Nego 1st Batch

7/28/2019 Nego 1st Batch

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TRADERS ROYAL BANK vs CA

FACTS: Filriters (assigned) > Philfinance(still under the name of Filriters assigned) >Traders Royal Bank = ? (valid or not)

November 27, 1979: Filriters GuarantyAssurance Corporation (Filriters)executed a "Detached Assignmentwhereby Filriters, as registered owner,sold, transferred, assigned anddelivered unto Philippine UnderwritersFinance Corporation (Philfinance) allits rights and title to Central BankCertificates of Indebtedness (CBCI) ofP500k and having an aggregate valueof P3.5M

The Detached Assignment contains anexpress authorization executed by thetransferor intended to complete theassignment through the registration ofthe transfer in the name of PhilFinance

February 4, 1981: Traders Royal Bank(Traders) entered into a Repurchase

Agreement w/ PhilFinance whereby inconsideration of the sum ofP500,000.00, PhilFinance sold,transferred and delivered a CBCI w/ aface value of P500K which CBCI wasamong those previously acquired byPhilFinance from Filriters

PhilFinance failed to repurchase on theagreed date of maturity, April 27, 1981,when the checks it issued in favor ofpetitioner were dishonored for

insufficient funds

Philfinance transferred and assignedall, its rights and title in the CBCI toTraders

Respondent failed and refused toregister the transfer as requested, andcontinues to do so notwithstandingpetitioner's valid and just title over thesame and despite repeated demands

in writing

Traders prayed for the registration bythe Central Bank of the subject CBCIin its name.

CA affirmed RTC: subsequentassignment in favor of Traders RoyalBank null and void and of no force andeffect.

Philfinance acquired no title or rightsunder CBCI which it could assign ortransfer to Traders and which it canregister with the Central Bank

instrument is payable only to Filriters,the registered owner

ISSUE: W/N the CBCI is a negotiableinstrument

HELD: NO. Petition is dismissed. CAaffirmed.

CBCI is not a negotiable instrument inthe absence of words of negotiabilitywithin the meaning of the negotiableinstruments law (Act 2031)

certificate of indebtedness = certificates for the creation and

maintenance of a permanentimprovement revolving fund

similar to a "bond"

properly understood asacknowledgment of an obligation topay a fixed sum of money

usually used for the purpose oflong term loans

Philfinance merely borrowed the CBCIfrom Filriters, a sister corporation.

lack of any consideration = assignmentis a complete nullity


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Filriters to Philfinance did not conformto the "Rules and RegulationsGoverning Central Bank Certificates ofIndebtedness" (Central Bank CircularNo. 769, series of 1980) under which

the note was issued.

Published in the Official Gazette onNovember 19, 1980, Section 3 thereofprovides that any assignment ofregistered certificates shall not be validunless made . . . by the registeredowner thereof in person or by hisrepresentative duly authorized inwriting

Alfredo O. Banaria, who signed thedeed of assignment purportedly forand on behalf of Filriters, did not havethe necessarywritten authorization from the BOD

Traders, being a commercial bank,cannot feign ignorance of Central BankCircular 769, and its requirements.

The fact that Filfinance owns majorityshares in Filriters is not by itself aground to disregard the independentcorporate status of Filriters.

Traders knew that Philfinance is notregistered owner of the CBCI.

The fact that a non-owner wasdisposing of the registered CBCIowned by another entity was a good

reason for petitioner to verify of inquireas to the title Philfinance to dispose tothe CBCI.

Nemo potest nisi quod de jurepotest no man can do anythingexcept what he can do lawfully.

CALTEX VS CA

Lessons Applicable: Requisites ofnegotiability to antedated and postdatedinstruments (Negotiable Instrument Law)

FACTS: Security Bank and Trust Company

(Security Bank), a commercial bankinginstitution, through its Sucat Branchissued 280 certificates of time deposit(CTDs) in favor of Angel dela Cruzwho deposited with Security Bank thetotal amount of P1,120,000

Angel delivered the CTDs to Caltex forhis purchase of fuel products

March 18, 1982: Angel informed Mr.Tiangco, the Sucat Branch Managerthat he lost all CTDs, submitted therequired Affidavit of Loss and receivedthe replacement

March 25, 1982: Angel dela Cruznegotiated and obtained a loan fromSecurity Bank in the amount ofP875,000 and executed a notarizedDeed of Assignment of Time Deposit

November, 1982: Mr. Aranas, CreditManager of Caltex went to the Sucatbranch to verify the CTDs declared lostby Angel

November 26, 1982: Security Bankreceived a letter from Caltex formallyinforming it of its possession of theCTDs in question and of its decision topre-terminate the same.

December 8, 1982: Caltex wasrequested by Security Bank to furnish:

a copy of the document evidencing theguarantee agreement with Mr. Angeldela Cruz


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the details of Mr. Angel's obligationagainst which Caltex proposed toapply the time deposits

Security Bank rejected Caltex demandfor payment bec. it failed to furnish acopy of its agreement w/ Angel

April 1983, the loan of Angel dela Cruzwith Security Bank matured

August 5, 1983: CTD were set-off w/the matured loan

Caltex filed a complaint praying thebank to pay 1,120,000 plus 16%

interest

CA affirmed RTC to dismiss complaintISSUE:

1. W/N the CTDs are negotiable2. W/N Caltex as holder in due course

can rightfully recover on the CTDs

HELD: Petition is Denied and appealeddecision is affirmed.

1. YES.Section 1 Act No. 2031, otherwise knownas the Negotiable Instruments Law,enumerates the requisites for an

instrument to become negotiable, viz:

(a) It must be in writing and signed by themaker or drawer;(b) Must contain an unconditional promiseor order to pay a sum certain in money;(c) Must be payable on demand, or at afixed or determinable future time;(d) Must be payable to order or to bearer;and -check

(e) Where the instrument is addressed to adrawee, he must be named or otherwiseindicated therein with reasonable certainty. The documents provide that the

amounts deposited shall be repayable

to the depositor

depositor = bearer If it was really the intention of

respondent bank to pay the amount toAngel de la Cruz only, it could havewith facility so expressed that fact inclear and categorical terms in thedocuments, instead of having theword "BEARER" stamped on the

space provided for the name of thedepositor in each CTD

negotiability or non-negotiability of aninstrument is determined from thewriting, that is, from the face of theinstrument itself

2. NO. although the CTDs are bearer

instruments, a valid negotiation thereoffor the true purpose and agreementbetween it and De la Cruz, asultimately ascertained, requires bothdelivery and indorsement

CTDs were in reality delivered to it asa security for De la Cruz' purchases ofits fuel products

There was no negotiation in the senseof a transfer of the legal title to theCTDs in favor of petitioner in whichsituation, for obvious reasons, meredelivery of the bearer CTDs wouldhave sufficed.

Where the holder has a lien on theinstrument arising from contract, he isdeemed a holder for value to theextent of his lien.

As such holder of collateral security,he would be a pledgee but the


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requirements therefor and the effectsthereof, not being provided for by theNegotiable Instruments Law, shall begoverned by the Civil Code provisionson pledge of incorporeal rights:

Art. 2095. Incorporeal rights, evidenced bynegotiable instruments, . . . may also bepledged. The instrument proving the rightpledged shall be delivered to the creditor,and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effectagainst third persons if a description of thething pledged and the date of the pledgedo not appear in a public instrument.

Art. 1625. An assignment of credit, right oraction shall produce no effect as againstthird persons, unless it appears in a publicinstrument, or the instrument is recorded inthe Registry of Property in case theassignment involves real property.

METROBANK VS CAG.R. No. 88866February 18, 1991Lessons Applicable: Forgery (NegotiableInstruments Law)

FACTS: January 1979: Eduardo Gomez

opened an account with GoldenSavings and deposited over a period of2 months 38 treasury warrants totallingP1,755,228.37.

all drawn by the Philippine FishMarketing Authority and purportedlysigned by its General Manager andcountersigned by its Auditor:

6 - directly payable to Gomez 32 - indorsed by their respective

payees, followed by Gomez as secondindorser

June 25 - July 16, 1979: all warrantswere subsequently indorsed by Gloria

Castillo as Cashier of Golden Savingsand deposited to its Savings in theMetrobank branch

They were then sent for clearing by thebranch office to the principal office ofMetrobank, which forwarded them tothe Bureau of Treasury for specialclearing

More than 2 weeks after the deposits,Castillo asked if the warrants werecleared.

She was told to wait. Gomez was also not allowed to

withdraw from his account

exasperated over Gloria'srepeated inquiries and also asan accommodation for a "valuedclient," Metrobank allowed GoldenSavings to make the followingwithdrawals:

July 9, 1979 - P508,000.00 July 13, 1979 - P310,000.00 July 16, 1979 - P150,000.00

Gomez was also allowed to withdraw atotal amount of P1,167,500 (lateston July 16, 1979)

July 21, 1979: Metrobank informedGolden Savings that 32 of the warrantshad been dishonored by the Bureau ofTreasury on July 19, 1979, anddemanded the refund by GoldenSavings of the amount it hadpreviously withdrawn, to make up thedeficit in its account. - refused

CA affirmed RTC: favored GoldenSavings

ISSUE: W/N Metrobank can claim a refundfrom Golden Savings
http://www.philippinelegalguide.com/2013/05/jurisprudence-gr-no-88866-february-18.htmlhttp://www.philippinelegalguide.com/2013/05/jurisprudence-gr-no-88866-february-18.htmlhttp://www.philippinelegalguide.com/2013/05/jurisprudence-gr-no-88866-february-18.html


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HELD: NO. Affirmed. withdrawn must becharged not to Golden Savings but toMetrobank, which must bear theconsequences of its own negligence. Butthe balance of P586,589.00 should be

debited to Golden Savings, as obviouslyGomez can no longer be permitted towithdraw this amount from his depositbecause of the dishonor of the warrants Metrobank was negligent in giving

Golden Savings the impression thatthe treasury warrants had beencleared and that, consequently, it wassafe to allow Gomez to withdraw

It "presumed" that the warrants hadbeen cleared simply because of "thelapse of one week."

There was no reason why it should nothave waited until the treasury warrantshad been cleared

Art. 1909. The agent is responsible notonly for fraud, but also for negligence,which shall be judged 'with more or lessrigor by the courts, according to whetherthe agency was or was not for acompensation. Golden Savings acted with due care

and diligence

Forgery cannot be presumed. It mustbe established by clear, positive andconvincing evidence. -here not proven

treasury warrants in question are notnegotiable instruments

stamped on their face is the word "non-negotiable"

indicated that they are payable from aparticular fund

Sec. 1. Form of negotiable instruments. An instrument to be negotiable mustconform to the following requirements:

(a) It must be in writing and signed by themaker or drawer;

(b) Must contain an unconditional promiseor order to pay a sum certain in money;(c) Must be payable on demand, or at afixed or determinable future time;(d) Must be payable to order or to bearer;

and(e) Where the instrument is addressed to adrawee, he must be named or otherwiseindicated therein with reasonable certainty.xxx xxx xxxSec. 3. When promise is unconditional.

An unqualified order or promise to pay isunconditional within the meaning of this Actthough coupled with (a) An indication of a particular fund out ofwhich reimbursement is to be made or a

particular account to be debited with theamount; or(b) A statement of the transaction whichgives rise to the instrument judgment.But an order or promise to pay out of a

particular fund is not unconditional.

PHILIPPINE NATIONAL BANK, plaintiff-appellee,vs.

CONCEPCION MINING COMPANY, INC.,ET AL., defendants-appellants.

Ramon B. de los Reyes for plaintiff-appellee.Demetrio Miraflor for defendants-appellants.

LABRADOR, J.:

Appeal from a judgment or decision of the

Court of First Instance of Manila, Hon.Gustavo Victoriano, presiding, sentencingdefendants Concepcion Mining Companyand Jose Sarte to pay jointly and severallyto the plaintiff the amount of P7,197.26 withinterest up to September 29, 1959, plus adaily interest of P1.3698 thereafter up tothe time the amount is fully paid, plus 10%of the amount as attorneys fees, and costsof this suit.

The present action was instituted by theplaintiff to recover from the defendants the


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face of a promissory note the pertinent partof which reads as follows:

Manila, March 12, 1954

NINETY DAYS after date, for valuereceived, I promise to pay to the order ofthe Philippine National Bank . . . .

In case it is necessary to collect this noteby or through an attorney-at-law, themakers and indorsers shall pay ten percent(10%) of the amount due on the note asattorneys fees, which in no case shall beless than P100.00 exclusive of all costsand fees allowed by law as stipulated in the

contract of real estate mortgage. Demandand Dishonor Waived. Holder may acceptpartial payment reserving his right ofrecourse again each and all indorsers.

(Purpose mining industry)CONCEPCION MINING COMPANY, INC.,By:(Sgd.) VICENTE LEGARDAPresident(Sgd.) VICENTE LEGARDA

(Sgd.) JOSE S SARTE

Please issue check to Mr. Jose S. Sarte

Upon the filing of the complaint thedefendants presented their answer inwhich they allege that the co-maker of thepromissory note Don Vicente L. Legardadied on February 24, 1946 and his estate isin the process of judicial determination in

Special Proceedings No. 29060 of theCourt of First Instance of Manila. On thebasis of this allegation it is prayed, as aspecial defense, that the estate of saiddeceased Vicente L. Legarda be includedas party-defendant. The court in itsdecision ruled that the inclusion of saiddefendant is unnecessary and immaterial,in accordance with the provisions of Article1216 of the Deny Civil Code and section 17(g) of the Negotiable Instruments Law.

A motion to reconsider this decision wasdenied and thereupon defendantspresented a petition for relief, asking thatthe effects of the judgment be suspendedfor the reason that the deceased Vicente L.

Legarda should have been included as aparty-defendant and his liability should bedetermined in pursuance of the provisionsof the promissory note. This motion forrelief was also denied, hence defendantappealed to this Court.

Section 17 (g) of the NegotiableInstruments Law provides as follows:

SEC. 17. Construction where instrument is

ambiguous. Where the language of theinstrument is ambiguous or there areomissions therein, the following rules ofconstruction apply:

x x x x x x x x x

(g) Where an instrument containing theword I promise to pay is signed by two ormore persons, they are deemed to be

jointly and severally liable thereon.

And Article 1216 of the Civil Code of thePhilippines also provides as follows:

ART. 1216. The creditor may proceedagainst any one of the solidary debtors orsome of them simultaneously. The demandmade against one of them shall not be anobstacle to those which may subsequentlybe directed against the others so long asthe debt has not been fully collected.

In view of the above quoted provisions, andas the promissory note was executed

jointly and severally by the same parties,namely, Concepcion Mining Company, Inc.and Vicente L. Legarda and Jose S. Sarte,the payee of the promissory note had theright to hold any one or any two of thesigners of the promissory note responsiblefor the payment of the amount of the note.This judgment of the lower court should be

affirmed.


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Our attention has been attracted to thediscrepancies in the printed record onappeal. We note, first, that the names ofthe defendants, who are evidently theConcepcion Mining Co., Inc. and Jose S.

Sarte, do not appear in the printed recordon appeal. The title of the complaint setforth in the record on appeal does notcontain the name of Jose Sarte, when itshould, as two defendants are named inthe complaint and the only defense of thedefendants is the non-inclusion of thedeceased Vicente L. Legarda as adefendant in the action. We also note thatthe copy of the promissory note which isset forth in the record on appeal does not

contain the name of the third maker JoseS. Sarte. Fortunately, the brief of appelleeon page 4 sets forth said name of Jose S.Sarte as one of the co-maker of thepromissory note. Evidently, there is anattempt to mislead the court into believingthat Jose S. Sarte is not one of the co-makers. The attorney for the defendants

Atty. Jose S. Sarte himself and he shouldbe held primarily responsible for thecorrectness of the record on appeal. We,therefore, order the said Atty. Jose S. Sarteto explain why in his record on appeal hisown name as one of the defendants doesnot appear and neither does his nameappear as one of the co-signers of thepromissory note in question. So ordered.

DEVELOPMENT BANK OF RIZAL vsSIMA WEI

FACTS:Respondent Sima Wei executed anddelivered to petitioner Bank a promissorynoteengaging to pay the petitioner Bank ororder the amount of P1,820,000.00. SimaWei subsequently issued two crossedchecks payable to petitioner Bank drawnagainst China Banking Corporation in fullsettlement of the drawer's accountevidenced by the promissory note. These

two checks however were not delivered tothe petitioner-payee or to any of its

authorized representatives but insteadcame into the possession of respondentLee Kian Huat, who deposited the checkswithout the petitioner-payee's indorsementto the account of respondent Plastic

Corporation with Producers Bank. Inspiteof the fact that the checks were crossedand payable to petitioner Bank and bore noindorsement of the latter, the BranchManager of Producers Bank authorized theacceptance of the checks for deposit andcredited them to the account of said PlasticCorporation.

ISSUE:Whether petitioner Bank has a cause of

action against Sima Wei for theundelivered checks.

RULING:No. A negotiable instrument must bedelivered to the payee in order to evidenceits existence as a binding contract. Section16 of the NIL provides that every contracton a negotiable instrument is incompleteand revocable until delivery of theinstrument for the purpose of giving effectthereto. Thus, the payee of a negotiableinstrument acquires no interest withrespect thereto until its delivery tohim. Without the initial delivery of theinstrument from the drawer to the payee,there can be no liability on theinstrument. Petitioner however has a rightof action against Sima Wei for the balancedue on the promissory note.

LIM vs CA

REPUBLIC PLANTERS BANK vs CALessons Applicable: Incompleteinstruments to rules of construction(Negotiable Instrument Law)

FACTS: Shozo Yamaguchi (President/Chief

Operating Officer) and Fermin Canlas

(Treasurer) by virtue of BoardResolution of Worldwide Garment


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Manufacturing, Inc were authorized toapply for credit facilities with theRepublic Planters Bank in the forms ofexport advances and letters ofcredit/trust receipts accommodations.

9 promissory notes with WorldwideGarment Manufacturing, Inc. wasapparently rubber stamped above thesignatures of Yamaguchi and Canlaswere issued to Republic PlantersBank

December 20, 1982: WorldwideGarment Manufacturing, Inc. changedits corporate name to PinchManufacturing Corporation

February 5,1982: Republic Planters filed acomplaint for the recovery of sums ofmoney

Shozo Yamaguchi did not file anAmended Answer and failed to appearat the scheduled pre-trial conferencedespite due notice

Fermin Canlas denied having issuedthe promissory notes as an officer ofPinch Manufacturing Corporation andwhen he issued said promissorynotes in behalf of Worldwide GarmentManufacturing, Inc., it was in blank(typewritten entries not appearingwhen he signed)

ISSUE: W/N Fermin Canlas is solidarily

liable with the other defendants, namelyPinch Manufacturing Corporation andShozo Yamaguchi on the 9 promissorynotes because they are negotiable andruled by the Negotiable Instruments Law

HELD: CA absolving Fermin Canlas isREVERSED and SET ASIDE. Judgementis hereby rendered declaring privaterespondent Fermin Canlas jointly and

severally liable on all9promissory

notes with the following sums and at 16%interest per annum Under the Negotiable lnstruments Law,

persons who write their names on theface ofpromissory notes are makers

and are liable as such.

Fermin Canlas one of the co-makers of the promissory

notes

cannot escape liability arisingtherefrom

made clearer and certain, withoutreason for ambiguity, by the presenceof the phrase "joint and several" asdescribing the unconditional promise topay to the order ofRepublic PlantersBank

Severally and jointly or solidarily liable "I promise to pay" is signed by 2 or

more persons

"I" ,We" , or "Either of us" promise to,pay, when signed by two or morepersons

"and (in) his personal capacity" belowthe signatures of the makers -immaterial and will not affect to theliability of Fermin Canlas as a joint andseveral debtor of the notes.

With or without it, he is primarily liableas a co-maker of each of the notes andhis liability is that of a solidary debtor

A change in the corporate name doesnot make a new corporation, andwhether effected by special act orunder a general law, has no affect onthe identity of the corporation, or on itsproperty, rights, orliabilities

The corporation continues, as before,responsible in its new name for all


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debts or other liabilities which it hadpreviously contracted or incurred.

GR: officers or directors under the oldcorporate name bear no personal

liability for acts done or contractsentered into by officers of thecorporation, if duly authorized.Inasmuch as such officers acted intheir capacity as agent of the oldcorporation and the change of namemeant only the continuation of the old

juridical entity, the corporation bearingthe same name is still bound by theacts of its agents if authorized by theBoard.

EX: Under the Negotiable InstrumentsLaw, the liability of a person signing asan agent is specifically provided for asfollows:

Sec. 20. Liability of a person signing asagent and so forth. Where the instrumentcontains or a person adds to his signaturewords indicating that he signs for or onbehalf of a principal , or in a representativecapacity, he is not liable on the instrumentif he was duly authorized; but the mereaddition of words describing him as anagent, or as filling a representativecharacter, without disclosing his principal,does not exempt him from personal liability. Where the agent signs his name but

nowhere in the instrument has hedisclosed the fact that he is acting in arepresentative capacity or the name

of the third party for whom he mighthave acted as agent, the agent ispersonally liable to take holder of theinstrument and cannot be permitted toprove that he was merely acting asagent of another and parol or extrinsicevidence is not admissible to avoid theagent's personal liability.

incomplete stereotype printed formof promissory notes generally used by

commercial banking institutions to be

signed by their clients in obtainingloans.

blank spaces to be filled up on materialparticulars such as payee's name,

amount of the loan, rate of interest,date of issue and the maturity date.

An incomplete instrument which hasbeen delivered to the borrower for hissignature is governed by Section 14 ofthe Negotiable Instruments Law:

Sec. 14. Blanks: when may be filled. Where the instrument is wanting in anymaterial particular, the person in possesion

thereof has aprima facie authority tocomplete it by filling up the blanks therein.... In order, however, that any suchinstrument when completed may beenforced against any person who becamea party thereto prior to its completion, itmust be filled up strictly in accordance withthe authority given and within a reasonabletime... The notes were not incomplete

instruments; neither were they given toprivate respondent Fermin Canlas inblank as he claims. Thus, Section 14of the NegotiabIe Instruments Law isnot applicable.

ASTRO ELECTRONICS VS PHILEXPORT

Lessons Applicable: Promissory notes andchecks (Negotiable Instruments Law)

FACTS:

Astro was granted several loans bythe Philippine Trust Company(Philtrust) amounting P3M w/ interestand secured by 3 promissory notes:

December 14, 1981: P600,000.00 December 14, 1981: P400,000.00 August 27, 1981: P2,000,000.00


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Roxas signed twice the promissory

notes

as President of Astro in his personal capacity Roxas also signed a Continuing Surety

ship Agreement in favor of PhiltrustBank, as President of Astro and assurety

Philguarantee, with the consent ofAstro, guaranteed in favor of Philtrustthe payment of 70% of Astros loan,

subject to the condition that uponpayment by Philguanrantee, it shall beproportionally subrogated to the rightsof Philtrust against Astro

Upon Astros failure to pay,Philguarantee paid 70% of theguaranteed loan to Philtrust.

Subsequently, Philguarantee filedagainst Astro and Roxas a complaintfor sum of money with the RTC

Roxas: alleged that he merely signedthe same in blank and the phrases inhis personal capacity and in his officialcapacity were fraudulently insertedwithout his knowledge

RTC: favored Philguarantee holdingAstro and Roxas jointly and severally

liable

if Roxas really intended to sign theinstruments merely in his capacity asPresident of Astro, then he shouldhave signed only once

CA affirmed RTCISSUE: W/N Roxas should be jointly andseverally liable with Astro

HELD: YES. CA affirmed Under the Negotiable Instruments Law,

persons who write their names on theface of promissory notes aremakers,promising that they will pay to

the order of the payee or any holderaccording to its tenor.

even without the phrase personalcapacity, Roxas will still be primarilyliable as a joint and several debtorunder the notes considering that hisintention to be liable as such ismanifested by the fact that he affixedhis signature on each of thepromissory notes twice which

necessarily would imply that he isundertaking the obligation in 2 differentcapacities, official and personal.

3 promissory notes uniformly provide:FOR VALUE RECEIVED, I/We jointly,severally and solidarily, promise topay to PHILTRUST BANK or order...

begins with I, We, or Either ofus promise to pay, when signed by twoor more persons = solidarily liable

Subrogation is the transfer of all therights of the creditor to a third person,who substitutes him in all his rights

Philguarantee has all the right toproceed against petitioner, it issubrogated to the rights of Philtrust todemand for and collect payment from

both Roxas and Astro since it alreadypaid the value of 70% of roxas andAstro Electronics Corp.s loanobligation

Roxas acquiescence is not necessaryfor subrogation to take place becausethe instant case is one of the legalsubrogation that occurs by operation oflaw, and without need of the debtorsknowledge


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Philguarantee, as guarantor, becamethe transferee of all the rights ofPhiltrust as against Roxas and Astrobecause the guarantor who pays issubrogated by virtue thereof to all the

rights which the creditor had againstthe debtor

SAN CARLOS MINING vs BPILessons Applicable: Forgery (NegotiableInstruments Law)

FACTS: San Carlos Milling Co. Ltd. (San

Carlos) was in the hands of Alfred D.

Cooper, its agent under general powerof attorney with authority of substitution

The principal employee in the Manilaoffice was Joseph L. Wilson, to whomhad been given a general power ofattorney but without power ofsubstitution.

1926: Cooper, desiring to go onvacation, gave a general power ofattorney to Newland Baldwin and atthe same time revoked the power ofWilson relative to the dealings with BPI

Wilson, conspiring together withAlfredo Dolores, a messenger-clerk inSan Carlos' Manila office, sent a cablegram in code to the company inHonolulu requesting a telegraphictransfer to the China Banking

Corporation (China Bank) of Manila of$100,00.

The money was transferred by cable,and upon its receipt China Bank sentan exchange contract to San Carlosoffering the sum of P201K, which wasthen the current rate of exchange.

September 28, 1927: A manager'scheck on the China Banking

Corporation for P201K payable to San

Carlos Milling Company or order wasreceipted for by Dolores

deposited with the BPI having afake endorsement (Baldwin forged as

drawer)

For deposit only with Bank of the PhilippineIslands, to credit of account of San CarlosMilling Co., Ltd.By (Sgd.) NEWLAND BALDWINFor Agent San Carlos had frequently withdrawn

currency for shipment to its mill butnever in so large an amount, andnever under the sole supervision of

Dolores

Before delivering the money, the bankasked Dolores for P1 to cover the costof packing the money, and he left thebank and shortly afterwards returnedwith another check for P1, purportingto be signed by Newland Baldwin

the crime was discovered and SanCarlos filed against the BPI and ChinaBank (after ammendment complaint)

China Bank: as theprior endorsement had in law beenguaranteed by the BPI, they areabsolved even if the endorsement ofNewland Baldwin on the check was aforgery

BPI: guilty of no negligence, loss wasdue to the dishonesty of SanCarlos employees and the negligenceof San Carlos general agent

RTC: BPI in GF and San Carlos couldnot recover

ISSUE: W/N BPI was bound to inspect thechecks and shall therefore be liable in caseof forgery


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HELD: YES. judgment absolving the Bankof the Philippine Islands must therefore bereversed duty was upon the BPI, and the China

Banking Corporation was not bound to

inspect and verify all endorsements ofthe check, even if some of them werealso those of depositors in that bank

A bank is bound to know thesignatures of its customers; and if itpays a forged check, it must beconsidered as making the payment outof its own funds, and cannot ordinarilycharge the amount so paid to theaccount of the depositor whose name

was forged.

under section 23 of the NegotiableInstruments Law they are not a chargeagainst San Carlos nor are the checksof any value to the BPI.

proximate cause of loss was due to thenegligence of the Bank of thePhilippine Islands in honoring andcashing the two forged checks

GREAT EASTERN LIFE vs HSBCLessons Applicable: Forgery (NegotiableInstruments Law)

FACTS: May 3, 1920: Great Eastern Life Ins.

Co. (Eastern) drew its check forP2,000 on theHongkong and ShanghaiBanking Corporation (HSBC) payable

to the order of Lazaro Melicor.

E. M. Maasim fraudulently obtainedpossession of the check, forgedMelicor's signature, as an endorser,and then personally endorsed andpresented it to the Philippine NationalBank (PNB) and it was placed to hiscredit.

Next day: PNB endorsed the check tothe HSBC who paid it

HSBC sent a bank statement to theEastern showing the amount of thecheck was charged to its account, andno objection was made

4 months after the check was charged,it developed that Lazaro Melicor, towhom the check was made payable,had never received it, and that hissignature, as an endorser, was forgedby Maasim,

Eastern promptly made a demandupon the HSBC to credit the amount ofthe forged check

Eastern filed against HSBC and PNB RTC: dismissed the caseISSUES: W/N Eastern has the right torecover the amount of the forged check

HELD: YES. lower court isreversed. Eastern against HSBC who canclaim against PNB forgery was that of Melicor (payees

and NOT the maker)

Eastern received it banks statement, ithad a right to assume that Melicor hadpersonally endorsed the check, andthat, otherwise, the bank would nothave paid it

Section 23 of NegotiableInstruments Law:

When a signature is forged or madewithout the authority of the person whosesignature it purports to be, it is whollyinoperative, and no right to retain theinstrument, or to give a discharge therefor,or to enforce payment thereof against anyparty thereto, can be acquired through orunder such signature, unless the partyagainst whom it is sought to enforce such

right is precluded from setting up theforgery or want of authority.


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The Philippine National Bank had nolicense or authority to pay the moneyto Maasim or anyone else upon a forgesignature.

Its remedy is against Maasim to whomit paid the money.

REPUBLIC BANK VS EBRADALessons Applicable: Forgery (NegotiableInstruments Law)

FACTS: February 27, 1963: Mauricia T.

Ebrada, encashed Back Pay Check

dated January 15, 1963 for P1,246.08at Republic Bank

check was issued by the Bureau ofTreasury

Bureau advised Republic Bank that theindorsement on the reverse side of thecheck by the payee, "Martin Lorenzo"was a forgery because he died as ofJuly 14, 1952 and requested a refund

July 11, 1966: Ebrada filed a Third-Party complaint against AdelaidaDominguez who, in turn, filed onSeptember 14, 1966 a Fourth-Partycomplaint against Justina Tinio.

March 21, 1967: City Court of Manilafavored Republic against Ebrada, forThird-Party plaintiff against AdelaidaDominguez, and for Fourth-Partyplaintiff against Justina Tinio

CA: reversed Mauricia T. Ebrada claimagainst Adelaida Dominguez andDomiguez against Justina Tinio

W/N: Ebrada should be held liable.

HELD: YES. Affirmed in toto. under Section 65 of the Negotiable

Instruments Law:

Every person negotiating an instrument bydelivery or by qualified indorsement,warrants:(a) That the instrument is genuine and in allrespects what it purports to be.(b) That she has good title to it.xxx xxx xxxEvery indorser who indorses

without qualification warrants to allsubsequent holders in due course:(a) The matters and things mentionedin subdivisions (a), (b), and (c) of the nextpreceding sections;(b) That the instrument is at the time of hisindorsement valid and subsisting. Under action 23 of the Negotiable

Instruments Law (Act 2031):

When a signature is forged or madewithout the authority of the person whosesignature it purports to be, it is whollyinoperative, and no right to retain theinstruments, or to give a discharge thereofagainst any party thereto, can be acquiredthrough or under such signature unless theparty against whom it is sought to enforcesuch right is precluded from setting up theforgery or want of authority.

Martin Lorenzo (forged as originalpayee) > Ramon R. Lorenzo (2ndindorser) = NO EFFECT

Ramon R. Lorenzo(2ndindorser)> Adelaida Dominguez (thirdindorser)>Adelaida Dominguez toEbrada who did not know of theforgery = valid and enforceable barringany claim of forgery


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drawee of a check can recover fromthe holder the money paid to him on aforged instrument

not its duty to ascertain whether thesignatures of the payee or indorsersare genuine or not

indorser is supposed to warrant to thedrawee that the signatures of thepayee and previous indorsers (NOTonly holders in due course) aregenuine

RATIONALE: . indorsers own credulityor recklessness, or misplacedconfidence was the sole cause of theloss. Why should he be permitted toshift the loss due to his own fault inassuming the risk, upon the drawee,simply because of the accidentalcircumstance that the draweeafterwards failed to detect the forgerywhen the check was presented

Ebrada , upon receiving the check inquestion from Adelaida Dominguez,was duty-bound to ascertain whetherthe check in question was genuinebefore presenting it to plaintiff Bank forpayment

Based on the doctrine fromGreatEastern Life Ins. Co. v. HongkongShanghai Bank (1922), bank shouldsuffer the loss when it paid the amountof the check in question to Ebrada, butit has the remedy to recover from theEbrada the amount it paid

Ebrada immediately turning over toAdelaida Dominguez (Third-Party

defendant and the Fourth-Partyplaintiff) who in turn handed the

amount to Justina Tinio on the samedate would not exempt her from liabilitybecause by doing so, she acted as anaccommodation party in the check forwhich she is also liable under Section

29 of theNegotiable Instruments Law(Act 2031):

An accommodation party is one who hassigned the instrument as maker, drawer,acceptor, or indorser, without receivingvalue therefor, and for the purpose oflending his name to some other person.Such a person is liable on the instrument toa holder for value, notwithstanding such

holder at the time of taking the instrumentknew him to be only an accommodationparty.

GEMPESAW vs CA

Lessons Applicable: Promissory Notes andChecks (Negotiable Instruments Law)

FACTS: Gempesaw owns and operates four

grocery stores to pay their debts of her supplies, she

draws checks against her account she signed each and every crossed

check without bothering to verify theaccuracy of the checks against thecorresponding invoices because shereposed full and implicit trust andconfidence on her bookkeeper.

although the Bank notified her of allchecks presented to and paid by thebank, petitioner did not verify hecorrectness of the returned checks,much less check if the payees actuallyreceived the checks in payment for thesupplies she received

It was only after the lapse of more 2years that petitioner found out aboutthe fraudulent manipulations of herbookkeeper

November 7, 1984: Gempesaw madea written demand on respondent
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drawee Bank to credit her account withthe money value of the 82 checkstotalling P1,208.606.89 for havingbeen wrongfully charged against heraccount

January 23, 1985: Gempesaw filedagainst Philippine Bank ofCommunications (drawee Bank)for recovery of the money value of 82checks charged againstthe Gempesaw's account on theground that the payees' indorsementswere forgeries

RTC: dismissed the complaint CA: affirmed Gempesaw gross negligence =

promixate cause of the lossISSUE: W/N Gempesaw has a right torecover the amount attributable to theforgeries

HELD: NO. REMANDED to the trial courtfor the reception of evidence to determinethe exact amount of loss suffered by thepetitioner, considering that she partlybenefited from the issuance of thequestioned checks since the obligation forwhich she issued them were apparentlyextinguished, such that only the excessamount over and above the total of theseactual obligations must be considered asloss of which one half must be paid byrespondent drawee bank to hereinpetitioner. Petitioner completed the checks

by signing them as drawer and

thereafter authorized her employeeAlicia Galang to deliver to payees GR: drawee bank who has paid a

check on which an indorsement hasbeen forged cannot charge thedrawer's account for the amount ofsaid check

EX: where the drawer is guilty of suchnegligence which causes the bank tohonor such a check or checks.

Under the NIL, the only kind ofindorsement which stops the furthernegotiation of an instrument is a

restrictive indorsement which prohibitsthe further negotiation thereof.

Sec. 36. When indorsement restrictive. -An indorsement is restrictive which

either chanrobles virtual law library(a) Prohibits further negotiation of theinstrument; orxxx xxx xxx

In this kind of restrictive indorsement,the prohibition to transfer or negotiatemust be written in express words at theback of the instrument, so that anysubsequent party may be forewarnedthat ceases to be negotiable.

However, the restrictive indorseeacquires the right to receive paymentand bring any action thereon as anyindorser, but he can no longer transferhis rights as such indorsee where theform of the indorsement does notauthorize him to do so.

When it violated its internal rules thatsecond endorsements are not to beaccepted without the approval of itsbranch managers and it did accept thesame upon the mere approval of Boon,a chief accountant, it contravened thetenor of its obligation at the very least,if it were not actually guilty of fraud ornegligence

drawee Bank did not discover theirregularity with respect to theacceptance of checks with secondindorsement for deposit even withoutthe approval of the branch manager

despite periodic inspection conductedby a team of auditors from the mainoffice constitutes negligence on thepart of the bank in carrying out itsobligations to its depositors

MWSS VS CA

FACTS: Metropolitan Waterworks

and Sewerage System (MWSS) is a


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GOCC and successor-in- interest ofthe defunct NWSA.

The authorized signature for PNBAccount No. 6 were those of MWSS

treasurer Jose Sanchez, its auditorPedro Aguilar, and its acting GeneralManager Victor L. Recio.

Specimen signatures were submittedby the MWSS to and on file with thePNB

By special arrangement with the PNB,the MWSS used personalized checksin drawing from this account.

printed for MWSS by its printer, F.Mesina Enterprises

March, April and May 1969: 23 checkswere prepared, processed, issued andreleased by NWSA, all of which werepaid and cleared by PNB and debitedby PNB against NWSA Account No. 6

deposited by the fictitious payees RaulDizon, Arturo Sison and AntonioMendoza in their respective currentaccounts with the PhilippineCommercial and Industrial Bank(PCIB) and Philippine Bank ofCommerce (PBC)

At the time of their presentation to PNBthese checks bear the standardindorsement which reads 'all prior

indorsement and/or lackof endorsement guaranteed'

NWSA filed against PNB before theCFI

PNB also filed a 3rd party complaintagainst the negotiating banks PBC andPCIB on the ground that they failed toascertain the Identity of the payeesand their title to the checks which were

deposited in the respective newaccounts of the payees with them

February 6, 1976: CFI favored MWSS CA: reversed and favored PNB applied Section 24 of the Negotiable

Instruments Law

ISSUE: W/N MWSS can can claim againstPNB

HELD: NO. CA reversed.

Every negotiable instrument is deemed

prima facie to have been issued forvaluable consideration and every personwhose signature appears thereon to havebecome a party thereto for value

A bank is bound to know thesignatures of its customers; and if itpays a forged check itmust beconsidered as making the payment outof its obligation funds, and cannotordinarily charge the amount so paidto the account of the depositor whosename was forged.

NBI showed that the MWSS fraud wasan "inside job" and that the MWSS'delay in the reconciliation of bankstatements and the laxity and looserecords control in the printing of itspersonalized checks facilitated thefraud. These reports did not touch on

the inherent qualities of the signatureswhich are indispensable in thedetermination of the existence offorgery. There must be conclusivefindings that there is a variance in theinherent characteristics of thesignatures and that they were writtenby 2 or more different persons.

Forgery cannot be presumed. It mustbe established by clear, positive, and

convincing evidence. This was notdone in the present case.


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SEC. 23. FORGED SIGNATURE; EFFECTOF.- When the signature is forged or madewithout authority of the person whosesignature it purports to be, it is wholly

inoperative, and no right to retain theinstrument, or to give a discharge therefor,or to enforce payment thereof against anyparty thereto can be acquired through orunder such signature unless the partyagainst whom it is sought to enforce suchright is precluded from setting up theforgery or want of authority. Gross negligence in the printing of its

personalized checks - MWSS failed to

1. give its printer, Mesina Enterprises,specific instructions relative to thesafekeeping and disposition ofexcess forms, check vouchers, andsafety papers

2. retrieve from its printer all spoiledcheck forms

3. provide any control regarding thepaper used in the printing of saidchecks

4. furnish the respondent drawee bankwith samples of typewriting, cheekwriting, and print used by its printer inthe printing of its checks and of theinks and pens used in signing thesame

5. send a representative to the printingoffice during the printing of saidchecks

6. to reconcile the bank statements withits own records

MWSS requested the PNB todiscontinue the practice of mailing thebank statements, but instead to deliverit to Mr. Emiliano Zaporteza. However,

he was unreasonably delayed in takingprompt deliveries of the bank

statements and credit and debitmemos. As a consequence, Mr.Zaporteza failed to reconcile the bankstatements. If Mr. Zaporteza had notbeen remiss in his duty of taking the

bank statements and reconciling themwith the petitioner's records, thefraudulent encashments of the firstchecks should have been discovered,and further frauds prevented. Thisnegligence was, therefore, theproximate cause of the failure todiscover the fraud.

One factor which facilitate this fraudwas the delay in the reconciliation of

PNB statements with the NAWASAbank accounts. x x x. Had theNAWASA representative come to thePNB early for the statements and hadthe bank been advised promptly of thereported bogus check, the negotiationof practically all of the remainingchecks on May, 1969 could have beenprevented.

The records likewise show that thepetitioner failed to provide appropriatesecurity measures over its own recordsthereby laying confidential recordsopen to unauthorized persons. Thepetitioner's own Fact FindingCommittee, in its report submitted totheir General manager underscoredthis laxity of records control. Itobserved that the "office of Mr.Ongtengco (Cashier No. VI of the

Treasury Department at the NAWASA)is quite open to any person known tohim or his staff members and thatthe check writer is merely on top of histable

Even if the 23 checks in question areconsidered forgeries, considering thepetitioner's gross negligence, it isbarred from setting up the defense offorgery under Section 23 of the

Negotiable Instruments Law


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PNB had taken the necessarymeasures in the detection of forgedchecks and the prevention of theirfraudulent encashment. In fact, longbefore the encashment of the 23

checks in question, the it had issuedconstant reminders to all Current

Account Bookkeepers informing themof the activities of forgery syndicates.

Under the circumstances, MWSS wasin a better position to detect andprevent the fraudulent encashment ofits checks.

ILUSORIO vs CAIlusorio v. CA and Manila BankingCorporation, 2002Facts:

Petitioner entrusted to his secretaryhis credit cards and his checkbook withblank checks. His secretary, thrufalsification, encashed and deposited to herpersonal account seventeen checks drawnagainst the account of the petitioner atrespondent bank.

Petitioner then requested therespondent bank to credit back and restoreto his account the value of the checkswhich were wrongfully encashed, butrespondent bank refused. Hence,petitioner filed the instant case.

Manila Bank sought the expertise ofthe NBI in determining the genuineness ofthe signatures appearing on the checks. However, petitioner failed to submit his specimen signatures for purpos

Consequently, the trial courtdismissed the case. On appeal, theCourt of Appeals held that petitioner's ownnegligence was the proximate cause of hisloss. Hence, this petition.Issue:Whether that Manila Bank is liable fordamages for its negligence in failing todetect the discrepant checks.Ruling:No. To be entitled to damages, petitioner

has the burden of proving negligence onthe part of the bank for failure to detect the

discrepancy in the signatures on thechecks. It is incumbent upon petitioner toestablish the fact of forgery, i.e., bysubmitting his specimen signatures andcomparing them with those on the

questioned checks. Curiously though,petitioner failed to submit additionalspecimen signatures as requested by theNBI from which to draw a conclusivefinding regarding forgery.

Further, the bank's employees in thepresent case did not have a hint as to thesecretaryus modus operandi because shewas a regular customer of the bank, havingbeen designated by petitioner himself to

transact in his behalf.It was petitioner, not the bank, who wasnegligent. In the present case, it appearsthat petitioner accorded his secretaryunusual degree of trust and unrestrictedaccess to his credit cards, passbooks,check books, bank statements, includingcustody and possession of cancelledchecks and reconciliation of accounts.Petitioner's failure to examine his bankstatements appears as the proximatecause of his own damage.True, it is a rule that when a signature isforged or made without the authority of theperson whose signature it purports to be,the check is wholly inoperative. However,the rule does provide for an exception,namely: "unless the party against whom itis sought to enforce such right is precludedfrom setting up the forgery or want ofauthority." In the instant case, it is the

exception that applies. Petitioner isprecluded from setting up the forgery,assuming there is forgery, due to his ownnegligence in entrusting to his secretary hiscredit cards and checkbook including theverification of his statements of account.

Documents

Nego 1st Batch