ASSOCIATED BANK V. CA

208 SCRA 465

FACTS:

Reyes was engaged in the RTW business and held transactions with different department stores. She was about to collect payments from the department stores when she was informed that the payments had already been made, through crossed checks issued in her business name and the same were deposited with the bank. The bank consequently allowed its transfer to Sayson who later encashed the checks. This prompted Reyes to sue the bank and its manager for the return of the money. The trial and appellate court ruled in her favor.

HELD:

There is no doubt that the checks were crossed checks and for payees account only. Reyes was able to show that she has never authorized Sayson to deposit the checks nor to encash the same; that the bank had allowed all checks to be deposited, cleared and paid to one Sayson inviolation of the instructions in the said crossed checks that the same were for payees account only; and that Reyes maintained a savings account with the bank which never cleared the said checks.Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the top left portion of the checks. The crossing is special where the name of a bank or a business institution is written between the two parallel lines, which means that the drawee should payonly with the intervention of the company. The crossing is general where the words written in between are And Co. and for payees account only, as in the case at bar. This means that the drawee bank should not encash the check but merely accept it for deposit.The effects of crossing a check are as follows:1. That the check may not be encashed but only deposited in the bank2. That the check may be negotiated only onceto one who has an account with a bank3. That the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to thepurposeThe subject checks were accepted for deposit by the bank for the account of Sayson although they were crossed checks and the payee wasn't Sayson but Reyes. The bank stamped thereon its guarantee that all prior endorsements and/or lack of endorsements guaranteed. By such deliberate and positive act, the bank had for all legal intents and purposes treated the said checks as negotiable instruments and accordingly assumed the warranty of the endorser.When the bank paid the checks so indorsed notwithstanding that title has not passed to the endorser, it did so at its peril and became liable to the payee for the value of the checks.

KAUFFMAN vs PNB

Facts: Plaintiff was entitled to the sum of P98,000 from the surplus earnings of Philippine Fiber & Produce Company (PFPC) which was placed to his credit on the companys books. The PFPC treasurer requested from PNB Manila that a telegraphic transfer of S45,000 should be made to the plaintiff in NY upon account of PFPC. The treasurer drew and delivered a check for the amount of P90,355 on the PNB which is the total costs o said transfer. As evidence, a document was made out and delivered to the PFPC treasurer which is referred to by the banks assistant cashier as its official receipt.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK,Manila.

Upon receipt of the telegraphic message, the banks representative advised the withholding of the money from Kauffman, in view of his reluctance to accept certain bills of the PFPC. The PNB agreed and sent to its NY agency another message to withhold the payment as suggested.

Upon advice of the PFPC treasurer that S45,000 had been placed to his credit, he presented himself at the PNB NY and demanded the money but was refused due to the direction of the withholding of payment.

Issue: WON plaintiff has a right over the money withhold.

Held: No. Provisions of the NIL can come into operation there must be a document in existence of the character described in section 1 of the Law; and no rights properly speaking arise in respect to said instrument until it is delivered.

The order transmitted by PNB to its NY branch, for the payment of a specified sum of money to the plaintiff was not made payable to order or to bearer, as required in subsection (d) of that Act; and inasmuch as it never left he possession of the bank, or its representative in NY, there was no delivery in the sense intended in section 16 of the same Law.

In connection, it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the telegraphic order cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof of the obligation actually assumed by the bank.

CALTEX V. CA- Negotiable Instruments

212 SCRA 448

FACTS:

Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were given by Dela Cruz to petitioner in connection to his purchase of fuel products of the latter. On a later date, Dela Cruz approached the bank manager, communicated the loss of the certificates and requested for a reissuance. Upon compliance with some formal requirements, he was issued replacements. Thereafter, he secured a loan from the bank where he assigned the certificates as security. Here comes the petitioner, averred that the certificates were not actually lost but were given as security for payment for fuel purchases. The bank demanded some proof of the agreement but the petitioner failed to comply. The loan matured and the time deposits were terminated and then applied to the payment of the loan. Petitioner demands the payment of the certificates but to no avail.

SECURITY BANKAND TRUST COMPANY6778 Ayala Ave., Makati No. 90101Metro Manila, PhilippinesSUCAT OFFICEP 4,000.00CERTIFICATE OF DEPOSITRate 16%Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____This is to Certify that B E A R E R has deposited in this Bank the sum ofPESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 &00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days.after date, upon presentation and surrender of this certificate, with interestat the rate of 16% per cent per annum.(Sgd. Illegible) (Sgd. Illegible) AUTHORIZED SIGNATURESHELD:

CTDs are negotiable instruments. The documents provide that the amounts deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited arerepayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment.If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is thedepositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction between them would not be in a position to know that the depositor is not the bearer stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind theplain import of what is written thereon to unravel the agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that theinterpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been dissipated and resolved in favor of the latter by petitioner's own authorized and responsible representative himself.In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products." This admission is conclusiveupon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon

GSIS vs CA, Feb. 23, 1989

Facts:Spouses Racho together with Spouses Lagasca executed a deed of mortgage in favor of GSIS in connection with 2 loans granted by the latter in the sums of p11,500.00 and p3,000.00, respectively. A parcel of land co-owned by the mortgagor spouses was govern as security under the aforesaid deeds and executed a promissory note promising to pay the said amounts to GSIS jointly, severally and solidarily.

The Lagasca spouses executed an instrument obligating themselves in the assumption of the aforesaid obligation and to secure the release of the mortgage.

Failing to comply with the conditions of the mortgage, GSIS extrajudicially foreclosed the mortgage and caused the property to be sold at public auction.

More than 2 years after, Spouses Racho filed a complaint against GSIS and Spouses Lagasca prayingthat the extrajudicial foreclosure be declared null and void. They allege that they signed the mortgage contracts not as sureties for the Lagasca spouses but merely as accommodation party

Issue: WON the promissory note and mortgage deeds are negotiable.

Held: No. Section 29 of the NIL provides that an accommodation party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefore, but is held liable on the instrument to a holder for value although the latter knew him to be only an accommodation party.

Both parties appears to be misdirected and their reliance misplaced. The promissory note, as well as the mortgage deeds subject of this case, are clearly not negotiable instrument because it did not comply with the fourth requisite to be considered as such under Sec. 1 of the NIL they are neither payable to order nor to bearer. The note is payable to a specified party, the GSIS.

BANCO DE ORO SAVING V. EQUITABLE

157 SCRA 188

FACTS:

BDO drew checks payable to member establishments. Subsequently, the checks were deposited in Trencios 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.Petitionerislikewiseestoppedfromraisingthenon-negotiabilityofthe checksinissue. Itstampeditsguaranteeatthebackof thechecksand subsequentlypresenteditforclearinganditwasinthebasisofthese endorsementsbythepetitionerthattheproceedswerecreditedinitsclearing account. The petitioner cannot now deny its liability as it assumed theliabilityofanindorserbystampingitsguaranteeatthebackofthe 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 guaranteesthe 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 duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for paymentto the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the indorsements.

Philippine Bank of Commerce vs. Aruego

GR 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 latters 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.

Jai-Alai Corp vs BPI

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands

G.R. No. L-29432August 6, 197566 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."

SPOUSES EVANGELISTA vs MERCATOR FINANCE

Facts: The spouses Evangelista filed acomplaintfor annulment of titles against the respondents, claiming to be the registered owners of five (5) parcels of land contained in the real estate mortgage executed by them and Embassy Farms Inc. in favor of Mercator Financing Corporation (Mercator).The mortgagewas in consideration of certainloansand creditaccommodationsamounting to P844, 625.78.

The spouses alleged the following: (1) that they executed the said real estate mortgage merely asofficersof Embassy Farms; (2) that they did not receive the proceeds of theloanevidenced by thepromissory note, as all went to Embassy Farms; (3) that the real estate mortgage is void due to absence of a principal obligation on which it rests; (4) that since the real estate mortgage is void, the foreclosure proceedings, the subsequent sale as well as the issuance of transfer certificates of title are likewise void. Petitioners further alleged ambiguity in the wording of thepromissory note, which should be resolved against Mercator who provided the form thereof.

Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that the spouses executed a Mortgage in favor of Mercator Finance Corporation for and in consideration of certainloans, and/or other forms of creditaccommodationsobtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x. It contended that since petitioners and Embassy Farms signed thepromissory noteas co-makers (the note being worded as For value received, I/We jointly and severally promise to pay to the order of Mercator), aside from the Continuing Suretyship Agreement subsequently executed to guarantee the indebtedness, the petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are thus valid. Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith.

Issue: May the spouses be held solidarily liable with Embassy Farms?

Held: YES. Courts can interpret a contract only if there is doubt in its letter. But, anexaminationof thepromissory noteshows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states, viz:

SECTION 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: (g) Where an instrument containing the word I promise to pay is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

Petitioners also insist that thepromissory notedoes not convey their true intent in executing the document. The defense is unavailing. Even if petitioners intended to sign the note merely asofficersof Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal. Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. Having executed the suretyship agreement, there can be no dispute on the personal liability of petitioners.

TRADERS ROYAL BANK V. CA 269 SCRA 15

FACTS:Filriters through a Detached Agreement transferred ownership to Philfinance a Central Bank Certificate of Indebtedness. It was only through one of its officers by which the CBCI was conveyed without authorization from the company. Petitionerand Philfinance later entered into a Repurchase agreement, on which petitioner bought the CBCI from Philfinance. The latter agreed to repurchase the CBCI but failed to do so. When the petitioner tried to have it registered in its name in the CB, the latter didn't want to recognize the transfer.

HELD:The CBCI is not a negotiable instrument. The instrument provides for a promise to pay the registered owner Filriters. Very clearly, the instrument was only payable to Filriters. It lacked the words of negotiability which should have served as an expression of the consent that the instrument may be transferred by negotiation.The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due course, and the freedom of negotiability is the foundationfor the protection, which the law throws around a holder in due course. This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period of time.The transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law. The pertinent question then iswas the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord withexisting law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank? Clearly shown in the record is the fact that Philfinances title over CBCI is defective since it acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for value received, there was really no consideration involved. What happened was Philfinance merely borrowed CBCI from Filriters, a sister corporation. Thus, for lack of any consideration, theassignment made is a complete nullity. Furthermore, the transfer wasn't in conformity with the regulations set by the CB. Giving more credence to rule that there was no valid transfer or assignment to petitioner.

MANUEL LIM V. COURT OF APPEALS

251 SCRA 408

FACTS:

Spouses Lim were charged with estafa and violations of BP22 for allegedly purchasing goods from Linton Commercial Corporation and issuing checks as payment thereof. The checks when presented to the bank were dishonored for insufficiency of funds or the payment for the checks has been stopped.

HELD:

It is settled that venue in criminal cases is a vital ingredient of jurisdiction. It shall be where the crime or offense was committed or any one of the essential ingredients thereof took place. In determining the proper venue for these cases, the following are material factsthe checks were issued at the place of business of Linton; they were delivered to Linton at the same place; they were dishonored in Kalookan City; petitioners had knowledge of the insufficiency of funds in their account. Under Section 191 of the Negotiable Instruments Law, issue means the first delivery of theinstrument complete in its form to a person who takes it as holder. The term holder on the other hand refers to the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. The important place to consider in the consummation of a negotiable instrument is the place of delivery. Delivery is the final act essential to its consummation as an obligation.

DELA VICTORIA V. BURGOS

245 SCRA 374

FACTS:

Sesbreno filed a case against Mabanto Jr. among other people wherein the court decided in favor of the plaintiff, ordering the defendants to pay former a definite amount of cash. The decision had become final and executory and a writ of execution was issued. This was questioned in the CA by the defendants. In the meanwhile, a notice of garnishment was issued to petitioner who was then the City Fiscal. She was asked to withhold any check or whatnot in favor of Mabanto Jr. The CA then dismissed the defendants petition and the garnishment was commenced only to find out that petitioner didn't follow instructions of sheriff. She is now being held liable.

HELD:

Garnishment is considered as the species of attachment for reaching credits belonging to the judgment debtor owing to him from a stranger in litigation. Emphasis is laid on the phrase belonging to the judgment debtor since it is the focal point of resolving the issues raised.As Assistant City Fiscal, the source of Mabantos salary is public funds. Under Section 16 of the NIL, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof.The petitioner is the custodian of the checks. Inasmuch as said checks were in the custody of the petitioner and not yet delivered to Mabanto, they didn't belong to him and still had the character of public funds. The salary check of a government officer or employee doesn't belong to himbefore it has been physically delivered to him. Until that time the check belongs to the government. Accordingly, before there is actual delivery of the check, the payee has no power over it, he cannot assign it without the consent of the government.*If public funds would be allowed to be garnished, then basic services of the government may be hampered.

MONTINOLA V. PNB

88 PHIL 178

FACTS:

Ramos, as a disbursing officer of an army division of the USAFE, made cash advancements w/ the Provincial Treasurer of Lanao. In exchange, the Provl Treasurer of Lanao gave him a P500,000 check. Thereafter, Ramos presented the check to Laya for encashment. Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer, issued a check to Ramos in the sum of P100000, on the Philippines National Bank as drawee; the P400000 value of the check was paid in military notes.

Ramos was unable to encash the said check for he was captured by the Japanese. But after his release, he sold P30000 of the check to Montinola for P90000 Japanese Military notes, of which only P45000 was paid by the latter. The writing made by Ramos at the back of the check was to the effect that he was assigning only P30000 of the value of the document with an instruction to the bank to pay P30000 to Montinola and to deposit the balance to Ramos's credit. This writing was, however, mysteriously obliterated and in its place, a supposed indorsement appearing on the back of the check was made for the whole amount of the check. At the time of the transfer of this check to Montinola, the check was long overdue by about 2-1/2 years.

Montinola instituted an action against the PNB and the Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of the aforesaid check. There now appears on the face of said check the words in parenthesis "Agent, Phil. National Bank" under the signature of Laya purportedly showing that Laya issued the check as agent of the Philippine National Bank.

HELD:The words "Agent, Phil. National Bank" now appearing on the face of the check were added or placed in the instrument after it was issued by the Provincial Treasurer Laya to Ramos. The check was issued by only as Provincial Treasurer and as an official of the Government, which was under obligation to provide the USAFE with advance funds, and not as agent of the bank, which had no such obligation. The addition of those words was made after the check had been transferred by Ramos to Montinola. The insertion of the words "Agent, Phil. National Bank," which converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument

Ang Tek Lian vs CA

Ang Tek Lian vs. Court of Appeals

G.R. No. L-2516September 25, 1950

--payable to bearer

FACTS:

Petitioner drew a check payable to "cash"knowing that he had no funds in his account.He delivered said check to Hong for which the latter handed him money.When the check was presented for payment it was dishonored for insufficiency of funds.An information for the crime of estafa was filed against Ang Tek Lian.Petitioner however argues that he is not guilty of the offense charged because he did not endorse the check which was made payable to "cash".

ISSUE:

Whether a check payable to "cash" requires an indorsement by the drawer for it to be encashed.

RULING:

No.Under Section 9(d) of the NIL, a check drawn payable to the order of "cash" is a check payable to bearer and the bank may pay it to the person presenting it for payment without the drawer's indorsement.

Atrium Management Corporation vs. Court of Appeals[GR 109491, 28 February 2001], also De Leon vs. Court of Appeals [GR 121894]First Division,Pardo (J): 4 concurFacts:Hi-Cement Corporation through its corporate signatories, Lourdes M. de Leon, treasurer, and the lateAntonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry andCo., Inc., in turn, endorsed the four checks to Atrium Management Corporation for valuable consideration.Upon presentment for payment, the drawee bank dishonored all four checks for the common reason "paymentstopped". On 3 January 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila anaction for collection of the proceeds of four postdated checks in the total amount of P2 million, after itsdemand for payment of the value of the checks was denied. After due proceedings, on 20 July 1989, the trialcourt rendered a decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc.and Hi-Cement Corporation to pay Atrium jointly and severally, the amount of P2 million corresponding tothe value of the four checks, plus interest and attorney's fees. On appeal to the Court of Appeals, on 17 March1993, the Court of Appeals promulgated its decision modifying the decision of the trial court, absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that:(1) Lourdes M. de Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) Theissuance of the subject checks by Lourdes M. de Leon and the late Antonio de las Alas constituted ultra viresacts; and (3) The subjectchecks were not issued for valuable consideration. Hence,Atrium filed the petition.Issue [1]:Whether the issuance of the checks wasan ultra vires act.Held [1]:The record reveals that Hi-Cement Corporation issued the four (4) checks to extend financialassistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil delivered byE.T. Henry to Hi-Cement. Why else would petitioner de Leon ask for counterpart checks from E.T. Henry ifthe checks were in payment for hydro oil delivered by E.T. Henry to Hi-Cement? Hi-Cement, however,maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a"kiting operation" to raise funds for E.T. Henry, who admittedly was in need of financial assistance. Therewas no sufficient evidence to show that such is the case. Lourdes M. de Leon is the treasurer of thecorporation and is authorized to sign checks for the corporation. At the time of the issuance of the checks,there were sufficient funds in the bank to cover payment of the amount of P2 million pesos. Thus, the act ofissuing the checks was well within the ambit of a valid corporate act, for it was for securing a loan to financethe activities of the corporation, hence, not an ultra vires act. An ultra vires act is one committed outside theobject for which a corporation is created as defined by the law of its organization and therefore beyond thepower conferred upon it by law" The term "ultra vires" is "distinguished from an illegal act for the former ismerely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void andcannot be validated.Issue [2]:Whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issuedas corporate officers and authorized signatories of the check.Held [2]:Personal liability of a corporate director, trustee or officer along (although not necessarily) with thecorporation may so validly attach, as a rule, only when: (1) He assents (a) to a patently unlawful act of thecorporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest,resulting in damages to the corporation, its stockholders or other persons; (2) He consents to the issuance of56 watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretaryhis written objection thereto; (3) He agrees to hold himself personally and solidarily liable with thecorporation; or (4) He is made, by a specific provision of law, to personally answer for his corporate action."Herein, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement wereauthorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letterrequested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checksissued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to thepayee's account and not to be further negotiated. What is more, the confirmation letter contained a clause thatwas not true, that is, "that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cementfrom E.T. Henry". Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be heldpersonally liable therefor

Mesina vs IAC

Marcelo A. Mesina vs. Intermediate Appellate Court

G.R. No. 70145 November 13, 1986,145 SCRA 497

--holder in due course

FACTS:

Jose Go purchased from Associated Bank a cashier's check for P800,000.00. Unfortunately, he left said check on the top of the desk of the bank manager when he left the bank. The bank manager entrusted the check for safekeeping to a bank official, a certain Albert Uy.While Uy went to the men's room, the check was stolen by his visitor in the person of Alexander Lim.Upon discovering that the check was lost, Jose Go accomplisheda "STOP PAYMENT" order.Two days later, Associated Bank received the lost check for clearing from Prudential Bank.After dishonoring the same check twice, Associated Bank received summons and copy of a complaint for damages of Marcelo Mesina who was in possession of the lost check and is demanding payment.Petitioner claims that a cashier's check cannot be countermanded in the hands of a holder in due course.

ISSUE:

Whether or not petitioner can collect on the stolen check on the ground that he is a holder in due course.

RULING:

No.Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value as shown by the established facts of the case. Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was passed to him. He had therefore notice of the defect of his title over the check from the start. The holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same.

CHAN WAN V. TAN KIM

109 PHIL 706

FACTS:

Tam Kim issued 11 checks payable to cash or bearer. Chan Wan presented these for payment but were dishonored for insufficiency of funds. This prompted Chan Wan to institute an action against Tam Kim. She didn't take the witness stand and merely presented the checks for payment. Tan Kim on the other hand alleged that the checks were for mere receipts only. The trial court dismissed the complaint as Chan Wan failed to show that she was a holder in due course.

HELD:

Eight of the checks were crossed checks specially to Chinabank and should have been presented for payment by Chinabank and not by Chan Wan. Inasmuch as Chan Wan didn't present them for payment himself, there was no proper presentment, and the liability didn't attach to the drawer. The facts show that the checks were indeed deposited with Chinabank and were by the latter presented for collection to the drawee bank. But as the account had no sufficient funds, they were unpaid and returned, some of them stamped account closed. How it reached the hands of Chan Wan, she didn't indicate. Most probably, as the trial court surmised, she acquired them after they have been dishonored.Chan Wan is then not a holder in due course. Nonetheless, it doesn't mean that she couldn't collect on the checks. He can still collect against Tan Kim if the latter has no valid excuse for refusing payment. The only disadvantage for Chan Kim is that she is susceptible to defenses of Tan Kim but what are the defenses of latter? This has to be further deliberated by the trial court.

Eulalio Prudencio vs CA

In 1955, Concepcion and Tamayo Construction Enterprise had acontractwith theBureauofPublic Works. Thefirmneededfundto push through with thecontractso it convinced spouses Eulalio and Elisa Prudencio to mortgage their parcel of land with the PhilippineNationalBank for P10,000.00. Prudencio, without consideration, agreed and so he mortgaged the land and executed apromissory notefor P10k infavorof PNB. Prudencio also authorized PNB to issue the P10k check to the construction firm.

In December 1955, the firm executed aDeedofAssignmentin favor of PNB which provides that anypaymentfrom the Bureau of Public Works in consideration of work done (by the firm) so far shall be paid directly to PNB this will also ensure that theloangets to be paid off before maturity.

Notwithstanding theprovisionin the Deed of Assignment, the Bureau of Public Works asked PNB if it can make the payments instead to the firm because the firm needs the money to buyconstruction materialsto complete theproject. Notwithstanding the provision of the Deed of Assignment, PNB agreed. And so theloanmatured without PNB actually receiving anypaymentfrom the Bureau of Public Works. Prudencio, uponlearningthat nopaymentwas made on theloan, petitioned to havethe mortgagecanceled (to save his property from foreclosure). The trial court ruled against Prudencio; the Court of Appeals affirmed the trial court.

ISSUE:Whether or not Prudencio should pay thepromissory noteto PNB.

HELD:No. PNB is not a holder in duecourse.

Prudencio is an accommodation party for he signed thepromissory noteas maker but he did not receive value or consideration therefor. He expected the firm (accommodated party) to pay theloan this obligation was shifted to the Bureau of Public Works by way of the Deed of Assignment). As a general rule, an accommodation party is liable on the instrument to a holder for value/in duecourse, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. The exception is that if the holder, in this case PNB, is not a holder in duecourse. The court finds that PNB is not a holder in duecoursebecause it has not acted in good faith (pursuant to Section 52 of the Negotiable Instruments Law) when it waived the supposed payments from the Bureau of Public Works contrary to the Deed of Assignment. Had the Deed been followed, theloanwould have been paid off at maturity.

FOSSUM V. FERNANDEZ

44 PHIL 675

FACTS:

FernandezHermanosplacedan order with the products company for the manufacturing of a chain given a set of specifications. The chain was duly preparedanddelivered. Adraftwasdrawnbythe company and was accepted by Fernandez Hermanos. Thereafter,thedraftwasnegotiated withFossum who demanded payment on the instrument but was refused by Fernandez on alleged failure of the chain delivered to satisfy the specifications given.

HELD:

It devolved around Fernandez Hermanos to allege and prove its claim that which was delivered and received didn't comply with the specifications and didn't answer the purposes for which it was intended. It alleged that the chaindidnt meet the specifications given by the contract. Nonetheless, there was failure to identify the so-called defects of the chain. It was upon Fernandez Hermanos to show that indeed the chain was defective. But as the trial court found out, there was a failure of proof.

PNB vs CA, Oct. 29, 1968

In November 1961, GSIS advised PNB that a checkbearingchecknumber645915- B has been lost. On January 15, 1962, Augusto Lim, holding GSIS Check No. 645915- B which was in the amount of P57,415.00, went to PCIB to have the checkdepositedin his PCIBaccount. Apparently, the check was indorsed to him Manuel Go, which was previously indorsed by Mariano Pulido to Go. Pulido was the named payee in the check.

PCIB did not encash thecheck infavor of Augusto Lim but rather it deposited the amount to Lims PCIB account. Lim cannot withdraw the amount yet as it needs clearing. PCIB stamped the check with All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank. PCIB then sent the check to PNB for clearing. PNB did not act on the check but it paid PCIB the amount of the check. PCIB considered this as a manifestation that the check was good hence it cleared Lim to withdraw the amount.

On January 31, 1962, GSIS demanded PNB to restore the amount and PNB complied. PNB then demanded PCIB torefundthe amount of the check. PCIB refused. The lower court ruled in favor of PCIB. This was affirmed by the Court of Appeals. PNB argued that the indorsements are forged hence it has no liability.

ISSUE:Whether or not PCIB shouldrefundthe amount to PNB.

HELD:No. The question whether or not the indorsements have been falsified is immaterial to PNBs liability as a drawee or to its right to recover from the PCIB for, as against the drawee, the indorsement of an intermediate bank does not guarantee the signature of thedrawer,since the forgery of the indorsement isnotthe cause of the loss.

With respect to the warranty on theback ofthe check, it should be noted that the PCIB thereby guaranteed all priorindorsements, not the authenticity of thesignaturesof the officers of the GSIS who signed on its behalf, because the GSIS isnotan indorser of the check, but its drawer. Further, PNB has been negligent. It has been notified months before about the lost check.

Crisologo-Jose v. CA, 1989 Facts:

_The Vice-president of Mover Enterprises, Inc. issued a check drawn against Traders Royal Bank, payable to petitioner Ernestina Crisologo-Jose, for the accommodation of his client.

_Petitioner-payee, was charged with the knowledge that the check was issued at the instance and for the personal account of the President who merely prevailed upon respondent vice-president to act as co-signatory in accordance with the arrangement of the corporation with its depository bank.

_While it was the corporation's check which was issued to petitioner for the amount involved, petitoiner actually had no transaction directly with said corporation.

Issue:

Whether private respondent, one of the signatories of the check issued under the account of Mover Enterprises, Inc., is an accommodation party under NIL and a debtor of petitioner to the extent of the amount of said check.

Ruling:

Yes. To be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of some other person.

It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. He is liable to a holder for value as if the contract was not for accommodation, in whatever capacity such accommodation party signed the instrument, whether primarily or secondarily. Thus, it has been held that in lending his name to the accommodated party, the accommodation party is in effect a surety for the latter.

The foregoing notwithstanding, the liability of an accommodation party to a holder for value, although such holder does not include nor apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. 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.

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 person only if specifically authorized to do so. Corollarily, corporate officers, such as the president and vice-president, have no power to execute for mere accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the corporation has no legitimate concern.

Since such accommodation paper cannot thus be enforced against the corporation, especially since it is not involved in any aspect of the corporate business or operations, the signatories thereof (president and vice-president) shall be personally liable therefor, as well as the consequences arising from their acts in connection therewith.

PHILIPPINE BANK COMMERCE VS ARUEGO

Facts:

_Plaintiff bank instituted an action against defendant Aruego for recovery of money it had paid on various drafts drawn against it and signed by defendant as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO".

He filed his answer interposing as defenses that he signed the drafts in a representative capacity, that he signed only as accommodation party, and that the drafts were really no bills of exchange.

_Declared in default for having filed his answer one day late, defendant moved to set the order aside alleging that it could not have been possible for him to file his answer, and that he had good and substantial defenses.

_The court denied the motion and rendered judgment by default.

_Defendant appealed from both the orders denying his motions to set aside the default order and the judgment by default, which appeals were consolidated and certified to the Supreme Court by the Court of Appeals.

Issue:

Whether the defendant has a good and substantial defense.

Ruling:

No, the defendant's appeal cannot prosper based on the defenses raised.

Representative capacity

Section 20 of the NIL provides that "Where the instrument contains or 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 filling a representative character, without disclosing his principal, does not exempt him from personal liability."

An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as representative of the Philippine Education Foundation Company. He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO." For failure to disclose his principal, Aruego is personally liable for the drafts he accepted.

Accommodation Party

An accommodation party is one who has signed the instrument as maker, drawer, acceptor, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party.

In the instant case, the defendant signed as a drawee/acceptor. Under the NIL, a drawee is primarily liable. Thus, if the defendant who is a lawyer, really intended to be secondarily liable only, he should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

Not Bills of Exchange

The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of evidence of indebtedness because payments were made before acceptance. This is also without merit.

Under the NIL, a bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.

Order denying petition for relief was affirmed.

MWSS vs CA, July 14, 1986

Facts:

_MWSS issued 23 personalized checks against its account with PNB in favor of different payees.

_During the same month, a second batch of 23 checks were issued bearing the same numbers as those of the 1st batch.

_Both batches were paid and cleared by PNB and debited against the account of MWSS.

_The second batchs payees deposited the said checks to their respective accounts with PCIB and PBC.

_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.'

_Investigation however, conducted by the NBI showed that all the payees for the 2nd batch were all fictitious persons.

_Upon learning this, MWSS wrote PNB to restore the corresponding total amount of the 2nd batch payments on the 23 checks claimed by MWSS to be forged and/or spurious checks.

_Upon refusal of PNB to credit back, MWSS filed the instant complaint.

Issue:

Whether the drawee bank PNB is liable to MWSS.

Ruling:

No. First of all, there is no express and categorical finding that the 23 questioned checks were indeed signed by persons other than the authorized MWSS signatories. Forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. This was not done in the present case.

Further, the petitioner was using its own personalized checks, instead of the official PNB Commercial blank checks. Considering the absence of sufficient security in the printing of the checks coupled with the very close similarities between the genuine signatures and the alleged forgeries, the 23 checks in question could have been presented to the petitioner's signatories without their knowing that they were bogus checks. Petitioner failed to provide the needed security measures. Another factor which facilitated the fraudulent encashment of the 23 checks in question was the failure of the petitioner to reconcile the bank statements with its own records.

Thus, even if the 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 NIL.

Drawee Bank PNB cannot be faulted 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. There is no evidence on record indicating that because of this private printing, the petitioner furnished the respondent Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to safeguard its interests. Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent encashment of its checks.

ANG TIONG V. TING

22 SCRA 713

FACTS:

Ting issued a PBCom check payable to cash or bearer. This was indorsed by Ang at the back and it was received by plaintiff. Upon encashment of the check, the same was dishonored. Plaintiff moved that the two make good the value of the check but despite demands, he was unheeded, prompting him to file a complaint. The trial court decided in his favor.

HELD:

Even on the assumption that the appellant was an accommodation indorser, as he professes to be, he is nevertheless by the clear mandate of section 29, liable on the instrument to a holder for value, notwithstanding that such holder at the time of taking the instrument knew him to be an accommodation party. And assuming that he was an accommodation party, he may obtain security from the maker to protect himself against the danger of insolvency of the latter but this doesn't affect his liability to the appellee, as the said remedy is a matter of recourse between him and the maker.

BANCO DE ORO vs EQUITABLE, JAN 20, 1988

Facts:

Banco De Oro drew six crossed Manager's check payable to certain member establishments of Visa Card.

The Checks were deposited with Equitable Bank to the credit of its depositor, a certain Aida Trencio.

After stamping at the back of the Checks the usual endorsements: 'All prior and/or lack of endorsement guaranteed' the defendant sent the checks for clearing through the Philippine Clearing House Corporation (PCHC).

Banco De Oro paid the Checks and its clearing account was debited for the value of the Checks and Equitable Banks clearing account was credited for the same amount.

Thereafter, Banco De Oro discovered that the endorsements appearing at the back of the Checks and purporting to be that of the payees were forged and/or unauthorized or otherwise belong to persons other than the payees.

Banco De Oro presented the Checks directly to Equitable Bank for the purpose of claiming reimbursement from the latter.

However, defendant refused to accept such direct presentation and to reimburse Banco De Oro for the value of the Checks

Hence, this case.

Issue:

Whether Banco De Oro could collect reimbursement from Equitable Bank.

Ruling:

Yes. The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements" is now estopped from claiming that the checks under consideration are not negotiable instruments. It led the said respondent to believe that it was acting as endorser of the checks and on the strength of this guarantee said respondent cleared the checks in question and credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed checks are not negotiable instrument.

A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged endorsement. Whenever any bank treats the signature at the back of the checks as endorsements and thus logically guarantees the same as such there can be no doubt said bank has considered the checks as negotiable.

The collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements 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 endorsements.

While the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct.

Westmont Bank v. Ong, 2002

FACTS: Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a current account with petitioner bank. He opted to sell his shares of stock through Island Securities. The company in turn issued checks in favor of Ong but unfortunately, the latter wasn't able to receive any. His signatures were forged by Tamlinco and the checks were deposited in his own account with petitioner. Ong then sought to collect the money from the family of Tamlinco first before filing a complaint with the Central Bank. As his efforts were futile to recover his money, he filed an action against the petitioner. The trial and appellate court decided in favor of Ong.

HELD: Since the signature of the payee was forged, such signature should be deemed inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to collect from the collecting bank. It should be liable for the loss because it is its legal duty to ascertain that the payees endorsement was genuine before cashing the check. As a general rule, a bank or corporation who has obtained possession of a check with an unauthorized or forged indorsement of the payees signature and who collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee or the other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by desirable short cut, the person who ought to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not. On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of Tamlincos family to collect the sum of money, and later the Central Bank. Only after exhausting all the measures to settle the issue amicably did he file the action.

ILUSORIO BANK vs RPN, Oct. 10, 2002

Facts:

Petitioner entrusted to his secretary his credit cards and his checkbook with blank checks.

His secretary, thru falsification, encashed and deposited to her personal account seventeen checks drawn against the account of the petitioner at respondent bank.

Petitioner then requested the respondent bank to credit back and restore to his account the value of the checks which were wrongfully encashed, but respondent bank refused.

Hence, petitioner filed the instant case.

Manila Bank sought the expertise of the NBI in determining the genuineness of the signatures appearing on the checks.

However, petitioner failed to submit his specimen signatures for purposes of comparison with those on the questioned checks.

Consequently, the trial court dismissed the case.

On appeal, the Court of Appeals held that petitioner's own negligence was the proximate cause of his loss.

Hence, this petition.

Issue:

Whether that Manila Bank is liable for damages for its negligence in failing to detect the discrepant checks.

Ruling:

No. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on the questioned checks. Curiously though, petitioner failed to submit additional specimen signatures as requested by the NBI from which to draw a conclusive finding regarding forgery.

Further, the bank's employees in the present case did not have a hint as to the secretaryus modus operandi because she was a regular customer of the bank, having been designated by petitioner himself to transact in his behalf.

It was petitioner, not the bank, who was negligent. In the present case, it appears that petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and possession of cancelled checks and reconciliation of accounts. Petitioner's failure to examine his bank statements appears as the proximate cause of his own damage.

True, it is a rule that when a signature is forged or made without the authority of the person 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 it is sought to enforce such right is precluded from setting up the forgery or want of authority." In the instant case, it is the exception that applies. Petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account.

MONTINOLA vs PNB, Feb. 26, 1951

FACTS: Ramos, as a disbursing officer of an army division of the USAFE, made cash advancements w/ the Provincial Treasurer of Lanao. In exchange, the Provl Treasurer of Lanao gave him a P500,000 check. Thereafter, Ramos presented the check to Laya for encashment. Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer, issued a check to Ramos in the sum of P100000, on the Philippines National Bank as drawee; the P400000 value of the check was paid in military notes.

Ramos was unable to encash the said check for he was captured by the Japanese. But after his release, he sold P30000 of the check to Montinola for P90000 Japanese Military notes, of which only P45000 was paid by the latter. The writing made by Ramos at the back of the check was to the effect that he was assigning only P30000 of the value of the document with an instruction to the bank to pay P30000 to Montinola and to deposit the balance to Ramos's credit. This writing was, however, mysteriously obliterated and in its place, a supposed indorsement appearing on the back of the check was made for the whole amount of the check. At the time of the transfer of this check to Montinola, the check was long overdue by about 2-1/2 years.

Montinola instituted an action against the PNB and the Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of the aforesaid check. There now appears on the face of said check the words in parenthesis "Agent, Phil. National Bank" under the signature of Laya purportedly showing that Laya issued the check as agent of the Philippine National Bank.

Issue:

Whether the words, 'Agent, Phil, National Bank' were added after Laya had issued the check and thus constitutes material alteration which discharges the instrument.

HELD: Yes. The words "Agent, Phil. National Bank" now appearing on the face of the check were added or placed in the instrument after it was issued by the Provincial Treasurer Laya to Ramos. The check was issued by only as Provincial Treasurer and as an official of the Government, which was under obligation to provide the USAFE with advance funds, and not as agent of the bank, which had no such obligation. The addition of those words was made after the check had been transferred by Ramos to

Montinola. The insertion of the words "Agent, Phil. National Bank," which converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument

GREAT EASTERN LIFE INSURANCE vs HONGKONG & SHANGHAI, GR 18657

Facts:

Plaintiff drew its check on HSBC with whom it had an account, payable to the order of Melicor.

Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an endorser, and then personally endorsed and presented it to PNB where the amount of the check was placed to his credit.

After having paid the check, PNB endorsed the check to HSBC, which paid it, and charged the amount of the check to the account of the plaintiff.

HSBC rendered a bank statement to the plaintiff showing that the amount of the check was charged to its account, and no objection was then made to the statement.

About four months after the check was charged to the account of the plaintiff, it discovered that Melicor, to whom the check was made payable, had never received it, and that his signature, as an endorser, was forged by Maasim.

Plaintiff promptly made a demand upon HSBC that it should be given credit for the amount of the forged check.

The bank refused to do, and thus the plaintiff commenced this action to recover the amount paid on the forged check.

Issue:

Whether HSBC is responsible for the refund to the drawer of the amount of the check drawn and payable to order, when its value was collected by a third person by means of forgery of the signature of the payee.

Ruling:

Yes. Plaintiff authorized and directed HSBC to pay Melicor, or his order and not to any other person. Neither is the plaintiff estopped or bound by the bank statement, which was made to it by the HSBC. This is not a case where the plaintiff's own signature was forged to one of its checks. In such a case, the plaintiff would have known of the forgery, and it would have been its duty to have promptly notified the bank of any forged signature, and any failure on its part would have released the bank from any liability. Plaintiff had a right to assume that Melicor had personally endorsed the check, and that, otherwise, the bank would not have paid it.

HSBC is liable to plaintiff and PNB is in turn liable to HSBC as it had no license or authority to pay the money to Maasim or anyone else upon a forged signature. It was its legal duty to know that Melicor's endorsement was genuine before cashing the check. PNBs remedy is against Maasim to whom it paid the money.

Paulino Gullas v. PNB, 1935 Facts:

United States Veterans Bureau issued a warrant payable to the order of Francisco Sabectoria Bacos.

Paulino Gullas and Pedro Lopez signed as indorsers of this check.

Thereupon it was cashed by the Philippine National Bank.

Subsequently the treasury warrant was dishonored.

The bank sent notices by mail to Mr. Gullas which could not be delivered to him at that time because he was in Manila.

The bank then proceeded to apply the outstanding balances of Mr. Gullas current accounts with it to the part payment of the subject check.

Issue:

Whether PNB properly set off the account of Gullas with the payment of the indorsed check.

Ruling:

No. Although PNB had with respect to the deposit of Gullas a right of set off, its remedy was not enforced properly.

Notice of dishonor is necessary in order to charge an indorser and that the right of action against him does not accrue until the notice is given. Prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. The action of the bank was prejudicial to Gullas. As such Gullas should be awarded nominal damages because of the premature action of the bank.

SPOUSES MORAN vs CA

Facts: George and Librada Moran maintained 3 joint accounts with CityTrust Banking Corporation. The Morans issued checks in favor of Petrophil Corporation, which were dishonored for insufficiency of funds. Moran deposited the amount that would cover the checks the day after the checks clearing. Petrophil did not deliver the Morans fuel orders for their Wack-Wack Petron Gasoline station, prompting the latter to temporarily stop business operations. The Morans sued the bank for damages.

Issue:

Whether a bank is liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact the fact that a deposit was made later in the day.

Held:

A check is a bill of exchange drawn on a bank payable on demand. Where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of the deposits. Failure to do so, when deposit is sufficient, entitles the drawer to substantial damages without proof of actual damages. Herein, however, the balance of the account maintained in the bank was not enough to cover either of the two checks when they were dishonored. A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds. As such, a drawer must remember his responsibilities every time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund the checks he previously issued. A bank is under no obligation to make part payment on a check, up to only the amount of the drawers funds, where the check is drawn for an amount larger than what the drawer has on deposit. A check is intended not only to transfer a right to the amount named in it, but to serve the further purpose of affording evidence for the bank of the payment of such amount when the check is taken up. Clearly, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. Before a bank depositor may maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand.

CLARK V. SELINER- Liability Of An Accommodation Party

42 PHIL 384

FACTS:

Sellner with two other persons, signed a promissory note solidarily binding themselves to pay to the order of R.N Clark. The note matured but the amount wasn't paid. The defendant alleges that he didn't receive any amount of the debt; that the instrument wasn't presented to him forpayment and being an accommodation party, he is not liable unless the note is negotiated, which wasn't done.HELD:

On the first issue, the liability of Sellner as one of the signers of the note, is not dependent on whether he has or has not, received any part of the debt. The defendant is really and expressly one of the joint and several debtors of the note and as such he is liable under the provisions of Section 60 of the Negotiable Instruments Law.

As to the presentment for payment, such action is not necessary in order to charge the person primarily liable, as is the defendant Sellner.

As to whether or not Sellner is an accommodation party, it should be taken into account that by putting his signature to the note, he lent his name, not to the creditor, but to those who signed with him placing him in the same position and with the same liability as the said signers. It should be noted that the phrasewithout receiving value therefore as used in section 29 means without receiving value by virtue of the instrument and not, as it apparently is supposed to mean, without receiving payment for lending his name. It is immaterial as far as the creditor is concerned, whether one of the signers has or has not received anything in payment for the use of his name. In this case, the legal situation of Sellner is that of a joint surety who upon the maturity of the note, pay the debt, demand the collateralsecurity and dispose of it to his benefit. As to the plaintiff, he is a holder for value.

MAULINIvs.SERRANOG.R No. L-8844, December 16, 1914(28 PHIL 640)FACTS:The action was brought by Fernando Maulini, plaintiff, upon the contract of indorsement alleged to have been made in his favor by Antonio Serrano, defendant, upon the following promissory note: 3,000.Due5thofSeptember,1912.We jointly and severally agree to pay to the order of Don Antonio G.Serrano onor beforethe 5thday ofSeptember, 1912, thesum ofthreethousand pesos (P3,000)for value receivedforcommercialoperations.Noticeandprotestrenounced. Ifthesumhereinmentionedisnotcompletelypaidonthe5thdayofSeptember,1912,thisinstrumentwilldrawinterestat the rate of 112per cent per month from the datewhen dueuntil thedateofitscompletepayment.Themakershereofagreeto pay the additional sum of P500 as attorney's fees in case of failure to pay the note. Manila, June 5, 1912.(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, byF. Moreno. Angel Giminez.The note was indorsed on the back as follows: Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.) A.G. Serrano.ISSUE:Whether or not A.G. Serrano, the defendant, was an accommodation party as described in the Negotiable Instruments Law.

HELD:TheCourtheldthattheaccommodationtowhichreferenceismadein Section 29 is not one to the person who takes the note but one to the maker or indorser ofthe note.It istrue, thatin thecase atbar, itwas an accommodation to the plaintiff, in the popular sense, to have the defendantindorsethenote;butitwasn'ttheaccommodationdescribedinthe law but rather a mere favor to him and one which innowayboundSerrano.Incasesofaccommodationindorsement,the indorser makes the indorsement for the accommodation of the maker. Such an indorsement is generally for the purpose of better securing the payment of thenotethat is, he lends his name to the maker and not the holder.Thus, an accommodation note is one to which the accommodation partyhas put his name, without consideration, for the purpose of accommodating some other party who is to use it and is expected to pay it. The credit given to the accommodation party is sufficient consideration to bind the accommodation maker. Where an indorsement is made as a favor to the indorsee, who requests it, not the better to secure payment, but to relieve himself from a distasteful situation, and where the only consideration for such indorsement passes from the indorser to the indorsee, the situation does not present one creating an accommodation indorsement, nor one where there is a consideration sufficient to sustain an action onthe indorsement.

PNB V. MAZA AND MECENAS

48 PHIL 207

FACTS:

Maza and Macenas executed a total of five promissory notes. These were not paid at maturity. And to recover the amounts stated on the face of the promissory notes, PNB initiated an action against the two. The special defense posed by the two is that the promissory notes were delivered tothem in blank by a certain Enchaus and were made to sign the notes so that the latter could secure a loan from the bank. They also alleged that they never negotiated the notes with the bank nor have they received any value thereof. They also prayed that Enchaus be impleaded in thecomplaint but such was denied. The trial court then held in favor of the bank.HELD:

The defendants attested to the genuineness of the instruments sued on. Neither did they point out any mistake in regard to the amount and interest that the lower court sentenced them to pay. Given such, the defendants are liable. They appear as the makers of the promissory notesand as such, they must keep their engagement and pay as promised.

And assuming that they are accommodation parties, the defendants having signed the instruments without receiving value thereof, for the purpose of lending their names to some other person, are still liable for the promissory notes. The law now is such that an accommodation party cannot claim no benefit as such, but he is liable according to the face of his undertaking, the same as he himself financially interest in the transaction. It is also no defense to say that they didn't receive the value of the notes. To fastenliability however to an accommodation maker, it is not necessary that any consideration should move to him. The accommodation which supports the promise of the accommodation maker is that parted with by the person taking the note and received by the person accommodated.

TOWN SAVINGS AND LOAN BANK V. CA- Accommodation Party

223 SCRA 459

FACTS:

Spouses Hipolito applied for and was granted a loan by the bank, which was secured by a promissory note. For failure to pay their monthly payments, they were declared in default.

The spouses denied having any liability. They stated that the real party-in-interest is the sister of the husband, Pilarita Reyes. The spouses, not having received part of the loan, were mere guarantors of Reyes. As such, they protested against being dragged into the litigation.

The trial court held that they were liable as accommodation parties to the promissory note. This was reversed by the Court of Appeals.

HELD:An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefore and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be an accommodation party. In lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to enable theaccommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another.

In the case at bar, it is indisputable that the spouses signed the promissory note to enable Reyes to secure a loan from the bank. She was the actual beneficiary of the loan and the spouses accommodated her by signing thenote.

METROPOLITAN BANK V. CA

194 SCRA 169

FACTS:

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

HELD:

The treasury warrants were not negotiable instruments. Clearly, it is indicated that it was non-negotiable and of equal significance is the indication that they are payable from a particular fund, Fund 501. This indication as the source of payment to be made on the treasury warrantmakes the promise to pay conditional and the warrants themselves non-negotiable.Metrobank then cannot contend that by indorsing the warrants in general, GS assumed that they were genuine and in all respects what they purport it to be, in accordance to Section 66 of the NIL. The simple reason is that the law isnt applicable to the non-negotiable treasury warrants. The indorsement was made for the purpose of merely depositing them with Metrobank for clearing. It was in fact Metrobank which stamped on the back of the warrants: All prior indorsements and/or lack of endorsements guaranteed

SAMSUNG CONSTRUCTION vs FAR EAST BANK, AUG 15, 2003

Facts:SamsungConstructionheld an account with Far East Bank. One day a check worth 900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check wascertifiedto be true by Jose Sempio, theassistant accountantofSamsung, who was also present during the time the check was cashed. Later however it was discovered that no such check was ever approved by theSamsungs headaccountant, the president of the company also never signed any such check.

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

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

People v. NitafanG.R. No. 75954 October 22, 1992Facts: On January 20, 1985, aid accused did then and there wilfully, unlawfully and feloniously make or draw and issue to Fatima Cortez Sasaki Philippine Trust Company Check No. 117383 in the amount of P143,000.00

He knew that at the time of issue he did not have sufficient funds in or credit with the drawee bank.

The check was subsequently dishonored by the drawee bank for insufficiency of funds, and despite receipt of notice of such dishonor, said accused failed to pay Sasaki the amount of said check or to make arrangement for full payment of the same within five banking days after receiving said notice.

Private respondent, Mariano Lim moved to quash the Information of the ground that the facts charged did not constitute a felony as B.P. 22 was unconstitutional and that the check he issued was a memorandum check which was in the nature of a promissory note in thus, is civil in nature.

On 1 September 1986, respondent judge, ruling that B.P. 22 on which the Information was based was unconstitutional, issued the questioned Order quashing the Information. Hence, this petition for review on certiorari filed by the Solicitor General in behalf of the government.

Issues: W/N B.P. 22 is unconstitutional

W/N a memorandum check issued postdated in partial payment of a pre-existing obligation is within the coverage of B.P. 22.

Ratio: The constitutionality of the Bouncing Check Law has already been sustained by the SC through jurisprudence in Lozano v. Martinez, and the seven other cases decided jointly with it.

A memorandum check is in the form of an ordinary check, with the word "memorandum", "memo" or "mem" written across its face, signifying that the maker or drawer engages to pay the bona fide holder absolutely, without any condition concerning its presentment.

Such a check is an evidence of debt against the drawer, and although may not be intended to be presented has the same effect as an ordinary check and if passed to the third person will be valid in his hands like any other check.

A memorandum check comes within the meaning of Sec. 185 of the Negotiable Instruments Law which defines a check as "a bill of exchange drawn on a bank payable on demand."

A memorandum check must therefore fall within the ambit of B.P. 22 which does not distinguish but merely provides that "any person who makes or draws and issues any check knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank which check is subsequently dishonored shall be punished by imprisonment"

A memorandum check, upon presentment, is generally accepted by the bank. Hence it does not matter whether the check issued is in the nature of a memorandum as evidence of indebtedness or whether it was issued is partial fulfillment of a pre-existing obligation, for what the law punishes is the issuance itself of a bouncing check 15 and not the purpose for which it was issuance.

The mere act of issuing a worthless check, whether as a deposit, as a guarantee, or even as an evidence of a pre-existing debt, is malum prohibitum.

HSBC vs CATALANFACTSFrederick Arthur Thomson drew 5 checks payable to Catalan in the total amount ofHK$3.2 million. Catalan presented these checks to HSBC[Bank]. The checks were dishonored for havinginsufficient funds. Thomson demanded that the checks be madegood because he, in fact, hadsufficient funds.Catalan knowing that Thomson hadcommunicated with the Bank, asked HSBCBank to clear the checks and pay her the said amount. HSBC did not heed her.Thomson died but Catalan was not paid yet. The account was transferred to HSBC [Trustee]. Catalan thenrequested Trustee to pay her.They still refused and even asked her to submit back to them the original checks for verification.Catalan and her lawyer went to Hongkong on their own expense to personally submit the checks. They still were not honored, leadingCatalan to file a suit against HSBC to collect her HK$3.2MISSUESWhether or not HSBC Bank and Trustee are liable to paydamages to Catalanon the ground of Abuse of right underArticle 19 of the Civil CodeAPPLICATION:Article 19 of the Civil Code speaks of the fundamental principle of law and human conduct that a person "must, in the exercise of his rights and in the performance of his duties, actwith justice, give everyone his due, and observe honesty and good faith." It sets the standards which may be observed not only in the exercise of ones rights but alsoin the performance ofones duties When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoermust be held responsible. But a right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. A person should beprotected only when he acts in thelegitimate exercise of his right, that is, when heacts with prudence and in good faith; but not when he acts with negligence or abuse.There is an abuse of right when it is exercised for the only purpose ofprejudicing or injuring another. The exercise of a right must be in accordance with the purpose forwhich it was established, and must not beexcessive or unduly harsh; there must be no intention to injure another.Thus, in order tobe liable under the abuse ofrights principle, three elements must concur, to wit: (a) that there is a legal right orduty; (b) which is exercised in bad faith; and (c) for the sole intent ofprejudicing or injuring another.HSBANK is being sued for unwarranted failure to pay the checks notwithstanding the repeated assurance of the drawer Thomson as to the authenticity of the check sand frequent directives topay the value thereof to Catalan. Her allegations in the complaint that the gross inaction of HSBANK onThomsons instructions, as well as its evident failure toinform Catalan ofthe reason for its continued inaction andnon-payment of the checks, smack ofinsouciance on its part, are sufficient statements of clear abuse of right for which it may be held liable to Catalan forany damages she incurred resulting therefore. HSBANKs actions or lack thereof, prevented Catalan from seeking furtherredress with Thomson for the recovery of her claim while the latter was alive.

LEE vs. COURT OF APPEALS and VICENCIO VDA. DE SIMEON

G.R. No. L-28126 November 28, 1975

Facts of the Case:

On June 25, 1965, Emiliano Simeon and Alberta Vicencio, husband and wife, brought an action in the Court of First Instance of Rizal to compel spouses Vita Uy Le e and Henry Lee to resell to them a parcel of land situated in Sitio Parugan-Iba Barrio San Jose, Antipolo, Rizal. The land, a homestead with an area of about 2.7342 hectares, is presently covered by Transfer Certificate of Title No. 57279 issued by the Register of Deeds of Rizal in the names of defendants Vita Uy Lee and Henry Lee. Defendants filed in due time their answer with affirmative defenses. After trial, the court decided in favor