Negotiable Instruments Law Negotiation Indorsement 326 SCRA 641 Withdrawal Sli

Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI). In 1987 Napiza was app!oached "#
$en!# %han and the latte! &a'e him a ()*++ %ontinental Bank ,ana&e!-s check. %han asked if Napiza can deposit the
check to his (Napiza-s BPI account) "# wa# of accommodation and fo! the pu!pose of clea!in& the said check. Napiza
a&!eed and so he deposited the check on .eptem"e! / 1987. Napiza then deli'e!ed a si&ned "lank withd!awal slip to
%han with the condition that the ()*++.++ ma# onl# "e withd!awn if the check clea!ed. 0o! some !eason the withd!awal
slip ended up in the hands of one 1u"en 2a#on who went to BPI and successfull# withd!ew the ()*++.++. 3t the time of
the withd!awal the check was not #et clea!ed. 4hen da#s late! BPI was notified "# the d!awee "ank named in the check
that the check is actuall# a counte!feit.
ISSUE: 5hethe! o! not Napiza ma# "e held lia"le to !efund the amount of the check.
HELD: No. 4he .up!eme %ou!t !uled that o!dina!il# Napiza would ha'e "een lia"le "ecause he is an accommodation
indo!se!. But due to the attendant ci!cumstances Napiza is discha!&ed f!om lia"ilit#.
4he withd!awal slip indicates as well as the !ules p!omul&ated "# BPI that withd!awal f!om the "ank should "e
accompanied "# the p!esentment of the account holde!-s (Napiza-s) sa'in&s "ank"ook. 4his was not done so in the case
at "a! "ecause 2a#on was a"le to withd!aw without it. 0u!the! BPI allowed the withd!awal e'en "efo!e the check clea!ed.
BPI al!ead# c!edited the ()*++.++ to Napiza-s account e'en without the d!awee "ank clea!in& the check. 4his is cont!a!#
to common "ankin& p!actices and "ecause of such ne&li&ence and lack of dili&ence BPI as the collectin& "ank shall
suffe! the loss.
FIRST DIVISION


B3N6 70 4$8 P$I9IPPIN8I.93N:. 2.1. No. 1/;)+)

Petitione!



< 'e!sus <

P!esent=

P>N7 C!"!# Chairerson#
.3N:7?39<2>4I8118@
%717N3
3@%>N3 and
231%I3 ""!



%7>14 70 3PP839. 3NN3B8998 3.
.393@31 and A>9I7 1. 48,P97N>8?7
1espondents.



P!omul&ated=

Aanua!# )* )++7

B<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<B

DECISION

AZCUNA, J.:

4his is a petition fo! !e'iew unde! 1ule C* of the 1ules of %ou!t seekin& the !e'e!sal of the :ecision
D1E
dated 3p!il
/ 1998 and the 1esolution
D)E
dated No'em"e! 9 1998 of the %ou!t of 3ppeals in %3<2.1. %? No. C))C1.

4he facts
D/E
a!e as follows=


3.3. .alaza! %onst!uction and 8n&inee!in& .e!'ices filed an action fo! a sum of mone# with dama&es a&ainst
he!ein petitione! Bank of the Philippine Islands (BPI) on :ecem"e! * 1991 "efo!e B!anch 1*; of the 1e&ional 4!ial %ou!t
1
(14%) of Pasi& %it#. 4he complaint was late! amended "# su"stitutin& the name of 3nna"elle 3. .alaza! as the !eal pa!t#
in inte!est in place of 3.3. .alaza! %onst!uction and 8n&inee!in& .e!'ices. P!i'ate !espondent .alaza! p!a#ed fo! the
!eco'e!# of the amount of 4wo $und!ed .iBt#<.e'en 4housand .e'en $und!ed .e'en Pesos and .e'ent# %enta'os
(P);77+7.7+) de"ited "# petitione! BPI f!om he! account. .he likewise p!a#ed fo! dama&es and atto!ne#-s fees.

Petitione! BPI in its answe! alle&ed that on 3u&ust /1 1991 Aulio 1. 4emplonue'o thi!d<pa!t# defendant and
he!ein also a p!i'ate !espondent# demanded f!om the fo!me! pa#ment of the amount of 4wo $und!ed .iBt#<.e'en
4housand .iB $und!ed Ninet#<4wo Pesos and 0ift# %enta'os (P);7;9).*+) !ep!esentin& the a&&!e&ate 'alue of th!ee (/)
checks which we!e alle&edl# pa#a"le to him "ut which we!e deposited with the petitione! "ank to p!i'ate !espondent
.alaza!-s account (3ccount No. +)+/<1187<;7) without his knowled&e and co!!espondin& endo!sement.

3cceptin& that 4emplonue'o-s claim was a 'alid one petitione! BPI f!oze 3ccount No. +)+1<+*88<C8 of 3.3.
.alaza! and %onst!uction and 8n&inee!in& .e!'ices instead of 3ccount No. +)+/<1187<;7 whe!e the checks we!e
deposited since this account was al!ead# closed "# p!i'ate !espondent .alaza! o! had an insufficient "alance.

P!i'ate !espondent .alaza! was ad'ised to settle the matte! with 4emplonue'o "ut the# did not a!!i'e at an#
settlement. 3s it appea!ed that p!i'ate !espondent .alaza! was not entitled to the funds !ep!esented "# the checks which
we!e deposited and accepted fo! deposit petitione! BPI decided to de"it the amount of P);77+7.7+ f!om he! 3ccount No.
+)+1<+*88<C8 and the sum of P);7;9).*+ was paid to 4emplonue'o "# means of a cashie!-s check. 4he diffe!ence
"etween the 'alue of the checks (P);7;9).*+) and the amount actuall# de"ited f!om he! account (P);77+7.7+)
!ep!esented "ank cha!&es in connection with the issuance of a cashie!-s check to 4emplonue'o.

In the answe! to the thi!d<pa!t# complaint p!i'ate !espondent 4emplonue'o admitted the pa#ment to him
of P);7;9).*+ and a!&ued that said pa#ment was to co!!ect the malicious deposit made "# p!i'ate !espondent .alaza! to
he! p!i'ate account and that petitione! "ank-s ne&li&ence and tole!ance !e&a!din& the matte! was 'iolati'e of the p!ima!#
and o!dina!# !ules of "ankin&. $e likewise contended that the de"itin& o! takin& of the !eim"u!sed amount f!om the
account of p!i'ate !espondent .alaza! "# petitione! BPI was a matte! eBclusi'el# "etween said pa!ties and ma# "e
pu!suant to "ankin& !ules and !e&ulations "ut did not in an# wa# affect him. 4he de"itin& f!om anothe! account of p!i'ate
!espondent .alaza! conside!in& that he! othe! account was effecti'el# closed was not his conce!n.

3fte! t!ial the 14% !ende!ed a decision the dispositi'e po!tion of which !eads thus=

2
5$8180718 p!emises conside!ed jud&ment is he!e"# !ende!ed in fa'o! of the plaintiff Dp!i'ate
!espondent .alaza!E and a&ainst the defendant Dpetitione! BPIE and o!de!in& the latte! to pa# as follows=

1. 4he amount of P);77+7.7+ with 1)F inte!est the!eon f!om .eptem"e! 1; 1991 until
the said amount is full# paidG
). 4he amount of P/++++.++ as and fo! actual dama&esG
/. 4he amount of P*++++.++ as and fo! mo!al dama&esG
C. 4he amount of P*++++.++ as and fo! eBempla!# dama&esG
*. 4he amount of P/++++.++ as and fo! atto!ne#-s feesG and
;. %osts of suit.

4he counte!claim is he!e"# o!de!ed :I.,I..8: fo! lack of factual "asis.

4he thi!d<pa!t# complaint Dfiled "# petitione!E is he!e"# likewise o!de!ed :I.,I..8: fo! lack of
me!it.

4hi!d<pa!t# defendant-s Di.e. p!i'ate !espondent 4emplonue'o-sE counte!claim is he!e"# likewise
:I.,I..8: fo! lack of factual "asis.

.7 71:818:.
DCE

7n appeal the %ou!t of 3ppeals (%3) affi!med the decision of the 14% and held that !espondent .alaza! was
entitled to the p!oceeds of the th!ee (/) checks notwithstandin& the lack of endo!sement the!eon "# the pa#ee. 4he %3
concluded that .alaza! and 4emplonue'o had p!e'iousl# a&!eed that the checks pa#a"le to A14 %onst!uction and
4!adin&
D*E
actuall# "elon&ed to .alaza! and would "e deposited to he! account with petitione! acHuiescin& to the
a!!an&ement.
D;E

Petitione! the!efo!e filed this petition on these &!ounds=


I.
4he %ou!t of 3ppeals committed !e'e!si"le e!!o! in misinte!p!etin& .ection C9 of the Ne&otia"le
Inst!uments 9aw and .ection / (! and s) of 1ule 1/1 of the New 1ules on 8'idence.

II.
4he %ou!t of 3ppeals committed !e'e!si"le e!!o! in N74 appl#in& the p!o'isions of 3!ticles )) 1)78 and
1)9+ of the %i'il %ode in fa'o! of BPI.

III.
4he %ou!t of 3ppeals committed a !e'e!si"le e!!o! in holdin& "ased on a misapp!ehension of facts that
the account f!om which BPI de"ited the amount of P);77+7.7+ "elon&ed to a co!po!ation with a
sepa!ate and distinct pe!sonalit#.

I?.
4he %ou!t of 3ppeals committed a !e'e!si"le e!!o! in holdin& "ased enti!el# on speculations su!mises o!
conjectu!es that the!e was an a&!eement "etween .393@31 and 48,P97N>8?7 that checks pa#a"le
to 48,P97N>8?7 ma# "e deposited "# .393@31 to he! pe!sonal account and that BPI was p!i'# to
this a&!eement.
?.
4he %ou!t of 3ppeals committed !e'e!si"le e!!o! in holdin& "ased enti!el# on speculation su!mises o!
conjectu!es that .393@31 suffe!ed &!eat dama&e and p!ejudice and that he! "usiness standin& was
e!oded.

?I.
3
4he %ou!t of 3ppeals e!!ed in affi!min& instead of !e'e!sin& the decision of the lowe! cou!t a&ainst BPI
and dismissin& .393@31-s complaint.

?II.
4he $ono!a"le %ou!t e!!ed in affi!min& the decision of the lowe! cou!t dismissin& the thi!d<pa!t#
complaint of BPI.
D7E


4he issues cente! on the p!op!iet# of the deductions made "# petitione! f!om p!i'ate !espondent .alaza!-s
account. .tated othe!wise does a collectin& "ank o'e! the o"jections of its deposito! ha'e the autho!it# to withd!aw
unilate!all# f!om such deposito!-s account the amount it had p!e'iousl# paid upon ce!tain unendo!sed o!de! inst!uments
deposited "# the deposito! to anothe! account that she late! closedI

Petitione! a!&ues thus=

1. 4he!e is no p!esumption in law that a check pa#a"le to o!de! when found in the possession of a
pe!son who is neithe! a pa#ee no! the indo!see the!eof has "een lawfull# t!ansfe!!ed fo! 'alue. $ence
the %3 should not ha'e p!esumed that .alaza! was a t!ansfe!ee fo! 'alue within the contemplation of
.ection C9 of the Ne&otia"le Inst!uments 9aw
D8E
as the latte! applies onl# to a holde! defined unde!
.ection 191of the same.
D9E

). .alaza! failed to adduce sufficient e'idence to p!o'e that he! possession of the th!ee checks was
lawful despite he! alle&ations that these checks we!e deposited pu!suant to a p!io! inte!nal a!!an&ement
with 4emplonue'o and that petitione! was p!i'# to the a!!an&ement.

/. 4he %3 should ha'e applied the %i'il %ode p!o'isions on le&al compensation "ecause in deductin&
the su"ject amount f!om .alaza!-s account petitione! was me!el# !ectif#in& the undue pa#ment it made
upon the checks and eBe!cisin& its p!e!o&ati'e to alte! o! modif# an e!!oneous c!edit ent!# in the !e&ula!
cou!se of its "usiness.

C. 4he de"it of the amount f!om the account of 3.3. .alaza! %onst!uction and 8n&inee!in& .e!'ices
was p!ope! e'en thou&h the 'alue of the checks had "een o!i&inall# c!edited to the pe!sonal account of
.alaza! "ecause 3.3. .alaza! %onst!uction and 8n&inee!in& .e!'ices an uninco!po!ated sin&le
p!op!ieto!ship had no sepa!ate and distinct pe!sonalit# f!om .alaza!.

4
*. 3ssumin& the deduction f!om .alaza!-s account was imp!ope! the %3 should not ha'e dismissed
petitione!-s thi!d<pa!t# complaint a&ainst 4emplonue'o "ecause the latte! would ha'e the le&al dut# to
!etu!n to petitione! the p!oceeds of the checks which he p!e'iousl# !ecei'ed f!om it.

;. 4he!e was no factual "asis fo! the awa!d of dama&es to .alaza!.

4he petition is pa!tl# me!ito!ious.


0i!st the issue !aised "# petitione! !eHui!es an inHui!# into the factual findin&s made "# the %3. 4he %3-s
conclusion that the deductions f!om the "ank account of 3.3. .alaza! %onst!uction and 8n&inee!in& .e!'ices we!e
imp!ope! stemmed f!om its findin& that the!e was no ineffecti'e pa#ment to .alaza! which would call fo! the eBe!cise of
petitione!-s !i&ht to set off a&ainst the fo!me!-s "ank deposits. 4his findin& in tu!n was d!awn f!om the pleadin&s of the
pa!ties the e'idence adduced du!in& t!ial and upon the admissions and stipulations of fact made du!in& the p!e<t!ial most
si&nificantl# the followin&=

(a) 4hat .alaza! p!e'iousl# had in he! possession the followin& checks=

(1) .olid Bank %heck No. %B7;;**; dated Aanua!# /+ 199+ in the amount of P*771).*+G
()) .olid Bank %heck No. %B898978 dated Aul# /1 199+ in the amount of P**18+.++G and
(/) 8Huita"le Bankin& %o!po!ation %heck No. /)/8+;/8 dated 3u&ust )8 199+ fo! the amount
of P1*C8++.++G


(") 4hat these checks which had an a&&!e&ate amount of P);7;9).*+ we!e pa#a"le to the o!de! of A14
%onst!uction and 4!adin& the name and st#le unde! which 4emplonue'o does "usinessG

(c) 4hat despite the lack of endo!sement of the desi&nated pa#ee upon such checks .alaza! was a"le to
deposit the checks in he! pe!sonal sa'in&s account with petitione! and encash the sameG

(d) 4hat petitione! accepted and paid the checks on th!ee (/) sepa!ate occasions o'e! a span of ei&ht
months in 199+G and
(e) 4hat 4emplonue'o onl# p!otested the pu!po!tedl# unautho!ized encashment of the checks afte! the
lapse of one #ea! f!om the date of the last check.
D1+E

5
Petitione! concedes that when it c!edited the 'alue of the checks to the account of p!i'ate !espondent .alaza! it
made a mistake "ecause it failed to notice the lack of endo!sement the!eon "# the desi&nated pa#ee. 4he %3 howe'e!
did not lend c!edence to this claim and concluded that petitione!-s actions we!e deli"e!ate in 'iew of its admission that the
JmistakeK was committed th!ee times on th!ee sepa!ate occasions indicatin& acHuiescence to the inte!nal a!!an&ement
"etween .alaza! and 4emplonue'o. 4he %3 eBplained thus=

It was Huite appa!ent that the th!ee checks which appellee .alaza! deposited we!e not indo!sed.
4h!ee times she deposited them to he! account and th!ee times the amounts "o!ne "# these checks we!e
c!edited to the same. 3nd in those sepa!ate occasions the "ank did not !etu!n the checks to he! so that
she could ha'e them indo!sed. Neithe! did the "ank Huestion he! as to wh# she was depositin& the checks
to he! account conside!in& that she was not the pa#ee the!eof thus allowin& us to come to the conclusion
that defendant<appellant BPI was full# awa!e that the p!oceeds of the th!ee checks "elon& to appellee.

0o! if the "ank was not p!i'# to the a&!eement "etween .alaza! and 4emplonue'o it is most
unlikel# that appellant BPI (o! an# "ank fo! that matte!) would ha'e accepted the checks fo! deposit on
th!ee sepa!ate times na!# an# Huestion. Banks a!e most finick# o'e! acceptin& checks fo! deposit without
the co!!espondin& indo!sement "# thei! pa#ee. In fact the# hesitate to accept indo!sed checks fo! deposit
if the deposito! is not one the# know 'e!# well.
D11E


4he %3 likewise sustained .alaza!-s position that she !ecei'ed the checks f!om 4emplonue'o pu!suant to an
inte!nal a!!an&ement "etween them !atiocinatin& as follows=

If the!e was indeed no a!!an&ement "etween 4emplonue'o and the plaintiff o'e! the th!ee
Huestioned checks it "affles us wh# it was onl# on 3u&ust /1 1991 o! mo!e than a #ea! afte! the thi!d and
last check was deposited that he demanded fo! the !efund of the total amount of P);7;9).*+.

3 p!udent man knowin& that pa#ment is due him would ha'e demanded pa#ment "# his de"to!
f!om the moment the same "ecame due and demanda"le. ,o!e so if the sum in'ol'ed !uns in hund!eds of
thousand of pesos. B# and la!&e e'e!# pe!son at the 'e!# moment he lea!ns that he was dep!i'ed of a
thin& which !i&htfull# "elon&s to him would ha'e c!eated a "i& fuss. $e would not ha'e waited fo! a #ea!
within which to do so. It is most inconcei'a"le that 4emplonue'o did not do this.
D1)E


2ene!all# onl# Huestions of law ma# "e !aised in an appeal "# $ertiorari unde! 1ule C* of the 1ules of %ou!t.
D1/E
0actual findin&s of the %3 a!e entitled to &!eat wei&ht and !espect especiall# when the %3 affi!ms the factual findin&s
of the t!ial cou!t.
D1CE
.uch Huestions on whethe! ce!tain items of e'idence should "e acco!ded p!o"ati'e 'alue o! wei&ht o!
!ejected as fee"le o! spu!ious o! whethe! o! not the p!oofs on one side o! the othe! a!e clea! and con'incin& and
adeHuate to esta"lish a p!oposition in issue a!e Huestions of fact. 4he same holds t!ue fo! Huestions on whethe! o! not
the "od# of p!oofs p!esented "# a pa!t# wei&hed and anal#zed in !elation to cont!a!# e'idence su"mitted "# the ad'e!se
pa!t# ma# "e said to "e st!on& clea! and con'incin& o! whethe! o! not inconsistencies in the "od# of p!oofs of a pa!t# a!e
of such &!a'it# as to justif# !efusin& to &i'e said p!oofs wei&ht L all these a!e issues of fact which a!e not !e'iewa"le "#
the %ou!t.
D1*E

6
4his !ule howe'e! is not a"solute and admits of ce!tain eBceptions namel#= a) when the conclusion is a findin&
&!ounded enti!el# on speculations su!mises o! conjectu!esG ") when the infe!ence made is manifestl# mistaken a"su!d
o! impossi"leG c) when the!e is a &!a'e a"use of disc!etionG d) when the jud&ment is "ased on a misapp!ehension of factsG
e) when the findin&s of fact a!e conflictin&G f) when the %3 in makin& its findin&s went "e#ond the issues of the case and
the same a!e cont!a!# to the admissions of "oth appellant and appelleeG &) when the findin&s of the %3 a!e cont!a!# to
those of the t!ial cou!tG h) when the findin&s of fact a!e conclusions without citation of specific e'idence on which the# a!e
"asedG i) when the findin& of fact of the %3 is p!emised on the supposed a"sence of e'idence "ut is cont!adicted "# the
e'idence on !eco!dG and j) when the %3 manifestl# o'e!looked ce!tain !ele'ant facts not disputed "# the pa!ties and
which if p!ope!l# conside!ed would justif# a diffe!ent conclusion.
D1;E

In the p!esent case the !eco!ds do not suppo!t the findin& made "# the %3 and the t!ial cou!t that a p!io!
a!!an&ement eBisted "etween .alaza! and 4emplonue'o !e&a!din& the t!ansfe! of owne!ship of the checks. 4his fact is
c!ucial as .alaza!-s entitlement to the 'alue of the inst!uments is "ased on the assumption that she is a t!ansfe!ee within
the contemplation of .ection C9 of the Ne&otia"le Inst!uments 9aw.

.ection C9 of the Ne&otia"le Inst!uments 9aw contemplates a situation whe!e"# the pa#ee o! indo!see deli'e!s a
ne&otia"le inst!ument fo! 'alue without indo!sin& it thus=

%rans&er without indorsement' e&&e$t o&< 5he!e the holde! of an inst!ument pa#a"le to his o!de!
t!ansfe!s it fo! 'alue without indo!sin& it the t!ansfe! 'ests in the t!ansfe!ee such title as the t!ansfe!o! had
the!ein and the t!ansfe!ee acHui!es in addition the !i&ht to ha'e the indo!sement of the t!ansfe!o!. But fo!
the pu!pose of dete!minin& whethe! the t!ansfe!ee is a holde! in due cou!se the ne&otiation takes effect
as of the time when the indo!sement is actuall# made.
D17E


It "ea!s st!essin& that the a"o'e t!ansaction is an eHuita"le assi&nment and the t!ansfe!ee acHui!es the
inst!ument su"ject to defenses and eHuities a'aila"le amon& p!io! pa!ties. 4hus if the t!ansfe!o! had le&al title the
t!ansfe!ee acHui!es such title and in addition the !i&ht to ha'e the indo!sement of the t!ansfe!o! and also the !i&ht as
holde! of the le&al title to maintain le&al action a&ainst the make! o! accepto! o! othe! pa!t# lia"le to the t!ansfe!o!. 4he
unde!l#in& p!emise of this p!o'ision howe'e! is that a 'alid t!ansfe! of owne!ship of the ne&otia"le inst!ument in Huestion
has taken place.

4!ansfe!ees in this situation do not enjo# the p!esumption of owne!ship in fa'o! of holde!s since the# a!e neithe!
pa#ees no! indo!sees of such inst!uments. 4he wei&ht of autho!it# is that the me!e possession of a ne&otia"le inst!ument
does not in itself conclusi'el# esta"lish eithe! the !i&ht of the possesso! to !ecei'e pa#ment o! of the !i&ht of one who has
made pa#ment to "e discha!&ed f!om lia"ilit#. 4hus somethin& mo!e than me!e possession "# pe!sons who a!e not
7
pa#ees o! indo!se!s of the inst!ument is necessa!# to autho!ize pa#ment to them in the a"sence of an# othe! facts f!om
which the autho!it# to !ecei'e pa#ment ma# "e infe!!ed.
D18E

4he %3 and the t!ial cou!t su!mised that the su"ject checks "elon&ed to p!i'ate !espondent .alaza! "ased on the
p!e<t!ial stipulation that 4emplonue'o incu!!ed a one<#ea! dela# in demandin& !eim"u!sement fo! the p!oceeds of the
same. 4o the %ou!t-s mind howe'e! such pe!iod of dela# is not of such un!easona"le len&th as to estop 4emplonue'o
f!om asse!tin& owne!ship o'e! the checks especiall# conside!in& that it was !eadil# appa!ent on the face of the
inst!uments
D19E
that these we!e c!ossed checks.

In State In(estment )ouse (! IAC
D)+E
the %ou!t enume!ated the effects of c!ossin& a check thus= (1) that the check
ma# not "e encashed "ut onl# deposited in the "ankG ()) that the check ma# "e ne&otiated onl# once < to one who has an
account with a "ankG and (/) that the act of c!ossin& the check se!'es as a wa!nin& to the holde! that the check has "een
issued fo! a definite pu!pose so that such holde! must inHui!e if the check has "een !ecei'ed pu!suant to that pu!pose.

4hus e'en if the dela# in the demand fo! !eim"u!sement is taken in conjunction with .alaza!-s possession of the
checks it cannot "e said that the p!esumption of owne!ship in 4emplonue'o-s fa'o! as the desi&nated pa#ee the!ein was
sufficientl# o'e!come. 4his is consistent with the p!inciple that if inst!uments pa#a"le to named pa#ees o! to thei! o!de!
ha'e not "een indo!sed in "lank onl# such pa#ees o! thei! indo!sees can "e holde!s and entitled to !ecei'e pa#ment in
thei! own !i&ht.
D)1E

4he p!esumption unde! .ection 1/1(s) of the 1ules of %ou!t statin& that a ne&otia"le inst!ument was &i'en fo! a
sufficient conside!ation will not inu!e to the "enefit of .alaza! "ecause the te!m J&i'enK does not pe!tain me!el# to a
t!ansfe! of ph#sical possession of the inst!ument. 4he ph!ase J&i'en o! indo!sedK in the conteBt of a ne&otia"le inst!ument
!efe!s to the manne! in which such inst!ument ma# "e ne&otiated. Ne&otia"le inst!uments a!e ne&otiated "# Jt!ansfe! to
one pe!son o! anothe! in such a manne! as to constitute the t!ansfe!ee the holder the!eof. If pa#a"le to "ea!e! it is
ne&otiated "# deli'e!#. If pa#a"le to o!de! it is ne&otiated "# the indo!sement completed "# deli'e!#.K
D))E
4he p!esent case
in'ol'es checks pa#a"le to o!de!. Not "ein& a payee o! indorsee of the checks p!i'ate !espondent .alaza! could not "e
a holder the!eof.

It is an eBception to the &ene!al !ule fo! a pa#ee of an o!de! inst!ument to t!ansfe! the inst!ument without
indo!sement. P!ecisel# "ecause the situation is a"no!mal it is "ut fai! to the make! and to p!io! holde!s to !eHui!e
possesso!s to p!o'e without the aid of an initial p!esumption in thei! fa'o! that the# came into possession "# 'i!tue of a
le&itimate t!ansaction with the last holde!.
D)/E
.alaza! failed to discha!&e this "u!den and the !etu!n of the check p!oceeds
8
to 4emplonue'o was the!efo!e wa!!anted unde! the ci!cumstances despite the fact that 4emplonue'o ma# not ha'e clea!l#
demonst!ated that he ne'e! autho!ized .alaza! to deposit the checks o! to encash the same. Notewo!th# also is the fact
that petitione! stamped on the "ack of the checks the wo!ds= M3ll p!io! endo!sements andNo! lack of endo!sements
&ua!anteedM the!e"# makin& the assu!ance that it had asce!tained the &enuineness of all p!io! endo!sements. $a'in&
assumed the lia"ilit# of a &ene!al indo!se! petitione!-s lia"ilit# to the desi&nated pa#ee cannot "e denied.

%onseHuentl# petitione! as the collectin& "ank had the !i&ht to de"it .alaza!-s account fo! the 'alue of the
checks it p!e'iousl# c!edited in he! fa'o!. It is of no moment that the account de"ited "# petitione! was diffe!ent f!om the
o!i&inal account to which the p!oceeds of the check we!e c!edited "ecause "oth admittedl# "elon&ed to .alaza! the
fo!me! "ein& the account of the sole p!op!ieto!ship which had no sepa!ate and distinct pe!sonalit# f!om he! and the latte!
"ein& he! pe!sonal account.

4he !i&ht of set<off was eBplained in Asso$iated *an+ (! %an,
[24]

3 "ank &ene!all# has a !i&ht of set<off o'e! the deposits the!ein fo! the pa#ment of an# withd!awals
on the pa!t of a deposito!. 4he !i&ht of a collectin& "ank to de"it a clientOs account fo! the 'alue of a
dishono!ed check that has p!e'iousl# "een c!edited has fai!l# "een esta"lished "# ju!isp!udence. 4o "e&in
with 3!ticle 198+ of the %i'il %ode p!o'ides that MDfEiBed sa'in&s and cu!!ent deposits of mone# in "anks
and simila! institutions shall "e &o'e!ned "# the p!o'isions conce!nin& simple loan.K

$ence the !elationship "etween "anks and deposito!s has "een held to "e that of c!edito! and
de"to!. 4hus le&al compensation unde! 3!ticle 1)78 of the %i'il %ode ma# take place Mwhen all the
!eHuisites mentioned in 3!ticle 1)79 a!e p!esentM as follows=

(1) 4hat each one of the o"li&o!s "e "ound p!incipall# and that he "e at the same
time a p!incipal c!edito! of the othe!G
()) 4hat "oth de"ts consist in a sum of mone# o! if the thin&s due a!e consuma"le
the# "e of the same kind and also of the same Hualit# if the latte! has "een
statedG
(/) 4hat the two de"ts "e dueG
(C) 4hat the# "e liHuidated and demanda"leG
(*) 4hat o'e! neithe! of them the!e "e an# !etention o! cont!o'e!s# commenced "#
thi!d pe!sons and communicated in due time to the de"to!.


5hile howe'e! it is conceded that petitione! had the !i&ht of set<off o'e! the amount it paid to 4emplonue'o
a&ainst the deposit of .alaza! the issue of whethe! it acted judiciousl# is an enti!el# diffe!ent matte!.
D)*E
3s "usinesses
affected with pu"lic inte!est and "ecause of the natu!e of thei! functions "anks a!e unde! o"li&ation to t!eat the accounts
of thei! deposito!s with meticulous ca!e alwa#s ha'in& in mind the fiducia!# natu!e of thei! !elationship.
D);E
In this !e&a!d
petitione! was clea!l# !emiss in its dut# to p!i'ate !espondent .alaza! as its deposito!.

4o "e&in with the i!!e&ula!it# appea!ed plainl# on the face of the checks. :espite the o"'ious lack of
indo!sement the!eon petitione! pe!mitted the encashment of these checks th!ee times on th!ee sepa!ate occasions. 4his
9
ne&ates petitione!-s claim that it me!el# made a mistake in c!editin& the 'alue of the checks to .alaza!-s account and
instead "olste!s the conclusion of the %3 that petitione! !eco&nized .alaza!-s claim of owne!ship of checks and acted
deli"e!atel# in pa#in& the same cont!a!# to o!dina!# "ankin& polic# and p!actice. It must "e emphasized that the law
imposes a dut# of dili&ence on the collectin& "ank to sc!utinize checks deposited with it fo! the pu!pose of dete!minin&
thei! &enuineness and !e&ula!it#. 4he collectin& "ank "ein& p!ima!il# en&a&ed in "ankin& holds itself out to the pu"lic as
the eBpe!t on this field and the law thus holds it to a hi&h standa!d of conduct.
D)7E
4he takin& and collection of a check
without the p!ope! indo!sement amount to a con'e!sion of the check "# the "ank.
D)8E

,o!e impo!tantl# howe'e! solel# upon the p!omptin& of 4emplonue'o and with full knowled&e of the "!ewin&
dispute "etween .alaza! and 4emplonue'o petitione! de"ited the account held in the name of the sole p!op!ieto!ship of
.alaza! without e'en se!'in& due notice upon he!. 4his !an cont!a!# to petitione!-s assu!ances to p!i'ate !espondent
.alaza! that the account would !emain untouched pendin& the !esolution of the cont!o'e!s# "etween he! and
4emplonue'o.
D)9E
In this connection the %3 cited the lette! dated .eptem"e! * 1991 of ,!. ,anuel 3"lan .enio! ,ana&e!
of petitione! "ank-s Pasi&N7!ti&as "!anch to p!i'ate !espondent .alaza! info!min& he! that he! account had "een f!ozen
thus=

0!om the teno! of the lette! of ,anuel 3"lan it is safe to conclude that 3ccount No. +)+1<+*88<C8
will !emain f!ozen o! untouched until he!ein D.alaza!E has settled matte!s with 4emplonue'o. But in an
uneBpected mo'e in less than two weeks (ele'en da#s to "e p!ecise) f!om the time that lette! was w!itten
Dpetitione!E "ank issued a cashie!-s check in the name of Aulio 1. 4emplonue'o of the A.1.4. %onst!uction
and 4!adin& fo! the sum of P);7;9).*+ (8Bhi"it J8K) and de"ited said amount f!om ,s. 3!cilla-s account
No. +)+1<+*88<C8 which was supposed to "e f!ozen o! cont!olled. .uch a mo'e "# BPI is to 7u! minds a
clea! case of ne&li&ence if not a f!audulent wanton and !eckless dis!e&a!d of the !i&ht of its deposito!.

4he !eco!ds fu!the! "ea! out the fact that !espondent .alaza! had issued se'e!al checks d!awn a&ainst the
account of 3.3. .alaza! %onst!uction and 8n&inee!in& .e!'ices p!io! to an# notice of deduction "ein& se!'ed. 4he %3
sustained p!i'ate !espondent .alaza!-s claim of dama&es in this !e&a!d=

4he act of the "ank in f!eezin& and late! de"itin& the amount of P);7;9).*+ f!om the account of
3.3. .alaza! %onst!uction and 8n&inee!in& .e!'ices caused plaintiff<appellee &!eat dama&e and p!ejudice
pa!ticula!l# when she had al!ead# issued checks d!awn a&ainst the said account. 3s can "e eBpected the
said checks "ounced. 4o p!o'e this plaintiff<appellee p!esented as eBhi"its photocopies of checks
dated .eptem"e! 8 1991 7cto"e! )8 1991 and No'em"e! 1C 1991 (8Bhi"its J:K J8K and J0K
!especti'el#)
D/+E


4hese checks it must "e emphasized we!e su"seHuentl# dishono!ed the!e"# causin& p!i'ate !espondent
.alaza! undue em"a!!assment and inflictin& dama&e to he! standin& in the "usiness communit#. >nde! the
ci!cumstances she was clea!l# not &i'en the oppo!tunit# to p!otect he! inte!est when petitione! unilate!all# withd!ew the
a"o'e amount f!om he! account without info!min& he! that it had al!ead# done so.
10

0o! the a"o'e !easons the %ou!t finds no !eason to distu!" the awa!d of dama&es &!anted "# the %3 a&ainst
petitione!. 4his whole incident would ha'e "een a'oided had petitione! adhe!ed to the standa!d of dili&ence eBpected of
one en&a&ed in the "ankin& "usiness. 3 deposito! has the !i&ht to !eco'e! !easona"le mo!al dama&es e'en if the "ank-s
ne&li&ence ma# not ha'e "een attended with malice and "ad faith if the fo!me! suffe!ed mental an&uish se!ious anBiet#
em"a!!assment and humiliation.
D/1E
,o!al dama&es a!e not meant to en!ich a complainant at the eBpense of defendant. It
is onl# intended to alle'iate the mo!al suffe!in& she has unde!&one. 4he awa!d of eBempla!# dama&es is justified on the
othe! hand when the acts of the "ank a!e attended "# malice "ad faith o! &!oss ne&li&ence. 4he awa!d of !easona"le
atto!ne#-s fees is p!ope! whe!e eBempla!# dama&es a!e awa!ded. It is p!ope! whe!e deposito!s a!e compelled to liti&ate to
p!otect thei! inte!est.
D/)E


HEREFORE the petition is pa!tiall# !RANTED" 4he assailed :ecision dated 3p!il / 1998 and 1esolution
dated 3p!il / 1998 !ende!ed "# the %ou!t of 3ppeals in %3<2.1. %? No. C))C1 a!e #ODIFIED insofa! as it o!de!ed
petitione! Bank of the Philippine Islands to !etu!n the amount of 4wo $und!ed .iBt#<se'en 4housand .e'en $und!ed and
.e'en and 7+N1++ Pesos (P);77+7.7+) to !espondent 3nna"elle 3. .alaza! which po!tion is REVERSED and SET
ASIDE. In all othe! !espects the same a!eAFFIR#ED"

11