PHILIPPINE EDUCATION CO. VS. SORIANO (GR No. L-22405, June30, 1971) - Enrique Montinola sought to purchase from the Manila PostOffice 10 money orders (P200 each), offering to pay for them with aprivate check. Montinola was able to leave the building with his check andthe 10 money orders without the knowledge of the teller. Upon discovery,message was sent to all postmasters and banks involving the unpaidmoney orders. One of the money orders was received by the PhilippineEducation Co. as part of its sales receipt. It was deposited by the companywith the Bank of America, which cleared it with the Bureau of Post. ThePostmaster, through the Chief of the Money Order Division of the ManilaPost Office informed the bank of the irregular issuance of the moneyorder. The bank debited the account of the company. The companymoved for reconsideration. ISSUE: WON postal money orders arenegotiable instruments? HELD: No. Philippine postal statutes arepatterned from those of the United States, and the weight of authority insaid country is that Postal money orders are not negotiable instrumentsinasmuch as the establishment of a postal money order is an exercise ofgovernmental power for the public’s benefit. Furthermore, some of therestrictions imposed upon money order by postal laws and regulations areinconsistent with the character of negotiable instruments. For instance,postal money orders may be withheld under a variety of circumstances, and which are not restricted to not more than one indorsement.

CALTEX VS. COURT OF APPEALS (GR No. 97753, Aug. 10, 1992) -Respondent bank issued 280 certificates of time deposit (CTDs) in favor ofAngel dela Cruz who delivered the same to herein petitioner in connectionwith his purchased fuel products. Eventually, dela Cruz executed anddelivered an Affidavit of Loss for the reissuance of the CTDs. Dela Cruzlater on obtained a loan from respondent bank and negotiated the saidCTDs, executing a Deed of Assignment of Time Deposit which stated,among others, that the bank has full control of the indicated time depositsfrom and after date of the assignment and may set-off such and apply thesame to the payment of amount or amounts that may be due on the loanupon maturity.Petitioner then went to the Sucat branch for verification of the CTDsdeclared lost, alleging that the same were delivered to herein petitioner as“security for purchases made with Caltex Philippines, Inc.” and requestedthat the CTDs be pre-terminated, which was refused by the respondentbank due to the failure of petitioner to present requested documents toprove such allegation. Petitioner then filed a complaint in the RTC, whichwas dismissed. On appeal, the CA affirmed the decision of the RTC. Thus,the present petition. ISSUE: WON the CTDs are considered negotiable?HELD: Yes. A sample text of the certificates of time deposit is reproducedbelow:SECURITY BANKAND TRUST COMPANY6778 Ayala Ave., Makati No. 90101

Metro Manila, PhilippinesSUCAT OFFICE P4,000.00CERTIFICATE OF DEPOSITRate 16%Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____This is to Certify that B E A R E R has deposited in this Bank the sum ofPESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICEP4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731days. after date, upon presentation and surrender of this certificate, with interestat the rate of 16% per cent per annum.(Sgd. Illegible) (Sgd. Illegible)AUTHORIZED SIGNATURESSection 1, of Act No. 2031, otherwise known as the NegotiableInstruments Law, enumerates the requisites for an instrument to becomenegotiable. The CTDs in question undoubtedly meet the requirements ofthe law for negotiability. The accepted rule is that the negotiability or nonnegotiabilityof an instrument is determined from the writing, that is, fromthe fact of the instrument itself. Contrary to what respondent court held(that the CTDs are payable to the “depositor” which is Angel dela Cruz),the documents provide that the amounts deposited shall be repayable tothe depositor. And who, according to the document is the depositor? It isthe “bearer”. The documents do not say that the depositor is Angel delaCruz and that the amounts deposited are repayable specifically to him.Rather, the amounts are to be repayable to the bearer of the documentsor, for that matter, whosoever may be the bearer at the time of presentment.

METROBANK VS. CA

FACTS:

Gomez  opened  an  account  with  Golden  Savings  bank  and  deposited  38 treasury  warrants.    All  these  warrants  were  indorsed  by  the  cashier  of Golden  Savings,  and  deposited  it  to  the  savings  account  in  a  Metrobank branch.    They  were  sent  later  on  for  clearing  by  the  branch  office  to  the principal  office  of  Metrobank,  which  forwarded  them  to  the  Bureau  of Treasury  for  special  clearing.    On  persistent  inquiries  on  whether  the warrants have been cleared, the branch manager allowed withdrawal of the warrants,  only  to  find  out  later  on  that  the  treasury  warrants  have  been dishonored.    

HELD:

The  treasury  warrants  were  not  negotiable  instruments.    Clearly,  it  is indicated  that  it  was  non-negotiable  and  of  equal  significance  is  the indication  that  they  are  payable  from  a  particular  fund,  Fund  501.    This indication  as  the  source  of  payment  to  be  made  on  the  treasury  warrant makes  the  promise  to  pay  conditional  and  the  warrants  themselves  non-negotiable. 

 Metrobank then cannot contend that by indorsing the warrants in general, GS assumed that they were genuine and in all respects what they purport it to be, in accordance to Section 66 of the NIL.  The simple reason is that the  law  isn’t  applicable  to  the  non-negotiable  treasury  warrants.    The indorsement  was  made  for  the  purpose  of  merely  depositing  them  with Metrobank  for  clearing.    It  was  in  fact  Metrobank  which  stamped  on  the back of the warrants: “All prior indorsements and/or lack of endorsements guaranteed…”

Sesbreno vs. CA

FACTS:

Petitioner made a placement with Philfinance.  The latter delivered to him documents, some of which was a promissory note from Delta Motors and a post-dated check.  The post-dated checks were dishonored.  This prompted petitioner to ask for the promissory note from DMC and it was discovered that the note issued by DMC was marked as non-negotiable.  As Sesbreno failed to recover his money, he filed case against DMC and Philfinance.  

HELD:

The  non-negotiability  of  the  instrument  doesn’t  mean  that  it  is  non-assignable or transferable.  It may still be assigned or transferred in whole or in part, even without the consent of the promissory note, since consent is not necessary for the validity of the assignment.  In  assignment,  the  assignee  is  merely  placed  in  the  position  of  the assignors  and  acquires  the  instrument  subject  to  all  the  defenses  that might have been set up against the original payee.

Firestone Tire vs. CA

Firestone Tire & rubber Co. vs. Court of AppealsGR No. 113236          March 5, 2001Quisumbing, J.:

Facts:            Forjas-Arca Enterprise Company is maintaining a special savings account with Luzon Development Bank, the latter authorized and allowed withdrawals of funds though the medium of special withdrawal slips. These are supplied by Fojas-Arca. Fojas-Arca purchased on credit with FirestoneTire & Rubber Company, in payment Fojas-Arca delivered a 6 special withdrawal slips. In turn, these were deposited by the Firsestone to its bank account in Citibank. With this, relying on such confidence and belief Firestone extended to Fojas-Arca other purchase on credit

of its products but several withdrawal slips were dishonored and not paid. As a consequence, Citibank debited the plaintiff’s account representing the aggregate amount of the two dishonored special withdrawal slips. Fojas-Arca averred that the pecuniary losses it suffered are a caused by and directly attributes to defendant’s gross negligence as a result Fojas-Arca filed a complaint.

Issue:            Whether or not the acceptance and payment of the special withdrawal slips without the presentation of the depositor’s passbook thereby giving the impression that it is a negotiable instrument like a check.

Held:            No. Withdrawal slips in question were non negotiable instrument. Hence, the rules governing the giving immediate notice of dishonor of negotiable instrument do not apply. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character.

SALAS VS. CA (G.R. No. 76788 January 22, 1990) - Juanita Salas(Petitioner) bought a motor vehicle from the Violago Motor SalesCorporation (VMS) as evidenced by a promissory note. This note wassubsequently endorsed to Filinvest Finance & Leasing Corporation (privaterespondent) which financed the purchase. Petitioner defaulted in herinstallments allegedly due to a discrepancy in the engine and chassisnumbers of the vehicle delivered to her and those indicated in the salesinvoice, certificate of registration and deed of chattel mortgage, which factshe discovered when the vehicle figured in an accident. This failure to payprompted private respondent to initiate an action for a sum of moneyagainst petitioner before the Regional Trial Court. ISSUE: WON privaterespondent is a holder in due course? HELD: YES. The Promissory Notewas negotiated by indorsement in writing on the instrument itself payableto the Order of Filinvest Finance and Leasing Corporation and it is anindorsement of the entire instrument. Under the circumstances, thereappears to be no question that Filinvest is a holder in due course, havingtaken the instrument under the following conditions: [a] it is complete andregular upon its face; [b] it became the holder thereof before it wasoverdue, and without notice that it had previously been dishonored; [c] ittook the same in good faith and for value; and [d] when it was negotiatedto Filinvest, the latter had no notice of any infirmity in the instrument ordefect in the title of VMS Corporation. Accordingly, respondentcorporation holds the instrument free from any defect of title ofprior parties, and free from defenses available to prior partiesamong themselves, and may enforce payment of the instrumentfor the full amount thereof. This being so, petitioner cannot setup against respondent the defense of nullity of the contract ofsale between her and VMS.

ANG TEK LIAN VS. CA (GR No. L-2516; Sept. 25, 1950) - Petitioner AngTek Lian approached Lee Hua and asked him if he could give himP4,000.00. He said that he is supposed to withdraw from the bank but hisbank was already closed. In exchange, he gave respondent Lee Hua acheck which is “payable to the order of ‘cash”. When Lee Hua presentedthe check for payment the next day, he discovered that it has aninsufficient funds, hence, was dishonored by the bank. In his defense, AngTek Lian argued that he did not indorse the check to Lee Hua when thelatter accepted the check without his indorsement. ISSUE: WON Ang TekLian’s indorsement of the said check is necessary to hold him liable for thedishonored check? HELD: No. Under Section 9 of the NegotiableInstruments Law, a check drawn payable to the order of “cash” is acheck payable to bearer and the bank may pay it to the personpresenting it for payment without drawer’s indorsement.Consequently, the form of the check was totally unconnected with itsdishonor. The check was returned unsatisfied because the drawer hadinsufficient funds and not because the drawer’s indorsement was lacking.Hence, Ang Tek Lian may be held liable for estafa because under article315, paragraph d, subsection 2 of the Revised Penal Code, one who issuesa check payable to cash to accomplish deceit and knows that at the timehe had no sufficient deposit with the bank to cover the amount of thecheck and without informing the payee of such circumstances is guilty ofestafa.

7. DEVELOPMENT BANK OF RIZAL V. SIMA WEI219 SCRA 736FACTS:Sima Wei executed a promissory note in consideration of a loan secured from petitionerbank. She was able to pay partially for the loan but failed to pay for the balance. She thenissued two checks to pay the unpaid balance but for some unexplainable reason, the checkswere not received by the bank but ended up in the hands of someone else. The bankinstituted actions against Sima Wei and other people. The trial court dismissed the caseand the CA affirmed this decision.HELD:A negotiable instrument, of which a check is, is not only a written evidence of a contract right butis also a species of property. Just as a deed to a piece of land must be delivered in order toconvey title to the grantee, so must a negotiable instrument be delivered to the payee inorder to evidence its existence as a binding contract. Section 16 provides that everycontract on a negotiable instrument is incomplete and revocable until delivery of the instrumentfor the purpose of giving effect thereto. Thus,the payee of the negotiable instrument acquires no interest with respect thereto until itsdelivery to him. Delivery of an instrument from the drawer to the payee, there can be no liabilityon the instrument. Moreover, such delivery must be intended to give effect to the instrument.

8. PBCom vs AruegoPhilippine Bank of Commerce vs. AruegoGR L-25836-37, 31 January 1981, 102 scra 530--agentsFACTS:To facilitate payment of the printing of a periodical called “World Current Events.”, Aruego, itspublisher, obtained a credit accommodation from the Philippine Bank of Commerce. For everyprinting of the periodical, the printer collected the cost of printing by drawing a draft against thebank, said draft being sent later to Aruego for acceptance. As an added security for the paymentof the amounts advanced to the printer, the bank also required Aruego to execute a trust receiptin favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and tosell the same with the promise to turn over to the bank the proceeds of the sale to answer forthe payment of all obligations arising from the draft. The bank instituted an action againstAruego to recover the cost of printing of the latter’s periodical. Aruego however argues that hesigned the supposed bills of exchange only as an agent of the Philippine Education FoundationCompany where he is president.ISSUES:Whether Aruego can be held liable by the petitioner although he signed the supposed bills ofexchange only as an agent of Philippine Education Foundation Company.RULING:Aruego did not disclose in any of the drafts that he accepted that he was signing asrepresentative of the Philippine Education Foundation Company. For failure to disclose hisprincipal, Aruego is personally liable for the drafts he accepted, pursuant to Section 20 of theNIL which provides that when a person adds to his signature words indicating that he signs foror on behalf of a principal or in a representative capacity, he is not liable on the instrument if hewas duly authorized; but the mere addition of words describing him as an agent or as filing arepresentative character, without disclosing his principal, does not exempt him from personalliability.

ADALIA FRANCISCO vs. COURT OF APPEALS, ET AL.G.R. No. 116320 November 29, 1999--agentsFACTS:A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is thepresident, entered into a Land Development and Construction Contract with private respondentHerby Commercial & Construction Corporation (HCCC), represented by its President andGeneral Manager private respondent Ong. Under the contract, HCCC was to be paid on thebasis of the completed houses and developed lands delivered to and accepted by AFRDC andthe GSIS. Sometime in 1979, Ong discovered that Diaz and Francisco, the Vice-President ofGSIS, had executed and signed seven checks of various dates and amounts payable to HCCCfor completed and delivered work under the contract. Ong, however, claims that these checkswere never delivered to HCCC. It turned out that Francisco forged the indorsement of Ong onthe checks and indorsed the checks for a second time by signing her name at the back of thechecks, petitioner then deposited said checks in her savings account. A case was brought byprivate respondents against petitioner to recover the value of said checks. Petitioner howeverclaims that she was authorized to sign Ong's name on the checks by virtue of the Certification

executed by Ong in her favor giving her the authority to collect all the receivables of HCCC fromthe GSIS, including the questioned checks.ISSUE:Whether petitioner cannot be held liable on the questioned checks by virtue of the Certificationexecuted by Ong giving her the authority to collect such checks from the GSIS.RULING:Petitioner is liable. The Negotiable Instruments Law provides that where any person is underobligation to indorse in a representative capacity, he may indorse in such terms as to negativepersonal liability. An agent, when so signing, should indicate that he is merely signing in behalfof the principal and must disclose the name of his principal; otherwise he shall be heldpersonally liable. Even assuming that Francisco was authorized by HCCC to sign Ong's name,still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ong'sname, Francisco should have signed her own name and expressly indicated that she wassigning as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validateher act of forgery.

10. Jai-Alai Corp vs BPIJai-Alai Corp. of the Phil. vs. Bank of the Phil. IslandsG.R. No. L-29432 August 6, 1975 66 SCRA 29-forgeryFACTS:Petitioner deposited 10 checks in its current account with BPI. The checks which were acquiredby petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-IslandGas Service, Inc. or order. After the checks had been submitted to Inter-bank clearing, Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashierswere forgeries. BPI thus debited the value of the checks against petitioner's current accountand forwarded to the latter the checks containing the forged indorsements which petitionerrefused to accept.ISSUE:Whether BPI had the right to debit from petitioner's current account the value of the checks withthe forged indorsements.RULING:BPI acted within legal bounds when it debited the petitioner's account. Having indorsed thechecks to respondent bank, petitioner is deemed to have given the warranty prescribed inSection 66 of the NIL that every single one of those checks "is genuine and in all respects whatit purports to be." Respondent which relied upon the petitioner's warranty should not be heldliable for the resulting loss.**The depositor of a check as indorser warrants that it is genuine and in all respects what itpurports to be. Having indorsed the checks to respondent bank, petitioner is deemed to havegiven the warranty prescribed in Section 66 of the NIL that every single one of those checks " isgenuine and in all respects what it purports to be."

REPUBLIC BANK VS. EBRADA (GR No. L-40769; July 31, 1975) - This is acase of what appeared to be an indorsed check by one Martin Lorenzo whoturned out to be dead since 1952. The forged signature of the deceased

appeared at the dorsal portion of the check indorsed in favor of one RamonLorenzo. From Ramon Lorenzo the same was indorsed to one DeliaDominguez and then from Dominguez to herein respondent Ebrada.Subsequently, Ebrada encashed the same in 1963 at herein petitionerRepublic Bank's main office in Escolta. Upon informing petitioner RepublicBank, however, that the payee's (Lorenzo) indorsement was a forgery, theBureau of Treasury requested the Bank to refund them the amount given toEbrada. The Bank sued Ebrada upon the latter’s refusal to return the moneyof the forged check. ISSUE: WON Ebrada is liable to return the money paidto him by Republic Bank subject of a forged check and may the petitionerrecover the proceeds given? HELD: It is clear from the provision of Section23 of the NIL that where the signature on a negotiable instrument if forged,the negotiation of the check is without force or effect. But does this meanthat the existence of one forged signature therein will render void all theother negotiations of the check with respect to the other parties whosesignature are genuine? No. Applying the principle of Beam vs. Farrel, 135Iowa 670, 113 N.W. 590, it can be safely concluded that it is only thenegotiation predicated on the forged indorsement that should be declaredinoperative. This means that the negotiation of the check in question fromMartin Lorenzo, the original payee, to Ramon R. Lorenzo, the 2nd indorser,should be declared of no effect, but the negotiation of the aforesaid checkfrom Ramon R. Lorenzo to Adelaida Dominguez, the 3rd indorser, and fromAdelaida Dominguez to the defendant-appellant who did not know of theforgery, should be considered valid and enforceable, barring any claim offorgery. Being the last indorser, however, Ebrada warrants that she has goodtitle to the check subject of this action. The petitioner, drawee of the checkcan recover from the holder [Ebrada] the money paid to the latter on aforged instrument. It is not supposed to be its duty to ascertain whether thesignatures of the payee or indorsers are genuine or not. This is because theindorser is supposed to warrant to the drawee that the signatures of thepayee and previous indorsers are genuine, warranty not extending only toholders in due course. Ebrada, upon receiving the check in question fromDominguez, was duty-bound to ascertain whether the check in question wasgenuine before presenting it to plaintiff Bank for payment. Indorsers owncredulity or recklessness or misplaced confidence was the solecause of the loss. Why should he be permitted to shift the loss dueto his own fault in assuming the risk, upon the drawee, simplybecause of the accidental circumstance that the drawee afterwardsfailed to detect the forgery when the check was presented forpayment.

MWSS VS. CA

143 SCRA 20FACTS:MWSS had an account from PNB. Its treasurer, auditor, and General Manager are theones authorized to sign checks. During a period of time, 23 checks were drawn and debited

against the account of petitioner. Bearing the same check numbers, the amounts statedtherein were againdebited from the account of petitioner. The amounts drawn were deposited in the accounts ofthe payees in PCIB. It was found out though that the names stated in the drawn checks were allfictitious. Petitioner demanded the return of the amounts debited but the bank refused to do so.Thus, it filed a complaint.HELD:There was no categorical finding that the 23 checks were signed by persons other thanthose authorized to sign. On the contrary, the NBI reports shows that the fraud was an“inside job” and that the delay in the reconciliation of the bank statements and the laxityand loss of recordscontrol in the printing of the personalized checks facilitated the fraud. It further doesn’t providethat the signatures were forgeries.Forgery cannot be presumed. It should be proven by clear, convincing and positive evidence.This wasn’t done in the present case.The petitioner cannot invoke Section 23 because it was guilty of negligence not only before thequestioned checks but even after the same had already been negotiated..j

BANCO DE ORO SAVING V. EQUITABLE

157 SCRA 188

 

FACTS:

BDO drew  checks payable to member establishments.  Subsequently, the checks  were  deposited  in  Trencio’s  account  with  Equitable.    The  checks were  sent  for  clearing  and  was  thereafter  cleared.    Afterwards,  BDO discovered that the indorsements in the back of the checks were forged.  It then  demanded  that  Equitable  credit  its  account  but  the  latter  refused  to do so.  This prompted BDO to file a complaint against Equitable and PCHC.  The trial court and RTC held in favor of the Equitable and PCHC.    

HELD:

First,  PCHC  has  jurisdiction  over  the  case  in  question.    The  articles  of incorporation of PHHC extended its operation to clearing checks and other clearing items.  No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction.  Further, the participation of the two banks in the clearing operations is submission to the jurisdiction of the PCHC.  Petitioner  is  likewise  estopped  from  raising  the  non-negotiability  of  the checks  in  issue.    It  stamped  its  guarantee  at  the  back  of the  checks  and subsequently  presented  it  for  clearing  and  it  was  in  the  basis  of  these endorsements  by  the  petitioner  that  the  proceeds 

were  credited  in  its clearing account.  The petitioner cannot now deny its liability as it assumed the  liability  of  an  indorser  by  stamping  its  guarantee  at  the  back  of  the checks.    Furthermore, the bank cannot escape liability of an indorser of a check and which may turn out to be a forged indorsement.  Whenever a bank treats the signature at the back of the checks as indorsements and thus logically guarantees  the  same  as  such  there  can  be  no  doubt  that  said  bank  had considered the checks as negotiable.  A   long   line   of   cases   also   held   that   in   the   matter   of   forgery   in endorsements,  it  is  the  collecting  bank  that  generally  suffers  the  loss because  it  had  the  dutyh  to  ascertain  the  genuineness  of  all  prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the indorsements. 

14. GempesawGempensaw was the owner of many grocery stores. She paid her suppliers through theissuance of checks drawn against her checking account with respondent bank. Thechecks were prepared by her bookkeeper Galang. In the signing of the checks prepared byGalang, Gempensaw didn't botherherself in verifying to whom the checks were being paid and if the issuances werenecessary. She didn't even verify the returned checks of the bank when the latter notifiesher of the same. During her two years in business, there were incidents shown that theamounts paid for were in excess of what should have been paid. It was also shown that evenif the checks were crossed, the intended payees didn't receive the amount of the checks. Thisprompted Gempensaw to demand the bank to credit her account for the amount of theforged checks. The bank refused to do so and this prompted her to file the case against thebank.HELD:Forgery is a real defense by the party whose signature was forged. A party whose signaturewas forged was never a party and never gave his consent to the instrument. Since hissignature doesn’t appear in the instrument, the same cannot be enforced against him evenby a holder in due course. The drawee bank cannot charge the account of the drawer whosesignature was forged because he never gave the bank the order to pay.In the case at bar the checks were filled up by petitioner’s employee Galang and werelater given to her for signature. Her signing the checks made the negotiable instrumentscomplete. Prior to signing of the checks, there was no valid contract yet. Petitionercompleted the checks by signing them and thereafter authorized Galang to deliver the sameto their respective payees. The checks were then indorsed, forged indorsements thereon.As a rule, a drawee bank who has paid a check on which an indorsement has been forgedcannot debit the account of a drawer for the amount of said check. An exception tothis rule is when the drawer is guilty of negligence which causes the bank to honor suchchecks. Petitioner in this case has relied solely on the honesty and loyalty of herbookkeeper and never bothered to verify the accuracy of the amounts of the checks she

signed the invoices attached thereto. And though she received her bank statements, shedidn't carefully examine the same to double-check herpayments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition ofher bookkeeper’s fraudulent schemes.

15. ASSOCIATED BANK V. CA252 SCRA 620FACTS:The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds isappropriated for the benefit of Concepcion Emergency Hospital. During a post-audit doneby the province, it was found out that 30 of its checks weren’t received by the hospital. Uponfurther investigation, it was found out that the checks were encashed by Pangilinan who was aformer cashier and administrative officer of the hospital through forged indorsements.This prompted the provincial treasurer to ask forreimbursement from PNB and thereafter, PNB from Associated Bank. As the two banksdidn't want to reimburse, an action was filed against them.HELD:There is a distinction on forged indorsements with regard bearer instruments andinstruments payable to order.With instruments payable to bearer, the signature of the payee or holder is unnecessary to passtitle to the instrument. Hence, when the indorsement is a forgery, only the person whosesignature is forged can raise the defense of forgery against holder in due course.In instruments payable to order, the signature of the rightful holder is essential totransfer title to the same instrument. When the holder’s signature is forged, all partiesprior to the forgery may raise the real defense of forgery against all parties subsequentthereto. In connection to this, an indorser warrants that the instrument is genuine. Acollecting bank is such an indorser. So even if the indorsement is forged, the collectingbank is bound by his warranties as an indorser and cannot set upthe defense of forgery as against the drawee bank.Furthermore, in cases involving checks with forged indorsements, such as the case at bar,the chain of liability doesn't end with the drawee bank. The drawee bank may not debitthe account of the drawer but may generally pass liability back through the collection chainto the party who took from the forger and of course, the forger himself, if available. Inother words, the drawee bank can seek reimbursement or a return of the amount it paid fromthe collecting bank or person. The collecting bank generally suffers the loss because ithas te duty to ascertain the genuineness of all prior endorsements considering thatthe act of presenting the check for payment to the drawee is an assertion that theparty making the presentment has done its duty to ascertain thegenuineness of the indorsements.

16. metribank vs fncbiFACTS:August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to CASH, drawn byJoaquin Cunanan & Company on First National City Bank (FNCB) was deposited withMetropolitan Bank and Trust Company (Metro Bank) by Salvador Sales.Earlier that day, Sales had opened a current account with Metro Bank depositing P500.00 in

cashMetro Bank immediately sent the cash check to the Clearing House of the Central Bank with thefollowing words stamped at the back of the check:Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/orLack of endorsements Guaranteed.The check was cleared the same day. Private respondent paid petitioner through clearing theamount of P50,000.00, and Sales was credited with the said amount in his deposit with MetroBank.August 26, 1964: Sales made his 1st withdrawal of P480.00 from his current accountAugust 28, 1964: he withdrew P32,100.00August 31, 1964: he withdrew the balance of P17,920 and closed his account with Metro BankSeptember 3, 1964: FNCB returned cancelled Check to drawer Joaquin Cunanan & Company,together with the monthly statement of the company's account with FNCB.notified FNCB that the check had been alteredactual amount of P50.00 was raised to P50,000.00name of the payee, Manila Polo Club, was superimposed the word CASH.September 10, 1964: FNCB wrote Metro Bank asking for reimbursementJune 29, 1965: FNCB filed for recoveryCA affirmed Trial Court: Metro Bank to reimburse FNCBISSUE: W/N Metrobank should reimsburse FNCB for the altered amount as indorserHELD: NO. FNCB liable.Under the procedure prescribed, the drawee bank receiving the check for clearing from theCentral Bank Clearing House must return the check to the collecting bank within the 24-hourperiod if the check is defective for any reason. - FNCB failed to do soindorsement must be read together with the 24-hour regulation on clearing House Operations ofthe Central BankMetro Bank can not be held liable for the payment of the altered check.Moreover, FNCB did not deny the allegation of Metro Bank that before it allowed the withdrawalof the balance of P17,920.00 by Salvador Sales, Metro Bank withheld payment and first verified,through its Assistant Cashier Federico Uy, the regularity and genuineness of the check depositfrom Marcelo Mirasol, Department Officer of FNCB, because its (Metro Bank) attention wascalled by the fast movement of the account

17. Republic Bank vs. Court of AppealsGR No. 42725 April 22, 1991Grino – Aquino, J.:Facts:San Miguel Corporation drew a dividend check worth P240 on its account in FirstNational City Bank in favor of J. Roberto Delgado, a stock holder. The amount on its face wasfraudulently and without authority of the drawer, altered by increasing it from P240 to P9, 240.The check was indorsed and deposited by Delgado to his account with Republic bank. Republicendorsed the check to FNCB and presented I for payment through the Central Bank ClearingHouse. FNCB paid P9, 240 to the Republic through the Central Bank Clearing House. SMC

notified FNCB of trhe material alteration in the check in question. FNCB informed Republic withregard to the alteration nand forgery of the endorsement of Delgado. By the, Delgado hadalready withdrawn his account from the republic. FNCB demanded that Republic refund the P9,240. Trial court rendered judgment in favor of FNCB and it was affirmed by the Court ofAppeals.Issue:Whether Republic, as the collecting bank, is protected, by 24-hour clearing house rule,found in CB circular No. 9, as amended, from liability to refund the amount paid by FNCB, asdrawee of the SMC dividend check.Held:No. The 24-hour clearing house rule is valid rule applicable to commercial banks. It istrue that when an indorsement is forged, the collecting bank or last endorser, as general rule,bears the loss. But the unqualified endorsement of the collecting bank on the check should beread together with the 24-hour regulation on the clearing house operation. Thus, when thedrawee bank fails to return a forged or altered check to the collecting bank is absolved fromliability. Unless an alteration is attributable to the fault or negligence of the drawer himself, suchas when he leaves spaces on the check which would allow the fraudulent insertion of additionalnumerals in the amount appearing thereon, the remedy of the drawee bank that negligentlyclears a forged and/or honor altered check for payment is against the party responsible for theforgery or alteration, otherwise, it bears the loss. It may not charge the amount so paid to theaccount of the drawer, if the latter was free from blame, nor recover it from the collecting bank isthe latter made payment after proper clearance from the drawee.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS. CA (GR No.121413; Jan. 29, 2001) - Ford Philippines filed actions to recover from thedrawee bank Citibank and collecting bank PCIB the value of severalchecks payable to the Commissioner of Internal Revenue as payment ofpercentage or manufacturer's sales taxes. What prompted this action wasthe drawing of a check by Ford, which it deposited to PCIB aspayment and was debited from their Citibank account. It was later onfound out that the payment wasn’t received by the Commissioner.Meanwhile, according to the NBI report, one of the checks issued by Fordwas withdrawn from PCIB for alleged mistake in the amount to be paid. Thiswas replaced with manager’s check by PCIB, which were allegedly stolenby a syndicate and deposited in their own account. The trial courtdecided in favor of Ford. In this petition, PCIB claims that the action of Fordhad prescribed because of its inability to seek judicial relief seasonably,considering that the alleged negligent act took place prior to December 19,1977 but the relief was sought only in 1983, or seven years thereafter.ISSUE: WON Ford’s cause of action has prescribed, hence, cannot recoveranymore from PCIB? HELD: The statute of limitations begins to run whenthe bank gives the depositor notice of the payment, which is ordinarily whenthe check is returned to the alleged drawer as a voucher with a statement ofhis account. An action upon a check is ordinarily governed by the statutoryperiod applicable to instruments in writing. Our laws on the matter providethat the action upon a written contract must be brought within ten years

from the time the right of action accrues. Hence, the reckoning time for theprescriptive period begins when the instrument was issued and thecorresponding check was returned by the bank to its depositor. Applying thesame rule, the cause of action for the recovery of the proceeds of Citibankwould normally be a month after December 19, 1977, when Citibank paid theface value of the check in the amount of P4,746,114.41. Since the originalcomplaint for the cause of action was filed on January 20, 1984, barely sixyears had lapsed. Thus, Ford's cause of action to recover the amount wasseasonably filed within the period provided by law. Hence, PCIB wasdeclared solely responsible for the loss of the proceeds of Citibank in theamount P4,746,114.41, which shall be paid together with 6% interestthereon to Ford from the date when the original complaint was filed untilsaid amount is fully paid.

Samsung Construction v. Far East Bank (August 15, 2004)Post under case digests, Commercial Law at Monday, February 20, 2012 Posted by Schizophrenic Mind

Facts: Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of Samsung, who was also present during the time the check was cashed. Later however it was discovered that no such check was ever approved by the Samsung’s head accountant, the president of the company also never signed any such check.

Issue: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check, which was drawn from the account of Samsung

Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged signature makes the instrument “wholly inoperative”. If payment is made the drawee (Far East) cannot charge it to the drawer’s account (Samsung). The fact that the forgery is clever is immaterial. The forged signature may so closely resemble the genuine as to defy detection by the depositor himself. And yet, if the bank pays the check, it is paying out with its own money and not of the depositor’s. This rule of liability can be stated briefly in these words: “A bank is bound to know its depositor’s signature.” The accusation of negligence on the part of Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the ordinary course of business was followed.

PNB VS. CA (GR No. 107508; April 25, 1996) - A check with serial number7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issuedby the Ministry of Education and Culture payable to F. Abante Marketing.This check was drawn against Philippine National Bank (herein petitioner).F. Abante Marketing, a client of Capitol City Development Bank (Capitol),deposited the questioned check in its savings account with said bank. Inturn, Capitol deposited the same in its account with the Philippine Bank ofCommunications (PBCom) which, in turn, sent the check to petitioner forclearing. Petitioner cleared the check as good and, thereafter, PBCom

credited Capitol’s account for the amount stated in the check. However,petitioner PNB returned the check to PBCom and debited PBCom’s accountfor the amount covered by the check, the reason being that there was a“material alteration” of the check number. PBCom, as collecting agent ofCapitol, then proceeded to debit the latter’s account for the same amount.On the other hand, Capitol could not, in turn, debit F. Abante Marketing’saccount since the latter had already withdrawn the amount of the check.ISSUE: WON AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS AMATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW?HELD: No. An alteration is said to be material if it alters the effect of theinstrument. It means an unauthorized change in an instrument that purportsto modify in any respect the obligation of a party or an unauthorized additionof words or numbers or other change to an incomplete instrument relating tothe obligation of a party. In other words, a material alteration is one whichchanges the items which are required to be stated under Section 1 of theNegotiable Instrument Law. The case at the bench is unique in thesense that what was altered is the serial number of the check inquestion, an item which, it can readily be observed, is not anessential requisite for negotiability under Section 1 of theNegotiable Instruments Law. The aforementioned alteration didnot change the relations between the parties. The name of thedrawer and the drawee were not altered. The intended payee wasthe same. The sum of money due to the payee remained the same.If the purpose of the serial number is merely to identify the issuinggovernment office or agency, its alteration in this case had no material effectwhatsoever on the integrity of the check. The identity of the issuinggovernment office or agency was not changed thereby and the amount ofthe check was not charged against the account of another government officeor agency which had no liability under the check.

ENRIQUE MONTINOLA VS. PNB (supra, p. 12) – Provincial Treasurer(PT) of Misamis Oriental Ubaldo Laya issued the check in question as PT andnot as agent of PNB when he signed it as drawer payable to the order of MVRamos who later on sold the check to Montinola. On trial, the check wasseverely mutilated and beneath Laya’s signature appears the words “Agent,Phil. National Bank. HELD: The insertion of the words "Agent, Phil. NationalBank" which converts the bank from a mere drawee to a drawer andtherefore changes its liability, constitutes a material alteration of theinstrument without the consent of the parties liable thereon, and sodischarges the instrument.

SADAYA V. SEVILLA        

19 SCRA 924

 

FACTS:

Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank.  Varona was the only one who received the proceeds of the note.  Sadaya  and  Sevilla  both  signed  as  co-makers  to  accommodate  Varona.  Thereafter, the bank collected from Sadaya.  Varona failed to reimburse.  Consequently,   Sevilla   died   and   intestate   estate   proceedings   were established.  Sadaya filed a creditor’s claim on his estate for the payment he made on the note.  The administrator resisted the claim on the ground that  Sevilla  didn't  receive  any  proceeds  of  the  loan.    The  trial  court admitted the claim of Sadaya though tis was reversed by the CA.  

HELD:

Sadaya could have sought reimbursement from Varona, which is right and just  as  the  latter  was  the  only  one  who  received  value  for  the  note executed.  There is an implied contract of indemnity between Sadaya and Varona upon the former’s payment of the obligation to the bank.  Surely enough, the obligations of Varona and Sevilla to Sadaya cannot be joint and several.  For indeed, had payment been made by Varona, Varona couldn't had reason to seek reimbursement from either Sadaya or Sevilla.  After all, the proceeds of the loan went to Varona alone.  On  principle,  a  solidary  accommodation  maker—who  made  payment—has the right to contribution, from his co-accomodation maker, in the absence of agreement to the contrary between them, subject to conditions imposed by  law.    This  right  springs  from  an  implied  promise  to  share  equally  the burdens  thay  may  ensue  from  their  having  consented  to  stamp  their signatures on the promissory note.  The following are the rules:

1.    A  joint  and  several  accommodation  maker  of  a  negotiable promissory   note   may   demand   from   the   principal   debtor reimbursement for the amount that he paid to the payee

2.    A  joint  and  several  accommodation  maker  who  pays  on  the  said promissory note may directly demand reimbursement from his co-accommodation maker without first directing his action against the principal debtor provided that a.    He made the payment by virtue of a judicial demand b.    A principal debtor is insolvent.

It was never shown that there was a judicial demand on Sadaya to pay the obligation and also, it was never proven that Varona was insolvent.  Thus, Sadaya cannot proceed against Sevilla for reimbursement.

ERNESTINA CRISOLOGO-JOSE VS. CA (GR No. 80599; Sept. 15,

1989) - The Vice-president of Mover Enterprises, Inc. issued a checkdrawn against Traders Royal Bank, payable to petitioner ErnestinaCrisologo-Jose, for the accommodation of his client. Petitioner-payee wascharged with the knowledge that the check was issued at the instance andfor the personal account of the President who merely prevailed uponrespondent vice-president to act as co-signatory in accordance with thearrangement of the corporation with its depository bank. While it was thecorporation's check which was issued to petitioner for the amountinvolved, petitioner actually had no transaction directly with saidcorporation. ISSUE: WON private respondent, one of the signatories ofthe check issued under the account of Mover Enterprises, Inc., is anaccommodation party under NIL and a debtor of petitioner to the extentof the amount of said check. HELD: Yes. To be considered anaccommodation party, a person must (1) be a party to the instrument,signing as maker, drawer, acceptor, or indorser, (2) not receive valuetherefor, and (3) sign for the purpose of lending his name for the credit ofsome other person. It is not a valid defense that the accommodation partydid not receive any valuable consideration when he executed theinstrument. He is liable to a holder for value as if the contract was not foraccommodation, in whatever capacity such accommodation party signedthe instrument, whether primarily or secondarily. Thus, it has been heldthat in lending his name to the accommodated party, the accommodationparty is in effect a surety for the latter. The foregoing notwithstanding,the liability of an accommodation party to a holder for value, althoughsuch holder does not include nor apply to corporations which areaccommodation parties. This is because the issue or indorsement ofnegotiable paper by a corporation without consideration and forthe accommodation of another is ultra vires. One who has taken theinstrument with knowledge of the accommodation nature thereof cannotrecover against a corporation where it is only an accommodation party. Byway of exception, an officer or agent of a corporation shall have thepower to execute or indorse a negotiable paper in the name of thecorporation for the accommodation of a third person only if specificallyauthorized to do so. Corollarily, corporate officers, such as the presidentand vice-president, have no power to execute for mere accommodation anegotiable instrument of the corporation for their individual debts ortransactions arising from or in relation to matters in which the corporationhas no legitimate concern. Since such accommodation paper cannot thusbe enforced against the corporation, especially since it is not involved inany aspect of the corporate business or operations, the signatories thereof(president and vice-president) shall be personally liable therefor, as wellas the consequences arising from their acts in connection therewith.

STELCO MKTG VS. CA

Facts: Petitioner Stelco Marketing Corp (Stelco) is engaged in the distribution and sale to the public of structural steel bars. It sold on 7 occasions quantities of steel bars and rolls of G.I sheets with an aggregate amount of P126,859.61 to RYL Construction, Inc. (RYL). Despite the parties’ agreement that payment would be on COD basis, RYL never paid upon delivery of the materials and despite insistent demands.

One year later, RYL issued a check drawn against Metrobank to Armstrong Industries, the sister company and manufacturing arm of Stelco, to the amount of its obligations to the latter. The check however was a company check of another corporation Steelweld Corporation of the Philippines (Steelweld) signed by its President and Vice President. Said check was issued by the president of Steelweld at the request of the president of RYL as an accommodation and “only as guaranty but not to pay for anything.” Armstrong subsequently deposited the check but was dishonoured because it was DAIF*. It bore the endorsements of RYL and Armstrong. The latter filed a complaint against the pres and vp of Steelweld for violation of BP22. The trial court acquitted the defendants noting that the checks were not issued to apply on account for value, it being merely for accommodation purposes. However, the court did not release Steelweld from its liabilities, relying on Sec 29 of the NIL for issuing a check for accommodation.

Relying on the previous decision and averring that it was a holder in due course, Stelco subsequently filed a complaint for recovery of the value of the materials from RYL and Steelweld. However, RYL had already been dissolved leading the trial court to rule against Steelweld and hold them liable. Steelweld appealed to the CA which reversed the decision of the RTC declaring that STELCO was not a holder in due course and Steelweld was a stranger to the contract between STELCO and RYL. 

Issue: Whether or not STELCO was a holder in due course

Held: STELCO’s reliance on the RTC’s decision in the previous criminal case is misplaced. Although the RTC maintained that Steelweld was liable for issuing a check for accommodation, the RTC did not specify to whom it was liable. Despite the records showing that STELCO was in possession of the check, such possession does not give a presumption that the holder is one for value. There was no evidence that STELCO had possession before the checks were presented and dishonoured nor evidence that the checks were given to STELCO, indorsed to STELCO in any manner or form of payment. Only after said checks were dishonoured were they acquired by STELCO. 

STELCO never became a holder for value since nowhere in the check was STELCO identified as payee, indorsee, or depositor. Evidence shows that Armstrong was the intended payee, that it was the injured party, and the proper party to bring the action.

Travel-On vs CA

Travel-On, Inc. vs Court of AppealsG.R. No. L-56169 June 26, 1992-accommodation party

FACTS:Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on behalf of airline passengers and derived commissions therefrom.  Miranda was sued by petitioner to collect on the six postdated checks he issued which were all dishonored by the drawee banks.  Miranda, however, claimed that he had already fully paid and even overpaid his obligations and that refunds were in fact due to him. He argued that he had issued the postdated checks not for the purpose of encashment to pay his indebtedness but for purposes of accommodation, as he had in the past accorded similar favors to petitioner.  Petitioner however urges that the postdated checks are per se evidence of liability on the part of private respondent and further argues that even assuming that the checks were for accommodation, private respondent is still liable thereunder considering that petitioner is a holder for value.

ISSUE:Whether Miranda is liable on the postdated checks he issued even assuming that said checks were issued for accommodation only.

RULING:There was no accommodation transaction in the case at bar.  In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party.  The latter, in other words, receives or realizes full value which the accommodated party then must repay to the accommodating party.  But the accommodating party is bound on the check to the holder in due course who is necessarily a third party and is not the accommodated party. In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no value on the checks which bounced.  Miranda must be held liable on the checks involved as petitioner is entitled to the benefit of the statutory presumption that it was a holder in due course and that the checks were supported by valuable consideration.

Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a dollar check owned by Henry Chan in which he affixed his signature at the dorsal side thereof. For this purpose, Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of the withdrawal slip and used it to withdraw the proceeds of the dollar check, even before the check was cleared and without the presentation of the bank passbook. 

Issues:(1) Whether or not petitioner can hold private respondent liable for the proceeds of the check for having affixed his signature at the dorsal side as indorser; and 

(2) Whether or not the bank was negligent as the proximate cause of the loss and should be held liable. 

Held:

(1) No. Ordinarily, private respondent may be held liable as an indorser of the check or even as an accommodation party. However, to hold him liable would result in an injustice. The interest of justice thus demands looking into the events that led to the encashment of the check. 

Under the rules appearing in the passbook that BPI issued to private respondent, to be able to withdraw under the Philippine foreign currency deposit system, two requisites must be presented to petitioner BPI by the person withdrawing an amount: 

1) A duly filled-up withdrawal slip; and 

2) The depositor’s passbook. 

Petitioner bank alleged that had private respondent indicated therein the person authorized to receive the money, then Gayon could not have withdrawn any amount. However, the withdrawal slip itself indicates a special instruction that the amount is payable to “Ramon de Guzman and/or Agnes de Guzman”. Such being the case, petitioner’s personnel should have been duly warned that Gayon was not the proper payee of the proceeds of the check. Moreover, the fact that private respondent’s passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made was when he deposited the subject check. 

(2) Yes. A bank is under obligation to treat the accounts of its depositors “with meticulous care, always having in mind the fiduciary nature of their relationship”. Petitioner failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioner’s personnel negligently handled private respondent’s account to petitioner’s detriment. 

The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioner’s part was its personnel’s negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage. 

Agro Conglomerates vs. CA

FACTS:

July 17, 1982: Agro Conglomerates, Inc. (Agro) sold 2 parcels of land to Wonderland Food Industries, Inc (Wonderland) for P 5M under terms and conditions: 

1. P 1M Pesos shall be paid in cash upon the signing of the agreement

2. P 2M Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.

3. balance of P2,000,000.00 shall be paid in 4 equal installments, the first installment falling due, 180 days after the signing of the agreement and every six months thereafter, with an

interest  rate of 18% per annum, to be advanced by the vendee upon the signing of the agreement

July 19, 1982: Agro, Wonderland and Regent Savings & Loan Bank (Regent) (formerly Summa Savings & Loan Association) amended the arrangement resulting to a revision  - addedum was not notarized

Agro would secure a loan in the name of Agro Conglomerates Inc. for the total amount of the initial payments, while the settlement of loan would be assumed by Wonderland

Mario Soriano (of Agro) signed as maker several promissory notes, payable to Regent in favor of Wonderland

subsidiary contract of suretyship had taken effect since Agro signed the promissory notes as maker and accommodation party for the benefit of Wonderland

bank released the proceeds of the loan to Agro who failed to meet their obligations as they fell due

bank, experiencing financial turmoil, gave Agro opportunity to settle their account by extending payment due dates

Mario Soriano manifested his intention to re-structure the loan, yet did not show up nor submit his formal written request

Regent filed 3 separate complaints before the RTC for Collection of sums of money

CA affirmed Trial court: held Agro liable

ISSUE: W/N Agro should be liable because there was no accomodation or surety

HELD: YES. CA affirmed. First,  there  was  no  contract  of  sale  that  materialized.    The  original agreement  was 

that  Wonderland  would  pay  cash  and  Agro would deliver  possession  of  the  farmlands.    But  this  was  changed  through  an addendum, that Agro would instead secure a loan and the settlement of the same would be shouldered by Wonderland.   

contract  of  surety  between  Woodland and petitioner was extinguished by the rescission of the contract of sale of the farmland

With the rescission,  there was confusion in the persons of the  principal  debtor  and  surety.    The  addendum  thereon  likewise  lost  its efficacy

accommodation party - NOT in this case because of recission

person who has signed the instrument as:

maker

acceptor

indorser

without receiving value therefor

for the purpose of lending his name to some other person

is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party

has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them has in effect become one of principal and surety, the accommodation party being the surety.

Suretyship 

relation which exists where:

1 person has undertaken an obligation

another person is also under the obligation or other duty to the obligee, who is entitled to but one performance

The surety’s liability to the creditor or promisee is directly and equally bound with the principal and the creditor may proceed against any one of the solidary debtors

Novation - NOT in this case

extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor

never presumed and it must be clearly and unequivocally shown

requisites:

1. There must be a previous valid obligation - lacking

2. There must be an agreement of the parties concerned to a new contract

3. There must be the extinguishment of the old contract; and

4. There must be the validity of the new contract

Sec. 22 of the Civil Code provides:

Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

Agro had no legal or just ground to retain the proceeds of the loan at the expense of Wonderland.  

Neither could Agro excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of their sales contract - surety no effect because of the rescission

If Agro sustained damages as a result of the rescission, they should have impleaded Wonderland and asked damages

The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party

But respondent appellate court did not err in holding that Agro are duty-bound under the law to pay the claims of Regent from whom they had obtained the loan proceeds

Facts: Anita Gatchalian was interested in buying a car when she was offered by Manuel Gonzales to a car owned by the Ocampo Clinic. Gonzales claim that he was duly authorized to look for a buyer, negotiate and accomplish the sale by the Ocampo Clinic. Anita accepted the offer and insisted to deliver the car with the certificate of registration the next day but Gonzales advised that the owners would only comply only upon showing of interest on the part of the buyer. Gonzales recommended issuing a check (P600 / payable-to-bearer /cross-checked) as evidence of the buyer’s good faith. Gonzales added that it will only be for safekeeping and will be returned to her the following day.

The next day, Gonzales never appeared. The failure of Gonzales to appeal resulted in Gatchalian to issue a STOP PAYMENT ORDER on the check. It was later found out that Gonzales used the check as payment to the Vicente de Ocampo (Ocampo Clinic) for the hospitalization fees of his wife (the fees were only P441.75, so he got a refund of P158.25). De Ocampo now demands payment for the check, which Gatchalian refused, arguing that de Ocampo is not a holder in due course and that there is no negotiation of the check.

The Court of First Instance ordered Gatchalian to pay the amount of the check to De Ocampo. Hence this case. 

Issue: Whether or not De Ocampo is a holder in due course.

Held: NO. De Ocampo is not a holder in due course. De Ocampo was negligent in his acquisition of the check. There were many instances that arouse suspicion: the drawer in the check (Gatchalian) has no liability with de Ocampo ; it was cross-checked(only for deposit) but was used a payment by Gonzales; it was not the exact amount of the medical fees. The circumstances should have led him to inquire on the validity of the check. However, he failed to exercise reasonable prudence and caution.

In showing a person had knowledge of facts that hisaction in taking the instrument amounted to bad faith need not prove that he knows the exact fraud. It is sufficient to show that the person had NOTICE that there was something wrong. The bad faith here means bad faith in the commercial sense – obtaining an instrument with no questions asked or no further inquiry upon suspicion. 

The presumption of good faith did not apply to de Ocampo because the defect was apparent on the instruments face – it was not payable to Gonzales or bearer. Hence, the holder’s title is defective or suspicious. Being the case, de Ocampo had the burden of proving he was a holder in due course, but failed. 

Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00 from Associated Bank to another bank but he realized that he does not want to be carrying that cash so he bought a cashier’s check from Associated Bank worth P800,000.00. Associated Bank then issued the check but Jose Go forgot to get the check so it was left on top of the desk of the bank manager. The bank manager, when he found the check, entrusted it to Albert Uy for the later to safe keep it. The check was however stolen from Uy by a certain Alexander Lim.

Jose Go learned that the check was stolen son he made a stop payment order against the check. Meanwhile, Associated Bank received the subject check from Prudential Bank for clearing. Apparently, the check was presented by a certain Marcelo Mesina for payment. Associated Bank dishonored the check.

When asked how Mesina got hold of the check, he merely stated that Alfredo Lim, who’s already at large, paid the check to him for “a certain transaction”.

ISSUE: Whether or not Mesina is a holder in due course.

HELD: No. Admittedly, Mesina became the holder of the cashier’s check as endorsed by Alexander Lim who stole the check. Mesina however refused to say how and why it was passed to him. Mesina had therefore notice of the defect of his title over the check from the start. The holder of a cashier’s check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. The check in question suffers from the infirmity of not having been properly negotiated and for value by Jose Go who is the real owner of said instrument.

Metropol vs. Sambok

Metropol vs. SambokL-39641          February 28, 1983

De Castro, J.:

Facts:

            Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd. Payable in 12 equal monthly installments with interest. It is further provided that  in case on non-payment of any of the installments, the total principal sum then remaining unpaid shall become due and payable with an additional interest. Sambok Motors co., a sister company of Ng Sambok Sons negotiated and indorsed the note in favor of Metropol Financing & investment Corporation. Villaruel defaulted in the payment, upon presentment of the promissory note he failed to pay the promissory note as demanded, hence Ng Sambok Sons Motors Co., Ltd. notified Sambok as indorsee that the promissory note has been dishonored and demanded payment. Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of money. During the pendency of the case Villaruel died. Sambok argues that by adding the words “with recourse” in the indorsement of the note, it becomes a qualified indorser, thus, it does not warrant that in case that the maker failed to pay upon presentment it will pay the amount to the holder.

Issue:

            Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the failure of payment of the maker.

Held:

            No. A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser’s signature the words “without recourse” or any words of similar import. Such indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument  as provided by section 65 of NIL. However, Sambok indorsed the note “with recourse” and even waived the notice of demand, dishonor, protest and presentment.

Recourse means resort to a person who is secondarily liable after the default of the person who is primarily liable. Sambok by indorsing the note “with recourse” does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Villaruel fails to pay the not the holder can go after it. The effect of such indorsement is that the note was indorsed witout qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the

case maybe, and that if it be dishonored, he will pay the amount thereof to the holder. The words added by Sambok do not limit his liability, but rather confirm his obligation as general indorser.  

Sapiera vs CA

Sapiera vs Court of Appeals

[G.R. No. 128927.  September 14, 1999]

FACTS:

Petitioner Remedios Sapiera, a sari-sari store owner, was issued by one Arturo de Guzman checks as payment for purchases he made at her store.  She used said checks to pay for certain items she purchased from the grocery store of Ramon Sua.  These checks were signed at the back by petitioner.  When presented for payment the checks were dishonored because the drawer’s account was already closed.  Sua informed Arturo de Guzman and petitioner about the dishonor but both failed to pay the value of the checks.  Petitioner was acquitted in the charge of estafa filed against her but she was found liable for the value of the checks. 

ISSUE:

Whether petitioner is liable for the value of the checks even if she signed the subject checks only for the identification of the signature of Arturo de Guzman.

RULING:

Petitioner is liable for the value of the checks.  As she (petitioner) signed the subject checks on the reverse side without any indication as to how she should be bound thereby, she is deemed to be an unqualified indorser thereof.  Every indorser who indorses without qualification, warrants to all subsequent holders in due course that, on due presentment, it shall be accepted or paid or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. 

Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a dollar check owned by Henry Chan in which he affixed his signature at the dorsal side thereof. For this purpose, Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of the withdrawal slip and used it to withdraw the proceeds of the dollar check, even before the check was cleared and without the presentation of the bank passbook. 

Issues:(1) Whether or not petitioner can hold private respondent liable for the proceeds of the check for having affixed his signature at the dorsal side as indorser; and 

(2) Whether or not the bank was negligent as the proximate cause of the loss and should be held liable. 

Held:(1) No. Ordinarily, private respondent may be held liable as an indorser of the check or even as an accommodation party. However, to hold him liable would result in an injustice. The interest of justice thus demands looking into the events that led to the encashment of the check. 

Under the rules appearing in the passbook that BPI issued to private respondent, to be able to withdraw under the Philippine foreign currency deposit system, two requisites must be presented to petitioner BPI by the person withdrawing an amount: 

1) A duly filled-up withdrawal slip; and 

2) The depositor’s passbook. 

Petitioner bank alleged that had private respondent indicated therein the person authorized to receive the money, then Gayon could not have withdrawn any amount. However, the withdrawal slip itself indicates a special instruction that the amount is payable to “Ramon de Guzman and/or Agnes de Guzman”. Such being the case, petitioner’s personnel should have been duly warned that Gayon was not the proper payee of the proceeds of the check. Moreover, the fact that private respondent’s passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made was when he deposited the subject check. 

(2) Yes. A bank is under obligation to treat the accounts of its depositors “with meticulous care, always having in mind the fiduciary nature of their relationship”. Petitioner failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioner’s personnel negligently handled private respondent’s account to petitioner’s detriment. 

The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioner’s part was its personnel’s negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage. Prudential Bank vs IAC

PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT

G.R. No. 74886 December 8, 1992,  216 scra 257

--presentment for payment

FACTS:

Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries under a five-year deferred payment plan.  To effect payment

for said machineries, Philippine Rayon Mills opened a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho.  Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank through its correspondent in Japan.  Two of these drafts were accepted by Philippine Rayon Mills while the others were not.  Petitioner instituted an action for the recovery of the sum of money it paid to Nissho as Philippine Rayon Mills was not able to pay its obligations arising from the letter of credit.  Respondent court ruled that with regard to the ten drafts which were not presented and accepted, no valid demand for payment can be made. Petitioner however claims that the drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon.

ISSUE:

Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon.

RULING:

In the case at bar, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment.  There was in fact no need for acceptance as the issued drafts are sight drafts.   Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL).  The said section provides that presentment for acceptance must be made:

         (a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or

         (b) Where the bill expressly stipulates that it shall be presented for acceptance; or

         (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill liable.  Obviously then, sight drafts do not require presentment for acceptance.

LUIS WONG vs. CAPosted on November 24, 2012

G.R. No. 117857February 2, 2001FACTS:Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. However, petitioner had a history of unremitted collections. Hence, petitioner’s customers were required to issue postdated checks before LPI would accept their purchase orders.

In early December 1985, Wong issued 6 postdated checks totaling P18,025, all dated December 30, 1985 and drawn payable to the order of LPI. The checks were drawn against Allied Banking Corporation.

The checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However, following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of petitioner’s unremitted collections for 1984 amounting to P18,077.07. LPI waived the P52.07 difference.

Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to replace them within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986, LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned for the reason “account closed.”

On June 20, 1986, complainant notified the petitioner of the dishonor. However, petitioner failed to make arrangements for payment within 5 banking days.

On November 6, 1987, petitioner was charged with 3 counts of violation of B.P. Blg. 22 under 3 separate Informations for the 3 checks amounting to P5,500.00, P3,375.00, and P6,410.00.

Petitioner was similarly charged in Criminal Case No. 12057 for ABC Check No. 660143463 in the amount of P3,375.00, and in Criminal Case No. 12058 for ABC Check No. 660143464 for P6,410.00. Both cases were raffled to the same trial court.

The version of the defense is that petitioner issued the 6 checks to guarantee the 1985 calendar bookings of his customers, not as payment for any obligation. In fact, the face value of the 6 postdated checks tallied with the total amount of the calendar orders of the 6 customers of the accused. Although these customers had already paid their respective orders, petitioner claimed LPI did not return the said checks to him.

On August 30, 1990, the trial court found petitioner guilty beyond reasonable doubt with 3 counts of Violations of Sec.1 of B.P. Blg. 22.

Petitioner appealed his conviction to the CA. However, it affirmed the trial court’s decision in toto on October 28, 1994.

ISSUES:1. Whether the checks were issued merely as guarantee or for payment of petitioner’s unremitted collections.

2. WON the prosecution was able to establish beyond reasonable doubt all the elements of the offense penalized under B.P. Blg. 22.

3. WON petitioner’s penalty may be modified to only payment of fine.

HELD:1.This is a factual issue involving as it does the credibility of witnesses. Said factual issue has been settled by the trial court and CA. Its findings of fact are generally conclusive, and there is no cogent reason to depart from such. In cases elevated from the CA, the SC’s review is confined to alleged errors of law. Absent any showing that the findings by the respondent court are entirely devoid of any substantiation on record, the same must stand. The lack of accounting between the parties is not the issue in this case. As repeatedly held, the SC is not a trier of facts.

2. There are 2 ways of violating B.P. Blg. 22:

(a) by making or drawing and issuing a check to apply on account or for value knowing at the time of issue that the check is not sufficiently funded; and

(b) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep sufficient funds therein, or credit with, said bank to cover the full amount of the check when presented to the drawee bank within a period of 90 days.

The elements of B.P. Blg. 22 under the 1st situation, pertinent to the present case, are:

(a) The making, drawing & issuance of any check to apply for account or for value;

(b) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and

(c) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.

As to the 1st element, the RTC & CA have both ruled that the checks were in payment for unremitted collections, and not as guarantee. What B.P. Blg. 22 punishes is the issuance of a bouncing check, and not the purpose for which it was issued nor the terms and conditions relating to its issuance.

As to the 2nd element, B.P. Blg. 22 creates a presumption juris tantum that the 2nd element prima facie exists when the 1st & 3rd elements of the offense are present. Thus, the maker’s knowledge is presumed from the dishonor of the check for insufficiency of funds.

An essential element of the offense is “knowledge” on the part of the maker/drawer of the check of the insufficiency of his funds in, or credit with, the bank to cover the check upon its

presentment. Since this involves a state of mind difficult to establish, the statute itself creates a prima facie presumption of such knowledge where payment of the check “is refused by the drawee because of insufficient funds in, or credit with, such bank when presented within 90 days from the date of the check.” The statute provides that such presumption shall not arise if within 5 banking days from receipt of the notice of dishonor, the maker/drawer makes arrangements for payment of the check by the bank or pays the holder the amount of the check.

Nowhere in the said provision does the law require a maker to maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the following conditions: (1) presentment within 90 days from date of the check, and (2) the dishonor of the check & failure of the maker to make arrangements for payment in full within 5 banking days after notice thereof. That the check must be deposited within 90 days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time thereof. Under Sec. 186 of the Negotiable Instruments Law, “a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.” By current banking practice, a check becomes stale after more than 6 months (180 days).

Private respondent herein deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found by the RTC, private respondent did not deposit the checks because of the reassurance of petitioner that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were dishonored, petitioner was duly notified of such fact but failed to make arrangements for full payment within 5 banking days thereof. There is, on record, sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. And despite petitioner’s insistent plea of innocence, the respondent court is not in error for affirming his conviction by the trial court for violations of the Bouncing Checks Law.

3. Pursuant to the policy guidelines in Administrative Circular No. 12-2000, which took effect on November 21, 2000, the penalty imposed on petitioner should now be modified to a fine of not less than but not more than double the amount of the checks that were dishonored. The penalty imposed on him is modified so that the sentence of imprisonment is deleted.

International Corporate Bank vs. Gueco351 SCRA 516

Facts:

Respondent Gueco spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of Philippines) to purchase a car – Nissan Sentra 1989 model.

In consideration, spouses executed promissory note which were payable in monthly installment & chattel mortgage over the car.

The spouses defaulted payment. Dr. Gueco had a meeting & the unpaid installment of P184k was reduced to P150k. However, the car was detained by the bank.

When Dr. Gueco delivered the manger’s check of P150k, the car was not released because of his refusal to sign the Joint Motion to Dismiss.

The bank insisted that the JMD is a standard operating procedure to effect a compromise & to preclude future filing of claims or suits for damages.

Gueco spouses filed an action against the bank for fraud, failing to inform them regarding JMD during the meeting & for not releasing the car if they do not sign the said motion.

Issue:

WON the bank was guilty of fraud? NO

Held:

Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation.

We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud.

The JMD cannot in any way have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner’s act of requiring Dr. Gueco to sign the joint motion to dismiss cannot be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties.

The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from

P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be characterized as “wanton, fraudulent, reckless, oppressive or malevolent.

State Investment House Inc. vs. CAState Investment House Inc. vs. CA

GR No. 101163 January 11, 1993

Bellosillo, J.:

Facts:

Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on commission, two postdated checks in the amount of fifty thousand each. Thereafter, Victoriano negotiated the checks to State Investment House, Inc. When Moulic failed to sell the jewellry, she returned it to Victoriano before the maturity of the checks. However, the checks cannot be retrieved as they have been negotiated. Before the maturity date Moulic withdrew her funds from the bank contesting that she incurred no obligation on the checks because the jewellery was never sold and the checks are negotiated without her knowledge and consent. Upon presentment of for payment, the checks were dishonoured for insufficiency of funds.

Issues:

1. Whether or not State Investment House inc. was a holder of the check in due course

2. Whether or not Moulic can set up against the petitioner the defense that there was failure or absence of consideration

Held:

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows that: on the faces of the post dated checks were complete and regular; that State Investment

House Inc. bought the checks from Victoriano before the due dates; that it was taken in good faith and for value; and there was no knowledge with regard that the checks were issued as security and not for value. A prima facie presumption exists that a holder of a negotiable instrument is a holder in due course. Moulic failed to prove the contrary.

No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for which they were issued and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic failed to get back the possession of the checks as provided by paragraph c, intentional cancellation of instrument is impossible. As provided by paragraph d, the acts which will discharge a simple contract of payment of money will discharge the instrument. Correlating Article 1231 of the Civil Code which enumerates the modes of extinguishing obligation, none of those modes outlined therein is applicable in the instant case. Thus, Moulic may not unilaterally discharge herself from her liability by mere expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her check to a holder in due course. Moreover, the fact that the petitioner failed to give notice of dishonor is of no moment. The need for such notice is not absolute; there are exceptions provided by Sec 114 of NIL.

FACTS:  Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the

manufacturing of cigarettes purchased from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be delivered starting October 1978. 

July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total amount of P820K

George represented that he would complete delivery w/in 3 months from Dec 5 1978 so BCCFI agreed to purchase additional 2,500 bales of tobacco leaves, despite the previous failure in delivery

It issued post dated crossed checks in the total amount of P1.1M payable sometime in September 1979. 

July 19, 1978:  George sold to SIHI at a discount check amounting to P164K, post dated March 31, 1979, drawn by BCCFI w/ George as payee. 

December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post dated September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee

Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop payment order for all checks

SIHI failing to claim, filed a claim against  BCCFI RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the

case

ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossed checks

HELD: YES.  GRANTED. RTC reversed. Sec. 52

1. That it is complete and regular upon its face2. That he became the holder of it before it was overdue, and without notice that it had been

previously dishonored, if such was the fact3. That he took it in good faith and for value4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument

or defect in the title of the person negotiating it Sec. 59 every holder is deemed prima facie a holder in due course However, when it is shown that the title of any person who has negotiated the instrument was

defective, the burden is on the holder to prove that he or some person under whom he claims, acquired the title as holder in due course.

effect of crossing of a check

1. check may not be encashed but only deposited in the bank2. check may be negotiated only once — to one who has an account with a bank3. act of crossing the check serves as warning to the holder that the check has been issued for

a definite purpose - he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course

crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser's title to the check or the nature of his possession - failure = guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law

SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks.  However, that SIHI could not recover from the checks. The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were non-negotiable. Hence, SIHI can collect from the immediate indorser, George

Citytrust vs. IACCitytrust banking Corp., vs. Intermediate Appellate Court

GR No. 84281 May 27, 1994

 Vitug, J:

Facts:

            Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at its Burgoa branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to amply cover 6 postdated checks she issued. All checks were dishonored due to insufficiency of funds upon the presentment for encashment. Citytrust banking Corp. asserted that it was due to Herrero’s fault that her checks were dishonored, for he inaccurately wrote his account number in the deposit slip. RTC dismissed the complaint for lack of merit. CA reversed the decision of RTC.

Issue:

            Whether or not Citytrust banking Corp.  has the duty to honor checks issued by Emme Herrero despite the failure to accurately stating the account number resulting to insufficiency of funds for the check.

Held:

            Yes, even it is true that there was error on the account number stated in the deposit slip, its is, however, indicated the name of “Emme Herrero.” This is controlling in determining in whose account the deposit is made or should be posted. This is so because it is not likely to commit an error in one’s name than merely relying on numbers which are difficult to remember. Numbers are for the convenience of the bank but was never intended to disregard the real name of its depositors. The bank is engaged in business impressed with public trust, and it is its duty to protect in return its clients and depositors who transact business with it. It should not be a matter of the bank alone receiving deposits, lending out money and collecting interests. It is also its obligation to see to it that all funds invested with it are properly accounted for and duly posted in its ledgers.

Papa v. AU Valencia (284 SCRA 643)Post under case digests, Commercial Law at Sunday, February 05, 2012 Posted by Schizophrenic Mind

Facts: Myron Papa, acting as attorney-in-fact of Angela Butte, allegedly sold a parcel of land in

La Loma, Quezon City to Felix Penarroyo. However, prior to the alleged sale, the land was

mortgaged by Butte to Associated Banking Corporation along with other properties and after the

alleged sale but prior to the property’s release by delivery, Butte died. The Bank refused to

release the property despite Penarroyo’s unless and until the other mortgaged properties by Butte

have been redeemed and because of this Penarroyo settled to having the title of the property

annotated.

It was later discovered that the mortgage rights of the Bank were transferred to one Tomas

Parpana, administrator of the estate of Ramon Papa Jr. and his since then been collecting rents.

Despite repeated demands of Penarroyo and Valencia, Papa refused to deliver the property which

led to a suit for specific performance. The trial court ruled in favor of Penarroyo and Valencia.

On appeal to the CA, and ultimately in relation to negotiable instruments, Papa averred that the

sale of the property was not consummated since the PCIB check issued by Penarroyo for

payment worth 40000 pesos was not encashed by him. However, the CA saw the contrary and

that Papa in fact encashed the check by means of a receipt.

Finally on appeal to the SC, Papa cited that according to Art 1249 of the Civil Code, payment of

checks only produce effect once they have been encashed and he insists that he never encashed

the check. He further alleged that if check was encashed, it should have been stamped as such or

at least a microfilm copy. It must be noted that the check was in possession of Papa for ten (10)

years from the time payment was made to him.

Issue: Whether or not the check was encashed and can be considered effective as payment

Held: YES. The Court held that acceptance of a check implies an undertaking of due diligence in

presenting it for payment, and if he from whom it is received sustains loss by want of such

diligence, it will be held to operate as actual payment of the debt or obligation for which it is

given. In this case, granting that check was never encashed, Papa’s failure to do so for more than

ten (10) years undoubtedly resulted in the impairment of the check through his unreasonable and

unexplained delay.

After more than ten (10) years from the payment in part by cash and in part by check, the

presumption is that the check had been encashed.