Jurisprudence: G.R. No. L-26001 October 29, 1968

EN BANC

G.R. No. L-26001            October 29, 1968

PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS and PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, respondents.

Tomas Besa, Jose B. Galang and Juan C. Jimenez for petitioner.
San Juan, Africa & Benedicto for respondents.

CONCEPCION, C.J.:

The Philippine National Bank — hereinafter referred to as the PNB — seeks the review by certiorari of a decision of the Court of Appeals, which affirmed that of the Court of First Instance of Manila, dismissing plaintiff's complaint against the Philippine Commercial and Industrial Bank — hereinafter referred to as the PCIB — for the recovery of P57,415.00.

A partial stipulation of facts entered into by the parties and the decision of the Court of Appeals show that, on about January 15, 1962, one Augusto Lim deposited in his current account with the PCIB branch at Padre Faura, Manila, GSIS Check No. 645915- B, in the sum of P57,415.00, drawn against the PNB; that, following an established banking practice in the Philippines, the check was, on the same date, forwarded, for clearing, through the Central Bank, to the PNB, which did not return said check the next day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited it against the account of the GSIS in the PNB; that, subsequently, or on January 31, 1962, upon demand from the GSIS, said sum of P57,415.00 was re-credited to the latter's account, for the reason that the signatures of its officers on the check were forged; and that, thereupon, or on February 2, 1962, the PNB demanded from the PCIB the refund of said sum, which the PCIB refused to do. Hence, the present action against the PCIB, which was dismissed by the Court of First Instance of Manila, whose decision was, in turn, affirmed by the Court of Appeals.

It is not disputed that the signatures of the General Manager and the Auditor of the GSIS on the check, as drawer thereof, are forged; that the person named in the check as its payee was one Mariano D. Pulido, who purportedly indorsed it to one Manuel Go; that the check purports to have been indorsed by Manuel Go to Augusto Lim, who, in turn, deposited it with the PCIB, on January 15, 1962; that, thereupon, the PCIB stamped the following on the back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila; that, on the same date, the PCIB sent the check to the PNB, for clearance, through the Central Bank; and that, over two (2) months before, or on November 13, 1961, the GSIS had notified the PNB, which acknowledged receipt of the notice, that said check had been lost, and, accordingly, requested that its payment be stopped.

In its brief, the PNB maintains that the lower court erred: (1) in not finding the PCIB guilty of negligence; (2) in not finding that the indorsements at the back of the check are forged; (3) in not finding the PCIB liable to the PNB by virtue of the former's warranty on the back of the check; (4) in not holding that "clearing" is not "acceptance", in contemplation of the Negotiable Instruments law; (5) in not finding that, since the check had not been accepted by the PNB, the latter is entitled to reimbursement therefor; and (6) in denying the PNB's right to recover from the PCIB.

The first assignment of error will be discussed later, together with the last,with which it is interrelated.

As regards the second assignment of error, the PNB argues that, since the signatures of the drawer are forged, so must the signatures of the supposed indorsers be; but this conclusion does not necessarily follow from said premise. Besides, there is absolutely no evidence, and the PNB has not even tried to prove that the aforementioned indorsements are spurious. Again, the PNB refunded the amount of the check to the GSIS, on account of the forgery in the signatures, not of the indorsers or supposed indorsers, but of the officers of the GSIS as drawer of the instrument. In other words, the question whether or not the indorsements have been falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the PCIB,1 for, as against the drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer,2 since the forgery of the indorsement is not the cause of the loss.3

With respect to the warranty on the back of the check, to which the third assignment of error refers, it should be noted that the PCIB thereby guaranteed "all prior indorsements," not the authenticity of the signatures of the officers of the GSIS who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer.4 Said warranty is irrelevant, therefore, to the PNB's alleged right to recover from the PCIB. It could have been availed of by a subsequent indorsee5 or a holder in due course6 subsequent to the PCIB, but, the PNB is neither.7 Indeed, upon payment by the PNB, as drawee, the check ceased to be a negotiable instrument, and became a mere voucher or proof of payment.8

Referring to the fourth and fifth assignments of error, we must bear in mind that, in general, "acceptance", in the sense in which this term is used in the Negotiable Instruments Law9 is not required for checks, for the same are payable on demand.10 Indeed, "acceptance" and "payment" are, within the purview of said Law, essentially different things, for the former is "a promise to perform an act," whereas the latter is the "actual performance" thereof.11 In the words of the Law,12 "the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer," which, in the case of checks, is the payment, on demand, of a given sum of money. Upon the other hand, actual payment of the amount of a check implies not only an assent to said order of the drawer and a recognition of the drawer's obligation to pay the aforementioned sum, but, also, a compliance with such obligation.

Let us now consider the first and the last assignments of error. The PNB maintains that the lower court erred in not finding that the PCIB had been guilty of negligence in not discovering that the check was forged. Assuming that there had been such negligence on the part of the PCIB, it is undeniable, however, that the PNB has, also, been negligent, with the particularity that the PNB had been guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped. Just as important, if not more important and decisive, is the fact that the PNB's negligence was the main or proximate cause for the corresponding loss.

In this connection, it will be recalled that the PCIB did not cash the check upon its presentation by Augusto Lim; that the latter had merely deposited it in his current account with the PCIB; that, on the same day, the PCIB sent it, through the Central Bank, to the PNB, for clearing; that the PNB did not return the check to the PCIB the next day or at any other time; that said failure to return the check to the PCIB implied, under the current banking practice, that the PNB considered the check good and would honor it; that, in fact, the PNB honored the check and paid its amount to the PCIB; and that only then did the PCIB allow Augusto Lim to draw said amount from his aforementioned current account.

Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB.13

It is a well-settled maxim of law and equity that when one of two (2) innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong.14

Then, again, it has, likewise, been held that, where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the court will leave the parties where it finds them.15

Lastly, Section 62 of Act No. 2031 provides:

The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance; and admits:

(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.

The prevailing view is that the same rule applies in the case of a drawee who pays a bill without having previously accepted it.16

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the Philippine National Bank. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles, Fernando and Capistrano, JJ., concur.
Zaldivar, J., took no part.

Jurisprudence: G.R. No. L-26767 February 22, 1968

EN BANC

G.R. No. L-26767             February 22, 1968

ANG TIONG, plaintiff-appellee,
vs.
LORENZO TING, doing business under the name and style of PRUNES PRESERVED MFG., and FELIPE ANG, defendants.
FELIPE ANG, defendant-appellant.

Chipeco & Alcaraz, Jr. for plaintiff-appellee.
Ang, Atienza & Tabora for defendant-appellant.

CASTRO, J.:

          On August 15, 1960 Lorenzo Ting issued Philippine Bank of Communications check K-81618, for the sum of P4,000, payable to "cash or bearer". With Felipe Ang's signature (indorsement in blank) at the back thereof, the instrument was received by the plaintiff Ang Tiong who thereafter presented it to the drawee bank for payment. The bank dishonored it. The plaintiff then made written demands on both Lorenzo Ting and Felipe Ang that they make good the amount represented by the check. These demands went unheeded; so he filed in the municipal court of Manila an action for collection of the sum of P4,000, plus P500 attorney's fees. On March 6, 1962 the municipal court adjudged for the plaintiff against the two defendants.

          Only Felipe Ang appealed to the Court of First Instance of Manila (civil case 50018), which rendered judgment on July 31, 1962, amended by an order dated August 9, 1962, directing him to pay to the plaintiff "the sum of P4,000, with interest at the legal rate from the date of the filing of the complaint, a further sum of P400 as attorney's fees, and costs."

          Felipe Ang then elevated the case to the Court of Appeals, which certified it to this Court because the issues raised are purely of law.

          The appellant imputes to the court a quo three errors, namely, (1) that it refused to apply article 2071 of the new Civil Code to the case at bar; (2) that it adjudged him a general indorser under the Negotiable Instruments Law (Act 2031); and (3) that it held that he "cannot obtain his release from the contract of suretyship or obtain security to protect himself against any proceedings on the part of the creditor and against the danger of insolvency of the principal debtor," because he is "jointly and severally liable on the instrument."

          This, appeal is absolutely without merit.

          1. The genuineness and due execution of the instrument are not controverted. That the appellee is a holder thereof for value is admitted.

          Having arisen from a bank check which is indisputably a negotiable instrument, the present case is, therefore, in so far as the indorsee is concerned vis-a-vis the indorser, governed solely plaintiff the Negotiable Instruments Law (see secs. 1 and 185). Article 2071 of the new Civil Code, invoked by the appellant, the pertinent portion of which states, "The guarantor, even before been paid, may proceed against the principal debtor; (1) when he is sued for the payment; . . . the action of the guarantor is to obtain release from the guaranty, to demand a security that shall protect him from any proceedings by the creditor . . .," is here completely irrelevant and can have no application whatsoever.

          We are in agreement with the trial judge that nothing in the check in question indicates that the appellant is not a general indorser within the purview of section 63 of the Negotiable Instruments Law which makes "a person placing his signature upon an instrument otherwise than as maker, drawer or acceptor" a general indorser, — "unless he clearly indicates plaintiff appropriate words his intention to be bound in some other capacity," which he did not do. And section 66 ordains that "every indorser who indorses without qualification, warrants to all subsequent holders in due course" (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is at the time of his indorsement valid and subsisting. In addition, "he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder." 1

          2. Even on the assumption that the appellant is a mere accommodation party, as he professes to be, he is nevertheless, by the clear mandate of section 29 of the Negotiable Instruments Law, yet "liable on the instrument to a holder for value, notwithstanding that such holder at the time of taking the instrument knew him to be only an accommodation party." To paraphrase, the accommodation party is liable to a holder for value as if the contract was not for accommodation. It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. Nor is it correct to say that the holder for value is not a holder in due course merely because at the time he acquired the instrument, he knew that the indorser was only an accommodation party. 2

          3. That the appellant, again assuming him to be an accommodation indorser, may obtain security from the maker to protect himself against the danger of insolvency of the latter, cannot in any manner affect his liability to the appellee, as the said remedy is a matter of concern exclusively between accommodation indorser and accommodated party. So that the fact that the appellant stands only as a surety in relation to the maker, granting this to be true for the sake of argument, is immaterial to the claim of the appellee, and does not a whit diminish nor defeat the rights of the latter who is a holder for value. The liability of the appellant remains primary and unconditional. To sanction the appellant's theory is to give unwarranted legal recognition to the patent absurdity of a situation where an indorser, when sued on an instrument by a holder in due course and for value, can escape liability on his indorsement by the convenient expedient of interposing the defense that he is a mere accomodation indorser.

          ACCORDINGLY, the judgment a quo is affirmed in toto, at appellant's cost.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando, JJ., concur.

Jurisprudence: G.R. No. L-23145 November 29, 1968

EN BANC

G.R. No. L-23145      November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.

Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.

FERNANDO, J.:

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court."1

From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from legal doctrines of weight and significance.

The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant, the certificates being in the possession of the County Trust Company of New York, which as noted, is the domiciliary administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as to "who is entitled to the possession of the stock certificates in question; appellant opposed the petition of the ancillary administrator because the said stock certificates are in existence, they are today in the possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."4

It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be issued. Hence, its appeal.

As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a court decree. How, then, can this order be stigmatized as illegal?

As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as to preclude such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable principles and supported by the strongest policy considerations.

It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27, 1963, and filing a petition for relief from a previous order of March 15, 1963.

Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary administrator, with residence abroad, of what was previously ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority.

1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle her estate and satisfy the claims of local creditors.5 As Justice Tuason speaking for this Court made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that an administrator appointed in one state or country has no power over property in another state or country."6

It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate owning property in the country of his domicile as well as in a foreign country, administration is had in both countries. That which is granted in the jurisdiction of decedent's last domicile is termed the principal administration, while any other administration is termed the ancillary administration. The reason for the latter is because a grant of administration does not ex proprio vigore have any effect beyond the limits of the country in which it is granted. Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper, whenever a person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets of the deceased liable for his individual debts or to be distributed among his heirs."7

It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders.

Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it were so minded.

2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its "considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress that the "lower court could not "consider as lost" the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the possession of the domiciliary administrator in New York."10

There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be discharged and his responsibility fulfilled.

Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard.

It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its development."11

Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent jurist, noting "the quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the empire of "as if" today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought, but which at times hides itself from view till reflection and analysis have brought it to the light."14

What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular alleged error does not carry persuasion.

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the event of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership [thereof]."15

Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness and finality. Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter is to be followed.

It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary must yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however, if a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it but yield to its alleged controlling force.

The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus far, nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority.

4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic postulates of corporate theory.

We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."16 It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person, owing its existence through creation by a sovereign power."17 As a matter of fact, the statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law."18

The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and separate from its individual stockholders.... It owes its existence to law. It is an artificial person created by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person, resulting from an association of human beings granted legal personality by the state, puts the matter neatly.20

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and concession."21 A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances, where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it.

To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its very existence; it is to contend that what any of its governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot possibly merit approval.

5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of money paid to the minor under guardianship, alleging that the lower court had previously granted its petition to consider the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the United States. The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an American federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other American official to examine the matter anew, "except a judge or judges of the United States court."23 Reconsideration was denied, and the Administrator appealed.

In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive when made on claims property submitted to him for resolution; but they are not applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that are imposed by the Veterans' Act, including the exclusive review by United States courts), and those actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render them mere subordinate instrumentalities of the Veterans' Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts over juridical persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the whim or caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of the country.

Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal. Certainly we must at all pains see to it that it does not succeed. The deplorable consequences attendant on appellant prevailing attest to the necessity of negative response from us. That is what appellant will get.

That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and distinguished by its correspondence with what a sense of realism requires. For through the appealed order, the imperative requirement of justice according to law is satisfied and national dignity and honor maintained.

WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.

Makalintal, Zaldivar and Capistrano, JJ., concur.
Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result.

Torts and Damages Case Digest: Raagas v. Traya (1968)

G.R. No. L-20081   February 27, 1968

Lessons Applicable: Proof and Proximate Cause (Torts and Damages)

Laws Applicable: 

FACTS:

• April 9, 1958: Octavio Traya recklessly driving a truck owned by Canciller ran over the 3-year old son of the spouses Melquiades Raagas and Adela Laudiano Raagas causing his instantaneous death
• Spouses Raagas prayed for actual damages of P10,000, moral, nominal and corrective damages, P1,000 as attorney's fees, P1,000 for expenses of litigation, plus costs
• RTC: Traya and Bienvenido Canciller jointly and severally liable P10,000 for the death of their child Regino Laudiano Raagas, P2,000 for moral damages, P1,000 actual damages, P1,000 for attorney's fees, and the costs
• Traya and Canciller appealed to CA, which certified the case to the SC because the issues raised are purely of law

ISSUE: W/N the damages should be proven

HELD: YES. hereby remanded to the court of origin for trial on the merits

• even if the allegations regarding the amount of damages in the complaint are not specifically denied in the answer, such damages are not deemed admitted
• an allegation is not necessary in order that moral damages may be awarded,  but it is, nevertheless, essential that the claimant satisfactorily prove the existence of the factual basis of the damage and its causal relation to defendant's acts
• The preceding disquisition points up the inescapable need of a full-blown trial on the merits at which the parties will be afforded every opportunity to present evidence in support of their respective contentions and defenses

Jurisprudence: G.R. No. L-20081

EN BANC

G.R. No. L-20081 February 27, 1968

MELQUIADES RAAGAS and ADELA LAUDIANO RAAGAS, plaintiffs-appellees,

vs.

OCTAVIO TRAYA, MRS. OCTAVIO TRAYA and BIENVENIDO CANCILLER, defendants-appellants.

Miguel V. Tiausas for plaintiff-appellee.

Victoriano M. Realino for defendants-appellants.

, J.:

          The complaint filed on April 1, 1960 with the Court of First Instance of Leyte (civil case 2749) by the spouses Melquiades Raagas and Adela Laudiano Raagas against Octavio Traya, his wife, and Bienvenido Canciller, alleges in essence that on or about April 9, 1958, while the latter was "recklessly" driving a truck owned by his co-defendants, along the public highway in MacArthur, Leyte, the said vehicle ran over the plaintiffs' three-year old son Regino causing his instantaneous death. The plaintiffs ask for actual damages in the sum of P10,000, moral, nominal and corrective damages in a sum to be determined by the court, P1,000 as attorney's fees, P1,000 for expenses of litigation, plus costs.

          In their answer with counterclaim for moral and actual damages and attorney's fees, filed on April 22, the defendants specifically deny that Canciller was "driving recklessly" at the time of the mishap, and assert that the truck "was fully loaded and was running at a very low speed and on the right side of the road"; that it was the child who "rushed from an unseen position and bumped the truck so that he was hit by the left rear tire of the said truck and died", and consequently the defendants are not to blame for the accident which was "entirely attributable to an unforeseen event" or due to the fault of the child and negligence of his parents; that the defendant-spouses have exercised due diligence in the selection and supervision of their driver Canciller, whom they hired in 1946 only after a thorough study of his background as a truck driver; and that each time they allowed him to drive it was only after a check of his physical condition and the mechanical fitness of the truck assigned to him.

          On May 4 the plaintiffs' moved for a judgment on the pleadings, upon the claim that the defendants' answer not only "failed to tender an issue" but as well "admitted material allegations" of the complaint. This motion was set for hearing on June 18. On the previous day, however, the clerk of court received a telegram from the defendants' counsel requesting for postponement of the hearing to July 2 on the ground that he was sick of influenza. The lower court denied the request for lack of "proper notice to the adverse party", and considered the case submitted for decision upon the filing of the plaintiffs' memorandum.

          On June 24 it rendered a judgment on the pleadings, condemning the defendants, jointly and severally, to pay "to the plaintiffs the sum of P10,000 for the death of their child Regino Laudiano Raagas, P2,000 for moral damages, P1,000 actual damages, P1,000 for attorney's fees, and the costs."

          The court reasoned that the denial in the answer of the charge of reckless driving "did not affect the plaintiffs' positive allegation in their complaint that the truck . . . did not have a current year registration plate . . . for the year 1958 when the accident occurred that "this failure . . . has the effect of admitting hypothetically that they operated ... the said truck without proper license . . . when the accident occurred," and that "unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation (article 2185, new Civil Code)." The court went on to conclude that under the circumstances a judgment on the pleadings was "irremediably proper and fitting."

          The defendants appealed to the Court of Appeals, which certified the case to this Court because the issues raised are purely of law.

          Section 10 of Rule 35 of the old Rules of Court 1 authorized a judgment on the pleadings "where an answer fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading."

          The vital issue, therefore, to which the other issues are subsidiary or intestinal, is whether the court a quo acted correctly when it rendered judgment on the pleadings. It is our view that the court erred.

          The plaintiffs' claim for actual, moral, nominal and corrective damages, was controverted by the averment in the answer to the effect that the defendants "have no knowledge or information sufficient to form a belief as to the truth of the allegations" as to such damages, "the truth of the matter being that the death of Regino Raagas was occasioned by an unforeseen event and/or by the fault of the small boy Regino Raagas or his parents." Such averment has the effect of tendering a valid issue. We so held in Philippine National Bank vs. Lacson, L-9419, May 29, 1957 and in Benavides vs. Alabastro, L-19762, Dec. 23, 1964. In Abubakar Tan vs. Tian Ho, L-18820, December 29, 1962 and Lim Giok vs. Bataan Cigar and Cigarette Factory, L-15861, April 16, 1960, we held that even if the allegations regarding the amount of damages in the complaint are not specifically denied in the answer, such damages are not deemed admitted. In Tomassi vs. Villa-Abrille, L-7047, August 21, 1968, Suntay Tanjangco vs. Jovellanos, et al., L-12332, June 30, 1960, and Delfin vs. Court of Agrarian Relations, et al., L-23348, March 14, 1967, 1967 A PHILD 453, we declared in no uncertain terms that actual damages must be proved, and that a court cannot rely on "speculation, conjecture or guesswork" as to the fact and amount of damages, but must depend on actual proof that damage had been suffered and on evidence of the actual amount. Finally, in Malonzo vs. Galang et. al., L-13851, July 27, 1960, we reaffirmed the rule that although an allegation is not necessary in order that moral damages may be awarded, "it is, nevertheless, essential that the claimant satisfactorily prove the existence of the factual basis of the damage and its causal relation to defendant's acts."

          The preceding disquisition points up the inescapable need of a full-blown trial on the merits at which the parties will be afforded every opportunity to present evidence in support of their respective contentions and defenses.

          ACCORDINGLY, the judgment on the pleadings of June 24, 1960 is set aside, and this case is hereby remanded to the court of origin for trial on the merits. No pronouncement as to costs.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando JJ., concur.

Concepcion, C.J., is on leave.

Footnotes

1Now section 1 of Rule 19 of the new Rules of Court.

Insurance Case Digest: Coquia v. Fieldmen's Insurance Co., Inc. (1968)

G.R. No. L-23276      November 29, 1968

Lessons Applicable: stipulation pour autrui (Insurance)

FACTS:

• December 1, 1961: Fieldmen's Insurance Company, Inc. issued in favor of the Manila Yellow Taxicab Co., Inc. (Manila) from December 1, 1961 to December 1, 1962
• February 10, 1962: A taxicab of Manila driven by Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinana and died
• The insured filed a claim for P5,000 in which Fieldmen's replied with an offer to pay P2,000 by way of compromise
• The insured rejected it and countered with P4,000
• September 18, 1962: Carlito's parents filed a complaint against the Company for collection
• The company pleaded lack of cause of action
• RTC: ordered to pay the parents

ISSUE: W/N there is a stipulation pour autrui that exempts the general rule that the parents are not a party to the contract

HELD: YES. RTC affirmed. 

• There is a stipulation that the Company "will indemnify any authorized Driver who is driving the Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify his personal representatives."
• typical of contracts pour autrui, this character being made more manifest by the fact that the deceased driver paid 50% of the corresponding premiums, which were deducted from his weekly commissions
• expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this Policy that the award by such arbitrator, arbitrators or umpire of the amount of the Company's liability hereunder if disputed shall be first obtained
• both parties from the inception of their dispute proceeded in entire disregard of the provisions of the contract relating to arbitration
• conduct was as effective a rejection of the right to arbitrate 

Jurisprudence: G.R. No. L-23276

EN BANC

G.R. No. L-23276      November 29, 1968

MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC., plaintiffs-appellees,
vs.
FIELDMEN'S INSURANCE CO., INC., defendant-appellant.

Antonio de Venecia for plaintiffs-appellees.
Rufino Javier for defendant-appellant.

CONCEPCION, C.J.:

This is an appeal from a decision of the Court of First Instance of Manila, certified to us by the Court of Appeals, only questions of law being involved therein. Indeed, the pertinent facts have been stipulated and/or, admitted by the parties at the hearing of the case in the trial court, to dispense with the presentation of evidence therein.

It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc. — hereinafter referred to as the Company — issued, in favor of the Manila Yellow Taxicab Co., Inc. — hereinafter referred to as the Insured — a common carrier accident insurance policy, covering the period from December 1, 1961 to December 1, 1962. It was stipulated in said policy that:

The Company will, subject to the Limits of Liability and under the Terms of this Policy, indemnify the Insured in the event of accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury to any fare-paying passenger including the Driver, Conductor and/or Inspector who is riding in the Motor Vehicle insured at the time of accident or injury. 1

While the policy was in force, or on February 10, 1962, a taxicab of the Insured, driven by Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinan, in consequence of which Carlito died. The Insured filed therefor a claim for P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of compromise. The Insured rejected the same and made a counter-offer for P4,000.00, but the Company did not accept it. Hence, on September 18, 1962, the Insured and Carlito's parents, namely, Melecio Coquia and Maria Espanueva — hereinafter referred to as the Coquias — filed a complaint against the Company to collect the proceeds of the aforementioned policy. In its answer, the Company admitted the existence thereof, but pleaded lack of cause of action on the part of the plaintiffs.

After appropriate proceedings, the trial court rendered a decision sentencing the Company to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the Company, which contends that plaintiffs have no cause of action because: 1) the Coquias have no contractual relation with the Company; and 2) the Insured has not complied with the provisions of the policy concerning arbitration.

As regards the first defense, it should be noted that, although, in general, only parties to a contract may bring an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the Philippines, reading:

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.2

This is but the restatement of a well-known principle concerning contracts pour autrui, the enforcement of which may be demanded by a third party for whose benefit it was made, although not a party to the contract, before the stipulation in his favor has been revoked by the contracting parties. Does the policy in question belong to such class of contracts pour autrui?

In this connection, said policy provides, inter alia:

Section I — Liability to Passengers. 1. The Company will, subject to the Limits of Liability and under the Terms of this Policy, indemnify the Insured in the event of accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury to any fare-paying passenger including the Driver ... who is riding in the Motor Vehicle insured at the time of accident or injury.

Section II — Liability to the Public

xxx      xxx      xxx

3. In terms of and subject to the limitations of and for the purposes of this Section, the Company will indemnify any authorized Driver who is driving the Motor Vehicle....

Conditions

xxx      xxx      xxx

7. In the event of death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability incurred by such person, indemnify his personal representatives in terms of and subject to the limitations of this Policy, provided, that such representatives shall, as though they were the Insured, observe, fulfill and be subject to the Terms of this Policy insofar as they can apply.

8. The Company may, at its option, make indemnity payable directly to the claimants or heirs of claimants, with or without securing the consent of or prior notification to the Insured, it being the true intention of this Policy to protect, to the extent herein specified and subject always to the Terms Of this Policy, the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public.

Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is driving the Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify his personal representatives." In fact, the Company "may, at its option, make indemnity payable directly to the claimants or heirs of claimants ... it being the true intention of this Policy to protect ... the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public" — in other words, third parties.

Thus, the policy under consideration is typical of contracts pour autrui, this character being made more manifest by the fact that the deceased driver paid fifty percent (50%) of the corresponding premiums, which were deducted from his weekly commissions. Under these conditions, it is clear that the Coquias — who, admittedly, are the sole heirs of the deceased — have a direct cause of action against the Company,3 and, since they could have maintained this action by themselves, without the assistance of the Insured, it goes without saying that they could and did properly join the latter in filing the complaint herein.4

The second defense set up by the Company is based upon Section 17 of the policy reading:

If any difference or dispute shall arise with respect to the amount of the Company's liability under this Policy, the same shall be referred to the decision of a single arbitrator to be agreed upon by both parties or failing such agreement of a single arbitrator, to the decision of two arbitrators, one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties and in case of disagreement between the arbitrators, to the decision of an umpire who shall have been appointed in writing by the arbitrators before entering on the reference and the costs of and incident to the reference shall be dealt with in the Award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this Policy that the award by such arbitrator, arbitrators or umpire of the amount of the Company's liability hereunder if disputed shall be first obtained.

The record shows, however, that none of the parties to the contract invoked this section, or made any reference to arbitration, during the negotiations preceding the institution of the present case. In fact, counsel for both parties stipulated, in the trial court, that none of them had, at any time during said negotiations, even suggested the settlement of the issue between them by arbitration, as provided in said section. Their aforementioned acts or omissions had the effect of a waiver of their respective right to demand an arbitration. Thus, in Kahnweiler vs. Phenix Ins. Co. of Brooklyn,5 it was held:

Another well-settled rule for interpretation of all contracts is that the court will lean to that interpretation of a contract which will make it reasonable and just. Bish. Cont. Sec. 400. Applying these rules to the tenth clause of this policy, its proper interpretation seems quite clear. When there is a difference between the company and the insured as to the amount of the loss the policy declares: "The same shall then be submitted to competent and impartial arbitrators, one to be selected by each party ...". It will be observed that the obligation to procure or demand an arbitration is not, by this clause, in terms imposed on either party. It is not said that either the company or the insured shall take the initiative in setting the arbitration on foot. The company has no more right to say the insured must do it than the insured has to say the company must do it. The contract in this respect is neither unilateral nor self-executing. To procure a reference to arbitrators, the joint and concurrent action of both parties to the contract is indispensable. The right it gives and the obligation it creates to refer the differences between the parties to arbitrators are mutual. One party to the contract cannot bring about an arbitration. Each party is entitled to demand a reference, but neither can compel it, and neither has the right to insist that the other shall first demand it, and shall forfeit any right by not doing so. If the company demands it, and the insured refuses to arbitrate, his right of action is suspended until he consents to an arbitration; and if the insured demands an arbitration, and the company refuses to accede to the demand, the insured may maintain a suit on the policy, notwithstanding the language of the twelfth section of the policy, and, where neither party demands an arbitration, both parties thereby waive it.6

To the same effect was the decision of the Supreme Court of Minnesota in Independent School Dist. No. 35, St. Louis County vs. A. Hedenberg & Co., Inc.7 from which we quote:

This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W. 937, decided in 1893, this court held that the parties to a construction contract, having proceeded throughout the entire course of their dealings with each other in entire disregard of the provision of the contract regarding the mode of determining by arbitration the value of the extras, thereby waived such provision.

xxx      xxx      xxx

The test for determining whether there has been a waiver in a particular case is stated by the author of an exhaustive annotation in 117 A.L.R. p. 304, as follows: "Any conduct of the parties inconsistent with the notion that they treated the arbitration provision as in effect, or any conduct which might be reasonably construed as showing that they did not intend to avail themselves of such provision, may amount to a waiver thereof and estop the party charged with such conduct from claiming its benefits".

xxx      xxx      xxx

The decisive facts here are that both parties from the inception of their dispute proceeded in entire disregard of the provisions of the contract relating to arbitration and that neither at any stage of such dispute, either before or after commencement of the action, demanded arbitration, either by oral or written demand, pleading, or otherwise. Their conduct was as effective a rejection of the right to arbitrate as if, in the best Coolidge tradition, they had said, "We do not choose to arbitrate". As arbitration under the express provisions of article 40 was "at the choice of either party," and was chosen by neither, a waiver by both of the right to arbitration followed as a matter of law.

WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto, with costs against the herein defendant-appellant, Fieldmen's Insurance Co., Inc. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando and Capistrano, JJ., concur.


Footnotes

1 Emphasis ours.

2 Emphasis ours.

3 Uy Tam vs. Leonard, 30 Phil. 471, 485-486; Kauffman vs. Philippine National Bank, 42 Phil. 182, 187, 189.

4 Guingon vs. Capital Insurance & Surety Co., Inc., L-22042, August 17, 1967.

5 67 Fed. 483, 487-488.

6 Emphasis ours.

7 NW 2nd, 511, 517, 518.

Negotiable Instruments Case Digest: PNB v. CA (1968)

G.R. No. L-26001           October 29, 1968
Lessons Applicable: 

• Forgery (Negotiable Instruments Law)


• Liabilities of the parties (Negotiable Instruments Law)

FACTS:

• January 15, 1962: Augusto Lim deposited in his current account with the PCIB branch at Padre Faura, Manila a GSIS Check of P57,415.00 drawn against the PNB


• PCIB stamped the following on the back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila


• Same date: following an established banking practice in the Philippines, the check was forwarded for clearing through the Central Bank to the PNB


• did not return said check the next day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited it against the account of the GSIS in the PNB


• PNB received a formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped


• January 31, 1962: Upon demand from the GSIS, the P57,415.00 was re-credited to them bec. the signatures of its officers on the check were forged


• signatures of the General Manager and the Auditor of the GSIS on the check, as drawer, are forged


• payee Mariano D. Pulido indorsed it to Manuel Go and then indorsed by Manuel Go to Augusto Lim


• February 2, 1962: PNB demanded from the PCIB the refund


• PNB filed against the PCIB


• CA affirmed CFI: dismissed

ISSUE: W/N PCIB as indorser is liable despite the fact that the check is forged when PNB is also negligent

HELD: NO. Affirmed

• PCIB stamped on the back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila


• indorsements falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the PCIB, for, as against the drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer, since the forgery of the indorsement is not the cause of the loss.


• Guaranteed not the authenticity of the signatures of the officers of the GSIS who signed because the GSIS is not an indorser of the check, but its drawer


• warranty is irrelevant to the PNB's alleged right to recover from the PCIB


•  in general, "acceptance" is not required for checks since they are payable on demand


• acceptance


• promise to perform an act


• the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer


• payment


• actual performance


• compliance with obligation


• PNB had been guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped


• PNB's negligence was the main or proximate cause for the corresponding loss


• PNB did not return the check


• when 1 of 2 innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong


• where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the court will leave the parties where it finds them


• applies in the case of a drawee who pays a bill without having previously accepted it


• Section 62 of Act No. 2031 provides

The acceptor by accepting the instrument engages that he will pay it according to the tenor of hisacceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to
draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.

Negotiable Instruments Case Digest: Ang Tiong v. Ting (1968)

G.R. No. L-26767             February 22, 1968

Lessons Applicable: General Indorser (Negotiable Instrurments)

Laws Applicable: Section 63 of the Negotiable Instruments Law

FACTS:

• August 15, 1960: Lorenzo Ting issued Philippine Bank of Communications check K-81618, w/ sum of P4,000, payable to "cash or bearer"
• With Felipe Ang's signature (indorsement in blank) at the back thereof, the instrument was received by the Ang Tiong who presented it to the drawee bank for payment but it was dishonored
• Ting made a written demand to both Ting and Ang to no avail
• March 6, 1962: Municipal Court of Manila favored Tiong against Ting and Ang
•  CA: ordered Ang to pay with interest
• Ang contends that he is an accomodating indorser

ISSUE: W/N Ang is an accomodating indorser and not a general indorser a

HELD: NO. Affirmed

• Section 63 of the Negotiable Instruments Law: a person placing his signature upon an instrument otherwise than as maker, drawer or acceptor = a general indorser, — unless he clearly indicates plaintiff appropriate words his intention to be bound in some other capacity
• warrants: 
• (a) that the instrument is genuine and in all respects what it purports to be; 
• (b) that he has a good title to it; 
• (c) that all prior parties have capacity to contract; and 
• (d) that the instrument is at the time of his indorsement valid and subsisting
• Even on the assumption that the appellant is a mere accommodation party, as he professes to be, he is by the clear mandate of section 29 of the Negotiable Instruments Law, "liable on the instrument to a holder for value, notwithstanding that such holder at the time of taking the instrument knew him to be only an accommodation party." 
• It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument.
• Nor is it correct to say that the holder for value is not a holder in due course merely because at the time he acquired the instrument, he knew that the indorser was only an accommodation party. 
• assuming him to be an accommodation indorser, may obtain security from the maker to protect himself against the danger of insolvency of the latter, cannot in any manner affect his liability to the Tiong, as the said remedy is a matter of concern exclusively between accommodation indorser and accommodated party. 
• The liability of the appellant remains primary and unconditional.