Nego Cases (part 1)

7/29/2019 Nego Cases (part 1)

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Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 180257 February 23, 2011

EUSEBIO GONZALES, Petitioner,vs.PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO, andROBERTO NOCEDA,Respondents.

D E C I S I O N

VELASCO, JR., J .:

The Case

This is an appeal via a Petition for Review on Certiorari under Rule 45 from the

Decision dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 74466,which denied petitioners appeal from the December 10, 2001 Decision in Civil Case No.99-1324 of the Regional Trial Court (RTC), Branch 138 in Makati City. The RTC foundjustification for respondents dishonor of petitioners check and found petitioner solidarilyliable with the spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the threepromissory notes they executed in favor of respondent Philippine Commercial andInternational Bank (PCIB).

The Facts

Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years beforehe filed the instant case. His account with PCIB was handled by respondent EdnaOcampo (Ocampo) until she was replaced by respondent Roberto Noceda (Noceda).

In October 1992, PCIB granted a credit line to Gonzales through the execution of aCredit-On-Hand Loan Agreement (COHLA), in which the aggregate amount of theaccounts of Gonzales with PCIB served as collateral for and his availment limit under thecredit line. Gonzales drew from said credit line through the issuance of check. At theinstitution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD8,715.72 with PCIB.

On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000.Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio andGonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000 andPhP 300,000, respectively. These three loans amounting to PhP 1,800,000 were coveredby three promissory notes. To secure the loans, a real estate mortgage (REM) over a

parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was executed byGonzales and the spouses Panlilio. Notably, the promissory notes specified, among

others, the solidary liability of Gonzales and the spouses Panlilio for the payment of theloans. However, it was the spouses Panlilio who received the loan proceeds of PhP1,800,000.

The monthly interest dues of the loans were paid by the spouses Panlilio through theautomatic debiting of their account with PCIB. But the spouses Panlilio, from the month ofJuly 1998, defaulted in the payment of the periodic interest dues from their PCIB accountwhich apparently was not maintained with enough deposits. PCIB allegedly called theattention of Gonzales regarding the July 1998 defaults and the subsequent accumulating

periodic interest dues which were left still left unpaid.

In the meantime, Gonzales issued a check dated September 30, 1998 in favor of ReneUnson (Unson) for PhP 250,000 drawn against the credit line (COHLA). However, onOctober 13, 1998, upon presentment for payment by Unson of said check, it wasdishonored by PCIB due to the termination by PCIB of the credit line under COHLA onOctober 7, 1998 for the unpaid periodic interest dues from the loans of Gonzales and thespouses Panlilio. PCIB likewise froze the FCD account of Gonzales.

Consequently, Gonzales had a falling out with Unson due to the dishonor of the check.They had a heated argument in the premises of the Philippine Columbian Association(PCA) where they are both members, which caused great embarrassment andhumiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand

letter to Gonzales for the PhP 250,000. And on December 3, 1998, the counsel of Unsonsent a second demand letter to Gonzales with the threat of legal action. With his FCDaccount that PCIB froze, Gonzales was forced to source out and pay the PhP 250,000 heowed to Unson in cash.

On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check heissued had been fully funded, and demanded the return of the proceeds of his FCD aswell as damages for the unjust dishonor of the check. PCIB replied on March 22, 1999and stood its ground in freezing Gonzales accounts due to the outstanding dues of theloans. On May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knewwell that the actual borrowers were the spouses Panlilio and he never benefited from theproceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio.

PCIBs refusal to heed his demands compelled Gonzales to fi le the instant case fordamages with the RTC, on account of the alleged unjust dishonor of the check issued infavor of Unson.

The Ruling of the RTC

After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB.The decretal portion reads:

WHEREFORE, judgment is rendered as follows

(a) on the first issue, plaintiff is liable to pay defendant Bank as principal underthe promissory notes, Exhibits A, B and C;


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(b) on the second issue, the Court finds that there is justification on part of thedefendant Bank to dishonor the check, Exhibit H;

(c) on the third issue, plaintiff and defendants are not entitled to damages fromeach other.

No pronouncement as to costs.

SO ORDERED.

The RTC found Gonzales solidarily liable with the spouses Panlilio on the threepromissory notes relative to the outstanding REM loan. The trial court found no fault inthe termination by PCIB of the COHLA with Gonzales and in freezing the lattersaccounts to answer for the past due PhP 1,800,000 loan. The trial court ruled that thedishonor of the check issued by Gonzales in favor of Unson was proper considering thatthe credit line under the COHLA had already been terminated or revoked before thepresentment of the check.

Aggrieved, Gonzales appealed the RTC Decision before the CA.

The Ruling of the CA

On September 26, 2007, the appellate court rendered its Decision dismissing Gonzalesappeal and affirming in toto the RTC Decision. The fallo reads:

WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in CivilCase No. 99-1324 is hereby AFFIRMED in toto.

SO ORDERED.

In dismissing Gonzales appeal, the CA, first, confirmed the RTCs findings that Gonzaleswas indeed solidarily liable with the spouses Panlilio for the three promissory notesexecuted for the REM loan; second, it likewise found neither fault nor negligence on the

part of PCIB in dishonoring the check issued by Gonzales in favor of Unson, ratiocinatingthat PCIB was merely exercising its rights under the contractual stipulations in theCOHLA brought about by the outstanding past dues of the REM loan and interests forwhich Gonzales was solidarily liable with the spouses Panlilio to pay under thepromissory notes.

Thus, we have this petition.

The Issues

Gonzales, as before the CA, raises again the following assignment of errors:

I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROMPROMISSORY NOTES (EXHIBITS "A", "B" AND "C", PETITIONER; EXHIBITS

"1", "2" AND "3", RESPONDENT) PERTAINED TO BORROWER JOSE MA.PANLILIO AND NOT TO APPELLANT AS RECOGNIZED ANDACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL &INDUSTRIAL BANK (RESPONDENT BANK).

II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NORGUILTY OF GROSS NEGLIGENCE IN DISHONORING PETITIONERSCHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00FOR THE REASON "ACCOUNT CLOSED", INSTEAD OF MERELY "REFER

TO DRAWER" GIVEN THE FACT THAT EVEN AFTER DISHONOR,RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER 1998THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL VALIDWITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD]48,715.72.

III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITEPRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FORDAMAGES.

The Courts Ruling

The core issues can be summarized, as follows: first, whether Gonzales is liable for thethree promissory notes covering the PhP 1,800,000 loan he made with the spousesPanlilio where a REM over a parcel of land covered by TCT No. 38012 was constitutedas security; and second, whether PCIB properly dishonored the check of Gonzales drawnagainst the COHLA he had with the bank.

The petition is partly meritorious.

First Issue: Solidarily Liability on Promissory Notes

A close perusal of the records shows that the courts a quo correctly found Gonzalessolidarily liable with the spouses Panlilio for the three promissory notes.

The promissory notes covering the PhP 1,800,000 loan show the following:

(1) Promissory Note BD-090-1766-95, dated October 30, 1995, for PhP 500,000was signed by Gonzales and his wife, Jessica Gonzales;

(2) Promissory Note BD-090-2122-95, dated December 26, 1995, for PhP1,000,000 was signed by Gonzales and the spouses Panlilio; and

(3) Promissory Note BD-090-011-96, dated January 3, 1996, for PhP 300,000was signed by Gonzales and the spouses Panlilio.

Clearly, Gonzales is liable for the loans covered by the above promissory notes. First,Gonzales admitted that he is an accommodation party which PCIB did not dispute. In his


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testimony, Gonzales admitted that he merely accommodated the spouses Panlilio at thesuggestion of Ocampo, who was then handling his accounts, in order to facilitate the fastrelease of the loan. Gonzales testified:

ATTY. DE JESUS:

Now in this case you filed against the bank you mentioned there was a loan also appliedfor by the Panlilios in the sum of P1.8 Million Pesos. Will you please tell this Court howthis came about?

GONZALES:

Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan and ifhe secures another P1.8 Million loan the release will be longer because it has to pass toXO.

Q: After that what happened?

A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-owned theproperty I agreed initially to use my name so that the loan can be utilized immediately byMr. Panlilio.

Q: Who is actually the borrower of this P1.8 Million Pesos?

A: Well, in paper me and Mr. Panlilio.

Q: Who received the proceeds of said loan?

A: Mr. Panlilio.

Q: Do you have any proof that it was Mr. Panlilio who actually received the proceeds ofthis P1.8 Million Pesos loan?

A: A check was deposited in the account of Mr. Panlilio.

x x x x

Q: By the way upon whose suggestion was the loan of Mr. Panlilio also placed underyour name initially?

A: Well it was actually suggested by the account officer at that time Edna Ocampo.

Q: How about this Mr. Rodolfo Noceda?

A: As you look at the authorization aspect of the loan Mr. Noceda is the boss of Edna sohe has been familiar with my account ever since its inception.

Q: So these two officers Ocampo and Noceda knew that this was actually the account ofMr. Panlilio and not your account?

A: Yes, sir. In fact even if there is a change of account officer they are always informingme that the account will be debited to Mr. Panlilios account.

Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife asborrowers, while the two subsequent notes showed the spouses Panlilio sign asborrowers with Gonzales. It is, thus, evident that Gonzales signed, as borrower, the

promissory notes covering the PhP 1,800,000 loan despite not receiving any of theproceeds.

Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP1,800,000 loan proceeds went to the spouses Panlilio, thus:

ATTY. DE JESUS: [on Cross-Examination]

Is it not a fact that as far as the records of the bank [are] concerned the proceeds of the1.8 million loan was received by Mr. Panlilio?

NOCEDA:

Yes sir.

The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for the benefit of the spouses Panlilioas shown by the fact that the proceedswent to the spouses Panlilio who were servicing or paying the monthly dues is besidethe point. For signing as borrower and co-borrower on the promissory notes with theproceeds of the loans going to the spouses Panlilio, Gonzales has extended anaccommodation to said spouses.

Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panliliofor the loans. InAng v. Associated Bank, quoting the definition of an accommodation

party under Section 29 of the Negotiable Instruments Law, the Court cited that anaccommodation party is a person "who has signed the instrument as maker, drawer,acceptor, or indorser, without receiving value therefor, and for the purpose of lending hisname to some other person." The Court further explained:

[A]n accommodation party is one who meets all the three requisites, viz: (1) he must b e aparty to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must notreceive value therefor; and (3) he must sign for the purpose of lending his name or creditto some other person. An accommodation party lends his name to enable theaccommodated party to obtain credit or to raise money; he receives no part of theconsideration for the instrument but assumes liability to the other party/ies thereto. Theaccommodation party is liable on the instrument to a holder for value even though theholder, at the time of taking the instrument, knew him or her to be merely an

accommodation party, as if the contract was not for accommodation.


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As petitioner acknowledged it to be, the relation between an accommodation party andthe accommodated party is one of principal and suretythe accommodation party beingthe surety. As such, he is deemed an original promisor and debtor from the beginning; heis considered in law as the same party as the debtor in relation to whatever is adjudgedtouching the obligation of the latter since their liabilities are interwoven as to beinseparable. Although a contract of suretyship is in essence accessory or collateral to avalid principal obligation, the suretys liability to the creditoris immediate, primaryand absolute; he is directlyand equallybound with the principal. Asan equivalent of a regular party to the undertaking, a surety becomes liable to the debt

and duty of the principal obligor even without possessing a direct or personal interest inthe obligations nor does he receive any benefit therefrom.

Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodationby Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spousesPanlilio does not exonerate Gonzales from liability on the three promissory notes.

Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory noteswhich uniformly begin, "For value received, the undersigned (the "BORROWER")jointlyand severally promise to pay x x x." Solidary liability cannot be presumed but must beestablished by law or contract. Article 1207 of the Civil Code pertinently states that "thereis solidary liability only when the obligation expressly so states, or when the obligationrequires solidarity." This is true in the instant case where Gonzales, as accommodation

party, is immediately, equally, and absolutely bound with the spouses Panlilio on thepromissory notes which indubitably stipulated solidary liability for all the borrowers.Moreover, the three promissory notes serve as the contract between the parties.Contracts have the force of law between the parties and must be complied with in goodfaith.

Second Issue: Improper Dishonor of Check

Having ruled that Gonzales is solidarily liable for the three promissory notes, We shallnow touch upon the question of whether it was proper for PCIB to dishonor the checkissued by Gonzales against the credit line under the COHLA.

We answer in the negative.

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to reviewof errors of law. The factual findings of the trial court, especially when affirmed by theappellate court, are generally binding on us unless there was a misapprehension of factsor when the inference drawn from the facts was manifestly mistaken. The instant casefalls within the exception.

The courts a quo found and held that there was a proper dishonor of the PhP 250,000check issued by Gonzales against the credit line, because the credit line was alreadyclosed prior to the presentment of the check by Unson; and the closing of the credit linewas likewise proper pursuant to the stipulations in the promissory notes on the banksright to set off or apply all moneys of the debtor in PCIBs hand and the stipulations in the

COHLA on the PCIBs right to terminate the credit line on grounds of default byGonzales.

Gonzales argues otherwise, pointing out that he was not informed about the default of thespouses Panlilio and that the September 21, 1998 account statement of the credit lineshows a balance of PhP 270,000 which was likewise borne out by the December 7, 1998PCIBs certification that he has USD 8,715.72 in his FCD account which is more thansufficient collateral to guarantee the PhP 250,000 check, dated September 30, 1998, heissued against the credit line.

A careful scrutiny of the records shows that the courts a quo committed reversible error innot finding negligence by PCIB in the dishonor of the PhP 250,000 check.

First. There was no proper notice to Gonzales of the default and delinquency of the PhP1,800,000 loan. It must be borne in mind that while solidarily liable with the spousesPanlilio on the PhP 1,800,000 loan covered by the three promissory notes, Gonzales isonly an accommodation party and as such only lent his name and credit to the spousesPanlilio. While not exonerating his solidary liability, Gonzales has a right to be properlyapprised of the default or delinquency of the loan precisely because he is a co-signatoryof the promissory notes and of his solidary liability.

We note that it is indeed understandable for Gonzales to push the spouses Panlilio to paythe outstanding dues of the PhP 1,800,000 loan, since he was only an accommodationparty and was not personally interested in the loan. Thus, a meeting was set by Gonzaleswith the spouses Panlilio and the PCIB officers, Noceda and Ocampo, in the spouses

Panlilios jewelry shop in SM Megamall on October 5, 1998. Unfortunately, the meetingdid not push through due to the heavy traffic Noceda and Ocampo encountered.

Such knowledge of the default by Gonzales was, however, not enough to properlyapprise Gonzales about the default and the outstanding dues. Verily, it is not enough tobe merely informed to pay over a hundred thousand without being formally apprised ofthe exact aggregate amount and the corresponding dues pertaining to specific loans andthe dates they became due.

Gonzales testified that he was not duly notified about the outstanding interest dues of theloan:

ATTY. DE JESUS:

Now when Mr. Panlilios was encountering problems with the bank did the defendantbank [advise] you of any problem with the same account?

GONZALES:

They never [advised] me in writing.

Q: How did you come to know that there was a problem?

A: When my check bounced sir.


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On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified:

ATTY. PADILLA:

Can you tell this Honorable Court what is it that you told Mr. Gonzales when you spoke tohim at the celphone?

NEPOMUCENO:

I just told him to update the interest so that we would not have to cancel the COH Lineand he could withdraw the money that was in the deposit because technically, if anaccount is past due we are not allowed to let the client withdraw funds because they areallowed to offset funds so, just to help him get his money, just to update the interest sothat we could allow him to withdraw.

Q: Withdraw what?

A: His money on the COH, whatever deposit he has with us.

Q: Did you inform him that if he did not update the interest he would not be able to

withdraw his money?

A: Yes sir, we will be forced to hold on to any assets that he has with us so thats why wesuggested just to update the interest because at the end of everything, he would be ableto withdraw more funds than the interest that the money he would be needed to updatethe interest.

From the foregoing testimonies, between the denial of Gonzales and the assertion byPCIB that Gonzales was properly apprised, we find for Gonzales. We find the testimoniesof the former PCIB employees to be self-serving and tenuous at best, for there was noproper written notice given by the bank. The record is bereft of any document showingthat, indeed, Gonzales was formally informed by PCIB about the past due periodicinterests.

PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party.It also acted in accordance with such fact by releasing the proceeds of the loan to thespouses Panlilio and likewise only informed the spouses Panlilio of the interest dues. Thespouses Panlilio, through their account with PCIB, were paying the periodic interest duesand were the ones periodically informed by the bank of the debiting of the amounts forthe periodic interest payments. Gonzales never paid any of the periodic interest dues.PCIBs Noceda admitted as much in his cross-examination:


And there was no instance that Mr. Gonzales ever made even interest for this loan, is itnot, its always Mr. Panlilio who was paying the interest for this loan?

NOCEDA:

Yes sir.

Indeed, no evidence was presented tending to show that Gonzales was periodically sentnotices or notified of the various periodic interest dues covering the three promissorynotes. Neither do the records show that Gonzales was aware of amounts for the periodicinterests and the payment for them. Such were serviced by the spouses Panlilio.

Thus, PCIB ought to have notified Gonzales about the status of the default ordelinquency of the interest dues that were not paid starting July 1998. And suchnotification must be formal or in written form considering that the outstanding periodicinterests became due at various dates, i.e., on July 8, 17, and 28, 1998, and the variousamounts have to be certain so that Gonzales is not only properly apprised but is giventhe opportunity to pay them being solidarily liable for the loans covered by the promissorynotes.

It is the bank which computes these periodic interests and such dues must be put intowriting and formally served to Gonzales if he were asked to pay them, more so when thepayments by the spouses Panlilio were charged through the account of the spousesPanlilio where the interest dues were simply debited. Such arrangement did not coverGonzales bank account with PCIB, since he is only an accommodation party who has nopersonal interest in the PhP 1,800,000 loan. Without a clear and determinate demandthrough a formal written notice for the exact periodic interest dues for the loans, Gonzalescannot be expected to pay for them.

In business, more so for banks, the amounts demanded from the debtor or borrower haveto be definite, clear, and without ambiguity. It is not sufficient simply to be informed thatone must pay over a hundred thousand aggregate outstanding interest dues without clearand certain figures. Thus, We find PCIB negligent in not properly informing Gonzales,who is an accommodation party, about the default and the exact outstanding periodicinterest dues. Without being properly apprised, Gonzales was not given the opportunity toproperly act on them.

It was only through a letter30

sent by PCIB dated October 2, 1998 but incongruouslyshowing the delinquencies of the PhP 1,800,000 loan at a much later date, i.e., as ofOctober 31, 1998, when Gonzales was formally apprised by PCIB. In it, the interest duewas PhP 106,1616.71 and penalties for the unpaid interest due of PhP 64,766.66, or atotal aggregate due of PhP 171,383.37. But it is not certain and the records do not showwhen the letter was sent and when Gonzales received it. What is clear is that such letterwas belatedly sent by PCIB and received by Gonzales after the fact that the latters FCDwas already frozen, his credit line under the COHLA was terminated or suspended, andhis PhP 250,000 check in favor of Unson was dishonored.

And way much later, or on May 4, 1999, was a demand letter from the counsel of PCIBsent to Gonzales demanding payment of the PhP 1,800,000 loan. Obviously, theseformal written notices sent to Gonzales were too late in the day for Gonzales to act

properly on the delinquency and he already suffered the humiliation and embarrassmentfrom the dishonor of his check drawn against the credit line.
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To reiterate, a written notice on the default and deficiency of the PhP 1,800,000 loancovered by the three promissory notes was required to apprise Gonzales, anaccommodation party. PCIB is obliged to formally inform and apprise Gonzales of thedefaults and the outstanding obligations, more so when PCIB was invoking the solidaryliability of Gonzales. This PCIB failed to do.

Second. PCIB was grossly negligent in not giving prior notice to Gonzales about itscourse of action to suspend, terminate, or revoke the credit line, thereby violating theclear stipulation in the COHLA.

The COHLA, in its effectivity clause, clearly provides:

4. EFFECTIVITY The COH shall be effective for a period of one (1) year commencingfrom the receipt by the CLIENT of the COH checkbook issued by the BANK, subject toautomatic renewals for same periods unless terminated by the BANK upon prior noticeserved on CLIENT. (Emphasis ours.)

It is undisputed that the bank unilaterally revoked, suspended, and terminated theCOHLA without giving Gonzales prior notice as required by the above stipulation in theCOHLA. Noceda testified on cross-examination on the Offering Ticket

32recommending

the termination of the credit line, thus:


This Exhibit 8, you have not furnished at anytime a copy to the plaintiff Mr. Gonzales is itnot?

NOCEDA:

No sir but verbally it was relayed to him.

Q: But you have no proof that Mr. Gonzales came to know about this Exhibit 8?

A: It was relayed to him verbally.

Q: But there is no written proof?

A: No sir.

Q: And it is only now that you claim that it was verbally relayed to him, its only now whenyou testified in Court?

A: Before . . .

Q: To whom did you relay this information?

A: It was during the time that we were going to Megamall, it was relayed by Liza that hehas to pay his obligations or else it will adversely affect the status of the account.

On the other hand, the testimony of Corazon Nepomuceno shows:


Now we go to the other credit facility which is the credit on hand extended solely of

course to Mr. Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not included inthis credit on hand facility. Did I gather from you as per your Exhibit 7 as of October 2,1998 you were the one who recommended the cancellation of this credit on hand facility?

NEPOMUCENO:

It was recommended by the account officer and I supported it.

Q: And you approved it?

A: Yes sir.

Q: Did you inform Mr. Gonzales that you have already cancelled his credit on handfacility?

A: As far as I know, it is the account officer who will inform him.

Q: But you have no record that he was informed?

A: I dont recall and we have to look at the folder to determine if they were informed.

Q: If you will notice, this letter . . . what do you call this letter of yours?

A: That is our letter advising them or reminding them of their unpaid interest and that if he

is able to update his interest he can extend the promissory note or restructure theoutstanding.

Q: Now, I call your attention madam witness, there is nothing in this letter to the clientsadvising them or Mr. Gonzales that his credit on hand facility was already cancelled?

A: I dont know if there are other letters aside from this.

Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware that his crediton hand facility was already cancelled?

A: No actually he can understand it from the last sentence. "If you will be able to update

your outstanding interest, we can apply the extention of your promissory note" so in otherwords we are saying that if you dont, you cannot extend the promissory note.
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Q: You will notice that the subject matter of this October 2, 1998 letter is only the loan of1.8 million is it not, as you can see from the letter? Okay?

A: Ah . . .

Q: Okay. There is nothing there that will show that that also refers to the credit on handfacility which was being utilized by Mr. Gonzales is it not?

A: But I dont know if there are other letters that are not presented to me now.

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The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to giveprior notice to Gonzales about the Offering Ticket for the process of termination,suspension, or revocation of the credit line under the COHLA, but PCIB likewise failed toinform Gonzales of the fact that his credit line has been terminated. Thus, we find PCIBgrossly negligent in the termination, revocation, or suspension of the credit line under theCOHLA. While PCIB invokes its right on the so-called "cross default provisions," it maynot with impunity ignore the rights of Gonzales under the COHLA.

Indeed, the business of banking is impressed with public interest and great reliance ismade on the banks sworn profession of diligence and meticulousness in givingirreproachable service. Like a common carrier whose business is imbued with public

interest, a bank should exercise extraordinary diligence to negate its liability to thedepositors.

35In this instance, PCIB is sorely remiss in the diligence required in treating

with its client, Gonzales. It may not wantonly exercise its rights without respecting andhonoring the rights of its clients.

Art. 19 of the New Civil Code clearly provides that "[e]very person must, in the exercise ofhis rights and in the performance of his duties, act with justice, give everyone his due,and observe honesty and good faith." This is the basis of the principle of abuse of rightwhich, in turn, is based upon the maxim suum jus summa injuria (the abuse of right is thegreatest possible wrong).

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In order for Art. 19 to be actionable, the following elements must be present: "(1) theexistence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole

intent of prejudicing or injuring another."37We find that such elements are present in theinstant case. The effectivity clause of the COHLA is crystal clear that termination of theCOH should be done only upon prior notice served on the CLIENT. This is the legalduty of PCIBto inform Gonzales of the termination. However, as shown by the abovetestimonies, PCIB failed to give prior notice to Gonzales.

Malice or bad faith is at the core of Art. 19. Malice or bad faith "implies a conscious andintentional design to do a wrongful act for a dishonest purpose or moral obliquity."

38In the

instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest onthe loans

39but failed to mention anything about the termination of the COHLA. More

significantly, no letter was ever sent to him about the termination of the COHLA. Thefailure to give prior notice on the part of PCIB is already prima facie evidence of badfaith.

40Therefore, it is abundantly clear that this case falls squarely within the purview of

the principle of abuse of rights as embodied in Art. 19.

Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke theCOHLA under the "cross default provisions" of both the promissory notes and theCOHLA. However, these cross default provisions do not confer absolute unilateral right toPCIB, as they are qualified by the other stipulations in the contracts or specificcircumstances, like in the instant case of an accommodation party.

The promissory notes uniformly provide:

The lender is hereby authorized, at its option and without notice, to set off or apply

to the payment of this Note any and all moneys which may be in its hands ondeposit or otherwise belonging to the Borrower. The Borrower irrevocably appoint/sthe Lender, effective upon the nonpayment of this Note on demand/at maturity or uponthe happening of any of the events of default, but without any obligation on the Lenderspart should it choose not to perform this mandate, as the attorney-in-fact of the Borrower,to sell and dispose of any property of the Borrower, which may be in the Lenderspossession by public or private sale, and to apply the proceeds thereof to the payment ofthis Note; the Borrower, however, shall remain liable for any deficiency.

41(Emphasis

ours.)

The above provisos are indeed qualified with the specific circumstance of anaccommodation party who, as such, has not been servicing the payment of the dues ofthe loans, and must first be properly apprised in writing of the outstanding dues in order

to answer for his solidary obligation.

The same is true for the COHLA, which in its default clause provides:

16. DEFAULT The CLIENT shall be considered in default under the COH if any of thefollowing events shall occur:

1. x x x

2. Violation of the terms and conditions of this Agreement or any contract of theCLIENT with the BANK or any bank, persons, corporations or entities for thepayment of borrowed money, or any other event of default in such contracts.

42

The above pertinent default clause must be read in conjunction with the effectivity clause(No. 4 of the COHLA, quoted above), which expressly provides for the right of client toprior notice. The rationale is simple: in cases where the bank has the right to terminate,revoke, or suspend the credit line, the client must be notified of such intent in order forthe latter to act accordinglywhether to correct any ground giving rise to the right of thebank to terminate the credit line and to dishonor any check issued or to act in accord withsuch termination, i.e., not to issue any check drawn from the credit line or to replace anychecks that had been issued. This, the bankwith gross negligencefailed to accordGonzales, a valued client for more than 15 years.

Fourth. We find the testimony43

of Ocampo incredible on the point that the principalborrower of the PhP 1,800,000 loan covered by the three promissory notes is Gonzalesfor which the bank officers had special instructions to grant and that it was through the
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instructions of Gonzales that the payment of the periodic interest dues were debited fromthe account of the spouses Panlilio.

For one, while the first promissory note dated October 30, 1995 indeed shows Gonzalesas the principal borrower, the other promissory notes dated December 26, 1995 andJanuary 3, 1996 evidently show that it was Jose Panlilio who was the principal borrowerwith Gonzales as co-borrower. For another, Ocampo cannot feign ignorance on thearrangement of the payments by the spouses Panlilio through the debiting of their bankaccount. It is incredulous that the payment arrangement is merely at the behest of

Gonzales and at a mere verbal directive to do so. The fact that the spouses Panlilio notonly received the proceeds of the loan but were servicing the periodic interest duesreinforces the fact that Gonzales was only an accommodation party.

Thus, due to PCIBs negligence in not giving Gonzalesan accommodation partyproper notice relative to the delinquencies in the PhP 1,800,000 loan covered by thethree promissory notes, the unjust termination, revocation, or suspension of the credit lineunder the COHLA from PCIBs gross negligence in not honoring its obligation to giveprior notice to Gonzales about such termination and in not informing Gonzales of the factof such termination, treating Gonzales account as closed and dishonoring his PhP250,000 check, was certainly a reckless act by PCIB. This resulted in the actual injury ofPhP 250,000 to Gonzales whose FCD account was frozen and had to look elsewhere formoney to pay Unson.

With banks, the degree of diligence required is more than that of a good father of thefamily considering that the business of banking is imbued with public interest due to thenature of their function. The law imposes on banks a high degree of obligation to treat theaccounts of its depositors with meticulous care, always having in mind the fiduciarynature of banking.

44Had Gonzales been properly notified of the delinquencies of the PhP

1,800,000 loan and the process of terminating his credit line under the COHLA, he couldhave acted accordingly and the dishonor of the check would have been avoided.

Third Issue: Award of Damages

The banking system has become an indispensable institution in the modern world andplays a vital role in the economic life of every civilized society banks have attained aubiquitous presence among the people, who have come to regard them with respect andeven gratitude and most of all, confidence, and it is for this reason, banks should guardagainst injury attributable to negligence or bad faith on its part.

45

In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. Fromthe testimonies of Gonzales witnesses, particularly those of Dominador Santos

46and

Freddy Gomez,47

the embarrassment and humiliation Gonzales has to endure not onlybefore his former close friend Unson but more from the members and families of hisfriends and associates in the PCA, which he continues to experience considering theconfrontation he had with Unson and the consequent loss of standing and credibilityamong them from the fact of the apparent bouncing check he issued. Credit is veryimportant to businessmen and its loss or impairment needs to be recognized andcompensated.

48

The termination of the COHLA by PCIB without prior notice and the subsequent dishonorof the check issued by Gonzales constitute acts of contra bonus mores. Art. 21 of theCivil Code refers to such acts when it says, "Any person who willfully causes loss orinjury to another in a manner that is contrary to morals, good customs or public policyshall compensate the latter for damage."

Accordingly, this Court finds that such acts warrant the payment of indemnity in the formof nominal damages.1avvphi1Nominal damages "are recoverable where a legal right istechnically violated and must be vindicated against an invasion that has produced no

actual present loss of any kind x x x."49

We further explained the nature of nominaldamages in Almeda v. Cario:

x x x Its award is thus not for the purpose of indemnification for a loss but for therecognition and vindication of a right. Indeed, nominal damages are damages in nameonly and not in fact. When granted by the courts, they are not treated as an equivalent ofa wrong inflicted but simply a recognition of the existence of a technical injury. A violationof the plaintiffs right, even if only technical, is sufficient to support an award of nominaldamages. Conversely, so long as there is a showing of a violation of the right of theplaintiff, an award of nominal damages is proper.

50(Emphasis Ours.)

In the present case, Gonzales had the right to be informed of the accrued interest andmost especially, for the suspension of his COHLA. For failure to do so, the bank is liable

to pay nominal damages. The amount of such damages is addressed to the sounddiscretion of the court, taking into account the relevant circumstances .

51In this case, the

Court finds that the grant of PhP 50,000 as nominal damages is proper.

Moreover, as We held in MERALCO v. CA,52

failure to give prior notice when required,such as in the instant case, constitutes a breach of contract and is a clear violation of Art.21 of the Code. In cases such as this, Art. 2219 of the Code provides that moraldamages may be recovered in acts referred to in its Art. 21. Further, Art. 2220 of theCode provides that "[w]illful injury to property may be a legal ground for awarding moraldamages if the court should find that, under the circumstances, such damages are justlydue. The same rule applies to breaches of contract where the defendant actedfraudulently or in bad faith." Similarly, "every person who, contrary to law, willfully ornegligently causes damage to another, shall indemnify the latter for the

same."53

Evidently, Gonzales is entitled to recover moral damages.

Even in the absence of malice or bad faith, a depositor still has the right to recoverreasonable moral damages, if the depositor suffered mental anguish, serious anxiety,embarrassment, and humiliation.

54Although incapable of pecuniary estimation, moral

damages are certainly recoverable if they are the proximate result of the defendantswrongful act or omission. The factual antecedents bolstered by undisputed testimonieslikewise show the mental anguish and anxiety Gonzales had to endure with the threat ofUnson to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD account inPCIB was frozen, prompting Gonzales to demand from PCIB and to file the instant suit.

The award of moral damages is aimed at a restoration within the limits of the possible, ofthe spiritual status quo anteit must always reasonably approximate the extent of injury

and be proportional to the wrong committed.55Thus, an award of PhP 50,000 isreasonable moral damages for the unjust dishonor of the PhP 250,000 which was the
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proximate cause of the consequent humiliation, embarrassment, anxiety, and mentalanguish suffered by Gonzales from his loss of credibility among his friends, colleaguesand peers.

Furthermore, the initial carelessness of the banks omission in not properly informingGonzales of the outstanding interest duesaggravated by its gross neglect in omitting togive prior notice as stipulated under the COHLA and in not giving actual notice of thetermination of the credit linejustifies the grant of exemplary damages of PhP 10,000.Such an award is imposed by way of example or correction for the public good.

Finally, an award for attorneys fees is likewise called for from PCIBs negligence whichcompelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) ofthe Code, attorneys fees may be recovered when exemplary damages are awarded. Wefind that the amount of PhP 50,000 as attorneys fees is reasonable.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision datedOctober 22, 2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET ASIDE. ThePhilippine Commercial and International Bank (now Banco De Oro) is ORDERED to payEusebio Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral damages,PhP 10,000 as exemplary damages, and PhP 50,000 as attorneys fees.


SO ORDERED.

PRESBITERO J. VELASCO, JR.Associate Justice


Baguio City

SECOND DIVISION

G.R. No. 170912 April 19, 2010

ROBERT DINO, Petitioner,vs.MARIA LUISA JUDAL-LOOT, joined by her husband VICENTE LOOT,Respondents.

D E C I S I O N

CARPIO, J. :

The Case

This is a petition for review1of the 16 August 2005 Decision

2and 30 November 2005

Resolution3of the Court of Appeals in CA-G.R. CV No. 57994. The Court of Appeals

affirmed the decision of the Regional Trial Court, 7th Judicial Region, Branch 56,Mandaue City (trial court), with the deletion of the award of interest, moral damages,attorneys fees and litigation expenses. The trial court ruled that respondents Maria LuisaJudal-Loot and Vicente Loot are holders in due course of Metrobank Check No. C-MA142119406 CA and ordered petitioner Robert Dino as drawer, together with co-defendantFe Lobitana as indorser, to solidarily pay respondents the face value of the check, amongothers.

The Facts

Sometime in December 1992, a syndicate, one of whose members posed as an owner ofseveral parcels of land situated in Canjulao, Lapu-lapu City, approached petitioner andinduced him to lend the group P3,000,000.00 to be secured by a real estate mortgage on

the properties. A member of the group, particularly a woman pretending to be a certainVivencia Ompok Consing, even offered to execute a Deed of Absolute Sale covering theproperties, instead of the usual mortgage contract.

4Enticed and convinced by the

syndicates offer, petitioner issued three Metrobank checks totaling P3,000,000.00, oneof which is Check No. C-MA-142119406-CA postdated 13 February 1993 in the amountof P1,000,000.00 payable to Vivencia Ompok Consing and/or Fe Lobitana.

5

Upon scrutinizing the documents involving the properties, petitioner discovered that thedocuments covered rights over government properties. Realizing he had been deceived,petitioner advised Metrobank to stop payment of his checks. However, only the paymentof Check No. C-MA- 142119406-CA was ordered stopped. The other two checks werealready encashed by the payees.

Meanwhile, Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA torespondents in exchange for cash in the sum of P948,000.00, which respondents
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borrowed from Metrobank and charged against their credit line. Before respondentsaccepted the check, they first inquired from the drawee bank, Metrobank, Cebu-MaboloBranch which is also their depositary bank, if the subject check was sufficiently funded, towhich Metrobank answered in the positive. However, when respondents deposited thecheck with Metrobank, Cebu-Mabolo Branch, the same was dishonored by the draweebank for reason "PAYMENT STOPPED."

Respondents filed a collection suit6against petitioner and Lobitana before the trial court.

In their Complaint, respondents alleged, among other things, that they are holders in due

course and for value of Metrobank Check No. C-MA-142119406-CA and that they had noprior information concerning the transaction between defendants.

In his Answer, petitioner denied respondents allegations that "on the face of the subjectcheck, no condition or limitation was imposed" and that respondents are holders in duecourse and for value of the check. For her part, Lobitana denied the allegations in thecomplaint and basically claimed that the transaction leading to the issuance of the subjectcheck is a sale of a parcel of land by Vivencia Ompok Consing to petitioner and that shewas made a payee of the check only to facilitate its discounting.

The trial court ruled in favor of respondents and declared them due course holders of thesubject check, since there was no privity between respondents and defendants. Thedispositive portion of the 14 March 1996 Decision of the trial court reads:

In summation, this Court rules for the Plaintiff and against the Defendants and herebyorders:

1.) defendants to pay to Plaintiff, and severally, the amount of P1,000,000.00representing the face value of subject Metrobank check;

2.) to pay to Plaintiff herein, jointly and severally, the sum of P101,748.00 foraccrued and paid interest;

3.) to pay to Plaintiff, jointly and severally, moral damages in the amountof P100,000.00;

4.) to pay to Plaintiff, jointly and severally, the sum of P200,000.00 for attorneysfees; and

5.) to pay to Plaintiff, jointly and severally, litigation expenses in the sumof P10,000.00 and costs of the suit.

SO ORDERED.7

Only petitioner filed an appeal. Lobitana did not appeal the trial courts judgment.

The Ruling of the Court of Appeals

The Court of Appeals affirmed the trial courts finding that respondents are holders in duecourse of Metrobank Check No. C-MA- 142119406-CA. The Court of Appeals pointed outthat petitioners own admission that respondents were never parties to the transactionamong petitioner, Lobitana, Concordio Toring, Cecilia Villacarlos, and Consing, provedrespondents lack of knowledge of any infirmity in the instrument or defect in the title ofthe person negotiating it. Moreover, respondents verified from Metrobank whether thecheck was sufficiently funded before they accepted it. Therefore, respondents must beexcluded from the ambit of petitioners stop payment order.

The Court of Appeals modified the trial courts decision by deleting the award of interest,moral damages, attorneys fees and litigation expenses. The Court of Appeals opinedthat petitioner "was only exercising (although incorrectly), what he perceived to be hisright to stop the payment of the check which he rediscounted." The Court of Appealsruled that petitioner acted in good faith in ordering the stoppage of payment of the subjectcheck and thus, he must not be made liable for those amounts.

In its 16 August 2005 Decision, the Court of Appeals affirmed the trial courts decisionwith modifications, thus:

WHEREFORE, premises considered, finding no reversible error in the decision of thelower court, WE hereby DISMISS the appeal and AFFIRM the decision of the court a quowith modifications that the award of interest, moral damages, attorneys fees and litigation

expenses be deleted.


SO ORDERED.8

In its 30 November 2005 Resolution, the Court of Appeals denied petitioners motion forreconsideration.

In denying the petitioners motion for reconsideration, the Court of Appeals noted thatpetitioner raised the defense that the check is a crossed check for the first time on appeal(particularly in the motion for reconsideration). The Court of Appeals rejected such

defense considering that to entertain the same would be offensive to the basic rules offair play, justice, and due process.

Hence, this petition.

The Issues

Petitioner raises the following issues:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT THERESPONDENTS WERE HOLDERS IN DUE COURSE. THE FACT THATMETROBANK CHECK NO. 142119406 IS A CROSSED CHECK

CONSTITUTES SUFFICIENT WARNING TO THE RESPONDENTS TO
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EXERCISE EXTRAORDINARY DILIGENCE TO DETERMINE THE TITLE OFTHE INDORSER.

II. THE COURT OF APPEALS ERRED IN DENYING PETITIONERS MOTIONFOR RECONSIDERATION UPON THE GROUND THAT THE ARGUMENTSRELIED UPON HAVE ONLY BEEN RAISED FOR THE FIRST TIME. EQUITYDEMANDS THAT THE COURT OF APPEALS SHOULD HAVE MADE ANEXCEPTION TO PREVENT THE COMMISSION OF MANIFEST WRONG ANDINJUSTICE UPON THE PETITIONER.

9

The Ruling of this Court

The petition is meritorious.

Respondents point out that petitioner raised the defense that Metrobank Check No. C-MA-142119406-CA is a crossed check for the first time in his motion for reconsiderationbefore the Court of Appeals. Respondents insist that issues not raised during the trialcannot be raised for the first time on appeal as it would be offensive to the elementaryrules of fair play, justice and due process. Respondents further assert that a change oftheory on appeal is improper.

In his Answer, petitioner specifically denied, among others, (1) Paragraph 4 of theComplaint, concerning the allegation that on the face of the subject check, no condition orlimitation was imposed, and (2) Paragraph 8 of the Complaint, regarding the allegationthat respondents were holders in due course and for value of the subject check. In his"Special Affirmative Defenses," petitioner claimed that "for want or lack of the prestation,"he could validly stop the payment of hi s check, and that by rediscounting petitionerscheck, respondents "took the risk of what might happen on the check." Essentially,petitioner maintained that respondents are not holders in due course of the subjectcheck, and as such, respondents could not recover any liability on the check frompetitioner.

Indeed, petitioner did not expressly state in his Answer or raise during the trial thatMetrobank Check No. C-MA-142119406-CA is a crossed check. It must be stressed,

however, that petitioner consistently argues that respondents are not holders in duecourse of the subject check, which is one of the possible effects of crossing a check. Theact of crossing a check serves as a warning to the holder that the check has been issuedfor a definite purpose so that the holder thereof must inquire if he has received the checkpursuant to that purpose; otherwise, he is not a holder in due course.

10Contrary to

respondents view, petitioner never changed his theory, that respondents are not holdersin due course of the subject check, as would violate fundamental rules of justice, fair play,and due process. Besides, the subject check was presented and admitted as evidenceduring the trial and respondents did not and in fact cannot deny that it is a crossed check.

In any event, the Court is clothed with ample authority to entertain issues or matters notraised in the lower courts in the interest of substantial justice.

11In Casa Filipina Realty v.

Office of the President,12

the Court held:

[T]he trend in modern-day procedure is to accord the courts broad discretionary powersuch that the appellate court may consider matters bearing on the issues submitted forresolution which the parties failed to raise or which the lower court ignored. Since rules ofprocedure are mere tools designed to facilitate the attainment of justice, their strict andrigid application which would result in technicalities that tend to frustrate rather thanpromote substantial justice, must always be avoided. Technicality should not be allowedto stand in the way of equitably and completely resolving the rights and obligations of theparties.

13

Having disposed of the procedural issue, the Court shall now proceed to the merits of thecase. The main issue is whether respondents are holders in due course of MetrobankCheck No. C-MA 142119406 CA as to entitle them to collect the face value of the checkfrom its drawer or petitioner herein.

Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:

A holder in due course is a holder who has taken the instrument under the followingconditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without noticethat it has been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity inthe instrument or defect in the title of the person negotiating it.

In the case of a crossed check, as in this case, the following principles must additionallybe considered: A crossed check (a) may not be encashed but only deposited in the bank;(b) may be negotiated only once to one who has an account with a bank; and (c)warns the holder that it has been issued for a definite purpose so that the holder thereofmust inquire if he has received the check pursuant to that purpose; otherwise, he is not aholder in due course.14

Based on the foregoing, respondents had the duty to ascertain the indorsers, in this caseLobitanas, title to the check or the nature of her possession. This respondents failed todo. Respondents verification from Metrobank on the funding of the check does notamount to determination of Lobitanas title to the check. Failing in this respect,respondents are guilty of gross negligence amounting to legal absence of goodfaith,

15contrary to Section 52(c) of the Negotiable Instruments Law. Hence, respondents

are not deemed holders in due course of the subject check.16

State Investment House v. Intermediate Appellate Court17

squarely applies to this case.There, New Sikatuna Wood Industries, Inc. sold at a discount to State Investment House

three post-dated crossed checks, issued by Anita Pea Chua naming as payee NewSikatuna Wood Industries, Inc. The Court found State Investment House not a holder in
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due course of the checks. The Court also expounded on the effect of crossing a check,thus:

Under usual practice, crossing a check is done by placing two parallel lines diagonally onthe left top portion of the check. The crossing may be special wherein between the twoparallel lines is written the name of a bank or a business institution, in which case thedrawee should pay only with the intervention of that bank or company, or crossing maybe general wherein between two parallel diagonal lines are written the words "and Co." ornone at all as in the case at bar, in which case the drawee should not encash the same

but merely accept the same for deposit.

The effect therefore of crossing a check relates to the mode of its presentment forpayment. Under Section 72 of the Negotiable Instruments Law, presentment for paymentto be sufficient must be made (a) by the holder, or by some person authorized to receivepayment on his behalf x x x As to who the holder or authorized person will be depends onthe instructions stated on the face of the check.

The three subject checks in the case at bar had been crossed generally and issuedpayable to New Sikatuna Wood Industries, Inc. which could only mean that the drawerhad intended the same for deposit only by the rightful person, i.e., the payee namedtherein. Apparently, it was not the payee who presented the same for payment andtherefore, there was no proper presentment, and the liability did not attach to the drawer.

Thus, in the absence of due presentment, the drawer did not become liable.Consequently, no right of recourse is available to petitioner against the drawer of thesubject checks, private respondent wife, considering that petitioner is not the proper partyauthorized to make presentment of the checks in question.

In this case, there is no question that the payees of the check, Lobitana or Consing, werenot the ones who presented the check for payment. Lobitana negotiated and indorsed thecheck to respondents in exchange forP948,000.00. It was respondents who presentedthe subject check for payment; however, the check was dishonored for reason"PAYMENT STOPPED." In other words, it was not the payee who presented the checkfor payment; and thus, there was no proper presentment. As a result, liability did notattach to the drawer. Accordingly, no right of recourse is available to respondents against

the drawer of the check, petitioner herein, since respondents are not the proper partyauthorized to make presentment of the subject check.

However, the fact that respondents are not holders in due course does not automaticallymean that they cannot recover on the check.

18The Negotiable Instruments Law does not

provide that a holder who is not a holder in due course may not in any case recover onthe instrument. The only disadvantage of a holder who is not in due course is that thenegotiable instrument is subject to defenses as if it were non-negotiable .

19Among such

defenses is the absence or failure of consideration,20

which petitioner sufficientlyestablished in this case. Petitioner issued the subject check supposedly for a loan infavor of Consings group, who turned out to be a syndicate defrauding gullible individuals.Since there is in fact no valid loan to speak of, there is no consideration for the issuanceof the check. Consequently, petitioner cannot be obliged to pay the face value of the

check.1avvphi1

Respondents can collect from the immediate indorser,21

in this case Lobitana.Significantly, Lobitana did not appeal the trial courts decision, finding her solidarily liableto pay, among others, the face value of the subject check. Therefore, the trial courtsjudgment has long become final and executory as to Lobitana.

WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August 2005 Decisionand 30 November 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 57994.

SO ORDERED.

ANTONIO T. CARPIOAssociate Justice
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Manila

SECOND DIVISION

G.R. No. 158143 September 21, 2011

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,vs.ANTONIO B. BALMACEDA and ROLANDO N. RAMOS,Respondents.

D E C I S I O N

BRION, J .:

Before us is a petition for review on certiorari ,1filed by the Philippine Commercial

International Bank2(Bank or PCIB), to reverse and set aside the decision

3dated April 29,

2003 of the Court of Appeals (CA) in CA-G.R. CV No. 69955. The CA overturned theSeptember 22, 2000 decision of the Regional Trial Court (RTC) of Makati City, Branch148, in Civil Case No. 93-3181, which held respondent Rolando Ramos liable to PCIB for

the amount ofP895,000.00.

FACTUAL ANTECEDENTS

On September 10, 1993, PCIB filed an action for recovery of sum of money withdamages before the RTC against Antonio Balmaceda, the Branch Manager of its Sta.Cruz, Manila branch. In its complaint, PCIB alleged that between 1991 and 1993,Balmaceda, by taking advantage of his position as branch manager, fraudulentlyobtained and encashed 31 Managers checks in the total amount of Ten Million SevenHundred Eighty Two Thousand One Hundred Fifty Pesos (P10,782,150.00).

On February 28, 1994, PCIB moved to be allowed to file an amended complaint to

implead Rolando Ramos as one of the recipients of a portion of the proceeds fromBalmacedas alleged fraud. PCIB also increased the number of fraudulently obtained andencashed Managers checks to 34, in the total amount of Eleven Million Nine HundredThirty Seven Thousand One Hundred Fifty Pesos (P11,937,150.00). The RTC grantedthis motion.

Since Balmaceda did not file an Answer, he was declared in default. On the other hand,Ramos filed an Answer denying any knowledge of Balmacedas scheme. According toRamos, he is a reputable businessman engaged in the business of buying and sellingfighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving moneyfrom Balmaceda as payment for the fighting cocks that he sold to Balmaceda, butmaintained that he had no knowledge of the source of Balmacedas money.

THE RTC DECISION

On September 22, 2000, the RTC issued a decision in favor of PCIB, with the followingdispositive portion:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffand against the defendants as follows:

1. Ordering defendant Antonio Balmaceda to pay the amount of P11,042,150.00with interest thereon at the legal rate from [the] date of his misappropriation ofthe said amount until full restitution shall have been made[.]

2. Ordering defendant Rolando Ramos to pay the amount of P895,000.00 withinterest at the legal rate from the date of misappropriation of the said amountuntil full restitution shall have been made[.]

3. Ordering the defendants to pay plaintiff moral damages in the sumof P500,000.00 and attorneys fees in the amount of ten (10%) percent of thetotal misappropriated amounts sought to be recovered.

4. Plus costs of suit.

SO ORDERED.4

From the evidence presented, the RTC found that Balmaceda, by taking undueadvantage of his position and authority as branch manager of the Sta. Cruz, Manilabranch of PCIB, successfully obtained and misappropriated the banks funds by falsifyingseveral commercial documents. He accomplished this by claiming that he had beeninstructed by one of the Banks corporate clients to purchase Managers checks on itsbehalf, with the value of the checks to be debited from the clients corporate bankaccount. First, he would instruct the Bank staff to prepare the application forms for thepurchase of Managers checks, payable to several persons. Then, he would forge thesignature of the clients authorized representative on these forms and sign the forms asPCIBs approving officer. Finally, he would have an authorized officer of PCIB issue theManagers checks. Balmaceda would subsequently ask his subordinates to release theManagers checks to him, claiming that the client had requested that he deliver the

checks.5

After receiving the Managers checks, he encashed them by forging thesignatures of the payees on the checks.

In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although theManagers checks payable to Ramos were crossed checks, Balmaceda was still able toencash the checks.

6After Balmaceda encashed three of these Managers checks, he

deposited most of the money into Ramos account .7The RTC concluded that from

the P11,937,150.00 that Balmaceda misappropriated from PCIB, P895,000.00 actuallywent to Ramos. Since the RTC disbelieved Ramos allegation that the sum of moneydeposited into his Savings Account (PCIB, Pasig branch) were proceeds from the sale offighting cocks, it held Ramos liable to pay PCIB the amount of P895,000.00.

THE COURT OF APPEALS DECISION
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On appeal, the CA dismissed the complaint against Ramos, holding that no sufficientevidence existed to prove that Ramos colluded with Balmaceda in the latters fraudulentmanipulations.

8

According to the CA, the mere fact that Balmaceda made Ramos the payee in some ofthe Managers checks does not suffice to prove that Ramos was complicit in Balmacedasfraudulent scheme. It observed that other persons were also named as payees in thechecks that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos.With PCIBs failure to prove Ramos actual participation in Balmacedas fraud, no legal

and factual basis exists to hold him liable.

The CA also found that PCIB acted illegally in freezing and debiting P251,910.96 fromRamos bank account. The CA thus decreed:

WHEREFORE, the appeal is granted. The Decision of the trial court rendered onSeptember 22, 2000[,] insofar as appellant Ramos is concerned, is SET ASIDE, and thecomplaint below against him is DISMISSED.

Appellee is hereby ordered to release the amount of P251,910.96 to appellant Ramosplus interest at [the] legal rate computed from September 30, 1993 until appellee shallhave fully complied therewith.

Appellee is likewise ordered to pay appellant Ramos the following:

a) P50,000.00 as moral damages

b) P50,000.00 as exemplary damages, and

c) P20,000.00 as attorneys fees.

No costs.

SO ORDERED.9

THE PETITION

In the present petition, PCIB avers that:

I

THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NOEVIDENCE TO HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITYWITH RESPONDENT BALMACEDA

II

THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TORELEASE THE AMOUNT OFP251,910.96 TO RESPONDENT RAMOS ANDTO PAY THE LATTER MORAL AND EXEMPLARY DAMAGES ANDATTORNEYS FEES

10

PCIB contends that the circumstantial evidence shows that Ramos had knowledge of,and acted in complicity with Balmaceda in, the perpetuation of the fraud. Ramosexplanation that he is a businessman and that he received the Managers checks aspayment for the fighting cocks he sold to Balmaceda is unconvincing, given the large sum

of money involved. While Ramos presented evidence that he is a reputablebusinessman, this evidence does not explain why the Managers checks were madepayable to him in the first place.

PCIB maintains that it had the right to freeze and debit the amount of P251,910.96 fromRamos bank account, even without his consent, since legal compensation had takenplace between them by operation of law. PCIB debited Ramos bank account, believing ingood faith that Ramos was not entitled to the proceeds of the Managers checks and wasactually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable formoral and exemplary damages.

OUR RULING

We partly grant the petition.

At the outset, we observe that the petition raises mainly questions of fact whoseresolution requires the re-examination of the evidence on record. As a general rule,petitions for review on certiorari only involve questions of law.

11By way of exception,

however, we can delve into evidence and the factual circumstance of the case when thefindings of fact in the tribunals below (in this case between those of the CA and of theRTC) are conflicting. When the exception applies, we are given latitude to review theevidence on record to decide the case with finality.

12

Ramos participation in Balmacedas scheme not proven

From the testimonial and documentary evidence presented, we find it beyond questionthat Balmaceda, by taking advantage of his position as branch manager of PCIBs Sta.Cruz, Manila branch, was able to apply for and obtain M anagers checks drawn againstthe bank account of one of PCIBs clients. The unsettled question is whether Ramos, whoreceived a portion of the money that Balmaceda took from PCIB, should also be heldliable for the return of this money to the Bank.

PCIB insists that it presented sufficient evidence to establish that Ramos colluded withBalmaceda in the scheme to fraudulently secure Managers checks and tomisappropriate their proceeds. Since Ramos defense anchored on mere denial of anyparticipation in Balmacedas wrongdoing is an intrinsically weak defense, it was errorfor the CA to exonerate Ramos from any liability.

In civil cases, the party carrying the burden of proof must establish his case by apreponderance of evidence, or evidence which, to the court, is more worthy of belief than
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the evidence offered in opposition.13

This Court, inEncinas v. National Bookstore,Inc.,

14defined "preponderance of evidence" in the following manner:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidenceon either side and is usually considered to be synonymous with the term "greater weightof the evidence" or "greater weight of the credible evidence." Preponderance of evidenceis a phrase which, in the last analysis, means probability of the truth. It is evidence whichis more convincing to the court as worthy of belief than that which is offered in oppositionthereto.

The party, whether the plaintiff or the defendant, who asserts the affirmative of an issuehas the onus to prove his assertion in order to obtain a favorable judgment, subject to theoverriding rule that the burden to prove his cause of action never leaves the plaintiff. Forthe defendant, an affirmative defense is one that is not merely a denial of an essentialingredient in the plaintiff's cause of action, but one which, if established, will constitute an"avoidance" of the claim.

15

Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positiveassertion that Ramos conspired with Balmaceda in perpetrating the latters scheme todefraud the Bank. In PCIBs estimation, it successfully accomplished this through thesubmission of the following evidence:

[1] Exhibits "A," "D," "PPPP," "QQQQ," and "RRRR" and their submarkings, theapplication forms for MCs, show that [these MCs were applied for in favor ofRamos;]

[2] Exhibits "K," "N," "SSSS," "TTTT," and "UUUU" and their submarkings provethat the MCs were issued in favor of x x x Ramos[; and]

[3] [T]estimonies of the witness for [PCIB].16

We cannot accept these submitted pieces of evidence as sufficient to satisfy the burdenof proof that PCIB carries as

Documents

Nego Cases (part 1)