPS 14-009467, dated December 22, 1987, also in the amount of P2.087 million. In exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the savings account of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas, who held FCDU Account No. 124 with the United Coconut Planters Bank branch in Greenhills, San Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn upon the Chemical Bank, New York for US$200,000.00 in PCIB FCDU Account No. 4195-01165-2 on the same date.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both banks complied with her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus enabling the holder of PCIB FCDU Account No. 4195-01165-2 to receive the amount of US$200,000.00.

On December 28, 1987, herein petitioner Yang lodged a Complaint4[4] for injunction and damages against Equitable, Chandiramani, and David, with prayer for a temporary restraining order, with the Regional Trial Court of Pasay City. The Complaint was docketed as Civil Case No. 5479. The Complaint was subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million, with interest thereon until fully paid.5[5]

On January 12, 1988, Yang filed a separate case for injunction and damages, with

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prayer for a writ of preliminary injunction against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case No. 5492. This complaint was later amended to include a prayer that defendants therein return to Yang the amount of P2.087 million, the value of FEBTC Dollar Draft No. 4771, with interest at 18% annually until fully paid.6[6]

On February 9, 1988, upon the filing of a bond by Yang, the trial court issued a writ of preliminary injunction in Civil Case No. 5479. A writ of preliminary injunction was subsequently issued in Civil Case No. 5492 also.

Meanwhile, herein respondent David moved for dismissal of the cases against him and for reconsideration of the Orders granting the writ of preliminary injunction, but these motions were denied. David then elevated the matter to the Court of Appeals in a special civil action for certiorari docketed as CA-G.R. SP No. 14843, which was dismissed by the appellate court.

As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two cases were consolidated. The trial court then conducted pre-trial and trial of the two cases, but the proceedings had to be suspended after a fire gutted the Pasay City Hall and destroyed the records of the courts.

After the records were reconstituted, the proceedings resumed and the parties agreed that the money in dispute be invested in Treasury Bills to be awarded in favor of the prevailing side. It was also agreed by the parties to limit the issues at the trial to the following:

1. Who, between David and Yang, is legally entitled to the proceeds of Equitable Banking Corporation (EBC) Cashier’s Check No. CCPS 14-009467 in the sum of P2,087,000.00 dated December 22, 1987, and Far East Bank and Trust Company (FEBTC) Cashier’s Check No. 287078 in the sum of P2,087,000.00 dated December 22, 1987, together with the earnings derived therefrom pendente lite?

2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the encashment of FEBTC Dollar Draft No. 4771, in the sum of US$200,000.00 plus interest thereon despite the stop payment order of Cely Yang?7[7]

On July 4, 1995, the trial court handed down its decision in Civil Cases Nos. 5479 and 5492, to wit:

WHEREFORE, the Court renders judgment in favor of defendant Fernando David against the plaintiff Cely Yang and declaring the former entitled to the proceeds of the two (2) cashier’s checks, together with the earnings derived therefrom pendente lite; ordering the plaintiff to pay the defendant Fernando David moral damages in the amount of P100,000.00; attorney’s fees in the amount of P100,000.00 and to pay the costs. The complaint against Far East Bank and Trust Company (FEBTC), Philippine Commercial International Bank (PCIB) and Equitable Banking Corporation (EBC) is dismissed. The decision is without prejudice to whatever action plaintiff Cely Yang will file against defendant Prem Chandiramani for reimbursement of the amounts received by him from defendant Fernando David.

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SO ORDERED.8[8]

In finding for David, the trial court ratiocinated:

The evidence shows that defendant David was a holder in due course for the reason that the cashier’s checks were complete on their face when they were negotiated to him. They were not yet overdue when he became the holder thereof and he had no notice that said checks were previously dishonored; he took the cashier’s checks in good faith and for value. He parted some $200,000.00 for the two (2) cashier’s checks which were given to defendant Chandiramani; he had also no notice of any infirmity in the cashier’s checks or defect in the title of the drawer. As a matter of fact, he asked the manager of the China Banking Corporation to inquire as to the genuineness of the cashier’s checks (tsn, February 5, 1988, p. 21, September 20, 1991, pp. 13-14). Another proof that defendant David is a holder in due course is the fact that the stop payment order on [the] FEBTC cashier’s check was lifted upon his inquiry at the head office (tsn, September 20, 1991, pp. 24-25). The apparent reason for lifting the stop payment order was because of the fact that FEBTC realized that the checks were not actually lost but indeed reached the payee defendant David.9[9]

Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its Order of September 20, 1995.

In the belief that the trial court misunderstood the concept of a holder in due course and misapprehended the factual milieu, Yang seasonably filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 52398.

On March 25, 1999, the appellate court decided CA-G.R. CV No. 52398 in this wise:

WHEREFORE, this court AFFIRMS the judgment of the lower court with modification and hereby orders the plaintiff-appellant to pay defendant-appellant PCIB the amount of Twenty-Five Thousand Pesos (P25,000.00).

SO ORDERED.10[10]

In affirming the trial court’s judgment with respect to herein respondent David, the appellate court found that:

In this case, defendant-appellee had taken the necessary precautions to verify, through his bank, China Banking Corporation, the genuineness of whether (sic) the cashier’s checks he received from Chandiramani. As no stop payment order was made yet (at) the time of the inquiry, defendant-appellee had no notice of what had transpired earlier between the plaintiff-appellant and Chandiramani. All he knew was that the checks were issued to Chandiramani with whom he was he had (sic) a transaction. Further on, David received the checks in question in due course because Chandiramani, who at the time the checks were delivered to David, was acting as Yang’s agent.

David had no notice, real or constructive, cogent for him to make further inquiry as to any infirmity in the instrument(s) and defect of title of the holder. To mandate that

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each holder inquire about every aspect on how the instrument came about will unduly impede commercial transactions, Although negotiable instruments do not constitute legal tender, they often take the place of money as a means of payment.

The mere fact that David and Chandiramani knew one another for a long time is not sufficient to establish that they connived with each other to defraud Yang. There was no concrete proof presented by Yang to support her theory.11[11]

The appellate court awarded P25,000.00 in attorney’s fees to PCIB as it found the action filed by Yang against said bank to be “clearly unfounded and baseless.” Since PCIB was compelled to litigate to protect itself, then it was entitled under Article 220812[12]

of the Civil Code to attorney’s fees and litigation expenses.

Hence, the instant recourse wherein petitioner submits the following issues for resolution:

a - WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY PETITIONER;

b - WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI AND FERNANDO DAVID IS LEGITIMATE OR A SCHEME BY BOTH PRIVATE RESPONDENTS TO SWINDLE PETITIONER;

c - WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00 OR JUST A FRACTION OF THE AMOUNT REPRESENTING HIS SHARE OF THE LOOT;

d - WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE ENTITLED TO DAMAGES AND ATTORNEY’S FEES.13[13]

At the outset, we must stress that this is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure. It is basic that in petitions for review under Rule 45, the jurisdiction of this Court is limited to reviewing questions of law, questions of fact are not entertained absent a showing that the factual findings complained of are totally devoid of support in the record or are glaringly erroneous.14[14] Given the facts in the instant case, despite petitioner’s formulation, we find that the following are the pertinent issues to be resolved:

a) Whether the Court of Appeals erred in holding herein respondent Fernando David to be a holder in due course; and

b) Whether the appellate court committed a reversible error in awarding damages and attorney’s fees to David and PCIB.

On the first issue, petitioner Yang contends that private respondent Fernando David is not a holder in due course of the checks in question. While it is true that he was 11

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named the payee thereof, David failed to inquire from Chandiramani about how the latter acquired possession of said checks. Given his failure to do so, it cannot be said that David was unaware of any defect or infirmity in the title of Chandiramani to the checks at the time of their negotiation. Moreover, inasmuch as the checks were crossed, then David should have, pursuant to our ruling in Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA 643, been put on guard that the checks were issued for a definite purpose and accordingly, made inquiries to determine if he received the checks pursuant to that purpose. His failure to do so negates the finding in the proceedings below that he was a holder in due course.

Finally, the petitioner argues that there is no showing whatsoever that David gave Chandiramani any consideration of value in exchange for the aforementioned checks.

Private respondent Fernando David counters that the evidence on record shows that when he received the checks, he verified their genuineness with his bank, and only after said verification did he deposit them. David stresses that he had no notice of previous dishonor or any infirmity that would have aroused his suspicions, the instruments being complete and regular upon their face. David stresses that the checks in question were cashier’s checks. From the very nature of cashier’s checks, it is highly unlikely that he would have suspected that something was amiss. David also stresses negotiable instruments are presumed to have been issued for valuable consideration, and he who alleges otherwise must controvert the presumption with sufficient evidence. The petitioner failed to discharge this burden, according to David. He points out that the checks were delivered to him as the payee, and he took them as holder and payee thereof. Clearly, he concludes, he should be deemed to be their holder in due course.

We shall now resolve the first issue.

Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law,15[15] meaning a “payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.”

In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains the view that a payee may be a holder in due course.16[16] Hence, the presumption that he is a prima facie holder in due course applies in his favor. However, said presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the checks under the conditions provided for in Section 5217[17] of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in David’s case, otherwise he cannot be deemed a holder in due course.

We find that the petitioner’s challenge to David’s status as a holder in due course hinges on two arguments: (1) the lack of proof to show that David tendered any valuable

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consideration for the disputed checks; and (2) David’s failure to inquire from Chandiramani as to how the latter acquired possession of the checks, thus resulting in David’s intentional ignorance tantamount to bad faith. In sum, petitioner posits that the last two requisites of Section 52 are missing, thereby preventing David from being considered a holder in due course. Unfortunately for the petitioner, her arguments on this score are less than meritorious and far from persuasive.

First, with respect to consideration, Section 2418[18] of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration19[19] or for value.20[20] Thus, the law itself creates a presumption in David’s favor that he gave valuable consideration for the checks in question. In alleging otherwise, the petitioner has the onus to prove that David got hold of the checks absent said consideration. In other words, the petitioner must present convincing evidence to overthrow the presumption. Our scrutiny of the records, however, shows that the petitioner failed to discharge her burden of proof. The petitioner’s averment that David did not give valuable consideration when he took possession of the checks is unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found that David did not receive the checks gratis, but instead gave Chandiramani US$360,000.00 as consideration for the said instruments. Factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court; they carry great weight when the factual findings of the trial court are affirmed by the appellate court.21[21]

Second, petitioner fails to point any circumstance which should have put David on inquiry as to the why and wherefore of the possession of the checks by Chandiramani. David was not privy to the transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a separate dealing in which it was precisely Chandiramani’s duty to deliver the checks to David as payee. The evidence shows that Chandiramani performed said task to the letter. Petitioner admits that David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the genuineness of the checks and only accepted the same after being assured that there was nothing wrong with said checks. At that time, David was not aware of any “stop payment” order. Under these circumstances, David thus had no obligation to ascertain from Chandiramani what the nature of the latter’s title to the checks was, if any, or the nature of his possession. Thus, we cannot hold him guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Chandiramani’s acquisition or possession of the checks. David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent any knowledge on his part that the action in

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taking the instruments amounted to bad faith.22[22]

Belatedly, and we say belatedly since petitioner did not raise this matter in the proceedings below, petitioner now claims that David should have been put on alert as the instruments in question were crossed checks. Pursuant to Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, David should at least have inquired as to whether he was acquiring said checks for the purpose for which they were issued, according to petitioner’s submission.

Petitioner’s reliance on the Bataan Cigar case, however, is misplaced. The facts in the present case are not on all fours with Bataan Cigar. In the latter case, the crossed checks were negotiated and sold at a discount by the payee, while in the instant case, the payee did not negotiate further the checks in question but promptly deposited them in his bank account.

The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce23[23] makes reference to such instruments. Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and not converted into cash.24[24] The effects of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by the payee knowingly violated the avowed intention of crossing the check. Thus, in accepting the cross checks and paying cash for them, despite the warning of the crossing, the subsequent holder could not be considered in good faith and thus, not a holder in due course. Our ruling in Bataan Cigar reiterates that in De Ocampo & Co. v. Gatchalian.25[25]

The factual circumstances in De Ocampo and in Bataan Cigar are not present in this case. For here, there is no dispute that the crossed checks were delivered and duly deposited by David, the payee named therein, in his bank account. In other words, the purpose behind the crossing of the checks was satisfied by the payee.

Proceeding to the issue of damages, petitioner merely argues that respondents David and PCIB are not entitled to damages, attorney’s fees, and costs of suit as both acted in bad faith towards her, as shown by her version of the facts which gave rise to the instant case.

Respondent David counters that he was maliciously and unceremoniously dragged into this suit for reasons which have nothing to do with him at all, but which arose from petitioner’s failure to receive her share of the profit promised her by Chandiramani. Moreover, in filing this suit which has lasted for over a decade now, the petitioner deprived David of the rightful enjoyment of the two checks, to which he is entitled, under

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the law, compelled him to hire the services of counsel to vindicate his rights, and subjected him to social humiliation and besmirched reputation, thus harming his standing as a person of good repute in the business community of Pampanga. David thus contends that it is but proper that moral damages, attorney’s fees, and costs of suit be awarded him.

For its part, respondent PCIB stresses that it was established by both the trial court and the appellate court that it was needlessly dragged into this case. Hence, no error was committed by the appellate court in declaring PCIB entitled to attorney’s fees as it was compelled to litigate to protect itself.

We have thoroughly perused the records of this case and find no reason to disagree with the finding of the trial court, as affirmed by the appellate court, that:

[D]efendant David is entitled to [the] award of moral damages as he has been needlessly and unceremoniously dragged into this case which should have been brought only between the plaintiff and defendant Chandiramani.26[26]

A careful reading of the findings of facts made by both the trial court and appellate court clearly shows that the petitioner, in including David as a party in these proceedings, is barking up the wrong tree. It is apparent from the factual findings that David had no dealings with the petitioner and was not privy to the agreement of the latter with Chandiramani. Moreover, any loss which the petitioner incurred was apparently due to the acts or omissions of Chandiramani, and hence, her recourse should have been against him and not against David. By needlessly dragging David into this case all because he and Chandiramani knew each other, the petitioner not only unduly delayed David from obtaining the value of the checks, but also caused him anxiety and injured his business reputation while waiting for its outcome. Recall that under Article 221727[27] of the Civil Code, moral damages include mental anguish, serious anxiety, besmirched reputation, wounded feelings, social humiliation, and similar injury. Hence, we find the award of moral damages to be in order.

The appellate court likewise found that like David, PCIB was dragged into this case on unfounded and baseless grounds. Both were thus compelled to litigate to protect their interests, which makes an award of attorney’s fees justified under Article 2208 (2)28

[28] of the Civil Code. Hence, we rule that the award of attorney’s fees to David and PCIB was proper.

WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398 is AFFIRMED. Costs against the petitioner.

SO ORDERED.

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15 Gempesaw vs. Court of Appeals [GR 92244. 9 February 1993]Second Division, Campos Jr. (J): 4 concursee case entry 32Facts: Natividad O. Gempesaw owns and operates four grocery stores located at Rizal Avenue Extension andat Second Avenue, both in Caloocan City. Among these groceries are D.G. Shopper's Mart and D.G. WholeSale Mart. Gempesaw maintains a checking account numbered 13-00038-1 with the Caloocan City Branch ofPBCom. To facilitate payment of debts to her suppliers, Gempesaw draws checks against her checkingaccount with PBCom as drawee. Her customary practice of issuing checks in payment of her suppliers was as follows: The checks were prepared and filled up as to all material particulars by her trusted bookkeeper, AliciaGalang, an employee for more than 8 years. After the bookkeeper prepared the checks, the completed checkswere submitted to Gempesaw for her signature, together with the corresponding invoice receipts whichindicate the correct obligations due and payable to her suppliers. Gempesaw signed each and every checkwithout bothering to verify the accuracy of the checks against the corresponding invoices because she reposedfull and implicit trust and confidence on her bookkeeper. The issuance and delivery of the checks to thepayees named therein were left to the bookkeeper. Gempesaw admitted that she did not make any verificationas to whether the checks were actually delivered to their respective payees. Although PBCom notified her ofall checks presented to and paid by the bank, Gempesaw did not verify the correctness of the returned checks, much less check if the payees actually received the checks in payment for the supplies she received. In thecourse of her business operations covering a period of 2 years, Gempesaw issued, following her usual practice, a total of 82 checks in favor of several suppliers. These checks were all presented by the indorsees as holders thereof to, and honored by PBCom. PBCom correspondingly debited the amounts thereof against Gempesaw's checking account numbered 30-00038-1. Most of the checks were for amounts in excess of her actual obligations to the various payees as shown in their corresponding invoices. Practically, all the checks Commercial Law – Negotiable Instruments Law, 2006 ( 17 )Narratives (Berne Guerrero)issued and honored by PBCom were crossed checks. Aside from the daily notice given to Gempesaw byPBCom, the latter also furnished her with a monthly statement of her bank transactions, attaching thereto all the cancelled checks she had issued and which were debited against her current account. It was only after the

lapse of more than 2 years that Gempesaw found out about the fraudulent manipulations of her bookkeeper. All the 82 checks with forged signatures of the payees were brought to Ernest L. Boon, Chief Accountant ofPBCom at the Buendia branch, who, without authority therefor, accepted them all for deposit at the Buendia branch to the credit and/or in the accounts of Alfredo Y. Romero and Benito Lam. Ernest L. Boon was a veryclose friend of Alfredo Y. Romero. 63 out of the 82 checks were deposited in Savings Account 00844-5 ofAlfredo Y. Romero at PBCom's Buendia branch, and 4 checks in his Savings Account 32-81-9 at its Ongpinbranch. The rest of the checks were deposited in Account 0443-4, under the name of Benito Lam at the Elcanobranch of the respondent drawee Bank. About 30 of the payees whose names were specifically written on thechecks did not receive nor even see the subject checks and that the indorsements appearing at the back of the checks were not theirs. The team of auditors from the main office of PBCom which conducted periodical inspection of the branches' operations failed to discover, check or stop the unauthorized acts of Ernest L. Boon. All the deposit slips of the 82 checks in question were initialed and/or approved for deposit by Ernest L. Boon, contrary to the rules of PBCom, where only a Branch Manager, and no other official of PBCom, may accept a second indorsement on a check for deposit. The Branch Managers of the Ongpin and Elcano branches accepted the deposits made in the Buendia branch and credited the accounts of Alfredo Y. Romeroand Benito Lam in their respective branches. On 7 November 1984, Gempesaw made a written demand onPBCom to credit her account with the money value of the 82 checks totalling P1,208,606.89 for having beenwrongfully charged against her account. PBCom refused to grant Gempesaw's demand. On 23 January 1985,Gempesaw filed a Complaint against the Philippine Bank of Communications (PBCom) for recovery of themoney value of 82 checks charged against Gempesaw's account with PBCom on the ground that the payees' indorsements were forgeries. The Regional Trial Court, Branch CXXVIII of Caloocan City, which tried thecase, rendered a decision on 17 November 1987 dismissing the complaint as well as PBCom's counterclaim. On appeal, the Court of Appeals in a decision rendered on 22 February 1990, affirmed the decision of the RTC on two grounds, namely (1) that Gempesaw's gross negligence in issuing the checks was the proximatecause of the loss and (2) assuming that the bank was also negligent, the loss must nevertheless be borne by the

party whose negligence was the proximate cause of the loss. On 5 March 1990, Gempesaw filed the petitionfor review under Rule 45 of the Rules of Court.Issue [1]: Whether the drawer’s account may be charged for checks where the indorsements were forged.Held [1]: As a matter of practical significance, problems arising from forged indorsements of checks maygenerally be broken into two types of cases: (1) where forgery was accomplished by a person not associatedwith the drawer — for example a mail robbery; and (2) where the indorsement was forged by an agent of the drawer. This difference in situations would determine the effect of the drawer's negligence with respect toforged indorsements. While there is no duty resting on the depositor to look for forged indorsements on hiscancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor isunder a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by the depositor's own employees. And if thedrawer (depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer isunder duty promptly to report such fact to the drawee bank. For his negligence or failure either to discover orto report promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his account under the forged indorsement. As a rule, a drawee bank who has paid a check onwhich an indorsement has been forged cannot charge the drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possiblydiscover the forged indorsement by mere examination of his cancelled check. This accounts for the rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his ownsignature, he has no similar duty as to forged indorsements. A different situation arises where the indorsement Commercial Law – Negotiable Instruments Law, 2006 ( 18 )Narratives (Berne Guerrero)was forged by an employee or agent of the drawer, or done with the active participation of the latter. Most ofthe cases involving forgery by an agent or employee deal with the payee's indorsement. The drawer and thepayee oftentimes have business relations of long standing. The continued occurrence of business transactionsof the same nature provides the opportunity for the agent/employee to commit the fraud after having

developed familiarity with the signatures of the parties. However, sooner or later, some leak will show on thedrawer's books. It will then be just a question of time until the fraud is discovered. This is specially true when the agent perpetrates a series of forgeries as herein. The negligence of a depositor which will prevent recoveryof an unauthorized payment is based on failure of the depositor to act as a prudent businessman would underthe circumstances. Herein, Gempesaw relied implicitly upon the honesty and loyalty of her bookkeeper, anddid not even verify the accuracy of the amounts of the checks she signed against the invoices attached thereto. Although she regularly received her bank statements, she apparently did not carefully examine the same northe check stubs and the returned checks, and did not compare them with the sales invoices. Otherwise, she could have easily discovered the discrepancies between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been accomplished. It was not until 2 years after the bookkeeper commenced her fraudulent scheme that Gempesaw discovered that 82 checks werewrongfully charged to her account, at which time she notified PBCom. Gempesaw's failure to make suchadequate inquiry constituted negligence which resulted in the bank's honoring of the subsequent checks withforged indorsements. Gempesaw's negligence was the proximate cause of her loss. And since it was her negligence which caused PBCom to honor the forged checks or prevented it from recovering the amount it had already paid on the checks, Gempesaw cannot now complain should the bank refuse to recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now precluded from using theforgery to prevent the bank's debiting of her account.Issue [2]: Whether banking rules prohibiting the drawee bank from having checks with more than oneindorsement invalidate the negotiation or transfer of the said check.Held [2]: The banking rule banning acceptance of checks for deposit or cash payment with more than oneindorsement unless cleared by some bank officials does not invalidate the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule destroys the negotiability ofbills/checks by limiting their negotiation by indorsement of only the payee. Under the Negotiable InstrumentsLaw, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof. In this kind of restrictive indorsement, the

prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that anysubsequent party may be forewarned that it ceases to be negotiable. However, the restrictive indorsee acquiresthe right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so. Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between them, as far as the drawer-depositor is concerned, such bank may not legally refuse to honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds. The drawee cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee, he incurs no liability on the check unless he accepts it. But the drawee will make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or check.

20 Yang vs. Court of Appeals [GR 138074, 15 August 2003]Second Division, Quisumbing (J): 3 concur, 1 on leaveFacts: On or before 22 December 1987, Cely Yang and Prem Chandiramani entered into an agreement whereby the latter was to give Yang a Philippine Commercial International Bank (PCIB) manager's check inthe amount of P4.2 million in exchange for 2 of Yang's manager's checks, each in the amount of P2.087million, both payable to the order of Fernando David. Yang and Chandiramani agreed that the difference of P26,000.00 in the exchange would be their profit to be divided equally between them. Yang andChandiramani also further agreed that the former would secure from Far East Bank & Trust Company(FEBTC) a dollar draft in the amount of US$200,000.00, payable to PCIB FCDU Account 4195-01165-2, which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang SengBank Ltd. of Hong Kong. Accordingly, on December 22, 1987, Yang procured (a) Equitable BankingCorporation [ECB] Cashier's Check CCPS 14-009467 in the sum of P2,087,000.00, dated 22 December 1987,payable to the order of Fernando David; (b) FEBTC Cashier's Check 287078, in the amount of P2,087,000.00, dated 22 December 1987, likewise payable to the order of Fernando David; and (c) FEBTC Dollar Draft 4771, drawn on Chemical Bank, New York, in the amount of US$200,000.00, dated 22 December 1987,

Commercial Law – Negotiable Instruments Law, 2006 ( 25 )Narratives (Berne Guerrero)payable to PCIB FCDU Account 4195-01165-2. At about 1:00 p.m. of the same day, Yang gave theaforementioned cashier's checks and dollar drafts to her business associate, Albert Liong, to be delivered toChandiramani by Liong's messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala Avenue, Makati City, Metro Manila where he would turn over Yang's cashier's checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB manager's check in the sum of P4.2million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange. Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashier's checks and the dollar draft bought by Yang. Ranigoreported the alleged loss of the checks and the dollar draft to Liong at 4:30 p.m. of 22 December 1987. Liong, in turn, informed Yang, and the loss was then reported to the police. It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said instruments, without delivering the exchange consideration consisting of the PCIB manager's check and the Hang Seng Bank dollar draft. At 3:00 p.m. or some 2 hours after Chandiramani and Ranigo were to meet in Makati City, Chandiramani delivered to David at China Banking Corporation branch in San Fernando City, Pampanga, the(a) FEBTC Cashier's Check 287078, and the (b) Equitable Cashier's Check CCPS 14-009467. In exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the savings account of hiswife, Pushpa Chandiramani; and his mother, Rani Reynandas, who held FCDU Account 124 with the UnitedCoconut Planters Bank (UCPB) branch in Greenhills, San Juan, Metro Manila. Chandiramani also depositedFEBTC Dollar Draft 4771, in PCIB FCDU Account 4195-01165-2 on the same date. Meanwhile, Yangrequested FEBTC and ECB to stop payment on the instruments she believed to be lost. Both banks compliedwith her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order onFEBTC Dollar Draft 4771, thus enabling the holder of PCIB FCDU Account 4195-01165-2 to receive theamount of US$200,000.00. On 28 December 1987, Yang lodged a Complaint for injunction and damages against ECB, Chandiramani, and David, with prayer for a temporary restraining order, with the Regional Trial Court of Pasay City (Civil Case 5479). The Complaint was subsequently amended to include a prayer for Equitable to return to Yang the

amount of P2.087 million, with interest thereon until fully paid. On 12 January 1988, Yang filed a separatecase for injunction and damages, with prayer for a writ of preliminary injunction against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay City, docketed as Civil Case No. 5492. This complaint was later amended to include a prayer that FEBTC et al return to Yang the amount of P2.087 million, the value of FEBTC Dollar Draft 4771, with interest at 18% annually until fully paid. On 9 February 1988, upon the filingof a bond by Yang, the trial court issued a writ of preliminary injunction in Civil Case No. 5479. A writ of preliminary injunction was subsequently issued in Civil Case 5492 also. Meanwhile, David moved for dismissal of the cases against him and for reconsideration of the Orders granting the writ of preliminary injunction, but these motions were denied. David then elevated the matter to the Court of Appeals in a special civil action for certiorari (CA-GR SP 14843), which was dismissed by the appellate court. As Civil Cases 5479 and 5492 arose from the same set of facts, the two cases were consolidated. The trial court thenconducted pre-trial and trial of the two cases, but the proceedings had to be suspended after a fire gutted the Pasay City Hall and destroyed the records of the courts. After the records were reconstituted, the proceedingsresumed and the parties agreed that the money in dispute be invested in Treasury Bills to be awarded in favor of the prevailing side, and limiting the issues in the case. On 4 July 1995, the trial court handed down its decision in Civil Cases 5479 and 5492, in favor of David declaring him entitled to the proceeds of the 2 cashier's checks, together with the earnings derived therefrom pendente lite; ordering Yang to pay Davidmoral damages in the amount of P100,000.00; attorney's fees in the amount of P100,000.00 and to pay thecosts. The trial court dismissed the complaint against FEBTC, PCIB and EBC; without prejudice to whatever action Yang will file against Chandiramani for reimbursement of the amounts received by him from David. Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its Order of 20 September 1995. Yang seasonably filed an appeal with the Court of Appeals (CA-GR CV 52398). On 25March 1999, the appellate court affirmed the decision of the trial court with modification and ordered Yang topay PCIB the amount of P25,000.00, as attorney's fees. Yang filed the petition for review on certiorari.Commercial Law – Negotiable Instruments Law, 2006 ( 26 )Issue: Whether David was a holder in due course.Narratives (Berne Guerrero)

Held: Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, thispresumption arises only in favor of a person who is a holder as defined in Section 191 of the NegotiableInstruments Law, meaning a "payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof." Herein, it is not disputed that David was the payee of the checks in question. The weight of authoritysustains the view that a payee may be a holder in due course. Hence, the presumption that he is a prima facie holder in due course applies in his favor. However, said presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the checks under the conditions provided forin Section 52 of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in David's case, otherwise he cannot be deemed a holder in due course. Yang's challenge to David's status as a holder in due course hinges on two arguments: (1) the lack of proof to show that David tendered any valuableconsideration for the disputed checks; and (2) David's failure to inquire from Chandiramani as to how the latter acquired possession of the checks, thus resulting in David's intentional ignorance tantamount to badfaith. In sum, Yang posits that the last two requisites of Section 52 are missing, thereby preventing David from being considered a holder in due course. Unfortunately for Yang, her arguments on this score are less than meritorious and far from persuasive.Issue [a]: Whether there is lack of proof to show that David tendered any valuable consideration for the disputed checks.Held [a]: With respect to consideration, Section 24 of the Negotiable Instruments Law creates a presumptionthat every party to an instrument acquired the same for a consideration or for value. Thus, the law itself creates a presumption in David's favor that he gave valuable consideration for the checks in question. Inalleging otherwise, Yang has the onus to prove that David got hold of the checks absent said consideration. Inother words, Yang must present convincing evidence to overthrow the presumption. The records, however, shows that Yang failed to discharge her burden of proof. Yang's averment that David did not give valuableconsideration when he took possession of the checks is unsupported, devoid of any concrete proof to sustainit. Note that both the trial court and the appellate court found that David did not receive the checks gratis, but instead gave Chandiramani US$360,000.00 as consideration for the said instruments. Factual findings of the

Court of Appeals are conclusive on the parties and not reviewable by the Supreme Court; they carry great weight when the factual findings of the trial court are affirmed by the appellate court.Issue [b]: Whether David's failure to inquire from Chandiramani as to how the latter acquired possession of the checks, resulted in David's intentional ignorance tantamount to bad faitHeld [b]: Yang fails to point any circumstance which should have put David on inquiry as to the why andwherefore of the possession of the checks by Chandiramani. David was not privy to the transaction betweenYang and Chandiramani. Instead, Chandiramani and David had a separate dealing in which it was preciselyChandiramani's duty to deliver the checks to David as payee. The evidence shows that Chandiramani performed said task to the letter. Yang admits that David took the step of asking the manager of his bank toverify from FEBTC and Equitable as to the genuineness of the checks and only accepted the same after beingassured that there was nothing wrong with said checks. At that time, David was not aware of any "stop payment" order. Under these circumstances, David thus had no obligation to ascertain from Chandiramani what the nature of the latter's title to the checks was, if any, or the nature of his possession. Thus, he cannot beheld guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Chandiramani's acquisition or possession of the checks. David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon Yang,absent any knowledge on his part that the action in taking the instruments amounted to bad faith.Issue [c]: Whether David should at least have inquired as to whether he was acquiring said checks for the Commercial Law – Negotiable Instruments Law, 2006 ( 27 )Narratives (Berne Guerrero)purpose for which they were issued, pursuant to Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals.Held [c]: Yang's reliance on the Bataan Cigar case, however, is misplaced. The facts in the case are not on all fours with Bataan Cigar. In the latter case, the crossed checks were negotiated and sold at a discount by thepayee, while herein, the payee did not negotiate further the checks in question but promptly deposited them inhis bank account. The Negotiable Instruments Law is silent with respect to crossed checks, although the Codeof Commerce makes reference to such instruments. Nonetheless, the Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be

deposited and not converted into cash. The effects of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by the payee knowingly violated the avowed intentionof crossing the check. Thus, in accepting the cross checks and paying cash for them, despite the warning of the crossing, the subsequent holder could not be considered in good faith and thus, not a holder in due course. The ruling in Bataan Cigar reiterates that in De Ocampo & Co. v. Gatchalian. The factual circumstances in De Ocampo and in Bataan Cigar are not present herein. For here, there is no dispute that the crossed checks were delivered and duly deposited by David, the payee named therein, in his bank account. In other words, the purpose behind the crossing of the checks was satisfied by the payee.

LIM VS SABAN

of the Court of Appeals, Seventh Division, in CA-G.R. V No.

60392.[2]

The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square

meter lot in Cebu City (the “lot”), entered into an Agreement and

Authority to Negotiate and Sell (Agency Agreement) with

respondent Florencio Saban (Saban) on February 8, 1994. Under

the Agency Agreement, Ybañez authorized Saban to look for a

buyer of the lot for Two Hundred Thousand Pesos (P200,000.00)

and to mark up the selling price to include the amounts needed

for payment of taxes, transfer of title and other expenses incident

to the sale, as well as Saban’s commission for the sale.[3]

Through Saban’s efforts, Ybañez and his wife were able to sell the

lot to the petitioner Genevieve Lim (Lim) and the spouses

Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994.

The price of the lot as indicated in the Deed of Absolute Sale is

Two Hundred Thousand Pesos (P200,000.00).[4] It appears,

however, that the vendees agreed to purchase the lot at the price

of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes

and other incidental expenses of the sale. After the sale, Lim

remitted to Saban the amounts of One Hundred Thirteen

Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for

payment of taxes due on the transaction as well as Fifty Thousand

Pesos (P50,000.00) as broker’s commission.[5] Lim also issued in

the name of Saban four postdated checks in the aggregate

amount of Two Hundred Thirty Six Thousand Seven Hundred Forty

Three Pesos (P236,743.00). These checks were Bank of the

Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994

for P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for

P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for

P25,000.00; and Equitable PCI Bank Check No. 021491B dated

June 20, 1994 for P168,000.00.

Subsequently, Ybañez sent a letter dated June 10, 1994

addressed to Lim. In the letter Ybañez asked Lim to cancel all the

checks issued by her in Saban’s favor and to “extend another

partial payment” for the lot in his (Ybañez’s) favor.[6]

After the four checks in his favor were dishonored upon

presentment, Saban filed a Complaint for collection of sum of

money and damages against Ybañez and Lim with the Regional

Trial Court (RTC) of Cebu City on August 3, 1994.[7] The case was

assigned to Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim

agreed to purchase the lot for P600,000.00, i.e., with a mark-up of

Four Hundred Thousand Pesos (P400,000.00) from the price set

by Ybañez. Of the total purchase price of P600,000.00,

P200,000.00 went to Ybañez, P50,000.00 allegedly went to Lim’s

agent, and P113,257.00 was given to Saban to cover taxes and

other expenses incidental to the sale. Lim also issued four (4)

postdated checks[8] in favor of Saban for the remaining

P236,743.00.[9]

Saban alleged that Ybañez told Lim that he (Saban) was not

entitled to any commission for the sale since he concealed the

actual selling price of the lot from Ybañez and because he was not

a licensed real estate broker. Ybañez was able to convince Lim to

cancel all four checks.

Saban further averred that Ybañez and Lim connived to deprive

him of his sales commission by withholding payment of the first

three checks. He also claimed that Lim failed to make good the

fourth check which was dishonored because the account against

which it was drawn was closed.

In his Answer, Ybañez claimed that Saban was not entitled to any

commission because he concealed the actual selling price from

him and because he was not a licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement

between Ybañez and Saban, and that she issued stop payment

orders for the three checks because Ybañez requested her to pay

the purchase price directly to him, instead of coursing it through

Saban. She also alleged that she agreed with Ybañez that the

purchase price of the lot was only P200,000.00.

Ybañez died during the pendency of the case before the RTC.

Upon motion of his counsel, the trial court dismissed the case only

against him without any objection from the other parties.[10]

On May 14, 1997, the RTC rendered its Decision[11] dismissing

Saban’s complaint, declaring the four (4) checks issued by Lim as

stale and non-negotiable, and absolving Lim from any liability

towards Saban.

Saban appealed the trial court’s Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated its

Decision[12] reversing the trial court’s ruling. It held that Saban

was entitled to his commission amounting to P236,743.00.[13]

The Court of Appeals ruled that Ybañez’s revocation of his

contract of agency with Saban was invalid because the agency

was coupled with an interest and Ybañez effected the revocation

in bad faith in order to deprive Saban of his commission and to

keep the profits for himself.[14]

The appellate court found that Ybañez and Lim connived to

deprive Saban of his commission. It declared that Lim is liable to

pay Saban the amount of the purchase price of the lot

corresponding to his commission because she issued the four

checks knowing that the total amount thereof corresponded to

Saban’s commission for the sale, as the agent of Ybañez. The

appellate court further ruled that, in issuing the checks in

payment of Saban’s commission, Lim acted as an accommodation

party. She signed the checks as drawer, without receiving value

therefor, for the purpose of lending her name to a third person. As

such, she is liable to pay Saban as the holder for value of the

checks.[15]

Lim filed a Motion for Reconsideration of the appellate court’s

Decision, but her Motion was denied by the Court of Appeals in a

Resolution dated May 6, 2004.[16]

Not satisfied with the decision of the Court of Appeals, Lim

filed the present petition.

Lim argues that the appellate court ignored the fact that

after paying her agent and remitting to Saban the amounts due

for taxes and transfer of title, she paid the balance of the

purchase price directly to Ybañez.[17]

She further contends that she is not liable for Ybañez’s debt

to Saban under the Agency Agreement as she is not privy thereto,

and that Saban has no one but himself to blame for consenting to

the dismissal of the case against Ybañez and not moving for his

substitution by his heirs.[18]

Lim also assails the findings of the appellate court that she

issued the checks as an accommodation party for Ybañez and

that she connived with the latter to deprive Saban of his

commission.[19]

Lim prays that should she be found liable to pay Saban the

amount of his commission, she should only be held liable to the

extent of one-third (1/3) of the amount, since she had two co-

vendees (the Spouses Lim) who should share such liability.[20]

In his Comment, Saban maintains that Lim agreed to purchase

the lot for P600,000.00, which consisted of the P200,000.00 which

would be paid to Ybañez, the P50,000.00 due to her broker, the

P113,257.00 earmarked for taxes and other expenses incidental

to the sale and Saban’s commission as broker for Ybañez.

According to Saban, Lim assumed the obligation to pay him his

commission. He insists that Lim and Ybañez connived to unjustly

deprive him of his commission from the negotiation of the sale.[21]

The issues for the Court’s resolution are whether Saban is entitled

to receive his commission from the sale; and, assuming that

Saban is entitled thereto, whether it is Lim who is liable to pay

Saban his sales commission.

The Court gives due course to the petition, but agrees with the

result reached by the Court of Appeals.

The Court affirms the appellate court’s finding that the agency

was not revoked since Ybañez requested that Lim make stop

payment orders for the checks payable to Saban only after the

consummation of the sale on March 10, 1994. At that time, Saban

had already performed his obligation as Ybañez’s agent when,

through his (Saban’s) efforts, Ybañez executed the Deed of

Absolute Sale of the lot with Lim and the Spouses Lim.

To deprive Saban of his commission subsequent to the sale which

was consummated through his efforts would be a breach of his

contract of agency with Ybañez which expressly states that Saban

would be entitled to any excess in the purchase price after

deducting the P200,000.00 due to Ybañez and the transfer taxes

and other incidental expenses of the sale.[22]

In Macondray & Co. v. Sellner,[23] the Court recognized the right of

a broker to his commission for finding a suitable buyer for the

seller’s property even though the seller himself consummated the

sale with the buyer.[24] The Court held that it would be in the

height of injustice to permit the principal to terminate the

contract of agency to the prejudice of the broker when he had

already reaped the benefits of the broker’s efforts.

In Infante v. Cunanan, et al.,[25] the Court upheld the right of the

brokers to their commissions although the seller revoked their

authority to act in his behalf after they had found a buyer for his

properties and negotiated the sale directly with the buyer whom

he met through the brokers’ efforts. The Court ruled that the

seller’s withdrawal in bad faith of the brokers’ authority cannot

unjustly deprive the brokers of their commissions as the seller’s

duly constituted agents.

The pronouncements of the Court in the aforecited cases are

applicable to the present case, especially considering that Saban

had completely performed his obligations under his contract of

agency with Ybañez by finding a suitable buyer to preparing the

Deed of Absolute Sale between Ybañez and Lim and her co-

vendees. Moreover, the contract of agency very clearly states

that Saban is entitled to the excess of the mark-up of the price of

the lot after deducting Ybañez’s share of P200,000.00 and the

taxes and other incidental expenses of the sale.

However, the Court does not agree with the appellate court’s

pronouncement that Saban’s agency was one coupled with an

interest. Under Article 1927 of the Civil Code, an agency cannot

be revoked if a bilateral contract depends upon it, or if it is the

means of fulfilling an obligation already contracted, or if a partner

is appointed manager of a partnership in the contract of

partnership and his removal from the management is

unjustifiable. Stated differently, an agency is deemed as one

coupled with an interest where it is established for the mutual

benefit of the principal and of the agent, or for the interest of the

principal and of third persons, and it cannot be revoked by the

principal so long as the interest of the agent or of a third person

subsists. In an agency coupled with an interest, the agent’s

interest must be in the subject matter of the power conferred and

not merely an interest in the exercise of the power because it

entitles him to compensation. When an agent’s interest is

confined to earning his agreed compensation, the agency is not

one coupled with an interest, since an agent’s interest in

obtaining his compensation as such agent is an ordinary incident

of the agency relationship.[26]

Saban’s entitlement to his commission having been settled,

the Court must now determine whether Lim is the proper party

against whom Saban should address his claim.

Saban’s right to receive compensation for negotiating as broker

for Ybañez arises from the Agency Agreement between them. Lim

is not a party to the contract. However, the record reveals that

she had knowledge of the fact that Ybañez set the price of the lot

at P200,000.00 and that the P600,000.00—the price agreed upon

by her and Saban—was more than the amount set by Ybañez

because it included the amount for payment of taxes and for

Saban’s commission as broker for Ybañez.

According to the trial court, Lim made the following payments for

the lot: P113,257.00 for taxes, P50,000.00 for her broker, and

P400.000.00 directly to Ybañez, or a total of Five Hundred Sixty

Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00).[27]

Lim, on the other hand, claims that on March 10, 1994, the date

of execution of the Deed of Absolute Sale, she paid directly to

Ybañez the amount of One Hundred Thousand Pesos

(P100,000.00) only, and gave to Saban P113,257.00 for payment

of taxes and P50,000.00 as his commission,[28] and One Hundred

Thirty Thousand Pesos (P130,000.00) on June 28, 1994,[29] or a

total of Three Hundred Ninety Three Thousand Two Hundred Fifty

Seven Pesos (P393,257.00). Ybañez, for his part, acknowledged

that Lim and her co-vendees paid him P400,000.00 which he said

was the full amount for the sale of the lot.[30] It thus appears that

he received P100,000.00 on March 10, 1994, acknowledged

receipt (through Saban) of the P113,257.00 earmarked for taxes

and P50,000.00 for commission, and received the balance of

P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went

directly to Ybañez. Apparently, although the amount actually paid

by Lim was P393,257.00, Ybañez rounded off the amount to

P400,000.00 and waived the difference.

Lim’s act of issuing the four checks amounting to P236,743.00 in

Saban’s favor belies her claim that she and her co-vendees did

not agree to purchase the lot at P600,000.00. If she did not agree

thereto, there would be no reason for her to issue those checks

which is the balance of P600,000.00 less the amounts of

P200,000.00 (due to Ybañez), P50,000.00 (commission), and the

P113,257.00 (taxes). The only logical conclusion is that Lim

changed her mind about agreeing to purchase the lot at

P600,000.00 after talking to Ybañez and ultimately realizing that

Saban’s commission is even more than what Ybañez received as

his share of the purchase price as vendor. Obviously, this change

of mind resulted to the prejudice of Saban whose efforts led to the

completion of the sale between the latter, and Lim and her co-

vendees. This the Court cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier,

is enlightening for the facts therein are similar to the

circumstances of the present case. In that case, Consejo Infante

asked Jose Cunanan and Juan Mijares to find a buyer for her two

lots and the house built thereon for Thirty Thousand Pesos

(P30,000.00) . She promised to pay them five percent (5%) of the

purchase price plus whatever overprice they may obtain for the

property. Cunanan and Mijares offered the properties to Pio Noche

who in turn expressed willingness to purchase the properties.

Cunanan and Mijares thereafter introduced Noche to Infante.

However, the latter told Cunanan and Mijares that she was no

longer interested in selling the property and asked them to sign a

document stating that their written authority to act as her agents

for the sale of the properties was already cancelled.

Subsequently, Infante sold the properties directly to Noche for

Thirty One Thousand Pesos (P31,000.00). The Court upheld the

right of Cunanan and Mijares to their commission, explaining that

—

…[Infante] had changed her mind even if respondent had found a buyer who was willing to close the deal, is a matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to call off the transaction in deference to the request of [Infante]. But the situation varies if one of the parties takes advantage of the benevolence of the other and acts in a manner that would promote his own selfish interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without according the party prejudiced the reward which is due him. This is the situation in which [Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage of the services rendered by [Cunanan and Mijares], but believing that she could evade payment of their commission, she made use of a ruse by inducing them to sign the deed of cancellation….This act of subversion cannot be sanctioned and cannot serve as basis for [Infante] to escape payment of the commission agreed upon.[31]

The appellate court therefore had sufficient basis for concluding

that Ybañez and Lim connived to deprive Saban of his commission

by dealing with each other directly and reducing the purchase

price of the lot and leaving nothing to compensate Saban for his

efforts.

Considering the circumstances surrounding the case, and the

undisputed fact that Lim had not yet paid the balance of

P200,000.00 of the purchase price of P600,000.00, it is just and

proper for her to pay Saban the balance of P200,000.00.

Furthermore, since Ybañez received a total of P230,000.00 from

Lim, or an excess of P30,000.00 from his asking price of

P200,000.00, Saban may claim such excess from Ybañez’s estate,

if that remedy is still available,[32] in view of the trial court’s

dismissal of Saban’s complaint as against Ybañez, with Saban’s

express consent, due to the latter’s demise on November 11,

1994.[33]

The appellate court however erred in ruling that Lim is liable on

the checks because she issued them as an accommodation party.

Section 29 of the Negotiable Instruments Law defines an

accommodation party as a person “who has signed the negotiable

instrument as maker, drawer, acceptor or indorser, without

receiving value therefor, for the purpose of lending his name to

some other person.” The accommodation party is liable on the

instrument to a holder for value even though the holder at the

time of taking the instrument knew him or her to be merely an

accommodation party. The accommodation party may of course

seek reimbursement from the party accommodated.[34]

As gleaned from the text of Section 29 of the Negotiable

Instruments Law, the accommodation party is one who meets all

these three requisites, viz: (1) he signed the instrument as maker,

drawer, acceptor, or indorser; (2) he did not receive value for the

signature; and (3) he signed for the purpose of lending his name

to some other person. In the case at bar, while Lim signed as

drawer of the checks she did not satisfy the two other remaining

requisites.

The absence of the second requisite becomes pellucid when

it is noted at the outset that Lim issued the checks in question on

account of her transaction, along with the other purchasers, with

Ybañez which was a sale and, therefore, a reciprocal contract.

Specifically, she drew the checks in payment of the balance of the

purchase price of the lot subject of the transaction. And she had

to pay the agreed purchase price in consideration for the sale of

the lot to her and her co-vendees. In other words, the amounts

covered by the checks form part of the cause or consideration

from Ybañez’s end, as vendor, while the lot represented the cause

or consideration on the side of Lim, as vendee.[35] Ergo, Lim

received value for her signature on the checks.

Neither is there any indication that Lim issued the checks for

the purpose of enabling Ybañez, or any other person for that

matter, to obtain credit or to raise money, thereby totally

debunking the presence of the third requisite of an

accommodation party.

WHEREFORE, in view of the foregoing, the petition is DISMISSED.