Section 1

PACHECO V. COURT OF APPEALS

319 SCRA 595

Sec. 12 13 / 186

FACTS:Spouses Pacheco were in the construction business. Due to the delay in payment of receivables from DPWH they were constrained to obtain loans from Mrs. Vicencio who owns a pawnshop and whose husband was a former Judge. The Spouses Pacheco loaned a total of P85,000 from Mrs. Vicencio. As a condition for the loan, Mrs. Vicencio required the Spouses Pacheco to issue an undated check every time they contracted a loan assuring the Pachecos that the check are merely evidence of their indebtedness and will not be presented to the bank for payment since the bank account of the Pachecos no longer had funds.

Of the P85,000 loaned, the Pachecos were able to settle P70,000. When the remaining balance of P15,000 became due and demandable the Pachecos were not able to pay. Mrs. Vicencio, her husband and daughter asked the Pachecos to place a date of Aug. 15, 1992 on two of the six undated checks. Despite being informed by the Pachecos that their RCBC account was already closed in Aug. 17, 1989 Mrs. Vicencio insisted on the dating of the check and again assuring the Pachecos that the checks will not be presented to the bank and will only serve as evidence of their indebtedness. The Pachecos placed the date on the checks fearing that they would not be able to obtain loans in the future from Mrs. Vicencio if they did not comply with the request.

On Aug. 29, 1992 the Pachecos received a demand letter informing them that the two dated checks were presented for payment and were dishonored due to the closing of the account. A complaint was then filed by Mrs. Vicencios husband against the Pachecos and two informations for estafa were filed against them.

The informations alleged that the dishonored checks were issued in payment of a diamond ring.

ISSUE:W/N the Spouses Pacheco are guilty of estafa

RULING:

Estafa may be committed in several ways, one of which is by postdating a check or issuing a check in payment of an obligation when the offender has no funds in the bank or his funds deposited are not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover the check within 3 days from receipt of notice from the bank and/or the payee or holder that the check is dishonored shall be prima facie evidence of deceit constituting a fraudulent act.

Elements of Estafa

1. that the offender postdated or issued a check in payment of an obligation contracted at the time the check was issued

2. that such postdating or issuing a check was done when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check

3. deceit or damage to the payee

In this case the first and third elements are not present. A check has the character of negotiability and at the same time constitutes an evidence of indebtedness.

By mutual agreement of parties the negotiable character of the check may be waived which is exactly what happened in this case. Hence there cannot be deceit on the part of the Pachecos because there was an agreement with Mrs. Vicencio at the time of the issuance of the checks that the same will not be encashed or presented to the banks. The checks therefore became mere evidence of indebtedness. It has been ruled that a drawer who issues a check as security or evidence of investment is not liable for estafa.

Also, Mrs. Vicencio was informed that the Spouses Pacheco no longer had funds with RCBC when the checks were issued and that when she asked for the postdating of the checks in 1992 she was also made aware that the account was closed as early as 1989.

Knowledge of the complainant that the drawer does not have sufficient funds in the bank at the time it was issued to him does not give rise to a case for estafa through bouncing checks.

Also, the checks were not presented within reasonable time from issue. The current banking practice is that a check becomes stale after more than 6 months. In this case, the checks were issued more than 3 years prior to their presentment. There were a total of 6 check issued, but only 2 presented for payment, this fact shows that the 2 checks were chosen to cover the remaining balance of the loan and that the checks were not to be modes of payment but mere promissory notes.

The argument that the checks were issued as payment for jewelry purchased in 1992 is also untenable since as mentioned earlier the RCBC account was closed as early as 1989. The Pachecos, however, remain liable for the amount of P15,000.

HSBC v. PEOPLES BANK & TRUST CO.

35 SCRA 140

Sec. 124 and 125

FACTS:

PLDT drew a check worth P14,608.05 on HSBC in favor of the same bank

The check was sent by mail to the payee

Check fell in the hands of Florentino Changco who was able to erase the name of HSBC and typed his own name as payee

Altered check was deposited with Peoples Bank

Check was presented by Peoples Bank for clearing wherein Peoples Bank made the indorsement: For clearance, clearing office. All prior endorsements and/or lack of endorsements guaranteed. Peoples Bank and Trust Company.

Check was duly cleared by HSBC. Peoples Bank credited Changcos account

Changco began to withdraw his account and eventually closed it

Cancelled check went the regular route of the regular routine and it was returned to PLDT when the alteration was discovered

Peoples Bank was notified of the alteration on the same day; HSBC requested Peoples Bank to refund the amount. Peoples Bank refused

ISSUE:

Whether or not Peoples Bank should refund HSBC

HELD:

NO, Peoples Bank is not liable to refund HSBC

HSBCs failure to call the attention of Peoples Bank as to the alteration until after the lapse of 27 days would negate whatever right it might have had against Peoples Bank in the light of the 24-hour clearing house rule.

It is a settled rule that a person who presents for payment checks such as are here involved guarantees the genuineness of the check, and the drawee bank need concern itself with nothing but the genuineness of the signature, and the state of the account with it of the drawee.

Whatever remedy the HSBC has would lie not against the Peoples Bank but against the party responsible for changing the name of the payee.

The attempted distinction sought to be made by HSBC to the effect that it refers to forged but not to altered checks is not warranted.

REPUBLIC BANK v. CA

196 SCRA 100

Sec. 124 and 125FACTS:

San Miguel Corporation drew a dividend check on its account in First National City Bank (FNCB) in favor of J. Roberto Delgado, one of its stockholders. After delivery to Delgado, the amount was altered by increasing it from P240 to P9,240.

The check was indorsed and deposited by Delgado in his account with Republic Bank.

Republic accepted the check without ascertaining its genuineness. Republic endorsed the check to FNCB by stamping on the back of the check all prior and/or lack of indorsement guaranteed and presented it to FNCB for payment through the Central Bank Clearing House.

FNCB paid P9,240 to Republic through the CB Clearing House.

SMC notified FNCB of alteration; FNCB recredited SMC.

FNCB informed Republic Bank of alteration and forgery. FNCB demanded refund but Republic refused.

Petitioners Contentions (Republic Bank):

Republic refused to refund claiming that there was delay on the part of FNCB in giving them notice of the alteration.

Republic also said that it was not guilty of negligence and that it was SMCs fault in drawing the check in such a way as to permit the insertion of numerals increasing the amount.

Private Respondents Contentions (FNCB):

FNCB demanded that Republic refund the P9,240 on the basis of the latters endorsement and guaranty.

ISSUE:

Whether or not Republic Bank is liable to refund FNCB

HELD: NO, Republic is not liable. FNCB failed to detect the fraudulent character of the SMC check and so it failed to warn Republic within the 24-hour clearing house rule.

The unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation.

When the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability.

Unless an alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for payment is against the party responsible for the forgery or alteration. Otherwise, it bears the loss.

CA erred in laying upon Republic, instead of on FNCB the drawee bank, the burden of loss for the payment of the altered SMC check.

Banco Atlantico v. Auditor General

81 SCRA 335

Sec. 124 and 125

Nature:An appeal from the decision of the Auditor General who disallowed the claim of Banco Atlantico against the Philippine Embassy in Spain

Facts:

The case involves three checks all issued by the Philippine Embassy with Luis Gonzales (ambassador) and Virginia Boncan (finance officer) as signatories and all paid by Banco Atlantico to Boncan.1. A $ 10K check issued by the Philippine Embassy, with Azucena Pace as payee and drawn against the Philippine National Bank in New York, was negotiated by Boncan with Banco Atlantico. Said check was said to be indorsed by the payee and Boncan. Banco Atlantico paid the check in full without clearing with the drawee bank, PNB New York.

2. A $ 35K check issued by the Philippine Embasy, with Virginia Boncan as payee, was negotiated by Boncan with Banco Atlantico. Banco Atlantico paid the check in full without clearing with the drawee bank, PNB New York.

3. A $ 90K check issued by the Philippine Embassy, with Virginia Boncan as payee, was negotiated by Boncan with Banco Atlantico. Banco Atlantico paid the check in full without clearing with the drawee bank, PNB New York.

Banco Atlantico presented the check to PNB for payment. PNB dishonored the check on the ground that the Philippine Embassy, the drawer, had ordered the payments stopped. It then sent notices of protests to the Philippine Embassy and Boncan who both refused to pay the value of the checks. Banco Atlantico filed the corresponding money claim with the Auditor General. The Auditor General denied the claim and concurred with the views of Luis Gonzales, the ambassador that:

1. The Embassy did not have an account with Banco Atlantico. Only the embassys employee Virginia Boncan did.2. That the 3 checks were not honored and paid out to Boncan in the ordinary course of its banking transactions. Boncan had special personal relations with the banks employees and enjoyed a preferential treatment.

3. The $10K and $35K checks were materially altered. They were originally only $109 and $75 respectively. While the $90K check was a demand note and Boncan requested that it not be presented to the drawee bank until a later date. The fact that Boncan did not want the check to be presented for collection was proof of the glaring infirmity of the instrument. Yet the bank took the check and paid the amount to Boncan.

4. Bank is not a holder in due course. The conditions set in Sec. 52 for it to be a holder in due course are not present.HELD:The petitioner asked the court to rule on two issues:

1. If there was forgery according to Sec. 23 which bars it from collecting from the Philippine Embassy

2. Do the payment of the checks without clearing them with the drawee bank constitute actual notice of defective title in the indorser or an assumption of risk by the petitioner as to defeat its claim?

The court ruled that Banco Atlantico paid the checks contrary to normal or ordinary banking practice. The large amounts and the fact that the drawee bank was a foreign bank should have been a red flag that required prior clearance. It is also apparent that Boncan altered the amounts of the check and that it was because of her special relations with the bank that the latter encashed the checks without clearing them first.

Therefore, the Philippine Embassy as drawer of the checks cannot be held liable for the amounts. The material alterations made by Boncan made the checks wholly inoperative. No right of payment thereof against any party thereto could have been acquired.

American Bank v. Macondray

4 Phil. 695

Sec. 124 and 125

Facts:

V.S. Wolff Drawer

Macondray & Co. - Indorser

- (magulo un facts sorry basta sure ako sa nakasulat sa taas)

$300.00

At sight pay to my order 300$, value received, charge to my account

V.S. Wolff

To F.H. Taylor

V.S. Wolff. The signature is ok. Payment guaranteed. Protest, demand, and notice of nonpayment waived. Macondray & Company.

This bill of exchange was sent to American Bank (plaintiff- BANK) but the company (F.H. Taylor which was supposed to pay the amount could not be found

BANK claims the right to recover from the Macondray & Co. (defendant-MACONDRAY), the amount of the bill of exchange, together with the expenses incurred by the protest

BANK claims that MACONDRAY guaranteed the bill of exchange V.S. Wolff. The signature is ok. Payment guaranteed. Protest, demand, and notice of nonpayment waived. Macondray & Company.

MACONDRAY claims, on the other hand, through its representative that he did not guarantee the payment of the bill of exchange; that he only certified that the signature, V.S. Wolff was genuine; that the statement which appears in the indorsement Payment guaranteed. Protest, demand, and notice of nonpayment waived. was not written on the indorsement at the time he signed the firm name of Macondray &Co.

ISSUE:

W/N MACONDRAY is liable upon said bill of exchange as an indorser

If indorsement was made by Macondray in the form alleged by the BANK, then MACONDRAY is clearly liable

RULING:

MACONDRAY is not liable

Payment guaranteed. Protest, demand, and notice of nonpayment waived. was added by some person after the signature of the defendant was affixed

The liability of an indorser of a bill of exchange after due protest and notice of nonpayment and dishonor, is the same as that of original obligors on such a contract, any material alteration in the terms of the contract by the holder of the same, without the consent of the obligor, will RELIEVE obligor from all liability There was a material alteration in this case and the original indorsement created no liability on the part of MACONDRAY

The orig indorsement was only for the purpose of assuring the BANK that the signature of VS Wolff was genuine (that it was in fact VS Wolff who signed the bill of exchange); it was an indorsement for the identification of the person only and not for the purpose of incurring liability

PNB v. CA

88 Phil. 178

Sec. 124 and 125

Facts:

DECS issued a check with serial no. 7-3666-223-3, dated Aug. 1981 in the amount of P97,650

It was payable to F. Abante marketing and drawn against PNB

Drawee DECS

Drawee Bank PNB

Payee F. Abante

- On Aug. 11, 1981, Abante, deposited the check in its savings account with Capitol bank

- Capitol, on the other hand, deposited the same in its account with PBCOM

- PBCOM, in turn, sent it to PNB for clearing

- PNB cleared the check as good; PBCOM then credited Capitols account with the amount of the check

- On Oct 19, 1981, PNB returned the check to PBCOM and debited its account for the reason that there was a material alteration in the check number

- PBCOM then debited Capitols account; however, Capitol could not debit Abantes account since the latter had already withdrawn the amount of the check as early as Oct 15 (4 days before)

- PNBS main contention is that there was a material alteration in the check (serial no.) and that the TCAA check (a medium of exchange of governments) through its serial number is determined to have been issued by a particular office of the gov.

Issue:

1) w/n the change of the serial no. of the check was a material alteration

2) w/n the certification issued by Batonghinog (cashier of DECS) saying the check was not issued by DECS should be given due course by the court

3) w/n the drawee bank may still recover the value of the check from the collecting bank if it failed to return the check within the 24-hour clearing period

Ruling:

1)NO. An alteration is said to be material if it alters the effect of the instrument or if it modifies the obligation of the parties.

serial number is not an essential requisite for negotiability

it did not change the relations of the parties

name of drawer and drawee was not altered

the contention that the serial no. determines the origin of the check is erroneous since the issuer of the check is clearly printed on its face MINISTRY OF EDUCATION AND CULTURE and below the name of the payee are rubber-stamped wordsMinistry of Educ and Culture

ownership of check is still clearly established

2) NO. Even if there was a claim by PNB that Batonghinog as cashier prepared a letter saying the check was altered and was not issued by DECS, no person appeared before the trial court to be cross-examined and to attest to the fact of preparing that certification

3) Since there was no material alteration in the check, PNB has no right to dishonor it and return it to PBCOM (no right to recover since the check was in fact a negotiable instrument without any material alteration)

MONTINOLA V. PNB

88 SCRA 179

Sec. 124 / 32 / 52-59 / 186

NATURE:

Collection suit instituted by Montinola against PNB and the Provincial Treasurer of Misamis Oriental

FACTS:

Ubaldo Laya is the Provincial Treasurer of Misamis Oriental and ex-officio agent of PNB

Manzano Ramos is an assistant agent who through the recommendation of Laya was inducted into the USAFFE as disbursing officer of an army division

As disbursing officer Ramos went to Lanao to procure a cash advance of P880K for USAFFE

The Treasurer of Lanao gave Ramos P300K in emergency notes (which were being used prior to the occupation of Japan) and a check for P500K

Ramos went to Misamis Oriental to encash the check. Laya did not have enough cash to cover the checks so he gave Ramos P400K in emergency notes and a check for P100K drawn on PNB

Ramos was not able to cash the check because he was imprisoned by the Japanese. He was in prison until 1943, after which, he was released and he resumed his status as a civilian.

Ramos allegedly indorsed the P100K check to Montinola in 1944. Montinola now seeks to enforce payment of the said check against PNB and the Provincial Treasurer of Misamis Oriental who issued the check supposedly as agent of PNB.

According to Montinola, Ramos indorsed the check to him because Ramos needed money to buy food and medicine. Montinola allegedly went to the president of PNB in Manila to ensure that the check was genuine and negotiable. Said president certified the genuineness and negotiability of the check. After the examination, Ramos and Montinola finally agreed to the sale of the check.

The indorsement of Ramos to Montinola now appear at the back of the check, the words pay to the order of rubber stamped in violet ink and placed one inch from the top of the check. The words are followed by Enrique Montinola typewritten. The edges of the check appear to have been burned. The signature M.V. Ramos in green ink can also be found.

Ramos on the other hand claims that he was only selling P30K of the check and for this reason he wrote the following at the back of the check:

Pay to the order of Enrique Montinola P30,000 only. The balance to be deposited in the PNB to the credit of M.V. Ramos. These words, now, can no longer be found at the back of the check.

ISSUE:

W/N Montinola can claim payment from PNB

Sub-issue (on material alteration): W/N PNB is also the drawer of the check

HELD:

From SC inquiries it was found that: The check was issued by Laya in his capacity as Provincial Treasurer of Misamis with PNB as drawee. Ramos only sold 30,000 of the check to Montinola. The wirting made by Ramos at the back of the check was an instruction to PNB to pay only P30,000 and to deposit the remaining in Ramos account. At the time of the transfer of the check from Ramos to Montinola the check which was payable on demand was long overdue (by 2 and years)

No. Aside from the reason of the material alterations made by Montinola on the check and the lack of authority of Ramos to negotiate or assign the check in his personal capacity the following arguments were made by the SC

The check was not legally negotiated within the meaning of the Negotiable Instruments Law.

Sec. 32 provides: the indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable (as in this case) does not operate as negotiation of the instrument

Montinola may therefore not be considered as an indorsee. At most he may be regarded as mere assignee of the P30K sold to him by M.V. Ramos. As assignee, he is subject to all defenses available to the drawer and against Ramos.

Montinola is also not a holder in due course because he became holder of the check long after it was overdue. In fact, Montinola is not even a holder because he is neither a payee or an indorsee but a mere assignee. He also did not take the check in good faith, since he still has not paid the full amount of consideration for the P30K value of the check.

Hence, Montinola cannot claim from PNB

Sub-issue: PNB is not the drawer of the check, the treasurer is not an agent of PNB. The words agent of were placed by Montinola after the check was issued. The check was issued by the Treasurer of Misamis in his capacity as a government official and nothing else. Hence the liability of PNB as drawee cannot be converted into that of a drawer.

INTERNATIONAL CORP BANK INC v CA

501 SCRA 20

Sec. 124 and 125

FACTS:

The Ministry of Education and Culture issued checks drawn against Philippine National Bank (hereinafter, PNB) which International Corporate Bank, Inc (hereinafter, International) accepted for deposit. After 24 hours from submission of the checks to PNB for clearing, International paid the value of the checks and allowed the withdrawals of the deposits. On Oct 14 1981, PNB returned all the checks to International without clearing them on the ground that they were materially altered. It appears that the serial numbers on the checks were altered. Thus, International instituted an action for collection against PNB to recover the value of the checks.

Trial Court: International is liable and cannot recover from PNB. PNB cannot be faulted for the delay in clearing the checks considering the ingenuity in which the alterations were affected. On the other hand, International, as collecting bank, should have inquired from PNB regarding the status of the checks, but this it failed to do.

CA: CA reversed, applying CB Circular 580 which mandated the 24-Hour Clearing Time. It held that checks which have been materially altered should be returned within the 24-hour clearing time to relieve the drawee bank of liability. It also said that even if the return of the checks in question is done within 24 hours after discovery of the alteration and not within the 24-hour clearing time, the drawee bank will still not be relieved of liability. Moreover, if it can be shown that the drawee bank had been patently negligent in the performance of its verification function, then such bank should not be relieved of liability. Thus it declared PNB liable for failure to recognize the within a reasonable period the altered checks and in not returning the checks within the period.

PNB filed for reconsideration and CA reversed itself holding International liable this time, affirming the Trial Courts decision that Internationals loss was caused by the lack of caution of its personnel.

Thus International appealed to the SC.

ISSUES AND HELD:

1) W/N the checks were materially altered----NO

The alterations in the checks were made on their serial numbers. In PNB v CA, the court held that the alteration on the serial number of a check in NOT a material alteration. A material alteration is an alteration changing the effect of the instrument; an unauthorized change that purports to modify in any respect the obligation of a party or an authorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. A material alteration is one which changes the items which are required to be stated under Sec 1 of NIL. An alteration of the serial number is not an alteration of any of the requisites under Sec 1. The serial number is not the sole indication of the checks origin.

2) W/N the 24-Hour Clearing period should be applied----NO

The Court did not deem it necessary to rule on the application of the CB Circular 580 on the 24-Hour Clearing Time because there were NO material alterations made on the checks. PNB therefore, had no right to dishonor the checks and return them to International. Thus, PNB is liable to International for the value of the checks.

METROPOLITAN BANK and TRUST COMPANY v CABILZO

510 SCRA 259

Sec. 124 and 125

FACTS:

Renato Cabilzo was one of Metrobanks clients who maintained a current account with them. On Nov 12, 1994 Cabilzo issued a Metrobank Check payable to CASH and postdated on Nov 24, 1994 in the amount of P1,000. The check was paid by Cabilzo to a certain Mr. Marquez, as his sales commission. The check was presented to Westmont Bank for payment. Westmont in turn indorsed the check to Metrobank for appropriate clearing. Metrobank cleared the check in accordance with the Phil Clearing House Corporation (PCHC) Rules.

On Nov 16, 1994 Cabilzos representative was asked by a Metrobank personnel if Cabilzo had issued a check amounting to P91,000. Cabilzos rep answered in the negative. Cabilzo then called Metrobank and said he did not issue such check and requested that said check be returned to him for verification. The said check with P91,000 was apparently the check issued to Marquez with the original amount of P1,000. Cabilzo demanded Metrobank to re-credit the amount of P91,000 to his account. After several demands, Metrobank still failed to re-credtit such amount. Thus the present case.

Metrobanks Defense: Upon receipt of said check through the PCHC, it examined the genuineness and authenticity of drawers signature and the technical entries and no alterations were noted. After verifying as well as the indorsement that stated, all prior indorsements and lack of indorsement guaranteed, Metrobank cleared the check.

It also claimed that as collecting bank and the last indorser, Westmont should be held liable because it assumed the liability of a general indorser. Also, it claimed that Cabilzo was partly liable for leaving spaces on the check which made the fraudulent insertion of the amount and figures possible. Cabilzos negligence was the proximate cause of the loss.

RTC: Metrobank is liable to Cabilzo because of its negligence in not detecting the alteration.

CA affirmed RTC decision.

ISSUES AND HELD:

W/N Metrobank as drawee bank should be held liable----YES

An alteration is said to be material if it changes the effect of the instrument. An unauthorized change in an 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 a party. A material alteration is one which changes the items which are required to be stated under Sec 1 of NIL.

The check was altered so that the amount was increased from P1,000 to P91,000 and the date was changed from Nov 24, 1994 to Nov 14, 1994. These alterations are therefore material.

Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express or implied acts. There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which could have otherwise prevented the loss. Cabilzo was never remiss in the preparation and issuance of the check. Cabilzo even placed asterisks before and after the amount in words and figures in order to forewarn the subsequent holders that nothing follows before and after the amount indicated. Therefore, he cannot be held liable

The doctrine of equitable estoppel cannot also apply against Cabilzo. This doctrine states that when one of the two innocent persons, each guiltless of an intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of injury. Negligence is never presumed.

Metrobank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The CA observed that the material alterations on the check were actually visible to the naked eye which Metrobank failed to detect:

a) The number 1 in the date is imposed with a white figure in the shape of a number 2

b) The 4 asterisks before the amount in words were noticeable erased.

c) The numeral 9 was superimposed over a whitish mark.

d) The word NINETY was typed differently and with lighter ink than the other words that followed.

The check was examined by the cash custodian whose functions do not include the examination of checks. The employee allowed by Metrobank to examine the check was not competent to handle such duty. This proves Metrobanks negligence.

Metobank cannot also rely on Westmonts indorsement of the check. Metrobank owes the highest degree of fidelity to its clients and should not therefore lightly rely on the judgment of other banks on occasions where its clients money is involved. Metrobank therefore, is held liable to Cabilzo.

Metrobank may still run after the author of the alteration.

And as it already did, Metrobank may still pursue its separate case against Westmont (collecting bank).

Bank of the Philippine Islands vs. Laguna Oil Co.

48 Phil. 5Sec. 24

Facts:

( Laguna Coconut Oil Company (LCOC), thru its president Baldomero Cosme, executed the following promissory note in favor of the Philippine Vegetable Oil Company (PVOC) for P50k.

One month after date we promise to pay the Philippine Vegetable Co. Inc, or orderthe sum of 50K; Value received. In case of non-payment at maturity, we are to pay interest (9%/annum), and P5k in full

( The Fidelity Surety Co. of the Philippine Islands duly represented by the vice President J. Elmer Delaney and its secretary Treasurer A.D. Tanner stated the ff at the bottom of the note

For Value received, we hereby obligate ourselves to hold the Laguna Coconut oil Co. harmless against loss for having discounted the foregoing note at the value stated therein.

Therefore binding itself to any holder of the note.

( On the following day, the PVOC indorsed the note in blank and delivered it to the plaintiff. Plaintiff then paid it, signing in the back of the Note: PHILIPPINE VEGETABLE OIL CO. INC, BY CHAS. D. AYTON, Treasurer.

( The Laguna Coconut Oil Company became Insolvent (had no property to make the payment) and failed to pay the note.

( Plaintiff: Notwithstanding demands made upon LCOC, and as well as Fidelity & Surety Co. of the Philippine Islands, for payment of the note with interest, none of them has paid any amount (whether principal or interest)

( Fidelity & Surety Co: admitted its corporate existence and the due execution of the note but denied all other allegations in the complaint.

LCOC: made no defense

( In the action brought by the Bank of the Philippine Islands upon the guarantee, the complaint contained to allegation that this guarantee did not express the true intent of the parties, BUT at the trial of the case, the plaintiff contended that the words Laguna Coconut Oil Company in said guarantee were erroneous and should be read as Bank of the Philippine Islands.

HELD:

( Reformation: The interpretation contended by the plaintiff amounted to reformation of the instrument and in the absence of the corresponding averment in the complaint, could not be considered by the court. Allegations must show that the instrument sought to be reformed fails to express the real agreement or transaction between the parties by reason of their mutual mistake, fraud, inequitable condition in one side and mistake on the other.

( It is true as asserted by the council for the appealees, that there are cases where the courts have proceeded as mere matter of construction of a contact to substitute the real name of a party for that of a party erroneously written, but in all these cases it will be found that the contracts themselves left no possible doubt as to who the real parties were and as to the real intent of the document. (best example : Richard vs. Woodward where Woodward executed a bond $10k to the sheriff (Richard)tho the name Minot Wheeler occurred nowhere else in the instrument, it was held that the bond should be construed as if the name Harvey Woodward had been originally written therein instead of Minot Wheeler.)

( The writing upon which the action is brought does not in terms show ant obligation in favor of the plaintiff and the action can only be maintained upon the theory that the writing does not express the true intent of the parties. We may surmise that the guarantee in question was intended for the benefit of the party who subsequently discounted the note, but we cannot be certain. The note may have been merely an accommodation note and the guarantee may have been intended for the protection of the maker in the event of the discounting of the note or its transfer to 3rd parties.

( Apealee contends that this hypothesis is negatived by the fact that the words value received appear in the note as quoted in the stipulation of facts. But that proves nothing. Unless otherwise stated in the instrument, a negotiable promissory note IMPLES prima facie valuable consideration moving to the maker, whether the words value received appeared in it or not. Nothing in the note that distinguishes it from an accommodation note. Remember: Contracts of guarantee and Surety ship are strictly construed in favor of the surety or guarantor.

Travel On Inc. vs. CA

210 SCRA 351Sec. 24

Facts:

( Travel-On is a travel agency selling airline tickets on commission basis for and on behalf of diff airline companies. PR, Arturo Miranda had a revolving credit line with petitioner, Travel-On (a travel agency). He procured the tickets on behalf of airline passengers and derived commissions there from.

( Travel-On fileled a suit to collect amount of 6 checks which was issued by Miranda worth P115k. Pet. Said that it sold and delivered various airline tickets to respondent totalling P200k+. To settle the amounts, he pain in cash and in kind and later on issued 6 post-dated checks, which were dishonored upon presentment to the drawee banks.

( Miranda said that he paid, and even overpaid his obligations and infact he is entitled to a refund. He argued that these checks were merely given for the purpose of accommodation only. He says these were given in order that the Gen. Manager Elita Montilla, manager of Travel-On, could show the companys Board of Directors that their accounts receivable are still good and that Montilla tried to encash the same but were dishonoured and returned to him.

( Travel-Ons witness Montinolla explained the accommodation exrended to Travel on by Miranda related to situations where one or more of its passengers needed money in Hongkong, and upon request of his friends in travel On, Miranda would contact his friends in HK to advance money to the passengers. The Passenger paid Travel-on upon his return to Manila and payment would be credited by Travel-on to respondents running account.

( Both the RTC and CA absolved him from payment. They considered the fact

that the financial statements adduced in evidence did not show that Miranda was indebted to the company.

Issue:

( Whether or not Miranda is liable for the check that he issued.

Held:

( The decision of the CA was reversed by the SC. They say that the reliance of the RTC and CA on the financial statements of the company was wrong. The statements reviewed by the lower courts were not updated to show the recent indebtedness of Miranda. SC says that the most telling piece of evidence are the checks themselves.

( Sec. 24 says that there is a prima facie presumption that a check was issued for valuable consideration and that the signatories thereto are liable for such. This provision puts the burden on the drawer to prove that the check was not issued for valuable consideration. The Court considers that Miranda was unable to rebut this legal presumption.

( Only clear and convincing evidence, not mere self-serving testimony of drawer, can rebut presumption. Travel on was entitled to the benefit of the statutory presumption that it was a holder in due course, that the checks were supported by valuable consideration. In this case, Miranda failed to prove that the check was not for valuable consideration. His defense that the checks were for the purpose of accommodation does not hold water because the check clearly treats Travel-On as a payee and not an accommodated party. The SC also took note of the fact that Miranda only issued the checks after a letter was sent to him, reminding him of his liabilities to the company. In fact, his contentions that these were given in order that the Gen. Manager Elita Montilla, manager of Travel-On, could show the companys Board of Directors that their accounts receivable are still good

was a claim that the checks were merely simulated and he did not intend to be bound by it. In addition the accommodation extended to Travel ons passengers are not the accommodation transactions recognized by NIL but rather a circumvention of then existing foreign exchange regulations.

pineda v. dela rama

121 scra 671

Sec. 24 Facts:

Pineda was involved in a case against the National Rice and Corn Administration (NARIC) for allegedly misappropriating 11,000 cavans of palay deposited in a ricemill located at Concepcion, Tarlac. He then hired Atty. Dela Rama to delay the filing of the action against him while he worked out an amicable settlement with NARIC. Pineda hired Dela Rama because the latter is a close friend of the NARIC administrator Jose Rodriguez having worked with him at the Philippine consulate at Hongkong.

Later on, Pineda signed a promissory note for P9,300.00 in favor of Dela Rama. This note is now subject of a collection claim by Dela Rama together with P5,000.00 as Attorneys fees.

Pinedas claim: He only signed the promissory note because Dela Rama told him that the amount was already advanced to grease the palms of the Chairman and General Manager of NARIC, but Pineda later found out that no such amount was forwarded to the NARIC authorities.

Dela Ramas claim: He loaned the amount in two installments in two occasions 5 days apart. First loan was 5k, 2nd loan was for 4.3k.

CA ruled for Dela Rama, relying on section24 of NIL:

Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

Issue:

W/N Dela Rama has a right to collect.

Ruling:

No. presumption that a negotiable instrument is issued for a valuable consideration is only prima facie, thus it can be rebutted by proof to the contrary.

Dela Ramas claim that the 9.3k was a loan by the second sentence of the promissory note that states: this represents the cash advances made by him in connection with my case for which he is my attorney in law

Note: Pinedas son also purchased an airconditioning unit valued at 1,250.00 and gave it to Dela Rama because according to Dela Rama, Rodriguez requested for such to be installed in his NARIC office, this together with 6 cavans of first class rice also intended for Rodriquez were never delivered to him and were kept by Dela Rama.

Grant of loan by a lawyer to a moneyed client without security and interest for the loan and whom he had known only for 3 months, not believed;case at bar; Pineda had just purchased a hacienda in Mindoro for P210,000, owned sugar and rice lands in Tarlac of around 800 hectares , and had P60,000 in deposits. It would be more logical to believe that he would not borrow 9.3k 5 days apart.

The Promissory note was VOID AB INITIO because the consideration to influence public officials is contrary to law and public policy.

CLARK V. SELINER

42 Phil. 384

Sec. 29 / 66Keyword: Accommodation maker

Facts:

Sellner together with Clarke (with an e!) and Maye signed a note in favor of Clark (without an e!), the note dated July 1, 1914 states:

Six months after date, for value received, we jointly and severally promise to pay to the order of R.N Clark at his office in the city of Manila. The sum of twelve thousand pesos, Philippine currency, with interest thereon in like currency from date until paid at the rate of ten percent per annum, payable quarterly.

If suit is necessary to collect this note, we hereby agree to pay as attorneys fees ten per centum of the amount found due.

(sgd) W.H. Clarke

John Maye.

By W.H. Clarke, his attorney.

Geo. C. Sellner.

Defendant claims the following:

1. He did not receive any part of the debt

2.the instrument was not presented to him for payment and

3. That he is only an accommodation party and should only be held liable if the note is negotiated.

Issue:

W/N Clark can collect payment from Sellner.

Ruling:

Yes.

1.As one of the signers of the note his liability is not dependent on whether or not he has received any part of the amount of the debt. In fact, he is expressly liable as one of the joint and several debtors on the noteand is liable under sec 60 of NIL

2.Presentment for payment is not necessary to charge the person primarily liable such as the defendant ( Sec 70 of NIL)

3.By putting his signature on the note, he lent his name, not to the creditor, but to those who signed with him placing himself with respect to the creditor in the same position and with the same liability as the said signers

a. with out receiving value by virtue of the therefore as used in sec29 of NIL 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.

b. He can also be regarded as a joint surety and as to the plaintiff he is the holder for value under sec29.

Doctrine: the mere fact that a joint and several note has been signed by one or various of the makers thereof for the accommodation by one or more of his comakers, does not render him or them an accommodation maker or makers with respect to the CREDITOR who, upon the receipt of the note, pays the full value thereof.

Note: mere delay in the part of the creditor, after the maturity of the note, in enforcing said note, does not affect the liability of the maker and the latter is not released even if the guaranty becomes worthless by the lapse of time.

Caneda, Jr. v. Court of Appeals 181 SCRA 762Sec. 29

Facts:

On November 8, 1977, Buenaventura Gueson executed a promissory note (PN) of Php 18,960 (payable every month Php790 for 24 months with 14% interest per annum) in favor of Gregorio Caneda, Jr. To secure the obligation, Gueson executed a chattel mortgage (CM) and with a Toyota Jiffy as collateral. The PN and CM were assigned by Caneda to Investors Finance Corporation (FNCB). Gueson defaulted and refused to pay despite repeated demands. FNCB filed for replevin and/or sum of money against Gueson and John Doe (who will turn out to be Caneda).

Undisputed Facts:

Gueson knew and consented to the PN and CM being assigned to FNCB.

When FNCB tried to collect from Gueson, Caneda affixed his signature on an undertaking acknowledging his debt.

In RTC, Gueson presented testimonies that he merely accommodated Caneda upon prodding of his townmates Spouses Rivera; that the jeep and registration papers were always in the possession of Caneda. Caneda failed to attend hearing. Caneda filed for postponement and was denied. RTC held that there was novation absolving Gueson when Caneda signed the acknowledgment of debt (a substitution of debtors).

Canedas appealed to the CA and it was dismissed.

Caneda elevated it to the SC saying he was not served a copy of the CA November 28, 1986 decision. Decision of CA was mailed to Canedas neighbor thus he never received it. The SC recognized this but did not remand case to RTC to be retried. Instead the found sufficient facts in the RTC and CA decisions to give final judgment.

IssueS: (1) Whether Gueson can be held liable considering he is only an accommodating party.

(2) Whether novation occurred, extinguishing the debt.

Held: Caneda is liable. (Dapat Gueson din as a surety)

(1) Sec 29- An accommodation party is a person who signed the instrument as maker, drawer, indorser, without receiving value therefore, and for the purpose of lending his name to some other person is liable on the instrument to a holder for value, notwithstanding the fact that such holder at the time of taking the instrument knew him to be only an accommodation party.

As between Gueson and Caneda, their private agreement is binding between them alone and not to FNCB. FNCB can go against Caneda as the principal debtor and Gueson as surety. If Gueson paid the obligation, he has the right to recover what he paid from Caneda. Here, the lower court erred in dismissing the claim against Gueson, but FNCB did not appeal it. FNCB can still collect the full amount from Caneda.

(2) There was no novation as it cannot be presumed. Canedas acknowledgment of debt did not novate the obligation and release Gueson by substituting the person of the debtor.

Town Saving & Loan Bank, Inc. v. CA

223 SCRA 459Sec. 29

Facts:

Spouses Hipolito contracted a loan from TSLB for Php 700k with 24% interest and issued a PN with maturity date in 3 years. They They defaulted in their payment. Hipolitos contend that they were not personally liable because the loan was for the account of Pilarita Reyes (sister of Miguel Hipolito). Spouses Hipolito only signed the note because they were persuaded by Joey Santos, president of TSLB. They said that Santos told them the demand letters were mere formality for Pilaritas obligation. Hipolitos contend they were merely guarantors.

RTC- Hipolitos liable as accommodation party.

CA- Reversed saying that Hipolitos accommodated TSLB. This is because TSLB could only loan a maximum of Php 700k pursuant to a Central Bank regulation while Pilarita needed to borrow Php 1.4M.

Issue: Whether Hipolitos are liable on the PB they executed.

Held: Yes, they are liable as an accommodation party.

There is no credibility that the bank would go out of its way to convince Hipolito to accommodate Pilarita. It was Pilarita who asked her brother to accommodate her so she could borrow Php 1.4M.

*The case of Maulini v. Serrano was used by CA to justify decision absolving Hipolitos. In that case, the one signing the PN was acting as an agent for the actual lender. The Hipolitos were agents of the debtor, Pilarita.

Maulini v. Serrano

28 Phil. 640Sec. 29

Facts:

Broker

Serrano was in the practice of being a broker between borrowers and lenders by acting as a mediary and negotiating between the parties. His practice was to collect a certain amount, sometimes in percentage of the transacted amount between lender and borrower, or as a percentage of the interest to be paid to the lender, with the lender taking 1 percent, and Serrano (the broker) taking percent. Serrano would deliver the money personally to the borrower, take the note in his own name, and immediately transfer it by indorsement to the lender. In this case, Maulini, a client, obtained a promissory note from Serrano in the amount of Php3000, originally payable to Serrano, with Padern, Moreno and Co.. Maulini did not want his name to appear on the books of the borrowing company as the lender of money, and thus requested Serrano to take the note in his own name, then, at once, transfer to Maulini title by indorsement. Serrano did so as a favor to Maulini.Maulini now goes to court on appeal regarding the collection of money in the promissory note.

Trial Court

Trial court held that 1) parol evidence was not admissible to alter, vary, or modify the terms of the contract of indorsement therefore, it refused to consider evidence showing that by verbal agreement the indorser was a mere vehicle for the transfer of title and thus without consideration and 2) it was immaterial whether there was consideration because the indorser was a mere accommodation partyISSUES:

W/N PN was indorsed without consideration

W/N Serrano was accommodation indorser

W/N Parol evidence should be considered

HELD:

1) Yes. There was never a moment when Serrano owned the note. It was Maulini, who provided for the money borrowed, which was the consideration of the instrument, who owned it. Serrano acted merely as an agent by which naked title was passed, his only payment would be for the transaction of the loan. He was paid nothing as to be an indorser, nor did Maulini lose or forego anything nor alter his position.

2) No. An accommodation note is one which the accommodation party has 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 reference to accommodation party in Nego.In. law refers to the maker, not the lender nor indorser. A favor was made by Serrano to Maulini, but this is not the same situation contemplated by the law.

3) Yes. The prohibition of accepting parol evidence in the civil code is to prevent alteration, change and modification of the terms of a written contract. In this case, the purpose of the evidence was to show that no contract of indorsement ever existed. The prohibition therefore does not apply in the case at hand. Parole evidence is deemed admissible, and since no counter evidence was presented, was considered true as to the merits of the case.

ACUNA VS. VELOSO AND XAVIER

50 Phil 241

Sec. 29

Facts: Xavier wanted to buy a land situated in Legarda. However, he lacks funds which would enable him to acquire the property. He then asked Veloso his principal (Xavier, being an agent of Veloso with regards the latters properties in Manila) to help him secure the funds. Veloso then approached Gonzales who was described as a man of means. Gonzales promised to advance the money. It turned out that Gonzales approached one of his clients named Rosario who then issued a check worth Php 25,000.00 This same check was delivered by Gonzales to Xavier. In turn, Xavier gave Gonzales a promissory note signed by him and Veloso saying that they are jointly and severally liable to pay the payee. Xavier turned over the check to Ramon Sotelo, the vendor of the Legarda property.

It turned out that the Legarda property was already mortgaged to Shanghai Life Insurance Company. A foreclosure proceeding took place. But while waiting for the results of the proceeding, the note became due. It turned out that Gonzales transferred the note to a certain Mariano Acuna who filed an action in court to recover the Php 25,000 plus the interest.

The trial court held that Veloso is an accommodation maker of the note and ordered that Veloso be subrogated to the rights of the plaintiff Acuna in a mortgage given by Xavier to secure the debt. The defendants cite the case of Rylee vs. Wilkinson in their contention that where an accommodation paper is not negotiated after maturity, the accommodation party cannot be held liable thereon.

Issue: W/N Veloso should still be held liable considering that the promissory note was transferred to Acuna only two years after the note became due.

Decision: Yes. Rylee vs. Wilkinson cannot be applied in the case at bar for in said case, the accommodation maker draws a note payable to the accommodated payee and the payee first negotiates the note after the date of maturity. In the case at bar, the accommodating party and the accommodated party unite in making a joint and several note to a person who advanced such at the time of the its creation. It cannot be said that the note is lacking of consideration just because Veloso received no amount whatsoever. Value was given for the note, and this is enough. In equity, Veloso is entitled to all rights of a surety while Xavier is the real debtor. But in the eyes of the creditor, both of them are mere joint and several makers.

Note: The fact is, Acuna became a holder only two years after the note became due. we are to follow section 52, he will not be considered as holder in due course. Thus, Veloso can raise this defense. The decision is questionable.PNB v. Maza and Macenas48 Phil 207

Sec. 29Nature: Collection suit of PNB against Maza and MacenasFacts:

Maza and Macenas executed 5 promissory notes in favor of PNB, with 2 due 3 months after date and 3 due 4 months after date. The notes were not paid at maturity. PNB is now suing for collection of the amounts due with interest totaling to P65K.PNB brought the case to CFI-Iloilo. The court ruled in favor of PNB despite the following arguments and special defense that the defendants interposed:1. The promissory notes were given to them in blank by Enrique Echaus, who asked them to sign so that he (Echaus) could negotiate with PNB

2. They did not negotiate with PNB or receive value for the notes or deliver the notes as payment for a prior debt

3. Echaus is the real party in interest and should therefore be included as party defendant and should be the one held liable.

Held:

On appeal Maza and Macenas assigned 4 errors. The first is on the refusal of the lower court to include Echaus as party-defendant. The SC said that Echaus is not an indispensable party. The 3 errors go to the merits and rest on the same foundation as their special defense. Maza and Macenas admit to the genuineness and due execution of the notes and that there was no mistake or alteration in the amounts on the notes.

Hence, whether they are principals and Echaus their agent or they are makers which is exactly what they appear to be, both must keep their engagement and pay as promised. They are primarily and unconditionally liable.

Also even if they claim that they are just accommodation parties, lending their names to some other person, they are still liable according to terms of the notes as if they were really financially interested in the transaction. And, although they never received the value of the notes, to fasten liability of an accommodation party, it is not necessary that any consideration should move to him. The consideration of the accommodation party is the principal consideration of the person taking the note and the person accommodated.

Obiter: An accommodation party that makes payment to the holder has the right to sue and ask reimbursement from the accommodated party. Their relationship is that of a principal and a surety, the accommodation party being the surety.

Prudencio vs. Court of Appeals

143 SCRA 7

Sec. 29 / 66Facts:

Appellants mortgaged their property (a parcel of land in Sampaloc, Manila) to PNB to guarantee a loan of P1,000.00 extended to one Domingo Prudencio.

Sometime in 1955, the Concepcion & Tamayo Construction Co. (the company) had a pending contract with the Bureau of Public Works (the bureau) for the construction of the municipal building in Palawan, in the amount of P 36,800.00. As said company needed funds for said construction, Jose Torribio ,Appellants relative and Atty-in-fact of the Company ask the appellants to mortgage their property to secure the loan of 10,000 which the Company was negotiating with PNB.

After some persuasion appellants signed the Amendment of real Estate Mortgage. The promissory note covering the loan of 10,000 dated Dec 29, 1955 to mature on April 27 1956 was signed by Toribio and the appellants. Toribio also executed the Deed of Assignment assigning all payments to be made by the Bureau to the Company on account for the contract of construction in favor of PNB. The Bureaus last request for P5,000 was denied by PNB for the reason that since the loan was already overdue as of Apr 28 1956, the remaining balance of the contract should be applied to the loan.

As a consequence, the Company abandoned the work and the Bureau rescinded the construction contract. . Petitioners contend that as accommodation makers, their liability is only that of mere sureties instead of solidary co-debtors such that a material alteration in the principal contract, effected by the creditor w/o knowledge and consent of sureties, completely discharges the sureties from liability on the contract of suretyship. They state that when respondent PNB did not apply the initial and subsequent payments to the petitioners debt as provided for in the deed of assignment, they were released from their obligation as sureties and the REM executed by them should be cancelled.

Issue:

1) Petitioners as accommodation makers are discharged from liability

2) W/N PNB can be considered a holder for value under Sec29 of the NIL (barring the petitioners from setting up the defense of what consideration or some other personal defenses which may be set up against a party who is not a holder in due course)

Held:

xxxin lending his name to the accommodated party, the accommodation party is in effect a surety.xxxhowever, unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but also unconditional to a holder for value such thateven if the accommodated party receives an extension of the period of payment w/o consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him bec as far as a holder for value is concerned, he is a solidary co-debtor.

A holder for value under Sec29 of the NIL is one who must meet all the requirements of a holder in due course under Sec52 of the same law except notice of want of consideration.

Gen.Rule: a payee may be regarded as a holder in due course but such rule cannot apply w/ respect to the respondent PNB. PNB cannot be regarded as having acted in GoodFaith w/c is one of the requisites of a holder in due course under Sec52 of the NIL. The PNB as privy to the PN knew that the promissory note w/c it took from the accommodation makers was signed by the latter bec of full reliance on the Deed of Assignment, w/c PNB had no intention to comply with.

Stelco Marketing Corp vs CA

210 SCRA 51

Sec. 29 / 52-59Facts:

Stelco sold to RYL Construction quantities of steel bars worth P126,859. Corresponding invoices issued by Stleco stipulated that RYL would pay COD but no payments were made despite demands.

RYL gave to Armstrong Industries(sister corp and manufacturing arm of STELCO), a check drawn against Metrobank amounting to P126,129. The check was a company check of Steelweld corp. of the Phil.,signed by its President, Peter Liamson, and its VPres., Artemio Torres.The check was issued by Limson at Romeo Lims request (Pres. Of RYL). Limson agreed to give Lim a check only by way of accommodation (only as guaranty but not to pay for anything) when the former asked for financial assistance. The check was given by RYLim to Armstrong Industries, when the check was deposited, it was dishonored bec. drawn against insufficiency of funds. The check bore 2 indorsements, that of the RYL and Armstrong.

On complaint of Armstrong due to the dishonored check, Limson and Torres were charged in the RTC of Manila for violating BP22 but were acquitted on the ground that the check in question was not issued by the drawer to apply on account for value, it being merely for accommodation purposes. 4 years after issuance of check, STELCO filed a complaint for recovery against RYL and steelweld but RYL cannot be found. Steelweld contends that it was a complete stranger to the contract and that the check was only given as collateral.

Issue:

1) W/N Stelco was a holder in due course such that it can recover from RYL and Steelweld

Held:

The record does not show any intervention b/w Steelweld and Stelco, or b/w either of them and Armstrong, anytime before the dishonor of the check, neither it shows that after the check had been deposited and dishonored, Stelco came into possession of it several years after the check is dishonored.Possession of a negotiable instrument after presentment and dishonor is utterly consequential; it does not make the possessor a holder for value within the meaning of the law.It is clear from the circumstances that Stelco cannot be deemed a holder of the check for value. It does not meet the two essential requisites prescribed by the statute. It did not become the holder of it before it was overdue, and w/o notice that it had been previously dishonored, and it did not take the check in good faith for value. ang tiong v. ting

22 scra 713

Sec. 29

Nature:

Collection for a sum of money

facts:

Lorenzo Ting issued a PBCOM check for P4,000 payable to cash or bearer. The check later on found its way into the hands of Ang Tiong with the signature of Felipe Ang on the back (indorsement in blank). Ang Tiong presented the check for payment to the drawee bank. PBCOM dishonored the check. Ang Tiong made written demands on Ting and Ang, but the two did not pay the amount of the check. He then filed a collection suit against the two.

CIF ruled in favor of Ang Tiong. Ang elevated the case to the CA which forwarded it to the SC since the issues are questions of law

issues:

1) W/N Art. 2071 which deals with the right of a guarantor to collect from the principal debtor is applicable to the case

2) W/N Felipe Ang is a general indorser

3) W/N Felipe Ang can obtain release from the suretyship or obtain a security to protect himself against any proccedings on the part of the creditor and against the danger of insolvency of the principal debtor because he is jointly and severally liable on the instrument

held:

The instrument is genuine and duly executed, hence Ang Tiong is a holder for value.

1) The bank check is a negotiable instrument, hence Art. 2071 of the Civil Code is not applicable.

2) Felipe Ang is a general indorser according to Sec. 63 (He who signs the instrument not as a maker, drawer or acceptor is a general indorser unless he clearly indicates that he is to be bound in another capacity) of the Negotiable Instruments Law. As general indorser he warrants to all subsequent holders in due course:

a) the genuiness of the instrument

b) that he has good title to it

c) that all parties to it have capacity to contract and

d) the instrument is at the time of his indorsement valid and subsisting.

As general indorser he also engages that the instrument on due presentment will be accepted and paid and if dishonored he shall pay the amount to the holder

3) Even on the assumption that Felipe Ang is only an accommodation party, he is still liable on the instrument to a holder for value, notwithstanding that such holder at the time of taking the instrument knew him to be only an accommodation party

4) That appellant can obtain a security from the maker to protect himself against insolvency of the latter cannot affect his liability to Ang Tiong as accommodation party. The remedy of obtaining a security is between Felipe Ang and Lorenzo Ting only and is immaterial to the claim of Ang Tiong. The liability of Felipe Ang is primary and unconditional

sadaya v. sevilla

19 scra 924

Sec. 29

facts:

Sadaya, Sevilla and Varona executed jointly and severally a promissory note in favor of BPI for P15K. Only Varona received the proceeds of the note with Sadaya and Sevilla signing the note as co-makers only as a favor to Varona. Payments were made on the note but a balance of P4,850 remained. The bank collected from Sadaya. Varona failed to reimburse Sadaya despite the demands of the latter. Sevilla on the other hand died. Sadaya then filed a creditors claim on the estate of Sevilla which was opposed by the estate administrator on the ground that Sevilla did not receive any amount as consideration for the promissory note and that Sevilla signed only as a surety.

The trial court issued judgment in favor of Sadaya while the CA reversed the judgment.

held:

Sevilla and Sadaya were joint and several accommodation parties of the P15K note. Their individual obligation is no different to the obligation of Varona notwithstanding that they did not receive the proceeds of the loan. They executed the note for the purpose of lending their names to Varona and the bank can claim against any one of them as it did against Sadaya.

Sadaya can seek for reimbursement from Varona of what he paid out. There is an implied contract of indemnity between the two, Varona is bound by the obligation to reimburse Sadaya.

The relationship of the three signatories to the bank is that of joint and several obligors. But the obligation of Varona and Sevilla to Sadaya (who paid the balance) cannot be said to be joint and several. If the payment was made by Varona, he cannot seek reimbursement from Sevilla and Sadaya who are merely accommodation parties.

An accommodation party on the other hand who made payment has the right to contribution from his co-accomodation maker, in the absence of stipulation to the contrary. This rights comes from the implied promise between the accommodation makers to share equally the burdens that they might encounter in placing their signatures on the promissory note. They placed themselves as joint guarantors of the former.

The requisites before an accommodation party can seek reimbursement are governed by Art. 2073 of the Civil Code (the negotiable instruments law has no specific provision that defines the rights of one accommodation party to seek reimbursement from another).

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 guarantors should be insolvent, his share shall be borne by the others, including the payer, in the same proportion.

The provisions of this article shall not be applicable, unless the payment has been made by virtue of a judicial demand or unless the principal debtor is insolvent.

Hence:

1) A joint and several accommodation maker may demand from the principal debtor reimbursement for the amount he paid to the payee

2) A joint and several accommodation maker may demand reimbursement from his co-accomodation maker without first directing his action to the principal debtor provided that he made payment by virtue of a judicial demand or the principal debtor is insolvent

In the case at bar, Sadayas payment to BPI was voluntary and not made because of a judicial demand. There is also no cogent proof that Varona is insolvent. Hence he cannot demand reimbursement from Sevillas estate. Ca judgment affirmed

Agro Conglomerates, Inc. V. CA.

348 scra 450

Sec. 29

Facts:

Petitioner Agro Conglomerates sold 2 parcels of land to Wonderland Food Industries, inc. In their MOA the purchase price was P5,000,000.00 (5M) subject to payment in the following manner: 1M in cash upon signing of the agreement. 2M worth of common shares of stock of Wonderland and the balance of 2m in four equal instalments ( 1st instalment 180 days after the signing of the agreement, subsequent instalments after every 6 months. With an interest rate of 18%/ annum)

Subsequently, the vendor, vendee and Regent Savings & Loan Bank executed an addendum to the MOA concerning the initial payment of 1,000,000.00 and P360,000 (18% interest) wherein instead of paying P1,360,000 in cash, the Vendor will be given a loan from Summa Savings and Loan Association. In addition to this the vendee undertakes to pay the full amount to the Financier.

Consequently, Petitioner Mario Soriano signed as the maker of several promissory notes, payable to respondent bank. The bank eventually filed three separate complaints of Sums of money.

The petitioners argue that according to the promissory note, Wonderland should be liable for the payment thereof.

Issue:

W/N the addendum constitutes a novation of the contract by substitution of debtor which exempts the petitioners from any liability over the promissory notes.

Held:

No. By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as maker and accommodation party for the benefit of Wonderland.

Requirements of novation:

1. Previous valid obligation

2. Agreement of the parties to a new contract

3. Extinguishment of the old contract

4. Validity of the new contractThere was no novation by substitution of debtor because there was no prior obligation which was substituted by a new contract. It will be noted that the promissory notes, which bound the petitioners to pay, were executed after the addendum.

Crisologo-Jose V. CA.

177 scra 594

Sec. 29

Facts:

Ricardo Santos Jr the Vp of Mover Enterprises while Atty. Benares was the President. Atty. Benares, in accommodation of his clients, the spouses Ong, issued a check drawn against Traders Royal Bank. The check should have been signed by the treasurer, but in his absence, Benares asked Santos to sign the instrument.

The check (45,000) was issued to Ernestina Crisologo- Jose in consideration of the waiver or quitclaim by her over a certain property which the GSIS agreed to sell to the spouses Ong .

The check was dishonoured for insufficiency of funds.

Petitioner alleges that the accommodation party is Movers enterprise and not the private respondent who merely signed the check in question in a representative capacity.

ISSUE:

1) Whether or not Mover Enterprises may be held liable on the accommodation instrument.

Held:

No. The provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be the only accommodation party, DOES NOT INCLUDE OR APPLY TO CORPORATIONS WHICH ARE ACCOMODATION PARTIES. This is because the issue or indorsement of negotiable paper by the corporation without consideration and for the accommodation of another is ultra vires. Except when the officer is specifically authorized to do so. Since such accommodation paper cannot thus be enforced against the corporation, the inescapable conclusion is that the signatories thereof shall be personally liable.

Caltex v. CA

212 scra 449

Sec. 30

Facts:

Angel dela Cruz deposited Php 1.12M with Security Bank and Trust Company (SBTC), Sucat Branch. For this he was issued 280 Certificate of Time Deposit (CTD).

Dela Cruz delivered these CTDS to Caltex for the purchase of fuel.

Dela Cruz gave SBTC an affidavit of loss for the CTDS. He was issued new ones.

Caltex presented the lost CTDs to SBTC for payment alleging the CTDs were securities for purchases made with Caltex.

SBTC refused to pay when Caltex did not furnish documents evidencing guarantee agreement with dela Cruz.

Caltex filed complaint for collection

CA ruled CTDs not NI.

Issue:

(1) Whether CTDs were negotiable instruments

(2) Whether CTDs were validly negotiated and W/N Caltex can recover from Security Bank. (this is the important part)

Held:

(1) Yes. They were negotiable to bearer because it was payable to depositor which courts interpreted to mean bearer.

(2) No. Being a bearer instrument, a valid negotiation requires both delivery and indorsement. The CTDs were only delivered as security and not payment. Caltex verified this in a letter made by its Credit Manager. Hence it is estopped from claiming otherwise.

Sec 30 of NIL an instrument is negotiated when it is transferred from one person to another in such as manner as to constitute the transferee the holder thereof. In this case, there was no negotiation to transfer legal title of the CTDs in favor of Caltex even though there was delivery. Delivery without indorsement means there was no valid negotiation.

The CTDs were not for payment as evidenced by the inability of Caltex to produce a Bill of Particulars which would show how the CTDs would be applied to the indebtedness of dela Cruz. They also could not produce receipts evidencing payment made through the CTDs. Hence, the possession of Caltex of the CTDs is in effect possession of a security as in the case of a pledge.

Absent indorsement or a public document proving a contract of pledge or guarantee Caltex has no right over the CTDs. Mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon the respondent bank.

When a bearer instrument is not delivered for purposes of negotiation but physically delivered merely as security for another obligation, there is no negotiation in the sense of transfer of legal title to the instrument and would constitute the subsequent holder merely as a holder for value and not a holder in due course. Accordingly, negotiation for such purpose cannot be effected by mere delivery of the instrument, since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually proved.

The assignment of the CTDs by Angel Dela Cruz to the bank, on the other hand, was evidenced by a public instrument and is therefore valid.

manuel Lim v. CA

251 SCRA 408

Sec. 30

Facts:

Manuel and Rosita Lim charged with Estafa and violating BP 22 for issuing 7 checks that bounced.

Lims were president and treasurer of Rigi Bilt Industries Inc.

They purchased several construction materials from Linton, an old business partner. (steel plates, purlins)

Lims allege that they told bank to stop payment because the materials were not in accordance with purchase orders.

Checks were issued and delivered at Navotas, dishonored in Kalookan.

Linton sent a collector who received the checks in Kalookan.

RTC found them guilty of both estafa and BP 22

CA acquitted them of estafa because the checks were not made in payment of an obligation contracted at the time of their issuance, but affirmed conviction for BP 22

Issues:

(1) Whether RTC of Malabon acquired jurisdiction as Lim contends the elements of the crime all happened in Kalookan. (recall crimpro venue and jurisdiction)

(2) Whether delivery to collector constituted issuance and delivery

Held:

(1) A violation of BP 22 is a transitory crime and may be convicted anywhere the offense was in part committed. Information alleged that crime was committed in municipality of Navotas and is sufficient to confer jurisdiction to RTC of Malabon.

(2) The receipt of the checks by the collector of Linton was not the issuance and delivery to the payee in contemplation of the law. Collector was not the person who could take the checks as a holder (as a payee or indorsee with the intent to transfer title thereto)

BP 22 is a transitory/continuing crime and may be validly tried in a any municipality or territory where the offense was in part committed. The checks were issued and delivered in Navotas and not in Kalookan as what is being claimed by petitioners. Although the checks were received by Lintons collector in Kalookan, there was no proper issue or delivery to Linton, since the collector cannot be considered as a holder of the said instrument. It was only when Linton received the check in its office in Navotas was there actual issue and delivery. The checks were then dishonored in Kalookan.

Knowledge on the part of the maker or drawer of the check of the insufficiency of his funds is by itself a continuing enventuality, whether the accused be within one territory or another. Consequently, venue or jurisdiction lies either in the RTC of Kalookan or Malabon. Venue or jurisdiction is determined by the information and the information alleged that the offenses were committed in the municipality of Navotas vesting jurisdiction to the RTC of Malabon.

CA ruling affirmed. Lim convicted of violation of BP 22 because they were not able to overcome the prima facie presumption (drawing and issuance of check that is refused for insufficient funds). They also did not make arrangements to pay in full within 5 days from notice that checks were not paid.

Issue the first delivery of the instrument complete in form to a person who takes it as a holder

Holder the payee or indorsee of a bill or note who is in possession of it or the bearer therefor. Collector or messenger could not take checks as holder (payee or indorser). He is also not an agent of Linton with respect to the checks because he is a mere employee.

Delivery final act essential to its consummation as an obligation. It must be made to a person who takes it as a holder or an agent of the holder. It signifies transfer of possession whether actual or constructive, from one person to another with intent to transfer title thereto

METROPOL (BACOLOD) FINANCING & INVESTMENT CORP. v. SAMBOK MOTORS CO.

120 SCRA 864

Sec. 38 / 65FACTS:

Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., in the amount of P15,939 payable in 12 equal monthly installments.

On the same day Sambok Motors Company (Sambok), sister company of Ng Sambok Sons and under the same management, negotiated and indorsed the note in favor of Metropol with the following indorsement:

Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor; Protest: and Presentment are hereby waived.

SAMBOK MOTORS CO. (BACOLOD)

By:

RODOLFO G. NONILLO

Asst. General Manager

Dr. Villaruel defaulted in the payment of his installments, so Metropol presented the PN for payment to the maker (Dr. Villaruel). Dr. Villaruel failed to pay the PN as demanded, hence Metropol notified Sambok as indorsee of the fact that the same has been dishonored and demanded payment.

Sambok likewise failed to pay, hence this collection case. Sambok contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been declared insolvent.

During the pendency of the case, Dr. Villaruel died and the case against him was dismissed. Sambok was held liable by trial court.

Samboks contentions: that by adding the words with recourse in the indorsement, it becomes a qualified indorser; that being a qualified indorser, it does not warrant that if said note is dishonored by the maker on the presentment, it will pay the amount to the holder; that it only warrants the following pursuant to Sec 65 of NIL: a) that the instrument is genuine and in all respects what it purports to be; b) that he has good title to it; c) that all prior parties had capacity to contract; d) that he has knowledge of any fact which would impair the validity of the instrument or render it valueless.

ISSUE: Whether Sambok is a general indorser making it liable ---- YES!

A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorsers signature the words without recourse or any words of similar import. Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Sec 65 of NIL. Sambok indorsed the note with recourse and even waived the notice of demand, dishonor, protest and presentment.

Recourse means resort to a person who is secondarily liable after the default of the person who is primarily liable. Sambok by indorsing the note with recourse does not make itself a qualified indorser but a general indorser who is secondarily liable because by such indorsersement, it agreed that if Dr. Villaruel fails to pay the note, Metropol can go after Sambok. The note was indorsed without qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. Samboks intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand, dishonor, protest and presentment were all waived.

Moreover, after an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and becomes a principal debtor. His liability becomes the same as that of the original obligor. The holder need not even proceed against the maker before suing the indorser.

BPI v CA, et al.

GR No. 136202

Sec. 49

FACTS:

AA Salazar and Engineering Services filed an action for a sum of money with damages against BPI.

Private respondent Salazar prayed for the recovery of P267,707.70 debited by BPI from her account.

BPI alleged that Templonuevo demanded from the former payment of the amount P267,692.50 representing the aggregate value of 3 checks which were allegedly payable to him but which were deposited with BPI to Salazars account without his knowledge and corresponding endorsement.

Accepting Templonuevos claim as a valid one, BPI froze the account of AA Salazar instead of Salazars personal account where the checks were deposited since this was already closed by Salazar or had insufficient balance.

Salazar was advised to settle the matter with Templonuevo but they did not arrive at a settlement.

BPI decided to debit the amount of P267,707.70 from the AA Salazar account since Salazar was not entitled to the funds represented by the checks.

The sum of P267,692.50 was paid to Templonuevo by means of a cashiers check.

RTC ruled in favor of private respondent Salazar; CA affirmed.

ISSUE:

Does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally such depositors account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed?

HELD:

YES, petitioner had the right to debit Salazars account for the value of the checks it previously credited in her favor.

It is of no moment that the account debited by the petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar.

The transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among other prior parties.

The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability.

Something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any facts from which the authority to receive payment may be inferred.

It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. It is but fair to the maker and prior holders to require possessors to prove without aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder.

Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstance despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same.

Petitioners liability is that of a general indorser. His liability to the designated payee cannot be denied.

CHAN WAN v. TAN KIM and CHEN SO

Sec. 52-59

FACTS:

This is a suit to collect 11 checks totaling P4,290.

Checks were payable to cash or bearer and drawn by Tan Kim upon Equitable Bank.

Checks were presented for payment by Chan Wan to Equitable but they were all dishonored and returned to him due to insufficient funds and/or causes attributable to the drawer.

Tan Kim claims that the checks had been issued to two persons named Pinong and Muy for some shoes they promised to make. Checks were intended as mere receipts.

Lower court declined to order payment to Chan Wan.

ISSUE:

W/N Chan Wan was a holder in due course

HELD:

NO, Chan Wan was not a holder in due course.

Eight of the checks have been crossed specially to China Banking Corporation and should have been presented for payment by China Bank and not by Chan Wan.

Circumstances would seem to show deposit of the checks with China Banking Corporation and subsequent presentation by the latter through the clearing office; but as drawee had no funds, they were unpaid and returned, some of them stamped account closed.

There was no indication of how plaintiff got hold of the checks. Most probably, as the trial court surmised, he got them after they had been returned because he presented them in court with such account closed stamps without bothering to explain.

Lower court rightly held Chan Wan not to be a holder in due course since he knew, upon taking the checks, that they had already been dishonored.

It does not follow that simply because Chan Wan was not a holder in due course that he could not recover the checks.

NIL does not provide that a holder who is not a holder in due course may not recover on the instrument.

The only disadvantage of a holder who is not a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.

If it were true that checks had been issued in payment for shoes that were never made and delivered, Tan Kim would have a good defense as against a holder who is not a holder in due course.

Bataan Cigar and Cigarette Factory Inc. vs. Court of Appeals

230 SCRA 642

Sec. 52 to 59 / 185

FACTS:

Bataan Cigar and Cigarette Factory Inc. (BCCFI) engaged one of its suppliers, George King, to deliver 2k bales of tobacco leaf. In consideration thereof, BCCFI issued crossed checks that post dated in the total amount of P820k.

Relying on the suppliers representation that he would complete delivery within 3months, the petitioner agreed to purchase additional 2,500 bales of tobacco leaves, despite the suppliers failure to deliver in accordance with their earlier agreement. Petitioner, once again issued postdated crossed checks in the total amount of P1,100,000.00 (payable Sept.)

At the same time, George King was also dealing with SIHI (private resp.). He sold to SIHI at a discount the postdated check bearing the amount of P164k drawn by pet. In favor of George King. Later on,