Metrobank vs. CAMetropolitan Bank & Trust Company vs. Court of AppealsG.R. No. 88866          February, 18, 1991Cruz, J.:

Facts:            Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later, however, “exasperated” over Floria repeated inquiries and also as an accommodation for a “valued” client Metrobank decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings.

Issue:1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the

amount withdraws to make up with the deficit as a result of the dishonored treasury warrants.2. Whether or not treasury warrants are negotiable instruments

Held:            No. Metrobank is negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw. Without such assurance, Golden Savings would not have allowed the withdrawals. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that all appearances belonged to the depositor, who could therefore withdraw it anytime and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit.Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were genuine and in all respects what they purport to be,” in accordance with Sec. 66 of NIL. The simple reason that NIL is not applicable to non negotiable instruments, treasury warrants.                       No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay is unconditional though coupled with: 1 st, an indication of a particular fund out of which reimbursement is to be made or a particular account

to be debited with the amount; or 2nd, a statement of the transaction which give rise to the instrument. But an order to promise to pay out of particular fund is not unconditional. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay “not conditional” and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of NIL is applicable in the case at bar.

SESBRENO V CA

FACTS

On 9 February 1981, Raul Sesbreno made a money market placement in the amount of

P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance), with a

term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale

of a Delta Motor Corporation Promissory Note (2731), the Certificate of Securities

Delivery Receipt indicating the sale of the note with notation that said security was in

the custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of

Asia and America for P304,533.33 payable on 13 March 1981. The checks were

dishonored for having been drawn against insufficient funds.

Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno;

but Sesbreno learned that the security was issued 10 April 1980, maturing on 6 April

1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as

maker; and was stamped “non-negotiable” on its face. As Sesbreno was unable to

collect his investment and interest thereon, he filed an action for damages against Delta

Motors and Pilipinas Bank.

ISSUE

Whether non-negotiability of a promissory note prevents its assignment.

HELD

Only an instrument qualifying as a negotiable instrument under the relevant statute

may be negotiated either by indorsement thereof coupled with delivery, or by delivery

alone if it is in bearer form. A negotiable instrument, instead of being negotiated, may

also be assigned or transferred. The legal consequences of negotiation and assignment

of the instrument are different. A negotiable instrument may not be negotiated but may

be assigned or transferred, absent an express prohibition against assignment or

transfer written in the face of the instrument. herein, there was no prohibition

stipulated.

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.

II. PAYABLE TO BEARER

ANG TEK LIAN V CA

In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that he meant to withdraw from the bank but the bank’s already closed. In exchange, he gave Lee Hua a check which is “payable to the order of ‘cash’”. The next day, Lee Hua presented the check for payment but it was dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek Lian. In his defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua and that when the latter accepted the check without Ang tek Lian’s indorsement, he had done so fully aware of the risk he was running thereby.ISSUE: Whether or not Ang Tek Lian is correct.HELD: No. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable to the order of “cash” is a check payable to bearer hence a bearer instrument, and the bank may pay it to the person presenting it for payment without the drawer’s indorsement. Where a check is made payable to the order of ‘cash’, the word “cash” does not purport to be the name of any person, and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement. III. COMPLETE BUT UNDELIVERED

DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.G.R. No. 85419 March 9, 1993--complete undelivered

FACTS:Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to pay the petitioner Bank or order the amount of P1,820,000.00.  Sima Wei subsequently issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation in full settlement of the drawer's account evidenced by the promissory note. These two checks however were not delivered to the petitioner-payee or to any of its authorized representatives but instead came into the possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement to the account of respondent Plastic Corporation with Producers Bank.  Inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter, the Branch Manager of Producers Bank authorized the acceptance of the checks for deposit and credited them to the account of said Plastic Corporation.

ISSUE:Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks.

RULING:No.  A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding contract.  Section 16 of the NIL provides that every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.  Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him.  Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument.  Petitioner however has a right of action against Sima Wei for the balance due on the promissory note.

IV. LIABILITY OF PERSONS SIGNING AS AGENT

PBCom vs Aruego

Philippine Bank of Commerce vs. AruegoGR L-25836-37, 31 January 1981,  102 scra 530--agents

FACTS:To facilitate payment of the printing of a periodical called “World Current Events.”, Aruego, its publisher, obtained a credit accommodation from the Philippine Bank of Commerce. For every printing of the periodical, the printer collected the cost of printing by drawing a draft against the bank, said draft being sent later to Aruego for

acceptance. As an added security for the payment of the amounts advanced to the printer, the bank also required Aruego to execute a trust receipt in favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and to sell the same with the promise to turn over to the bank the proceeds of the sale to answer for the payment of all obligations arising from the draft. The bank instituted an action against Aruego to recover the cost of printing of the latter’s periodical.  Aruego however argues that he signed the supposed bills of exchange only as an agent of the Philippine Education Foundation Company where he is president.

ISSUES:Whether Aruego can be held liable by the petitioner although he signed the supposed bills of exchange 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 as representative of the Philippine Education Foundation Company. For failure to disclose his principal, Aruego is personally liable for the drafts he accepted, pursuant to Section 20 of the NIL which provides that when a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent or as filing a representative character, without disclosing his principal, does not exempt him from personal liability.

ADALIA FRANCISCO vs. COURT OF APPEALS, ET AL.G.R. No. 116320 November 29, 1999  --agents

FACTS:A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is the president, entered into a Land Development and Construction Contract with private respondent Herby Commercial & Construction Corporation (HCCC), represented by its President and General Manager private respondent Ong.  Under the contract, HCCC was to be paid on the basis of the completed houses and developed lands delivered to and accepted by AFRDC and the GSIS.  Sometime in 1979, Ong discovered that Diaz and Francisco, the Vice-President of GSIS, had executed and signed seven checks of various dates and amounts payable to HCCC for completed and delivered work under the contract. Ong, however, claims that these checks were never delivered to HCCC.  It turned out that Francisco forged the indorsement of Ong on the checks and indorsed the checks for a second time by signing her name at the back of the checks, petitioner then deposited said checks in her savings account. A case was brought by private respondents against petitioner to recover the value of said checks.  Petitioner however claims 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 from the GSIS, including the questioned checks.

ISSUE:Whether petitioner cannot be held liable on the questioned checks by virtue of the Certification executed 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 under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability.  An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must disclose the name of his principal; otherwise he shall be held personally 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's name, Francisco should have signed her own name and expressly indicated that she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of forgery.

V. FORGERY

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. IslandsG.R. No. L-29432    August 6, 1975    66 SCRA 29-forgery

FACTS:Petitioner deposited 10 checks in its current account with BPI.  The checks which were acquired by petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island Gas 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 cashiers were forgeries.  BPI thus debited the value of the checks against petitioner's current account and forwarded to the latter the checks containing the forged indorsements which petitioner refused to accept.        ISSUE:Whether BPI had the right to debit from petitioner's current account the value of the checks with the forged indorsements.

RULING:BPI acted within legal bounds when it debited the petitioner's account. Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects what it purports to be." Respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss.

**The depositor of a check as indorser warrants that it is genuine and in all respects what it purports to be.  Having indorsed the checks to respondent bank, petitioner is deemed to have

given the warranty prescribed in Section 66 of the NIL that every single one of those checks " is genuine and in all respects what it purports to be."REPUBLIC BANK V EBRADA

On January 15, 1963, the Bureau of Treasury issued a back pay check to Martin Lorenzo in the amount of P1,246.08. The drawee named therein is Republic Bank. The check was subsequently indorsed to Ramon Lorenzo, then to Delia Dominguez and then to Mauricia Ebrada. Ebrada encashed the check with the Republic Bank. Republic Bank paid the amount of the check to Ebrada. Ebrada, upon receiving the cash, gave it to Dominguez; Dominguez in turn gave the cash to Ramon Lorenzo.Later, the Bureau of Treasury notified that the check was a forgery because the payee named therein (Martin Lorenzo) was actually dead 11 years ago before the check was issued. Republic Bank refunded the amount to the Bureau of Treasury. The bank then demanded Ebrada to refund them.ISSUE: Whether or not Republic Bank may recover from Ebrada.HELD: Yes. Ebrada, being the last indorser, warranted the genuineness of the signatures of the payee and the previous indorsers. The drawee bank is not duty bound to ascertain whether or not the signatures of the payee and the indorsers are genuine. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee (in this case Republic Bank) who has paid the forged check, without actual negligence on his part, may recover the money paid from such negligent purchasers.But Ebrada did not profit from this because she, upon receiving the encashment, gave the same to Dominguez?She is still liable because she is considered as an accommodation party – pursuant to Section 29 of the Negotiable Instruments Law. An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party.

MWSS V CA

FACTS: Twenty three checks were deposited by the payees Dizon, Sison and Mendoza in their respective current

accounts with the PCIB and PBC. Thru the Central Bank Clearing, these checks were presented for payment by PBC

and PCIB to the defendant PNB, and were paid. At the time of their presentation to PNB these checks bear the

standard indorsement which reads ‘all prior indorsement and/or lack of endorsement guaranteed.’

Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo Sison and Antonio

Mendoza were all fictitious persons.

NWSA addressed a letter to PNB requesting the immediate restoration to its Account No. 6, of the total sum of

P3,457,903.00 corresponding to the total amount of these twenty-three (23) checks claimed by NWSA to be forged

and/or spurious checks.

ISSUE:  WON THE DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE

INSTRUMENTS LAW

HELD: No. The NBI does not declare or prove that the signatures appearing on the questioned checks are forgeries.

These reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of

the existence of forgery. There must be conclusive findings that there is a variance in the inherent characteristics of

the signatures and that they were written by two or more different persons. Forgery cannot be presumed. It must be

established by clear, positive, and convincing evidence. This was not done in the present case.

Even if the twenty-three (23) checks in question are considered forgeries, considering the petitioner’s gross

negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments

Law.

One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB) statements with the NAWASA

bank accounts. The records likewise show that the petitioner failed to provide appropriate security measures over its

own records thereby laying confidential records open to unauthorized persons.

We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks

because the printing of the petitioner’s personalized checks was not done under the supervision and control of the

Bank. Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent

encashment of its checks

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. 

GR 92244, 9 February 1993

GEMPESAW V CA

FACTS:

Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks

in favor of several supplies. Most of the checks for amounts in excess of actual

obligations as shown in their corresponding invoices. It was only after the lapse of more

than 2 years did she discovered the fraudulent manipulations of her bookkeeper. It was

also learned that the indorsements of the payee were forged, and the checks were

brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank,

Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito

Lam. Gempesaw made demand upon the bank to credit the amount charged due the

checks. The bank refused. Hence, the present action.

ISSUE:

Who shall bear the loss resulting from the forged indorsements.

HELD:

As a rule, a drawee bank who has paid a check on which an indorsement has been

forged cannot charge the drawer’s account for the amount of said check. An exception

to the rule is where the drawer is guilty of such negligence which causes the bank to

honor such checks. Gempesaw did not exercise prudence in taking steps that a careful

and prudent businessman would take in circumstances to discover discrepancies in her

account. Her negligence was the proximate cause of her loss, and under Section 23 of

the Negotiable Instruments Law, is precluded from using forgery as a defense.

On the other hand, the banking rule banning acceptance of checks for deposit or cash

payment with more than one indorsement unless cleared by some bank officials does

not invalidate the instrument; neither does it invalidate the negotiation or transfer of

said checks. The only kind of indorsement which stops the further negotiation of an

instrument is a restrictive indorsement which prohibits the further negotiation thereof,

pursuant to Section 36 of the Negotiable Instruments Law.

In light of any case not provided for in the Act that is to be governed by the provisions

of existing legislation, pursuant to Section 196 of the Negotiable Instruments Law, the

bank may be held liable for damages in accordance with Article 1170 of the Civil Code.

The drawee bank, in its failure to discover the fraud committed by its employee and in

contravention banking rules in allowing a chief accountant to deposit the checks

bearing second indorsements, was adjudged liable to share the loss with Gempesaw on

a 50:50 ratio.

ASSOCIATED BANKS V CA

Negotiable Instruments Law – Liabilities of Parties – 252 SCRA 620 – Forgery – Collecting Bank vs Drawee Bank The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn against its account with the Philippine National Bank (PNB). These checks were drawn payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the provincial government of Tarlac to the said hospital. However, after his retirement, the provincial government still delivered checks to him until its discovery of this irregularity in 1981. By forging the signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30 checks amounting to P203k to his account with the Associated Bank.When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred that Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks:

“All prior endorsements guaranteed ASSOCIATED BANK.”

ISSUE: What are the liabilities of each party?HELD: The checks involved in this case are order instruments.Liability of Associated BankWhere the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holder’s indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto.A collecting bank (in this case Associated Bank) where a check is deposited and which indorses the check upon presentment with the drawee bank (PNB), is such an indorser. So even if the indorsement on the check deposited by the banks’s client is forged, Associated Bank is bound by its warranties as an indorser and cannot set up the defense of forgery as against the PNB.EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying the collecting bank (Associated Bank) of the fact of the forgery so much so that the latter can no longer collect reimbursement from the depositor-forger.Liability of PNBThe bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to pay the check to the order of the payee (Provincial Government of Tarlac). Payment under a forged indorsement is not to the drawer’s order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer’s (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The

general rule then is that the drawee bank may not debit the drawer’s account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank.EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac Province) to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery.In sum, by reason of Associated Bank’s indorsement and warranties of prior indorsements as a party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask reimbursement from PNB because the Province is a party prior to the forgery. Hence, the instrument is inoperative. HOWEVER, it has been proven that the Provincial Government of Tarlac has been negligent in issuing the checks especially when it continued to deliver the checks to Pangilinan even when he already retired. Due to this contributory negligence, PNB is only ordered to pay 50% of the amount or half of P203 K.BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated Bank’s warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated Bank can ask reimbursement from Pangilinan but unfortunately in this case, the court did not acquire jurisdiction over him.

Negotiable Instruments Case Digest: Metrobank V. FNCB (1982)

G.R. No. L-55079 November 19, 1982

Lessons Applicable: Alteration (Negotiable Instruments Law)

FACTS:

August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to CASH, drawn

by Joaquin Cunanan & Company on First National City Bank (FNCB) was deposited

with Metropolitan 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 cash

Metro Bank immediately sent the cash check to the Clearing House of the Central

Bank with the following words stamped at the back of the check:

Metropolitan Bank and Trust Company Cleared (illegible) office All prior

endorsements and/or Lack of endorsements Guaranteed. 

The check was cleared the same day. Private respondent paid petitioner through

clearing the amount of P50,000.00, and Sales was credited with the said amount in

his deposit with Metro Bank.

August 26, 1964: Sales made his 1st withdrawal of P480.00 from his current account

August 28, 1964: he withdrew P32,100.00

August 31, 1964: he withdrew the balance of P17,920 and closed his account with

Metro Bank

September 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 altered

actual amount of P50.00 was raised to P50,000.00

name of the payee, Manila Polo Club, was superimposed the word CASH.

September 10, 1964: FNCB wrote Metro Bank asking for reimbursement 

June 29, 1965: FNCB filed for recovery 

CA affirmed Trial Court: Metro Bank to reimburse FNCB 

ISSUE: W/N Metrobank should reimsburse FNCB for the altered amount as indorser

HELD: NO. FNCB liable.

Under the procedure prescribed, the drawee bank receiving the check for clearing

from the Central Bank Clearing House must return the check to the collecting bank

within the 24-hour period if the check is defective for any reason. - FNCB failed to do

so

indorsement must be read together with the 24-hour regulation on clearing House

Operations of the Central Bank

Metro 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

withdrawal of 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 deposit from Marcelo Mirasol, Department Officer of

FNCB, because its (Metro Bank) attention was called by the fast movement of the

account

REPUBLIC BANK V CA

FACTS

San Miguel Corporation issued a dividend check for P240 in favor of J. Roberto Delgado,

a stockholder. Delgado altered the amount of the check to P9,240. The check was

indorsed and deposited by Delgado with Republic Bank. Republic Bank endorsed the

check to First National City Bank (FNCB), the drawee bank, by stamping on the back of

the check “all prior and / or lack of indorsements guaranteed. Relying on the

endorsement, FNCB paid the amount to Republic Bank. Later on, San Miguel informed

FNCB of the material alteration of the amount. FNCB recredited the amount to San

Miguel’s account, and demanded refund from Republic Bank. Republic Bank refused.

Hence, the present action.

ISSUE

Who shall bear the loss resulting from the altered check.

HELD

When an indorsement is forged, the collecting bank or last indorser, as a general rule,

bears the loss. But the unqualified indorsement of the collecting bank on the check

should be read together with the 24-hour regulation on clearing house operation. Thus,

when the drawee bank fails to return a forged or altered check to the collecting bank

within the 24-hour clearing period (as provided by Section 4c of Central Bank Circular 9,

as amended), the collecting bank is absolved from liability. The drawee bank, FNCB,

should bear the loss for the payment of the altered check for its failure to detect and

warn Republic Bank of the fraudulent character of the check within the 24-hour clearing

house rule.

PCI BANK V CA

Negotiable Instruments Law – Rights of the Holder – 350 SCRA 446 – What Constitutes a Holder in Due Course – Negligence of the Collecting Bank and the Drawee Bank

There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).G.R. No. 121413/G.R. No. 121479In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR). The check represents Ford’s tax payment for the third quarter of 1977. On the face of the check was written “Payee’s account only” which means that the check cannot be encashed and can only be deposited with the CIR’s savings account (which is with Metrobank). The said check was however presented to PCIB and PCIB accepted the same. PCIB then indorsed the check for clearing to Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR later informed Ford that it never received the tax payment.An investigation ensued and it was discovered that Ford’s accountant Godofredo Rivera, when the check was deposited with PCIB, recalled the check since there was allegedly an error in the computation of the tax to be paid. PCIB, as instructed by Rivera, replaced the check with two of its manager’s checks.It was further discovered that Rivera was actually a member of a syndicate and the manager’s checks were subsequently deposited with the Pacific Banking Corporation by other members of the syndicate. Thereafter, Rivera and the other members became fugitives of justice.G.R. No. 128604In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for tax payments. Both checks are for “Payee’s account only” or for the CIR’s bank savings account only with Metrobank. Again, these checks never reached the CIR.In an investigation, it was found that these checks were embezzled by the same syndicate to which Rivera was a member. It was established that an employee of PCIB, also a member of the syndicate, created a PCIB account under a fictitious name upon which the two checks, through high end manipulation, were deposited. PCIB unwittingly endorsed the checks to Citibank which the latter

cleared. Upon clearing, the amount was withdrawn from the fictitious account by syndicate members.ISSUE: What are the liabilities of each party?HELD: G.R. No. 121413/G.R. No. 121479PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been negligent in verifying the authority of Rivera to negotiate the check. It failed to ascertain whether or not Rivera can validly recall the check and have them be replaced with PCIB’s manager’s checks as in fact, Ford has no knowledge and did not authorize such. A bank (in this case PCIB) which cashes a check drawn upon another bank (in this case Citibank), without requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party. Hence, PCIB is liable for the amount of the embezzled check.G.R. No. 128604PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course and apparent scope of their employment or authority. Hence, PCIB is liable for the fraudulent act of its employee who set up the savings account under a fictitious name.Citibank is likewise liable because it was negligent in the performance of its obligations with respect to its agreement with Ford. The checks which were drawn against Ford’s account with Citibank clearly states that they are payable to the CIR only yet Citibank delivered said payments to PCIB. Citibank however argues that the checks were indorsed by PCIB to Citibank and that the latter has nothing to do but to pay it. The Supreme Court cited Section 62 of the Negotiable Instruments Law which mandates the Citibank, as an acceptor of the checks, to engage in paying the checks according to the tenor of the acceptance which is to deliver the payment to the “payee’s account only”.But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only negligent parties. Ford is also negligent for failing to examine its passbook in a timely manner which could have avoided further loss. But this negligence is not the proximate cause of the loss but is merely contributory. Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of interest, with which PCIB and Citibank is to pay Ford, is lowered from 12% to 6% per annum.

ILLUSIORIO V CA

FACTS:

Ilusorio was a businessman who was in charge of 20 or so corporations. He was a depositor in

good standing of Manila Banking Corporation. As he was in charge of a big number of

corporations, he was usually out of the country for business. He then entrusted his credit cards,

checkbook, blank checks, passbooks, etc to his secretary, Katherine Eugenio. Eugenio was also

in charge of verifying and reconciling the statements of Ilusorio’s checking account.

 

Eugenio was able to encash and deposit to her personal account checks drawn against Ilusorio’s

account with an aggregate amount of 119K. Ilusorio didn’t bother to check his statement of

account until a business partner informed him that he saw Eugenio using his credit cards. Ilusorio

then fired her and instituted criminal case of Estafa thru falsification against Eugenio. Manila

Banking Corp. also instituted a complaint of estafa against Eugenio based on the affidavit of

Dante Razon, an employee. Razon stated that he personally examined and scrutinized the

encashed checks in accordance with their verification procedures.

 

Manila Bank sought the expertise of NBI in determining the genuineness of the checks but

Ilusorio failed to submit specimen signatures and thus, NBI could not conduct the examination.

 

Issue: W/N Manila Bank is liable for damages for failing to detect a forged check

 

Held:

 

No. To be entitled to damages, Ilusorio has the burden of poving that the bank was negligent in

failing to detect the discrepancy in the signatures on the checks. Ilusorio had to establish the fact

of forgery which he failed to do by failing to submit his specimen signatures for NBI to

conclusively establish forgery.

 

Furthermore, the Bank was not negligent in verifying the checks as they verified the drawer’s

signatures against their specimen signatures and in doubt, referred to more experienced verifier

for further verification.

 

On the contrary, it was Ilusorio who was found to be negligent. He accorded his secretary with

an unusual degree of trust and unrestricted access to his finances. Furthermore, despite the fact

that the bank was regularly sending statements of account, he failed to check them until he found

out that his secretary was using his credit cards.

 

Sec. 23 of the Negotiable Instruments law provides that a forged check is inoperative, meaning

there was no right to enforce payment against any party. But it also provides an exception:

“unless the party against whom it is sought enforce such right is precluded from setting up the

forgery or want of authority”. This case falls under the exception since Ilusorio is precluded from

setting up forgery due to his own negligence considering that he allowed his secretary access to

his credit cards, checkbook, and allowed his secretary to verify his statements of account.

Samsung Construction Company Phils., Inc vs FEBTC(GR No 129015, Aug 13, 2004, Tinga)

Facts:Petitioner maintains a current account with the respondent bank. The petitioner authorized Jong to sign checks in behalf of the company. The checks are in the custody of an accountant Kyu. On one occasion, a certain Gonzaga presented a check to FEBTC purportedly drawn by the Company in the amount of P999,500. The check was payable to cash and appeared to be signed by Jong. FEBTC upon ascertaining that there are sufficient fund to cover the check and finding the signature of Jong appears to be genuine paid Gonzaga. Later, the forgery was discovered. Samsung demanded that the amount paid to Gonzaga be credited back to its account because they have not authorized the encashment of the check. On the other hand, the respondent bank claimed negligence on the part of the petitioner in protecting its check.

Issue:Who should bear the loss?

Held:The SC held that the FEBTC should bear the loss. Under Sec. 62 of NIL, among the warranties to be assumed by the acceptor is it admits the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw

the instrument. It is incumbent upon the drawee bank to ascertain the genuineness of the signature of its depositor. The respondent bank in this case did not exercise the degree of diligence required to enable it to detect the forgery.

Addendum:***Aside from the warranties as an indorser, the collecting bank is made liable because it is privy to the depositor who negotiated the check because it knows him, his address and history for being a client thereof. Thus, it is in a better position to detect forgery or irregularity in the indorsement. (Associated bank v. CA, 252 SCRA 620). aka “Doctrine of Comparative Negligence”

VI. MATERIAL ALTERATION

PNB V. CA- Material Alteration

256 SCRA 491

FACTS:

DECS  issued  a  check  in  favor  of  Abante  Marketing  containing  a  specific serial number, drawn against PNB.  The check was deposited by Abante in its  account  with  Capitol  and  the  latter  consequently  deposited  the  same with  its  account  with  PBCOM  which  later  deposited  it  with  petitioner  forclearing.  The check was thereafter cleared.  However, on a relevant date, petitioner  PNB  returned  the  check  on  account  that  there  had  been  a material alteration on it.  Subsequent debits were made but Capitol cannot debit the account of Abante any longer for the latter had withdrawn all the money  already  from  the  account.    This  prompted  Capitol  to  seek reclarification  from  PBCOM  and  demanded  the  recrediting  of  its  account.  PBCOM followed suit by doing the same against PNB.  Demands unheeded,it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.   

HELD:

An alteration is said to be material if it alters the effect of the instrument.  It means an unauthorized change in the instrument that purports to modify in  any  respect  the  obligation  of  a  party  or  an  unauthorized  addition  of words or numbers or other change to an incomplete instrument relating to the  obligation  of  the  party.    In  other  words,  a  material  alteration  is  one which changes the items which are required to be stated under Section 1 of the NIL.   

In this case, the alleged material alteration was the alteration of the serial number  of  the  check  in  issue—which  is  not  an  essential  element  of  a negotiable instrument under Section 1.  PNB alleges that the alteration was material  since  it  is  an  accepted  concept  that  a  TCAA  check  by  its  verynature  is  the  medium  of  exchange  of  governments,  instrumentalities  and agencies.    As  a  safety  measure,  every  government  office  or  agency  is assigned checks bearing different serial numbers.   

But this contention has to fail.  The check’s serial number is not the sole indicia of its origin.  The name of the government agency issuing the check is clearly stated therein.  Thus, the check’s drawer is sufficiently identified, rendering redundant the referral to its serial number.  

Therefore, there being no material alteration in the check committed, PNB could not return the check to PBCOM.  It should pay the same.

MONTINOLA V PNB

In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a P100,000.00 Philippine National Bank (PNB) check to Mariano Ramos. The said check was to be used by Ramos, as disbursing officer of the US forces at that time, for military purposes.  Before Ramos can encash the check, he was made a prisoner of war by the invading Japanese forces. When he got free in December 1944, he needed some cash for himself and so he went to a certain Enrique Montinola and made arrangements.On the back of the check, Ramos wrote:Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to the credit of M. V. Ramos.

In consideration thereof, Montinola promised to pay 90,000 in Japanese notes (that time peso notes are valued higher). However, he was only able to pay 45k in Japanese notes to Ramos.Later, Montinola sought to have the check encashed but PNB dishonored the check. It appears that there was an insertion made. Under the signature of Laya, the words “Agent, Philippine National Bank” was inserted, thus making it appear that Laya disbursed the check as an agent of PNB and not as provincial treasurer of Misamis Oriental (NOTE: at that time, a provincial treasurer is an ex officio agent of the government’s bank).ISSUE: Whether or not the subject check is a negotiable instrument.HELD: No. It was not negotiated according to the Negotiable Instruments Law (NIL) hence it is not a negotiable instrument. There was only a partial indorsement and not a negotiation contemplated under the NIL. Only P30k of the P100k amount of the check was indorsed. This merely make Montinola a mere assignee – and this is the clear intent of Ramos. Ramos was merely assigning P30k to Montinola. Montinola may therefore not be regarded as an indorsee and PNB has all the right to dishonor the check. As mere assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos.Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the drawer against which Montinola can recover from directly. Such material alteration which was done by Montinola without the consent of the parties liable thereon discharges the instrument, pursuant to Sec. 124 of the NIL.Montinola cannot be said to be a holder. He is an assignee. And even if he is a holder, he is not in good faith because he did not pay the full amount of the consideration  for which the P30k was issued to him – he only paid 45k Japanese notes out of the 90k Japanese notes consideration.At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said check because when he sought to have it encashed in January 1945, it is already stale there being two and half years passing since its time of issuance.

VII ACCOMMODATION PARTY

Negotiable Instruments Case Digest: Sadaya V. Sevilla (1967)G.R. No. L-17845             April 27, 1967

Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments)

FACTS:

March 28, 1949: Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly

and severally, in favor of the BPI, or its order, a promissory note for P15,000.00

with interest at 8% per annum, payable on demand. 

The P15,000.00 proceeds was received by Oscar Varona alone. 

Victor Sevilla and Simeon Sadaya signed the promissory note as co-makers only

as a favor to Oscar Varona. 

June 15, 1950: outstanding balance is P4,850.00.  No payment thereafter made.

Oct 16 1952: bank collected from Sadaya total of P5,416.12(w/ int) Varona failed to reimburse Sadaya despite repeated demands. V Victor Sevilla died Francisco Sevilla was named administrator. Sadaya filed a creditor's claim for the above sum of P5,746.12, plus attorneys fees in the sum of

P1,500.00 The administrator resisted the claim upon the averment that the deceased Victor Sevilla "did not

receive any amount as consideration for the promissory note," but signed it only "as surety for Oscar Varona

June 5, 1957: Trial court order the administrator to pay CA reversed.ISSUE: W/N Sadaya can claim against the estate of Sevilla as co-accomodation party

when Verona  as principal debtor is not yet insolvent

HELD: NO. Affirmed

Varona is bound by the obligation to reimburse Sadaya solidary accommodation maker — who made payment — has the right to contribution, from his co-

accommodation maker, in the absence of agreement to the contrary between them, and subject to conditions imposed by law

requisites before one accommodation maker can seek reimbursement from a co-accommodation maker.

ART. 2073. When there are two or more guarantors of the same debtor and for the same debt,

the one among them who has paid may demand of each of the others the share which is

proportionally owing from him.

If any of the guarantors should be insolvent, his share shall be borne by the

others, including the payer, in the same proportion.

(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, or -no judicial demand just voluntarily (b) a principal debtor is insolvent. - Varona is not insolvent

CRISOLOGO JOSE V. CA - Accommodation Party

177 SCRA 594

FACTS:

The  president  of  Movers  Enterprises,  to  accommodate  its  clients  Spouses Ong,  issued  a  check  in  favor  of  petitioner  Crisologo-Jose.    This  was  in consideration of a quitclaim by petitioner over a parcel of land, which the GSIS  agreed  to  sell  to  spouses  Ong,  with  the  understanding  that  upon approval  of  the  compromise  agreement,  the  check  will  be  encashed accordingly.    As  the  compromise agreement  wasn't  approved  during  the expected period of time, the aforesaid check was replaced with another one for  the  same  value.    Upon  deposit  though  of  the  checks  by  petitioner,  it was dishonored.  This prompted the petitioner to file a case against Atty. Bernares  and  Santos  for  violation  of  BP22.    Meanwhile,  during  the preliminary  investigation,  Santos  tried  to  tender  a  cashier’s  check  for  the value of the dishonored check but petitioner refused to accept such.  This was consigned by Santos with the clerk of court and he instituted charges against petitioner.  The trial court held that consignation wasn't applicable to the case at bar but was reversed by the CA.

HELD:

Petitioner averred that it is not Santos who is the accommodation party to the instrument but the corporation itself.  But assuming arguendo that the corporation  is  the  accommodation  party,  it  cannot  be  held  liable  to  the check  issued  in  favor  of  petitioner.    The  rule  on  accommodation  partydoesn't include or apply to corporations which are accommodation parties.  This is because the issue or indorsement of another is ultra vires.  Hence, one who has taken the instrument with knowledge of the accommodation nature  thereof  cannot  recover  against  a  corporation  where  it  is  only  an accommodation party.  If the form of the instrument, or the nature of the transaction, is such as to charge the indorsee with the knowledge that the issue  or  indorsement  of  the  instrument  by  the  corporation  is  for  the accommodation  of  another,  he  cannot  recover  against  the  corporation thereon.  

By  way  of  exception,  an  officer  or  agent  of  a  corporation  shall  have  the power  to  execute  or  indorse  a  negotiable  paper  in  the  name  of  the corporation  for  the  accommodation  of  a  third  party  only  is  specifically authorized  to  do  so.    Corollarily,  corporate  officers  have  no  power  to execute   for   mere   accommodation   a   negotiable   instrument   of   the corporation  for  their  individual  debts  and  transactions  arising  from  or  in relation  to  matters  in  which  the  corporation  has  no  legitimate  concern.  Since   such   accommodation   paper   cannot   be   enforced   against   the corporation, the signatories thereof shall be personally liable therefore, as well as the consequences arising from their acts in connection therewith.

Stelco vs CA

Stelco Marketing vs. CA

GR 96160, 17 June 1992, 210 scra 51

--accommodation party

FACTS:

Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc.  RYL gave Stelco’s “sister corporation,” Armstrong Industries, a MetroBank check from Steelweld Corporation.  The check was issued by Steelweld’s President  to Romeo Lim, President of RYL, by way of accommodation, as a guaranty and not in payment of an obligation.  When Armstrong deposited the check at its bank, it was dishonored because it was drawn against insufficient funds. When so deposited, the check bore two indorsements, i.e. RYL and Armstrong.  Subsequently, Stelco filed a civil case against RYL and Steelweld to recover the value of the steel products.

ISSUE:

Whether Steelweld as an accommodating party can be held liable by Stelco for the dishonored check.

RULING:

Steelweld may be held liable but not by Stelco.  Under Section 29 of the NIL, Steelweld Corp. can be held liable for having issued the subject check for the accommodation of Romeo Lim.  An accommodation party is one who has singed the instrument as maker, drawer, acceptor, or indorser, without receiving valued therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.   Stelco however, cannot be deemed a holder of the check for value as it

does not meet two essential requisites prescribed by statute, i.e. that it did not become “the holder of it before it was overdue, and without notice that it had been previously dishonored,” and that it did not take the check “in good faith and for value.”

Travel-On vs CA

Travel-On, Inc. vs Court of Appeals

G.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.

**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.  In the case at bar, Travel-On was the 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.

BPI V CA

Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI). In 1987, Napiza was approached by Henry Chan and the latter gave him a $2,500 Continental Bank Manager’s check. Chan asked if Napiza can deposit the check to his (Napiza’s BPI account) by way of accommodation and for the purpose of clearing the said check. Napiza agreed and so he deposited the check on September 3, 1987. Napiza then delivered a signed blank withdrawal slip to Chan with the condition that the $2,500.00 may only be withdrawn if the check cleared. For some reason, the withdrawal slip ended up in the hands of one Ruben Gayon who went to BPI and successfully withdrew the $2,500.00. At the time of the withdrawal, the check was not yet cleared. Then days later, BPI was notified by the drawee bank named in the check that the check is actually a counterfeit.ISSUE: Whether or not Napiza may be held liable to refund the amount of the check.HELD: No. The Supreme Court ruled that ordinarily, Napiza would have been liable because he is an accommodation indorser. But due to the attendant circumstances, Napiza is discharged from liability.The withdrawal slip indicates as well as the rules promulgated by BPI that withdrawal from the bank should be accompanied by the presentment of the account holder’s (Napiza’s) savings bankbook. This was not done so in the case at bar because Gayon was able to withdraw without it. Further, BPI allowed the withdrawal even before the check cleared. BPI already credited the $2,500.00 to Napiza’s account even without the drawee bank clearing the check. This is contrary to common banking practices and because of such negligence and lack of diligence, BPI, as the collecting bank, shall suffer the loss.

Negotiable Instruments Case Digest: Agro Conglomerates Inc. V. CA (2000)G.R. No. 117660  December 18, 2000

Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments

Law)

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