3. Sec.
1 of NIL The sales invoice was filed with LTO which issued a
Spouses Pedro and Florencia Violago v BA Finance
Corporation and Avelino Violago
G. R. no. 158262
FACTS
This is a petition for review on certiorari of CA’s
decision. The RTC rendered a decision finding for BA
but against petitioners. The RTC, however, declared
that they are entitled to be indemnified by Avelino.
Petitioners pray for the reversal of the appellate
court’s ruling which held them liable to respondent
BA under a promissory note and a chattel mortgage.
Petitioners likewise pray that respondent Avelino be
adjudged directly liable to BA.
Avelino, president of Violago Motor Sales
Corporation (VMSC), offered to sell a car to his
cousin, Pedro, and the latter’s wife, Florencia.
Petitioners were told that they would just have to
pay a down payment while the balance would be
financed by BA. Petitioners would pay the monthly
installments to BA while Avelino would take care of
the documentation and approval of financing the
car. Under these terms, petitioners agreed to
purchase a car from VMSC.
Petitioners and Avelino signed a promissory note on
August 4, 1983 under which they bound themselves
to pay jointly and severally to the order of VMSC the
amount of 209,601php in 36 monthly installments,
the first installment to be due and payable on
September 16, 1983. VMSC issued a sales invoice in
favor of petitioners. In turn, petitioners executed a
chattel mortgage over the car in favor of VMSC as
security for the amount of 209,601php. VMSC,
through Avelino, endorsed the promissory note to
BA without recourse. After receiving the amount of
209,601php, VMSC executed a deed of assignment
of rights and interests under the promissory note
and chattel mortgage in favor of BA. Petitioners
remitted 60,500php to VMSC through Avelino.
indorsement by VMSC to BA Finance appears
certificate of registration in the name of Pedro.
Petitioners were unaware that the same car had
already been sold in 1982 to one Esmeraldo Violago,
Avelino’s cousin. The car was registered in
Esmeraldo’s name. VMSC failed to deliver the car so
Pedro did not pay any monthly amortization to BA.
BA filed a complaint for replevin with damages
against petitioners with the RTC. The RTC rendered a
decision in favor of BA. A writ of execution was
thereafter issued.
In the meantime, Esmeraldo conveyed the car to one
Jose Olvido who was then issued a certificate of
registration by the LTO. Jose executed a chattel
mortgage over the same car in favor of one
Generoso Lopez as security for a loan covered by a
promissory note in the amount of 260,664php. This
promissory nite was later endorsed to BA, Cebu
branch.
ISSUE
Whether the promissory note is negotiable.
HELD
Yes.
In addressing the issue of whether BA is a holder in
due course of the PN, it must be determined first
whether the note is a negotiable instrument, hence,
covered by the NIL. Petitioners claim that Article
1318 of the Civil Code shall apply since their consent
was vitiated by fraud, and, thus, the PN does not
carry any legal effect despite its negotiation.
The PN is clearly negotiable. CA was correct in
finding all the requisites of a negotiable instrument
present. It is in writing; signed by the Violago
spouses; has an unconditional promise to pay a
certain amount, i.e., 209,601php, on specific dates in
the future which could be determined from the
terms of the note; made payable to the order of
VMSC; and names the drawees with certainty. The
likewise to be valid and regular.
(The Court also held BA Finance as a holder in due
course, hence, petitioners cannot raise the defense
of non-delivery of the object and nullity of the sale
against the corporation.)
Wherefore, CA’s decision and resolution are set
aside insofar as they dismissed petitioners’
complaint against respondent Avelino. RTC’s
decision is reinstated and affirmed ordering
petitioners to deliver to BA the subject car or if such
delivery cannot be made, to pay jointly and
severally, respondent BA Finance.
4. E.M. BACHRACH v VICENTE GOLINGCO
G.R. No. 13660, November 13, 1918
FACTS:
Bachrach sold to defendant Golingco an
Automobile Truck, a promissory note was executed
at the time of the sale which represent the purchase
price of the truck. Bachrach took a chattel mortgage
on the truck.
It is provided in the note that in the event
that it become necessary to employ counsel to
enforce the collection the maker of the note is to
pay for the additional 25% attorney’s fee. The note
matured and the chattel mortgage was foreclosed,
at the foreclosure, Bachrach himself became the
purchaser for the sum of P 539 which was credited
to Golingco’s indebtedness.
Bachrach filed a suit for the recovery of a
sum of money which is the balance due as evidence
by the promissory note.
ISSUE:
Whether or not the agreement for 25 per
cent as an attorney's fee for collection is valid.
RULING:
Yes. The legality of such stipulation is
expressly recognized by the Negotiable Instruments
Law Act 2031. It may lawfully be stipulated in favor
of the creditor, whether the obligation be evidenced
by promissory note or otherwise, that in the event
that it becomes necessary, by reason of the
delinquency of the debtor, to employ counsel to
enforce payment of the obligation, a reasonable
attorney's fee shall be paid by the debtor, in addition
to the amount due for principal and interest.
The stipulation is not void as usurious, even
when added to a contract for the payment of the
highest rate of interest permissible. The purpose of
such a stipulation is not to increase in any respect
the benefits ultimately to accrue to the creditor but
to permit the creditor to receive the amount due
without the deduction of the expenses caused by the
delinquency of the debtor.
There no special agreement is made by the
parties with reference to attorney’s fees the courts
are authorized to determine the amount to be paid
to an attorney as reasonable compensation for his
professional services, and even where the parties
have made a written agreement as to the fee, the
courts have the power to ignore the contract, if the
amount fixed is unconscionable or unreasonable,
and to limit the fee to a reasonable amount.
Section 3. When Promise is Unconditional
Indication of particular fund as source of payment
makes order or promise to pay “not unconditional”
5. METROPOLITAN BANK & TRUST COMPANY v. CA,
GOLDEN SAVINGS & LOAN ASSOCIATION, INC. et.
al.
G.R. No. 88866 February 18, 1991
FACTS: Eduardo Gomez opened an account with
Golden Savings and deposited 38 treasury warrants
with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority
and purportedly signed by its General Manager and
countersigned by its Auditor. All these warrants
were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its
Savings Account in the Metrobank. They were then
sent to the Bureau of Treasury for special clearing.2
Gloria Castillo went to the Calapan branch
several times to ask whether the warrants had been
cleared. She was told to wait. Accordingly, Gomez
was meanwhile not allowed to withdraw from his
account. Later, however, "exasperated" over Gloria's
repeated inquiries and also as an accommodation
for a "valued client," the petitioner says it finally
decided to allow Golden Savings to withdraw from
the proceeds of the warrants.The total withdrawal
was P968.000.00.4In turn, Golden Savings
subsequently allowed Gomez to make withdrawals
from his own account, eventually collecting the total
amount of P1,167,500.00 from the proceeds of the
apparently cleared warrants.
Eventually, Metrobank informed Golden
Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury, and demanded the
refund by Golden Savings of the amount it had
previously withdrawn.The demand was rejected.
Metrobank then sued Golden Savings in the RTC
which decided in favor of Golden Savings. CA
affirmed the RTC decision.
ISSUES:
1. Whether or not Metrobank can demand refund
against Golden Savings with regard to the
amount withdrawn to make up with the deficit
as a result of the dishonored treasury warrants.
(No)
2. Whether or not treasury warrants are
negotiable instruments. (No)
HELD: The petition has no merit.
1. Metrobank is negligent in giving Golden Savings
the impression that the treasury warrants had
been cleared and that, consequently, it was safe
to allow Gomez to withdraw. Without such
assurance, Golden Savings would not have
allowed the withdrawals. Indeed, Golden
Savings might even have incurred liability for its
refusal to return the money that all appearances
belonged to the depositor, who could therefore
withdraw it anytime and for any reason he saw
fit.
It was, in fact, to secure the clearance of the
treasury warrants that Golden Savings deposited
them to its account with Metrobank. Golden Savings
had no clearing facilities of its own. It relied on
Metrobank to determine the validity of the warrants
through its own services. The proceeds of the
warrants were withheld from Gomez until
Metrobank allowed Golden Savings itself to
withdraw them from its own deposit.
Metrobank cannot contend that by
indorsing the warrants in general, Golden Savings
assumed that they were "genuine and in all respects
what they purport to be," in accordance with Section
66 of the Negotiable Instruments Law.The simple
reason is that this law is not applicable to the non-
negotiable treasury warrants. The indorsement was
made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but
merely to deposit them with Metrobank for clearing.
2. The treasury warrants are not negotiable
instruments. Clearly stamped on their face is
the word: non negotiable.” Moreover, and this
is equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501.
An instrument to be negotiable instrument must
contain an unconditional promise or orders to
pay a sum certain in money. As provided by Sec
3 of NIL an unqualified order or promise to pay
is unconditional though coupled with: 1 st, an
indication of a particular fund out of which
reimbursement is to be made or a particular
account to be debited with the amount; or 2nd, a
statement of the transaction which give rise to
the instrument. But an order to promise to pay
out of particular fund is not unconditional. The
indication of Fund 501 as the source of the
payment to be made on the treasury warrants
makes the order or promise to pay “not
conditional” and the warrants themselves non-
negotiable. There should be no question that
the exception on Section 3 of NIL is applicable in
the case at bar.
6. Intestate of Luther Young and Pacita Young,
spouses. PACIFICA JIMENEZ
vs.
DR. JOSE BUCOY
G.R. No. L-10221 February 28, 1958
FACTS: During the Japanese occupation, Pacita
Young issued three promissory notes to Pacifica
Jimenez. The total sum of the notes was P21k. The
first promissory note read as follows:
“Received from Miss Pacifica Jimenez the total
amount of P10,000) ten thousand pesos payable six
months after the war, without interest.”
The other three notes were couched in the same
terms, except as to amounts and dates.
When the promissory notes became due, Jimenez
presented the notes for payment. Pacita and her
husband died and so the notes were presented to
the administrator of the estate of the spouses, Dr.
Jose Bucoy. Bucoy manifested his willingness to pay
but he said that since the loan was contracted during
the Japanese occupation the amount should be
deducted and the Ballantyne Schedule should be
used, that is peso-for-yen (which would lower the
amount due from P21k).
Bucoy also pointed out that nowhere in the not can
be seen an express “promise” to pay because of the
absence of the words “I promise to pay…”
ISSUE: Whether or not Ballantyne Schedule is
applicable
Whether or not there is unconditional
promise
.HELD: 1) NO. The Ballantyne schedule may not be
used here because the debt is not payable during
the Japanese occupation. It is expressly stated in the
notes that the amounts stated therein are payable
“six months after the war”. Therefore, no reduction
could be effected, and peso-for-peso payment shall
be ordered in Philippine currency.
How Ballantyne schedule applied,
a) If the loan should be paid during the
Japanese occupation, the Ballantyne
schedule should apply with corresponding
reduction of the amount.
b) However, if the loan was expressly agreed
to be payable only after the war or after
liberation, or became payable after those
dates, no reduction could be effected, and
peso-for-peso payment shall be ordered in
Philippine currency.
2) NO. The point was declared without
merit.
In accordance with doctrines on the matter, the note
herein-above quoted amounted in effect to "a
promise to pay ten thousand pesos six months after
the war, without interest." And so of the other
notes.
To constitute a good promissory note, no precise
words of contract are necessary, provided they
amount, in legal effect, to a promise to pay. In other
words, if over and above the mere acknowledgment
of the debt there may be collected from the words
used a promise to pay it, the instrument may be
regarded as a promissory note.
8. PRUDENTIAL BANK v. INTERMEDIATE APPELLATE
COURT,
PHILIPPINE RAYON MILLS, INC. and ANACLETO R.
CHI
G.R. No. 74886
December 8, 1992
Topic: Section 7 – When payable on demand
FACTS:
On August 8, 1962, Philippine Rayon Mills,
Inc. (PRMI) entered into a contract with Nissho Co.,
Ltd. of Japan (Nissho) for the importation of textile
machineries under a five-year deferred payment
plan. To effect payment, PRMI applied for a
commercial letter of credit (Letter of Credit No. DPP-
63762) with the Prudential Bank in favor of Nissho.
Against the letter of credit, drafts were drawn and
issued by Nissho, which were all paid by Prudential
Bank through the Bank of Tokyo (correspondent in
Japan). Two of the drafts were accepted by PRMI
through its president, Anacleto R. Chi, while the
others were not.
Upon the arrival of the machineries, the
Prudential Bank indorsed the shipping documents to
PRMI which accepted delivery of the same. To
enable the defendant-appellant to take delivery of
the machineries, it executed, by prior arrangement
with the Prudential Bank, a trust receipt which was
signed by Anacleto R. Chi in his capacity as president
of PRMI.
At the back of the trust receipt is a printed
form to be accomplished by two sureties who were
to be jointly and severally liable to the Prudential
Bank should PRMI fail to pay the total amount or any
portion of the drafts issued by Nissho and paid for by
Prudential Bank. The defendant-appellant was able
to take delivery of the textile machineries and
installed the same at its factory site.
In 1967, PRMI ceased business operation.
On December 29, 1969, PRMI’s factory was leased
by Yupangco Cotton Mills (rent: P200,000). The lease
was renewed on January 3, 1973. On January 5,
1974, all the textile machineries in the PRMI’s
factory were sold to AIC Development Corporation
for P300,000.00.
The obligation of the defendant-appellant
arising from the letter of credit and the trust receipt
remained unpaid and unliquidated. Repeated formal
demands for the payment of the said trust receipt
yielded no result.
On October 3, 1974, Prudential Bank filed
an action for collection for a sum of money against
PRMI and Anacleto R. Chi. In their respective
answers, the defendants interposed identical special
defenses, such as: the complaint states no cause of
action; if there is, the same has prescribed; and the
plaintiff is guilty of laches.
On June 15, 1978, RTC ruled in favor of
Prudential Bank and ordered PRMI to pay the two
drafts which were accepted but for the ten drafts
not accepted, PRMI was not obliged to pay. RTC also
dismissed the case against Anacleto R. Chi.
On appeal, IAC sustained the RTC in all
aspects. It affirmed RTC in its decision when it said
that PRMI was only liable for the two drafts but not
for the ten drafts because the same were not
accepted. Prudential Bank filed a motion for
reconsideration but was denied.
ISSUE: Whether or not presentment for acceptance
was indispensable to make PRMI liable for all the
drafts, accepted or not, drawn by Prudential Bank.
HELD: Yes. The Court granted the instant petition for
review.
As the trial court ruled in its March 6, 1975
Order: PRMI was obligated to pay plaintiff bank the
amounts of the drafts drawn by Nissho against said
plaintiff bank together with any accruing commercial
charges, interest, etc. pursuant to the terms and
conditions stipulated in the Application and
Agreement of Commercial Letter of Credit.
A letter of credit is defined as an engagement
by a bank or other person made at the request of a
customer that the issuer will honor drafts or other
demands for payment upon compliance with the
conditions specified in the credit. Through a letter
of credit, the bank merely substitutes its own
promise to pay for one of its customers who in
return promises to pay the bank the amount of
funds mentioned in the letter of credit plus credit or
commitment fees mutually agreed upon.
In the instant case, the drawee was necessarily
the herein petitioner. It was to the latter that the
drafts were presented for payment. In fact, there
was no need for acceptance as the issued drafts are
sight drafts. Presentment for acceptance is
necessary only in the cases expressly provided for in
Section 143 of the Negotiable Instruments Law
(NIL). The said section reads:
Sec. 143. When presentment for acceptance
must be made. — Presentment for
acceptance must be made:
(a) Where the bill is payable after sight, or in
any other case, where presentment for
acceptance is necessary in order to fix the
maturity of the instrument; or
(b) Where the bill expressly stipulates that it
shall be presented for acceptance; or
(c) Where the bill is drawn payable elsewhere
than at the residence or place of business of
the drawee.
In no other case is presentment for
acceptance necessary in order to render any
party to the bill liable.
Obviously then, sight drafts do not require
presentment for acceptance.The acceptance of a bill
is the signification by the drawee of his assent to
the order of the drawer; this may be done in
writing by the drawee in the bill itself, or in a
separate instrument. The parties herein agree, and
the trial court explicitly ruled, that the subject, drafts
are sight drafts.
Corollarily, they are, pursuant to Section 7 of
the NIL, payable on demand. Section 7 provides:
Sec. 7. When payable on demand. — An
instrument is payable on demand —
(a) When so it is expressed to be payable on
demand, or at sight, or on presentation; or
(b) In which no time for payment in
expressed.
Where an instrument is issued, accepted, or
indorsed when overdue, it is, as regards the
person so issuing, accepting, or indorsing it,
payable on demand.
Paragraph 8 of the Trust Receipt which reads:
"My/our liability for payment at maturity of any
accepted draft, bill of exchange or indebtedness
shall not be extinguished or modified" does not,
contrary to the holding of the IAC, contemplate prior
acceptance by PRMI, but by Prudential Bank.
Acceptance, however, was not even necessary in the
first place because the drafts which were eventually
issued were sight drafts and even if these were not
sight drafts, thereby necessitating acceptance, it
would be Prudential Bank — and not PRMI — which
had to accept the same for the latter was not the
drawee.
Presentment for acceptance is defined as the
production of a bill of exchange to a drawee for
acceptance. The trial court and IAC erred in ruling
that presentment for acceptance was an
indispensable requisite for PRMI's liability on the
drafts to attach. Contrary to both courts'
pronouncements, PRMI immediately became liable
thereon upon Prudential Bank payment thereof.
Such is the essence of the letter of credit issued by
Prudential Bank. A different conclusion would violate
the principle upon which commercial letters of credit
are founded because in such a case, both the
beneficiary and the issuer, Nissho Company Ltd. and
Prudential Bank, respectively, would be placed at the
mercy of PRMI even if the latter had already
received the imported machinery and Prudential
Bank had fully paid for it.
WHEREFORE, the appealed of the RTC and IAC
are REVERSED and SET ASIDE and another is hereby
entered declaring PRMI liable on the twelve drafts in
question and ordering it to pay petitioner:
(a) the amounts due thereon in the total sum of
P956,384.95 as of 15 September 1974, with
interest thereon at six percent (6%) per annum
from 16 September 1974 until it is fully paid,
less whatever may have been applied thereto
by virtue of foreclosure of mortgages, if any;
(b) a sum equal to ten percent (10%) of the
aforesaid amount as attorney's fees; and (c) the
costs.
9. G.R. No. 72593 April 30, 1987
CONSOLIDATED PLYWOOD INDUSTRIES, INC.,
HENRY WEE, and RODOLFO T.
VERGARA, petitioners,
vs.
IFC LEASING AND ACCEPTANCE
CORPORATION, respondent.
FACTS: The petitioner (Consolidated Plywood
Industries, Inc.) is a corporation engaged in the
logging business. It had for its program of logging
activities for the year 1978 the opening of additional
roads, and simultaneous logging operations along
the route of said roads, in its logging concession area
at Baganga, Manay, and Caraga, Davao Oriental. For
this purpose, it needed two (2) additional units of
tractors.
Cognizant of petitioner-corporation's need and
purpose, Atlantic Gulf & Pacific Company of Manila,
through its sister company and marketing arm,
Industrial Products Marketing (the "seller-assignor"),
a corporation dealing in tractors and other heavy
equipment business, offered to sell to petitioner-
corporation two (2) "Used" Allis Crawler Tractors,
one (1) an HDD-21-B and the other an HDD-16-B.
Thereafter, petitioner-corporation through
petitioners Wee and Vergara, president and vice-
president, respectively, agreed to purchase on
installment said two (2) units of "Used" Allis Crawler
Tractors. It also paid the down payment of Two
Hundred Ten Thousand Pesos (P210,000.00). The
seller-assignor gave the corresponding warranty of
ninety (90) days performance of the machines and
availability of parts.
On April 5, 1978, the seller-assignor issued the sales
invoice for the two (2) units of tractors. At the same
time, the deed of sale with chattel mortgage with
promissory note was executed. Simultaenously, the
seller-assignor assigned its rights and interest in the
chattel mortgage in favor of respondent IFC Leasing
and Acceptance Corporation (IFC Leasing).
Immediately thereafter, the seller-assignor delivered
said two (2) units of "Used" tractors to the
petitioner-corporation's job site. Barely fourteen
(14) days had elapsed after their delivery when one
of the tractors broke down and after another nine
(9) days, the other tractor likewise broke down and
were no longer serviceable. Because of the breaking
down of the tractors, the road building and
simultaneous logging operations of petitioner-
corporation were delayed and petitioner Vergara
advised the seller-assignor that the payments of the
installments as listed in the promissory note would
likewise be delayed until the seller-assignor
completely fulfils its obligation under its warranty.
Due to the non-payment of the instalments,
respondent filed a complaint against the petitioners
for the recovery of the principal sum of
P1,093,789.71, which represents the remaining
balance of the sold tractors, plus interest, attorney’s
fees and costs of suit. The petitioners filed their
amended answer praying for the dismissal of the
complaint.
In a decision dated April 20, 1981, the trial court
ruled in favor of IFC Leasing. On June 8, 1981, the
trial court issued an order denying the motion for
reconsideration filed by the petitioners. Thus, the
petitioners appealed to the Intermediate Appellate
Court alleging that the Promissory Note issued by
the sellor-assignor to respondent IFC Leasing is not
negotiable; therefore respondent cannot be deemed
a holder in due course. Hower, the IAC affirmed in
toto the decision of the trial court. The appellate
ruled that the said promissory note is in compliance
with Sections 1, 30, 52, 57, and 60 of the NIL.
Hence, this petition under Rule 45 was filed by the
petitioner-corporation on the ground that the
promissory note is clearly not a negotiable
instrument since it is neither payable to order nor to
bearer.
ISSUE: Whether or not the promissory note in
question is a negotiable instrument.
RULING: No. The promissory note issued by the
seller-assignor is not a negotiable instrument.
The pertinent portion of the note is as follows:
FOR VALUE RECEIVED, I/we jointly and severally
promise to pay to the INDUSTRIAL PRODUCTS
MARKETING, the sum of ONE MILLION NINETY
THREE THOUSAND SEVEN HUNDRED EIGHTY NINE
PESOS & 71/100 only (P 1,093,789.71), Philippine
Currency, the said principal sum, to be payable in
24 monthly installments starting July 15, 1978 and
every 15th of the month thereafter until fully paid.
...
Section 8 of the NIL provides:
SEC. 8. WHEN PAYABLE TO ORDER. — The
instrument is payable to order where it is drawn
payable to the order of a specified person or to him
or his order. . . .
These are the only two ways by which an instrument
may be made payable to order. There must always
be a specified person named in the instrument. It
means that the bill or note is to be paid to the
person designated in the instrument or to any
person to whom he has indorsed and delivered the
same. Without the words "or order" or"to the order
of, "the instrument is payable only to the person
designated therein and is therefore non-negotiable.
Any subsequent purchaser thereof will not enjoy the
advantages of being a holder of a negotiable
instrument but will merely "step into the shoes" of
the person designated in the instrument and will
thus be open to all defenses available against the
latter." Therefore, considering that the subject
promissory note is not a negotiable instrument, it
follows that the respondent can never be a holder in
due course but remains a mere assignee of the note
in question.
10. ANG TEK LIAN vs. THE COURT OF APPEALS
G.R. No. L-2516
September 25, 1950
BENGZON, J.:
FACTS: In 1946, Ang Tek Lian approached Lee Hua
and asked him if he could give him P4,000.00. He
said that he meant to withdraw from the bank but
the bank’s already closed. In exchange, he gave Lee
Hua a check which is “payable to the order of
‘cash’”. The next day, Lee Hua presented the check
for payment but it was dishonored due to
insufficiency of funds. Lee Hua eventually sued Ang
Tek Lian. In his defense, Ang Tek Lian argued that he
did not indorse the check to Lee Hua and that when
the latter accepted the check without Ang tek Lian’s
indorsement, he had done so fully aware of the risk
he was running thereby. With this, Ang Tek Lian was
convicted of estafa.
ISSUE: Whether or not a check payable to “cash”
needs indorsement?
HELD: No. Under the Negotiable Instruments Law
(sec. 9 [d], a check drawn payable to the order of
“cash” is a check payable to bearer, and the bank
may pay it to the person presenting it for payment
without the drawer’s indorsement. Where a check is
made payable to the order of ‘cash’, the word cash
‘does not purport to be the name of any person’,
and hence the instrument is payable to bearer. The
drawee bank need not obtain any indorsement of
the check, but may pay it to the person presenting it
without any indorsement.
11. San Miguel v. Bartolome
Facts:
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of
Bartenmyk Enterprises, was a dealer of beer products of
petitioner San Miguel Corporation (SMC)
for Paraaque City. Puzon purchased SMC products on
credit. To ensure payment and as a business practice, SMC
required him to issue postdated checks equivalent to the
value of the products purchased on credit before the
same were released to him. Said checks were returned to
Puzon when the transactions covered by these checks
were paid or settled in full.
On December 31, 2000, Puzon purchased products on
credit amounting to P11,820,327 for which he issued, and
gave to SMC, Bank of the Philippine Islands (BPI) Check
Nos. 27904 (for P309,500.00) and 27903 whether ownership of the subject check was transferred
(for P11,510,827.00) to cover the said transaction. to petitioner. On this point the Negotiable Instruments
Law provides:
On January 23, 2001, Puzon, together with his accountant,
visited the SMC Sales Office in Paraaque City to reconcile Sec. 12. Antedated and postdated The
his account with SMC. During that visit Puzon allegedly instrument is not invalid for the reason
requested to see BPI Check No. 17657. However, when he only that it is antedated or postdated,
got hold of BPI Check No. 27903 which was attached to a provided this is not done for an illegal
bond paper together with BPI Check No. 17657 he or fraudulent purpose. The person to
allegedly immediately left the office with his accountant, whom an instrument so dated
bringing the checks with them. is delivered acquires the title thereto
as of the date of delivery.
SMC sent a letter to Puzon on March 6, 2001 demanding (Underscoring supplied.)
the return of the said checks. Puzon ignored the demand
hence SMC filed a complaint against him for theft with the Note however that delivery as the term is used in the
City Prosecutors Office of Paraaque City. aforementioned provision means that the party delivering
did so for the purpose of giving effect
Issue: thereto.[12] Otherwise, it cannot be said that there has
been delivery of the negotiable instrument. Once there is
Petitioner now raises the following issues: delivery, the person to whom the instrument is delivered
gets the title to the instrument completely and
I irrevocably.
WHETHER X XX THE POSTDATED
CHECKS ISSUED BY PUZON, If the subject check was given by Puzon to SMC in
PARTICULARLY BPI CHECK NO. 27903 payment of the obligation, the purpose of giving effect to
DATED MARCH 30, 2001 IN THE the instrument is evident thus title to or ownership of the
AMOUNT OF PESOS: ELEVEN MILLION check was transferred upon delivery. However, if the
FIVE HUNDRED TEN THOUSAND check was not given as payment, there being no intent to
EIGHT HUNDRED TWENTY SEVEN give effect to the instrument, then ownership of the check
(Php11,510,827.00), WERE ISSUED IN was not transferred to SMC.
PAYMENT OF HIS BEER PURCHASES
OR WERE USED MERELY AS SECURITY The evidence of SMC failed to establish that the check was
TO ENSURE PAYMENT OF PUZONS given in payment of the obligation of Puzon. There was no
OBLIGATION. provisional receipt or official receipt issued for the amount
of the check. What was issued was a receipt for
the document, a POSTDATED CHECK SLIP.[13]
Ruling:
Although the petitioner's witness, Gregorio L. Joven III,
[T]he essential elements of the crime of theft are the states in paragraph 6 of his affidavit that the check was
following: (1) that there be a taking of personal property; given in payment of the obligation of Puzon, the same is
(2) that said property belongs to another; (3) that the contradicted by his statements in paragraph 4, where he
taking be done with intent to gain; (4) xxxx and (5) xxxx.[11] states that As a standard company operating procedure,
all beer purchases by dealers on credit shall be covered by
Considering that the second element is that the thing postdated checks equivalent to the value of the beer
taken belongs to another, it is relevant to determine products purchased; in paragraph 9 where he states that
the transaction covered by the said check had not yet
been paid for, and in paragraph 8 which clearly shows that
partial payment is expected to be made by the return of
beer empties, and not by the deposit or encashment of
the check. Clearly the term cover was not meant to be
used interchangeably with payment.
When taken in conjunction with the counter-affidavit of
Puzon where he states that As the [liquid beer] contents
are paid for, SMC return[s] to me the corresponding PDCs
or request[s] me to replace them with whatever was the
unpaid balance.[15] it becomes clear that both parties did
not intend for the check to pay for the beer products. The
evidence proves that the check was accepted, not as
payment, but in accordance with the long-standing policy
of SMC to require its dealers to issue postdated checks to
cover its receivables. The check was only meant
to cover the transaction and in the meantime Puzon was
to pay for the transaction by some other means other
than the check. This being so, title to the check did not
transfer to SMC; it remained with Puzon. The second
element of the felony of theft was therefore not
established. Petitioner was not able to show that Puzon
took a check that belonged to another.
Hence, the prosecutor and the DOJ were correct in finding
no probable cause for theft.
12. Natividad Gempesaw vs. CA and Philippine Bank
of Communications
G.R. No. 92244 February 9, 1993
Facts: Petitioner was a grocery store owner who
maintained a checking account with the Caloocan
City Branch of the respondent drawee Bank, and
drew checks against such account in order to
facilitate payment of her debts to her suppliers. Her
bookkeeper, Alicia Galang, prepared the checks and
filled out all the material particulars then the checks,
together with the corresponding invoice receipts,
were forwarded to the petitioner for signature. She
admitted that she did not verify anymorethe
accuracy of the checks nor the delivery of the checks
to the payees, given her full confidence and trust on
Galang. Although the respondent drawee Bank
notified her of all checks presented to it, she did not
bother to verify the returned checks. A total of 82
checks were issued by the petitioner in the course of
the 2-year business operations, all of which were
honored and debited against the checking account
of the petitioner. It was later found out that most of
the checks were for amounts in excess of what was
payable to the payees. Aside from the daily notice
given to the petitioner by the respondent drawee
Bank, she was also furnished with a monthly
statement of her transactions, reflecting all
cancelled checks debited against her account. It took
2 years before petitioner found out about the
fraudulent acts of her bookkeeper. All the 82 checks
with forged signatures of the payees were brought
to Ernest Boon, Chief Accountant of respondent
drawee Bank at the Buendia branch, who, without
authority, accepted them all for deposit in the
accounts of Alfredo Romero and Benito Lam in
different branches of respondent drawee Bank. The
team of auditors of respondent drawee Bank which
conducted periodic inspections of the branches’
operations also failed to discover the unauthorized
acts of Mr. Boon. As a rule, only a Branch Manager
may accept a second indorsement on a check for
deposit, but in this case, it was Mr. Boon who
accepted, initialed and approved the checks for
deposit.
About 30 of the payees testified that they did not
receive the subject checks and that the
indorsements appearing at the back of the checks
were not theirs. This prompted petitioner to make a
written demand on respondent drawee Bank to
credit her account with the money value of the 82
checks totaling P1,208,606.89 for having been
wrongfully charged against her account. Respondent
drawee Bank refused to grant the demand, which
made petitioner seek relief from the RTC for the
recovery of the said amount. The RTC dismissed the
complaint. On appeal, the CA affirmed the decision
of the RTC, on the ground that the gross negligence
of the petitioner was the proximate cause of her loss
and assuming that the bank was also negligent, the
loss must still be borne by the party whose
negligence was the proximate cause of the loss.
Issue: Whether or not petitioner may recover the
amount on the ground of forgery
Held: Yes, but not for the full amount. Sec. 23 of the
Negotiable Instruments Law provides that when a
signature is forged or made without the authority of
the person whose signature it purports to be, it is
wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto,
can be acquired through or under such signature,
unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or
want of authority. Forgery is a real defense which a
party can enforce even against a holder in due
course. The party whose signature was forged is
deemed to not have given consent to bind himself to
comply with an obligation. This provision covers not
only forged signatures of makers or drawers but also
of indorsees and payees. To prevent or render
difficult the forgery of indorsements, the drawer
(depositor) has the duty to have an accounting
system and a business procedure to monitor
deposits facilitated by depositor’s employees. In the
event that the depositor discovers a forged
indorsement, he/she also has the subsequent duty
to report it to the drawee Bank. Failure to discover
or to report promptly will cause the loss of rights of
the depositor against the drawee Bank and the
former is thereby precluded from setting up forgery
as basis for re-crediting of his/her account.
Upon petitioner’s signing of the checks, the
negotiable instrument became complete. Sec. 16 of
the NIL provides that ‘every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument to the payee for the
purpose of giving effect thereto’. The first delivery of
the instrument, complete in form, to the payee who
takes it as a holder, is called issuance of the
instrument. Without the initial delivery of the
instrument from the drawer of the check to the
payee, there can be no valid and binding contract
and no liability on the instrument. Petitioner then
authorized Galang to deliver the said checks, which
was effectual because it was done by a person who
was acting under the authority of the drawer.
As a rule, a drawee bank who has paid a check on
which an indorsement has been forged cannot
charge the drawer's account for the amount of said
check, except in certain instances such as when the
drawer has been negligent, which caused the bank
to honor the checks. In the case at bar, petitioner
relied solely on the honesty of her bookkeeper, and
failed to verify the accuracy of the amounts on the
checks and the bank statements and the over-all
flow of funds, which a prudent businessman would
not do. If she had done the opposite, the fraudulent
scheme would have been discovered earlier. Thus,
her negligence was the proximate cause of her loss
which precludes her from recovering from the bank.
However, respondent drawee Bank is also liable
under Art. 1170 of the Civil Code, which provides
that ‘those who in the performance of their
obligations are guilty of fraud, negligence or delay,
and those who in any manner contravene the tenor
thereof, are liable for damages.’ The act of the Chief
Accountant in approving the checks with second
indorsements, which should have been done only by
a Branch Manager, was one that contravened the
tenor of their obligation. Moreover, failure to
discover and reprimand such act even with periodic
inspections also constitutes negligence, for which
respondent drawee Bank is primarily liable. For this
reason, petitioner and respondent drawee Bank
were to share the loss in a fifty-fifty ratio. The case is
remanded to the trial court for the determination of
the exact amount of loss suffered by the petitioner.
13 Philippine National Bank vs Concepcion Mining
Company, Inc., et al.
GR No. L-16968 July 31, 1962
Facts: PNB instituted an action against the plaintiff
to recover from the defendants the face of a
promissory note which reads as follow:
Manila, March 12, 1954
Ninety days after date, for value
received, I promise to pay to the
order of the PNB …
Concepcion Mining Company,
Inc.
By:
(Sgd) Vicente Legarda
President
(Sgd) Vicente Legarda
(Sgd) Jose Sarte
Defendants presented their answer alleging
that the co-maker, Vicente Legarda died and his
estate is in the process of judicial determination in
Special Proceedings and such estate must be
included as party-defendant. Trial Court rejected the
claim of defendant and ruled that inclusion is
unnecessary and immaterial.
Issue: W/N the estate of a co-maker shall be
included a proceeding to recover the face of a
promissory note.
Held: No, it is unnecessary and immaterial. Based on
Sec. 17 (g) of NIL, “Where an instrument containing
word I promise to pay is signed by 2 or more
persons, they are deemed to be jointly and severally
liable thereon.”
The creditor may proceed against deny one
of the solitary debtors or some of them
simultaneously. The demand made against one of
them shall not be an obstacle to this which may
subsequently be directed against the others so long
as the debt has not been fully collected.
In the case at bar, promissory note was
executed jointly and several by the same parties,
namely, (1) Conce Concepcion Mining Company, Inc.,
(2) Vicente Legarda, and (3) Jose Sarte. The payee,
(PNB), had the right to hold any one or any two of
the signers of the promissory note responsible for
the payment of the amount of the note.
14. PHILIPPINE BANK OF COMMERCE V. ARUEGO
G.R. Nos. L-25836-37
January 31, 1981
FACTS
On December 1, 1959, the plaintiff instituted a civil
case against the Aruegofor the recovery of the total
sum of about P35,000.00 with daily interest thereon
from November 17, 1959 until fully paid and
commission equivalent to 3/8% for every thirty (30)
days or fraction thereof plus attorney's fees
equivalent to 10% of the total amount due and
costs. The complaint filed by the plaintiff contains
twenty-two (22) causes of action referring to
twenty-two (22) transactions entered into by the
said Bank and Aruego on different dates covering the
period from August 28, 1950 to March 14, 1951. The
sum sought to be recovered represents the cost of
the printing of "World Current Events," a periodical
published by the defendant. To facilitate the
payment of the printing the defendant obtained a
credit accommodation from the plaintiff. Thus, for
every printing of the "World Current Events," the
printer, Encal Press and Photo Engraving, collected
the cost of printing by drawing a draft against the
plaintiff, said draft being sent later to the defendant
for acceptance. As an added security for the
payment of the amounts advanced to Encal Press
and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor
of said bank wherein said defendant undertook to
hold in trust for plaintiff the periodicals and to sell
the same with the promise to turn over to the
plaintiff the proceeds of the sale of said publication
to answer for the payment of all obligations arising
from the draft. The trial court rendered judgment
against Aruego. The Court of Appeals, certified the
consolidated appeal to the Supreme Court on the
ground that only questions of law are involved. The
defendant argued that: (1) he signed the BOE’s in a
representative capacity, as the then President of the
Philippine Education Foundation Company, publisher
of "World Current Events and Decision Law Journal,"
(2) he signed these bills of exchange not as principal
obligor, but as accommodation or additional party
obligor, to add to the security of said plaintiff bank,
he reasoned that unlike real bills of exchange, where
payment of the face value is advanced to the drawer
only upon acceptance of the same by the drawee, in
the case in question, payment for the supposed bills
of exchange were made before acceptance so that
although these documents are labelled bills of
exchange, legally they are not bills of exchange but
mere instruments evidencing indebtedness of the
drawee who received the face value thereof, with
the defendant as only additional security of the
same.
ISSUES
1. Whether or not defendant is personally liable for
the drafts he accepted.
2. Whether or not defendant signed the bills of
exchange only as an accommodation party.
3. Whether or not the drafts signed by him were not
bills of exchange but mere evidence of indebtness.
RULING
1. YES. Section 20 of the Negotiable Instruments Law
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
filing 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 a representative of the Philippine
Education Foundation Company. He merely signed
as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE
ARGUEGO for failure to disclose his principal, Aruego
is personally liable for the drafts he accepted.
2. NO.The defendant signed as a drawee/acceptor.
An accommodation party is one who has signed the
instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of
lending his name to some other person. Under the
NIL, a drawee is primarily liable. Thus, if the
defendant who is a lawyer, he should not have
signed as an acceptor/drawee. In doing so, he
became primarily and personally liable for the drafts.
3.NO. 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 withthe
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.
18. G.R. No. 139130 November 27, 2002
RAMON K. ILUSORIO, petitioner,
vs.
HON. COURT OF APPEALS, and THE MANILA
BANKING CORPORATION, respondents.
FACTS:
Petitioner was a depositor in good standing
of respondent bank, the Manila Banking
Corporation, under current Checking Account No.
06-09037-0. As he was then running about 20
corporations, and was going out of the country a
number of times, petitioner entrusted to his
secretary, Katherine E. Eugenio, his credit cards and
his checkbook with blank checks. It was also Eugenio
who verified and reconciled the statements of said
checking account.
Between the dates September 5, 1980 and
January 23, 1981, Eugenio was able to encash and
deposit to her personal account about seventeen
(17) checks drawn against the account of the
petitioner at the respondent bank, with an aggregate
amount of P119,634.34. Petitioner did not bother to
check his statement of account until a business
partner apprised him that he saw Eugenio use his
credit cards. Petitioner fired Eugenio immediately,
and instituted a criminal action against her for estafa
thru falsification before the Office of the Provincial
Fiscal of Rizal. Petitioner then requested the
respondent bank to credit back and restore to its
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
National Bureau of Investigation (NBI) in determining
the genuineness of the signatures appearing on the
checks. However, in a letter dated March 25, 1987,
the NBI informed the trial court that they could not
conduct the desired examination for the reason that
the standard specimens submitted were not
sufficient for purposes of rendering a definitive
opinion. The NBI then suggested that petitioner be
asked to submit seven (7) or more additional
standard signatures executed before or about, and
immediately after the dates of the questioned
checks. Petitioner, however, failed to comply with
this request.
The trial court dismissed the petition for
lack of sufficient basis. Aggrieved, petitioner
elevated the case to the Court of Appeals by way of
a petition for review but without success.
ISSUE: Whether or not the bank is liable for failing to
detect a forged check
HELD: No.
Petitioner contends that under Section 23 of the
Negotiable Instruments Law a forged check is
inoperative, and that Manila Bank had no authority
to pay the forged checks. 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. No right to retain the
instrument, or to give a discharge therefor, or to
enforce payment thereof against any party, can be
acquired through or under such signature. 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. In our view, 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.
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 National Bureau of
Investigation from which to draw a conclusive
finding regarding forgery. The Court of Appeals
correctly found that petitioner, by his own inaction,
was precluded from setting up forgery.
Moreover, petitioner’s contention that Manila Bank
was remiss in the exercise of its duty as drawee lacks
factual basis. As borne by the records, it was
petitioner, not the bank, who was negligent. The
trouble is, the appellant had put so much trust and
confidence in the said secretary, by entrusting not
only his credit cards with her but also his checkbook
with blank checks. He also entrusted to her the
verification and reconciliation of his account. Further
adding to his injury was the fact that while the bank
was sending him the monthly Statements of
Accounts, he was not personally checking the same.
His testimony did not indicate that he was out of the
country during the period covered by the checks.
Thus, he had all the opportunities to verify his
account as well as the cancelled checks issued
thereunder -- month after month. But he did not,
until his partner asked him whether he had
entrusted his credit card to his secretary because the
said partner had seen her use the same. It was only
then that he was minded to verify the records of his
account. In view of Article 2179 of the New Civil
Code, when the plaintiff’s own negligence was the
immediate and proximate cause of his injury, no
recovery could be had for damages.
20. CELY YANG v. COURT OF APPEALS
G.R. No. 138074
August 15, 2003
#20: Sec. 24 – Presumption of Consideration
FACTS: Cely Yang and Prem Chandiramani entered
into an agreement whereby the latter was to give
Yang a PCIB (Philippine Commercial International
Bank) managers check in the amount of P4.2 million
in exchange for two (2) of Yang’s managers checks,
each in the amount of P2.087 million, both payable
to the order of private respondent Fernando David.
Yang and Chandiramani agreed that the difference
of P26,000.00 in the exchange would be their profit
to be divided equally between them.
Yang and Chandiramani also further agreed
that the former would secure from FEBTC (Far East
Bank & Trust Company) a dollar draft in the amount
of US$200,000.00, payable to PCIB FCDU Account
No. 4195-01165-2, which Chandiramani would
exchange for another dollar draft in the same
amount to be issued by Hang Seng Bank Ltd. of Hong
Kong.
Accordingly, Yang procured the
following:a) Equitable Cashier’s Check in the sum
of P2,087,000.00payable to the order of Fernando
David;b) FEBTC Cashier’s Check in the amount
of P2,087,000.00, likewise payable to the order of
Fernando David; andc) FEBTC Dollar Draft drawn on
Chemical Bank, New York, in the amount of
US$200,000.00, payable to PCIB FCDU.
At about one o’clock in the afternoon of
that same day, Yang gave the aforementioned
cashier’s checks and dollar drafts to her business
associate, Albert Liong, to be delivered to
Chandiramani by Liong’s messenger, Danilo Ranigo.
Ranigo was to meet Chandiramani at Philippine Trust
Bank, Ayala Avenue, Makati City, Metro Manila
where he would turn over Yang’s cashier’s checks
and dollar draft to Chandiramani who, in turn, would
deliver to Ranigo a PCIB managers check in the sum
of P4.2 million and a Hang Seng Bank dollar draft for
US$200,000.00 in exchange.
Chandiramani did not appear at the
rendezvous and Ranigo allegedly lost the two
cashier’s checks and the dollar draft bought by
petitioner. Ranigo reported the alleged loss of the
checks and the dollar draft to Liong at half past four
in the afternoon of the same day. Liong, in turn,
informed Yang, and the loss was then reported to
the police.
It transpired, however, that the checks and
the dollar draft were not lost, for Chandiramani was
able to get hold of said instruments, without
delivering the exchange consideration consisting of
the PCIB managers check and the Hang Seng Bank
dollar draft.
At three o’clock in the afternoon or some
two (2) hours after Chandiramani and Ranigo were
to meet in Makati City, Chandiramani delivered to
respondent Fernando David at China Banking
Corporation branch in San Fernando City, Pampanga,
the following: (a) FEBTC Cashier’s Check in the sum
of P2.087 million; and (b) Equitable Cashier’s Check
also in the amount of P2.087 million. In exchange,
Chandiramani got US$360,000.00 from David, which
Chandiramani deposited in the savings account of his
wifeand his motherwho held FCDU Account with the
United Coconut Planters Bank branch in Greenhills,
San Juan, Metro Manila. Chandiramani also
deposited the FEBTC Dollar Draft in the PCIB FCDU
Account on the same date.
Meanwhile, Yang requested FEBTC and
Equitable to stop payment on the instruments she
believed to be lost. Both banks complied with her
request, but upon the representation of PCIB, FEBTC
subsequently lifted the stop payment order on the
FEBTC Dollar Draft thus enabling the holder of the
PCIB FCDU Account to receive the amount of
US$200,000.00.
Yang lodged a two (2) separate cases for
injunction and damages against (1) Equitable,
Chandiramani, and David and (2) FEBTC, PCIB,
Chandiramani and David, with the Regional Trial
Court (RTC) of Pasay City for (1) Equitable to return
to Yang the amount of P2.087 million, with interest
thereon until fully paid and (2)defendants therein
return to Yang the amount of P2.087 million, the
value of FEBTC Dollar Draft with interest at 18%
annually until fully paid. These cases were later
consolidated.
RTC ruled against Yang and in favor of David
ratiocinating that evidence shows that defendant
David was a holder in due course for the reason that
the cashier’s checks were complete on their face
when they were negotiated to him. They were not
yet overdue when he became the holder thereof and
he had no notice that said checks were previously
dishonored; he took the cashier’s checks in good
faith and for value. He parted some $200,000.00 for
the two (2) cashier’s checks which were given to
defendant Chandiramani; he had also no notice of
any infirmity in the cashier’s checks or defect in the
title of the drawer.
Yang then moved for reconsideration of the
RTC judgment, but the trial court denied her
motion.CA affirmedjudgment of the lower court.
Yang contends that David is not a holder in
due course of the checks in question because,
among others, there is no showing whatsoever that
David gave Chandiramani any consideration of value
in exchange for the checks.
David, on the other hand, contended that
negotiable instruments are presumed to have been
issued for valuable consideration, and he who
alleges otherwise must controvert the presumption
with sufficient evidence. Yang failed to discharge this
burden, according to David. He points out that the
checks were delivered to him as the payee, and he
took them as holder and payee thereof. Clearly, he
concludes, he should be deemed to be their holder
in due course.
ISSUE: Whether or not David is a holder in due
course.
HELD: Yes. With respect to consideration, Section
24of the Negotiable Instruments Law creates a
presumption that every party to an instrument
acquired the same for a consideration or for value.
Thus, the law itself creates a presumption in
David’s favor that he gave valuable consideration for
the checks in question. In alleging otherwise, Yang
has the onus to prove that David got hold of the
checks absent said consideration. In other words,
the she must present convincing evidence to
overthrow the presumption.
The Court’s scrutiny of the records,
however, shows that the she failed to discharge her
burden of proof. Her averment that David did not
give valuable consideration when he took possession
of the checks is unsupported, devoid of any concrete
proof to sustain it. Note that both the trial court and
the appellate court found that David did not receive
the checks gratis, but instead gave Chandiramani
US$360,000.00 as consideration for the said
instruments. Factual findings of the Court of Appeals
are conclusive on the parties and not reviewable by
the Court; they carry great weight when the factual
findings of the trial court are affirmed by the
appellate court.
Thus, David is a holder in due course.
21. FOSSUM v. HERMANOS
G.R. No. L-19461, March 28, 1923
FACTS:
Charles Fossum, the plaintiff-appellant in
this case, was the resident agent in Manila of the
American Iron Products Company, Inc., (American
Iron) a concern engaged in business in New York
City. On February 10, 1920, acting as agent of that
company, he procured an order from Fernandez
Hermanos (FH), a general commercial partnership
engaged in business in the Philippine Islands, to
deliver to said firm a tail shaft, to be installed on the
ship Romulus, then operated by FH, as managers of
La CompañíaMarítima. It was agreed that the shaft
should be shipped from New York upon some
steamer sailing in March or April of the year 1920.
There had been a delay in the manufacture
and shipment of the shaft but in the autumn of 1920
it was dispatched to Manila, having arrived in
January, 1921. The American Iron had drawn a time
draft, at sixty days, upon FH, for the purchase price
of the shaft, the same being in the amount of
$2,250, and payable to the Philippine National Bank
(PNB).It was presented to FH for acceptance, and
was accepted by said firm on December 15, 1920,
according to its tenor.
Upon arrival in Manila, the shaft was found
not to be in conformity with the specifications and
was incapable of use for the purpose for which it had
been intended. So FH refused to pay the draft, and it
remained for a time dishonored in the hands of the
PNB. Later the bank indorsed the draft in blank,
without consideration, and delivered it to Fossum,
who thereupon instituted the present action on the
instrument against the acceptor, FH, and the two
individuals named as defendants in the complaint, in
the character of members of said partnership.
Fossum then instituted an action against FH
to recover the amount covered by the draft.Fossum
maintains that he is a holder in due course; that he
inherited that status from the previous holder (PNB,
named payee in the draft); that as such, he is
entitled to payment. The trial court held that the
action could not be maintained and absolved the
defendants from the complaint.
ISSUE:
WON theFossum was a holder in due course
HELD:
No. In the first place, Fossum, as an agent
of American Iron, is well aware that the draft is
unenforceable because it has no consideration, the
shaft being substandard. American Iron did not
comply with its obligation thus the draft was
dishonored – and Fossum was well aware of this as
part of the original party.
Under Sec. 59 of the Negotiable
Instruments Law, there is indeed a presumption that
every holder is a holder in due course, this covers a
payee or an indorsee (for bearer instruments, the
bearer). This presumption does not apply to Fossum
because he was not a payee nor an indorsee. He is
not an indorsee because the bank merely delivered
the draft to him and the delivery was even without
consideration.
It appears from statements of Mr.Fossum
on the witness stand that the draft in question was
indorsed and delivered to him by the bank in order
that suit might be brought thereon in his name for
the use and benefit of the bank, which is said to be
the real party in interest. In addition to this it
appears that during the pendency of the cause in
this court on appeal a formal transfer, or
assignment, to the bank was made by Fossum of all
his interest in the draft and in the cause of action.
For the reasons stated the judgment
appealed from must be affirmed, and it is so
ordered, with costs against the appellant.
24. Republic Bank vs. Mauricia T. Ebrada (#24 –
Liability of an accommodation party)
Facts:
On January 15, 1963, the Treasury of the Philippines
issued a check no. 508060, payable to the order of
one MARTIN LORENZO, in the sub of P1, 246.08, and
drawn on the Republic Bank. At the back of the
check bears the following signatures, in this order:
1. Martin Lorenzo, deceased for 11 ½ years
2. Ramon R. Lorenzo
3. Delia Dominguez
4. Mauricia T. Ebrada
The check was delivered to MauriciaEbrada by
Adelaida Dominguez for the purpose of encashment.
On February 27, 1963, MauriciaEbradaencashed the
check at the main office of the Republic Bank.
Immediately, after MauriciaEbrada received the
amount from the bank, she immediately turned over
the amount to Adelaida Dominguez, who in turn
handed the said amount to the Justina Tinio.
Later, the Bank was advised by the Treasury of the
Philippines that the alleged indorsement of the
aforesaid check was forgery. Hence, the treasury
requesting to the Bank to refund the amount of P1,
246.08
To recover, the Bank made verbal and formal
demands upon Ebrada to account the P1, 246.08,
but Ebrada refused to do so. So, the Bank sued
Ebrada before the RTC Manila.
In Ebrada’s answer, she alleged that she was a
holder in due course of the check in question, or at
the very least, has acquired her rights from a holder
in due course and therefore she is entitled to the
proceeds thereof. She also alleged that the plaintiff
Bank has no cause of action on the ground of
estoppel or negligent on the part of the Bank.
Ebrada also filed a Third-party complaint against
Adelaida Dominguez, and a Fourth-Party complaint
against Justina Tinio.
Issue:
Despite the fact that Ebrada did not benefit from
encashing the said cash, whether or not Republic
Bank can recover from Ebrada on the forged check
amounting to P1,246.08.
Held:
Yes. Republic Bank can recover from Ebrada on the
forged check.
First doctrine, in State vs. Broadway Mut. Bank case,
it was held that one who purchases a check or draft
is bound to satisfy himself that the paper is genuine
and that by indorsing it or presenting it for payment
or putting it into circulation before presentation he
impliedly asserts that he has performed his duty and
the drawee who has paid the forged check, without
actual negligence on his part, may recover the
money paid from such negligent purchases. The
recovery is permitted because although the drawee
was in a way negligent in failing to detect the
forgery, yet if the encasher of the check had
performed his duty, the forgery would in all
probability, have been detected and the fraud
defeated.
Applying to the present case, Ebrada, upon receiving
the check in question from Adelaida Dominguez, was
duty-bound to ascertain whether the check in
question was genuine before presenting it to the
Bank for payment. Her failure to do so makes her
liable for the loss and the plaintiff Bank may recover
from her the money she received for the check.
The second doctrine was enunciated in Great
Eastern Life Insurance Companycase where the
Supreme Court held that “where a check is drawn
payable to the order of one person and is presented
to a bank by another and purports upon its face to
have been duly indorsed by the payee of the check,
it is the duty of the bank to know that the check was
duly indorsed by the original payee, and where the
bank pays the amount of the check to a third person,
who has forged the signature of the payee, the loss
falls upon the bank who cashed the check and its
only remedy is against the person to whom it paid
the money.
Applying to the present case, the Bank should suffer
the loss when it paid the amount of the check in
question to Ebrada, but it has the remedy to recover
from the latter the amount it paid to her. Although
Ebrada is not the author of the forged signature,
being the last indorser on the forged check, she is
still liable because she has warranted that she has
good title to it, even if in fact she did not have it
because the payee of the check was already dead 11
years before the check was issued.
The fact that she did not benefit from encashing, she
still liable because she is considered as an
“accommodation party” in the forged check. Under
Section 29 of NIL, an accommodation party is one
who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument
knew him to be only an accommodation party.
25. TOMAS ANG vs. ASSOCIATED BANK AND
ANTONIO ANGENGLIONG
GR NO. 146511
SEPTEMBER 5, 2007
FACTS: On 1990, Associated Bank filed a collection
suit against Antonio AngEngLiong (debtor) and
herein petitioner TomanAng (co-maker) for the 2
promissory notes that they executed to obtain a
loan. As agreed by the parties, the loan would be
payable jointly and severally on a given specific time.
However, despite repeated demands, AngEngLiong
and Ang refused and failed to settle their obligation.
In his answer, Antonio AngEngLiong only admitted to
have secured a loan amounting to P80,000 and that
the bank is collecting an amount excessive to what is
due to him. For his part, petitioner Tomas Ang filed
an Answer with Counterclaim and Cross-claim. He
further claims that the bank is not the real party to
file a case and that it was not a holder in due course.
Also, he argues that the bank knew that he did not
receive any valuable consideration for affixing his
signatures on the notes but merely lent his name as
an accommodation party and should not be held
liable. Regarding his counterclaim, Tomas Ang
argued that by reason of the banks acts or
omissions, it should be held liable for the amount
of P50,000 for attorneys fees and expenses of
litigation. Rebutting the arguments of Ang,
Associated Bank stated that it is the real party in
interest. Also, citing Section 29 of the Negotiable
Instruments Law (NIL), the bank posited that
absence or failure of consideration is not a matter of
defense; neither is the fact that the holder knew him
to be only an accommodation party.
The RTC rendered a decision ordering
AngEngLiong to pay the principal amount and its
interest to the Associated Bank. After said decision
became final and executory, the court set the pre-
trial conference between the bank and Tomas
Ang, who, in turn, filed a Motion to Dismiss on the
ground of lack of jurisdiction over the case in view of
the alleged finality. The trial still proceeds and came
into a decision against the bank, dismissing the
complaint for lack of cause of action. Respondent
then elevated the case to the Court of Appeals,
which reversed the trial court’s ruling and ordered
Ang to pay its debt to Associated Bank. Finding that
the bank is a holder of a promissory notes, the Court
of Appeals held that Tomas Ang is accountable
therefor in his capacity as an accommodation party.
Citing Sec. 29 of the NIL, he is liable to the bank in
spite of the latters knowledge, at the time of taking
the notes, that he is only an accommodation party.
Moreover, as a co-maker who agreed to be jointly
and severally liable on the promissory notes, Tomas
Ang cannot validly set up the defense that he did not
receive any consideration therefor as the fact that
the loan was granted to the principal debtor already
constitutes a sufficient consideration. Hence, this
petition.
ISSUE: Whether or not Ang is liable as an
accommodation party even without receiving any
consideration from the loan
HELD: Yes, Ang is liable to the Associated Bank
because he is an accommodation party. Section 29
of the NIL defines an accommodation party as a
person "who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his
name to some other person." As gleaned from the
text, an accommodation party is one who meets all
the three requisites, viz: (1) he must be a party to
the instrument, signing as maker, drawer, acceptor,
or indorser; (2) he must not receive value therefor;
and (3) he must sign for the purpose of lending his
name or credit to some other person. Further, even
if he receives no part of the consideration for the
instrument but assumes liability to the other
party/ies thereto. As petitioner acknowledged it to
be, the relation between an accommodation party
and the accommodated party is one of principal and
surety the accommodation party being the surety.
As such, he is deemed an original promisor and
debtor from the beginning; he is considered in law as
the same party as the debtor in relation to whatever
is adjudged touching the obligation of the latter
since their liabilities are interwoven as to be
inseparable. As an equivalent of a regular party to
the undertaking, a surety becomes liable to the debt
and duty of the principal obligor even without
possessing a direct or personal interest in the
obligations nor does he receive any benefit
therefrom. Thus, in the case at bar, it is of no dispute
that Ang is an accommodation party and as co-
maker since he signed the promissory note as a co-
maker. Being an accommodation party, he is liable to
the Associated Bank for the whole obligation that his
co-debtor has obtained.
26. RAUL SESBREÑO, petitioner,
vs.
HON. COURT OF APPEALS, DELTA MOTORS
CORPORATION AND PILIPINAS BANK, respondents.
Facts:
Petitioner Raul Sesbreño made a money market
placement in the amount of P300,000.00 with the
Philfinance, the placement, with a term of thirty-two
(32) days. Philfinance, issued to the petitioner a the
Certificate of Confirmation of Sale, "without
recourse," of one Delta Motors Corporation
Promissory Note ("DMC PN") No. 2731;the
Certificate of securities Delivery Receipt No. 16587
indicating the sale of DMC PN No. 2731 to petitioner,
with the notation that the said security was in
custodianship of Pilipinas Bank; and post-dated
checks payable on 13 March 1981 (i.e., the maturity
date of petitioner's investment), with petitioner as
payee, Philfinance as drawer, and Insular Bank of
Asia and America as drawee, in the total amount of
P304,533.33.
Petitioner sought to encash the postdated checks Petitioner filed an action for damages with the
issued by Philfinance. However, the checks were Regional Trial Court ("RTC") of Cebu City, private
dishonored for having been drawn against respondents. The trial court, in a decision dismissed
insufficient funds. the complaint and counterclaims.
Philfinance delivered to petitioner the DCR No. Petitioner appealed to respondent Court of Appeals
10805 issued by private respondent Pilipinas Bank and the latter denied the appeal.
("Pilipinas",) informing petitioner that Pilipinas, as
duly Custodian Bank, certifies that the securities may Hence, this Petition for Review on Certiorari.
be inspected by the petitioner and shall be delivered
to the latter if remained outstanding in favor of the Issue:Whether or not DMC PN No. 2731 marked as
petitioner within 30 days after its maturity. This was non-negotiable may be assigned
signed by Elizabeth De Villa of private respondent
Pilipinas.
Held:
Petitioner approached de Villa, and handed her a
Yes. It is important to bear in mind that
demand letter informing the bank that his
the negotiation of a negotiable instrument must be
placement with Philfinance in the amount reflected
distinguished from the assignment or transfer of an
in the DCR No. 10805 had remained unpaid and
instrument whether that be negotiable or non-
outstanding, and that he in effect was asking for
negotiable. Only an instrument qualifying as a
the physical delivery of the underlying promissory
negotiable instrument under the relevant statute
note. Petitioner then examined the original of the
may be negotiated either by indorsement thereof
DMC PN No. 2731 and found: that the security had
coupled with delivery, or by delivery alone where
been issued on 10 April 1980; that it would mature
the negotiable instrument is in bearer form. A
on 6 April 1981; that it had a face value of
negotiable instrument may, however, instead of
P2,300,833.33, with the Philfinance as "payee" and
being negotiated, also be assigned or transferred.
private respondent Delta Motors Corporation
The legal consequences of negotiation as
("Delta") as "maker;" and that on face of the
distinguished from assignment of a negotiable
promissory note was stamped "NON NEGOTIABLE."
instrument are, of course, different. A non-
Pilipinas did not deliver the Note, nor any
negotiable instrument may, obviously, not be
certificate of participation in respect thereof, to
negotiated; but it may be assigned or transferred,
petitioner.
absent an express prohibition against assignment or
transfer written in the face of the instrument:
Petitioner later made similar demand letter again
asking private respondent Pilipinas for physical
The words "not
delivery of the original of DMC PN No. 2731.
negotiable," stamped on the face
Petitioner also made a written demand upon private
of the bill of lading, did not destroy
respondent Delta for the partial satisfaction of DMC
its assignability, but the sole effect
PN No. 2731, explaining that Philfinance, as payee
was to exempt the bill from the
thereof, had assigned to him said Note to the extent
statutory provisions relative
of P307,933.33. Delta, however, denied any liability
thereto, and a bill, though not
to petitioner.
negotiable, may be transferred by
assignment; the assignee taking
subject to the equities between
 the original parties. (Emphasis
added)
DMC PN No. 2731, while marked "non-negotiable,"
was not at the same time stamped "non-
transferable" or "non-assignable." It contained no
stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that
Note.
WHEREFORE, for all the foregoing, the Decision and
Resolution of the Court of Appeals, are hereby
MODIFIED and SET ASIDE.
27. Montinola v PNB Feb. 26, 1951 (Sec. 32)
Facts: Mariano Ramos, an assistant agent in PNB. He
was inducted into the United States Armed Forces in
the Far East (USAFFE) as disbursing officer of an
army division.
He went to Province of Lanao to procure cash
advance in the amount of P800,000 for the use of
the USAFFE. The Provincial Treasurer of Lanao did
not have that amount in cash. Instead, he gave
Ramos P300,000in Emergency Notes and a check for
P500,000.
Ramos went to Misamis Oriental to encash the check
for P500,000. The Provincial Treasurer of Misamis
did not have enough cash to cover the check so he
gave Ramos P400,000 in Emergency Notes and a
check for P100,000 drawn on the Philippine National
Bank.
In the evening, the Japanese forces entered the
capital of Misamis Oriental, and Ramos was made a
prisoner of war. Thereafter, he was released and
resumed his status as a civilian.
After almost 2yrs, Ramos allegedly indorsed the
P100,000 check to Enrique Montinola.
According to Ramos, which was sided by the court,
that he and Montinola agreed that he was selling
only P30,000 of the check, and at the back of the
document he wrote the ff:
"Pay to the order of Enrique P. Montinola
P30,000 only. The balance to be deposited
in the Philippine National Bank to the credit
of M. V. Ramos."
Ramos further said that in exchange of the said
assignment, Montinola would pay him P90,000 in
Japanese Notes but Montinola gave him only two
checks of P20,000 and P25,000, leaving a balance of
P45,000.
Montinola claims that the check is negotiable and
the whole check was indorsed to him.
When Montinola filed his complaint in 1947 he
stated therein that the check had been lost, and so
in lieu thereof he filed a supposed photostatic copy.
However, at the trial, he presented the check itself
but the check is badly mutilated, blotted, torn and
partly burned, and there is nothing written about
the P30,000.
Issue: WON the instrument is negotiable
Held: No. The check was not legally negotiated
within the meaning of the Negotiable Instruments
Law. Section 32 of the same law provides that "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 a negotiation of the
instrument." Montinola may therefore not be
regarded as an indorsee. At most he may be
regarded as a mere assignee of the P30,000 sold to
him by Ramos, in which case, as such assignee, he is
subject to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and against
Ramos.
29. G.R. No. L-39641 February 28, 1983
METROPOL (BACOLOD) FINANCING & INVESTMENT
CORPORATION vs.
SAMBOK MOTORS COMPANY and NG SAMBOK
SONS MOTORS CO., LTD.
FACTS:
Dr. Javier Villaruel executed a promissory
note in favor of Ng Sambok Sons Motors Co., Ltd.
Payable in 12 equal monthly installments with
interest. It is further provided that in case on non-
payment of any of the installments, the total
principal sum then remaining unpaid shall become
due and payable with an additional interest. On the
same date, Sambok Motors Company (hereinafter
referred to as Sambok), a sister company of Ng
Sambok Sons Motors Co., Ltd., and under the same
management as the former, negotiated and indorsed
the note in favor of plaintiff Metropol Financing &
Investment Corporation. Villaruel defaulted in the
payment, upon presentment of the promissory note
and upon demand, hence plaintiff Metropol notified
Sambok as indorsee of the fact that the promissory
note has been dishonored and demanded payment.
Sambok failed to pay which caused
Metropol to file a complaint for the collection of sum
of money. During the pendency of the case Villaruel
died. The lower court, on motion, dismissed the case
against Dr. Villaruel pursuant to Section 21, Rule 3 of
the Rules of Court. On plaintiff's motion for summary
judgment, the trial court rendered judgment in favor
of Metropol and ordered Sambok to pay the
plaintiff.
On appeal, Sambok argues that by adding
the words “with recourse” in the indorsement of the
note, it becomes a qualified indorser, thus, it does
not warrant that in case that the maker failed to pay
upon presentment it will pay the amount to the
holder.
Issue:
 Whether or not Sambok Motors Co is a
qualified indorser, thus it is not liable upon the HELD:
failure of payment of the maker. 30. Sec. 41. Indorsment where payable to 2 or more
persons
Held: Yes.Section 41 of the Negotiable Instruments
METROBANK vs BA
Law provides:
No. A qualified indorserment constitutes the GR No. 179952
indorser a mere assignor of the title to the December 4, 2009
instrument. It may be made by adding to the Where an
indorser’s signature the words “without recourse” or FACTS: instrument is
any words of similar import. Such indorsement payable to the
relieves the indorser of the general obligation to pay LambertoBitanga obtained a loan from BA Finance order of two or
if the instrument is dishonored but not of the liability Corporation amounting to PhP 329, 280. As a more payees or
arising from warranties on the instrument as security thereon, he executed a mortgage on his car. indorsees who are
provided by section 65 of NIL. However, Sambok He thereafter had the mortgaged car insured to not partners, all
indorsed the note “with recourse” and even waived Malayan Insurance Company. must
the notice of demand, dishonor, protest and indorse unless the
presentment. The car was subsequently stolen. On Bitanga’s claim, one indorsing has
Malayan Insurance then issued a check payable to authority to
Recourse means resort to a person who is the order of B.A Finance and LambertoBitanga in the indorse for the
secondarily liable after the default of the person amount of PhP 224, 500 drawn against China others.
who is primarily liable. Sambok by indorsing the note Banking Corporation. The check was crossed with
“with recourse” does not make itself a qualified notation, “For Deposit Payees’ Account Only” Bitanga alone endorsed the crossed check, and
indorser but a general indorser who is secondarily petitioner allowed the deposit and release of the
liable, because by such indorsement, it agreed that if Without the indorsement or authority of his co- proceeds thereof, despite the absence of authority
Villaruel fails to pay the not the holder can go after payee, Bitanga deposited the check to his account of Bitanga’s co-payee BA Finance to endorse it on its
it. The effect of such indorsement is that the note with Asianbank Corporation (now merged with behalf.
was indorsed witout qualification. A person who Metrobank), which he subsequently withdrew. His
indorses without qualification engages that on due loan then became past due, but despite demands, Denying any irregularity in accepting the check,
presentment, the note shall be accepted or paid, or Bitanga failed to settle such. petitioner maintains that it followed normal banking
both as the case maybe, and that if it be dishonored, procedure. The testimony of Imelda Cruz,
he will pay the amount thereof to the holder. The BA Finance belatedly knew of the loss of the car, Asianbank’s then accounting head, shows otherwise,
words added by Sambok do not limit his liability, but Malayan Insurance’s issuance of a crossed check however, viz:
rather confirm his obligation as general indorser. payable to it and Bitanga, and the subsequent events
thereafter until the withdrawal of the proceeds of Q Now, could you be
Lastly, the lower court did not err in not declaring Bitanga. BA Finance thereupon demanded the familiar with a particular
appellant as only secondarily liable because after an payment of the value of the check from Asianbank policy of the bank with
instrument is dishonored by non-payment, the but of no avail; hence, the filing of an Action for Sum respect to checks with
person secondarily liable thereon ceases to be such of Money and Damages against Bitanga and joined (sic) payees?
and becomes a principal debtor. His liabiliy becomes Asianbank. A Yes, sir.
the same as that of the original
Q And what would be the
obligor. Consequently, the holder need not even ISSUE: W/N BA Finance has a cause of action against particular policy of the
proceed against the maker before suing the Asianbank(now merged with Metrobank), even if bank regarding this
indorser. the check has not been delivered to BA Finance by transaction?
Malayan Insurance itself?
A The bank policy and
procedure regarding the
joint checks. Once it is
deposited to a single
account, we are not
accepting joint checks for
single account, depositing
to a single account (sic).
Q What happened to the
bank employee who
allowed this particular
transaction to occur?
A Once the branch
personnel, the bank
personnel (sic) accepted
it, he is liable.
Q What do you mean by
the branch personnel
being held liable?
A Because since (sic) the
bank policy, we are not
supposed to accept joint
checks to a [single]
account, so we mean that
personnel would be held
liable in the sense that
(sic) once it is withdrawn
or encashed, it will not be
allowed.
Q In your experience,
have you encountered
any bank employee who
was subjected to
disciplinary action by not
following bank policies?
A The one that happened
in that case, since I really
don’t know who that
personnel is, he is no
longer connected with the
bank.
Q What about in general,
do you know of any
disciplinary action,
Madam witness?
A Since there’s a
negligence on the part of
the bank personnel, it
will be a ground for his
separation [from] the
bank.
Admittedly, petitioner dismissed the employee who
allowed the deposit of the check in Bitanga’s
account.
Petitioner’s argument that since there was neither
forgery, nor unauthorized indorsement because
Bitanga was a co-payee in the subject check, the
dictum in Associated Bank v. CA does not apply in
the present case fails. The payment of an instrument
over a missing indorsement is the equivalent of
payment on a forged indorsementor an
unauthorized indorsement in itself in the case of
joint payees.
Clearly, petitioner, through its employee, was
negligent when it allowed the deposit of the crossed
check, despite the lone endorsement of Bitanga,
ostensibly ignoring the fact that the check did not, it
bears repeating, carry the indorsement of BA
Finance.
As has been repeatedly emphasized, the banking
business is imbued with public interest such that the
highest degree of diligence and highest standards of
integrity and performance are expected of banks in
order to maintain the trust and confidence of the
public in general in the banking sector.Undoubtedly,
BA Finance has a cause of action against petitioner.
31. BANK OF THE PHILIPPINE ISLANDS v. COURT OF
APPEALS, ANNABELLE A. SALAZAR, and JULIO R.
TEMPLONUEVO
G.R. NO. 136202 : January 25, 2007
Facts:
Salazar previously had in her possession 3 crossed
checks which had an aggregate amount
of P267,692.50. These were payable to the order of
JRT Construction and Trading, the name and style
under which Templonuevo does business. Without
the knowledge and endorsement of the designated
payee upon such checks, Salazar was able to deposit
the checks in her personal savings account with BPI
and encash the same. BPI accepted and paid the
checks on three (3) separate occasions over a span
of eight months. Templonuevo only protested the
purportedly unauthorized encashment of the checks
after the lapse of one year from the date of the last
check.
Accepting that Templonuevo's claim was a valid one,
BPI froze A.A. Salazar and Construction and
Engineering Services’ account, instead of Salazar’s
account where the checks were deposited, since this
account was already closed by Salazar or had an
insufficient balance.
A.A. Salazar Construction and Engineering Services
filed an action for a sum of money with damages
against BPI before the RTC. The complaint was later
amended by substituting the name of Salazar as the
real party in interest in place of A.A. Salazar
Construction and Engineering Services.
The RTC ruled in favor of Salazar. On appeal, CA
affirmed the decision of the RTC and held that
respondent Salazar was entitled to the proceeds of
the three (3) checks notwithstanding the lack of
endorsement thereon by the payee. The CA
concluded that Salazar and Templonuevo had
previously agreed that the checks payable to JRT
Construction and Trading actually belonged to
Salazar and would be deposited to her account, with
BPI acquiescing to the arrangement.
Issue:
Whether or not a collecting bank, over the
objections of its depositor, have the authority to
withdraw unilaterally from such depositor's 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. In the present case, the records do not support
the finding made by the CA and the trial court that a
prior arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of
the checks. This fact is crucial as Salazar's
entitlement to the value of the instruments is based
on the assumption that she is a transferee within the
contemplation of Section 49 of the Negotiable
Instruments Law.
Section 49 of the Negotiable Instruments Law
contemplates a situation whereby the payee or
indorsee delivers a negotiable instrument for value
without indorsing it, thus:
Transfer without indorsement; effect of - Where the
holder of an instrument payable to his order
transfers it for value without indorsing it, the
transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires
in addition, the right to have the indorsement of the
transferor. But for the purpose of determining
whether the transferee is a holder in due course, the
negotiation takes effect as of the time when the
indorsement is actually made.
It bears stressing that the above transaction is an
equitable assignment and the transferee acquires
the instrument subject to defenses and equities
available among prior parties. Thus, if the transferor
had legal title, the transferee acquires such title and,
in addition, the right to have the indorsement of the
transferor and also the right, as holder of the legal
title, to maintain legal action against the maker or
acceptor or other party liable to the transferor. The
underlying premise of this provision, however, is
that a valid transfer of ownership of the negotiable
instrument in question has taken place.
Transferees in this situation do not enjoy the
presumption of ownership in favor of holders since
they are neither payees nor indorsees of such
instruments. 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. Thus, 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 other facts
from which the authority to receive payment may be
inferred.
Even if the delay in the demand for reimbursement
is taken in conjunction with Salazar's possession of
the checks, it cannot be said that the presumption of
ownership in Templonuevo's favor as the designated
payee therein was sufficiently overcome. This is
consistent with the principle that if instruments
payable to named payees or to their order have not
been indorsed in blank, only such payees or their
indorsees can be holders and entitled to receive
payment in their own right.
The presumption under Section 131(s) of the Rules
of Court stating that a negotiable instrument was
given for a sufficient consideration will not inure to
the benefit of Salazar because the term "given" does
not pertain merely to a transfer of physical
possession of the instrument. The phrase "given or
indorsed" in the context of a negotiable instrument
refers to the manner in which such instrument may
be negotiated. Negotiable instruments are
negotiated by "transfer to one person or another in
such a manner as to constitute the transferee
the holder thereof. If payable to bearer it is
negotiated by delivery. If payable to order it is
negotiated by the indorsement completed by
delivery." The present case involves checks payable
to order. Not being a payee or indorsee of the
checks, private respondent Salazar could not be
a holder thereof.
It is an exception to the general rule for a payee of
an order instrument to transfer the instrument
without indorsement. Precisely because the
situation is abnormal, it is but fair to the maker and
to prior holders to require possessors to prove
without the 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 circumstances despite the fact
that Templonuevo may not have clearly
demonstrated that he never authorized Salazar to
deposit the checks or to encash the same.
Noteworthy also is the fact that petitioner stamped
on the back of the checks the words: "All prior
endorsements and/or lack of endorsements
guaranteed," thereby making the assurance that it
had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a
general indorser, petitioner's liability to the
designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had
the right to debit Salazar's account for the value of
the checks it previously credited in her favor. It is of
no moment that the account debited by petitioner
was different from the original account to which the
proceeds of the check were credited because both
admittedly belonged to Salazar, the former being the
account of the sole proprietorship which had no
separate and distinct personality from her, and the
latter being her personal account.
While, however, it is conceded that petitioner had
the right of set-off over the amount it paid to
Templonuevo against the deposit of Salazar, the
issue of whether it acted judiciously is an entirely
different matter. As businesses affected with public
interest, and because of the nature of their
functions, banks are under obligation to treat the
accounts of their depositors with meticulous care,
always having in mind the fiduciary nature of their
relationship. In this regard, petitioner was clearly
remiss in its duty to private respondent Salazar as its
depositor.
To begin with, the irregularity appeared plainly on
the face of the checks. Despite the obvious lack of
indorsement thereon, petitioner permitted the
encashment of these checks three times on three
separate occasions. This negates petitioner's claim
that it merely made a mistake in crediting the value
of the checks to Salazar's account and instead
bolsters the conclusion of the CA that petitioner
recognized Salazar's claim of ownership of checks
and acted deliberately in paying the same, contrary
to ordinary banking policy and practice. It must be
emphasized that 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 on this field, and the law
thus holds it to a high standard of conduct. The
taking and collection of a check without the proper
indorsement amount to a conversion of the check by
the bank.
More importantly, however, solely upon the
prompting of Templonuevo, and with full knowledge
of the brewing dispute between Salazar and
Templonuevo, petitioner debited the account held in
the name of the sole proprietorship of Salazar
without even serving due notice upon her. This ran
contrary to petitioner's assurances to private
respondent Salazar that the account would remain
untouched, pending the resolution of the
controversy between her and Templonuevo. Such a
move by BPI is, to Our minds, a clear case of
negligence, if not a fraudulent, wanton and reckless
disregard of the right of its depositor.
32. CHAN WAN v.TAN KIM and CHEN SO
G.R. No. L-15380
September 30, 1960
FACTS:
This suit is to collect eleven checks totalling
P4,290.00. Such checks payable to "cash or bearer"
and drawn by defendant Tan Kim (the other
defendant is her husband) upon the Equitable
Banking Corporation, were all presented for
payment by Chan Wan to the drawee bank, but they
"were all dishonored and returned to him unpaid
due to insufficient funds and/or causes attributable
to the drawer."
In Court, Tan Kim declared without contradiction
that the checks had been issued to two persons
named Pinong and Muy for some shoes the former
had promised to make and "were intended as mere
receipts".
In view of such circumstances, the court declined to
order payment for two principal reasons: (a) plaintiff
failed to prove he was a holder in due course, and
(b) the checks being crossed checks should not have
been deposited instead with the bank mentioned in
the crossing.
ISSUE:
1. Whether or not Chan Wan is a holder in due
course. – NO
2. Whether or not Chan Wan has the right to collect
the value of the check. – YES
RULING:
1. Eight of the checks here in question bear across
their face two parallel transverse lines between
which these words are written: non-negotiable —
China Banking Corporation. These checks have,
therefore, been crossed specially to the China
Banking Corporation, and should have been
presented for payment by China Banking, and not by
Chan Wan. Inasmuch as Chan Wan did present them
for payment himself — the Manila court said —
there was no proper presentment, and the liability
did not attach to the drawer. It must be
remembered, at this point, that the drawer in
drawing the check engaged that "on due
presentment, the check would be paid, and that if it
be dishonored . . . he will pay the amount thereof to
the holder". Wherefore, in the absence of due
presentment, the drawer did not become liable.
Nevertheless, on the backs of the checks,
endorsements which apparently show they had been
deposited with the China Banking Corporation and
were, by the latter, presented to the drawee bank
for collection.
These 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". How they reached his hands,
plaintiff did not indicate. Most probably, as the trial
court surmised, — this is not a finding of fact — he
got them after they had been thus returned,
because he presented them in court with such
"account closed" stamps, without bothering to
explain. Naturally and rightly, the lower court held
him not to be a holder in due course under the
circumstances, since he knew, upon taking them
up, that the checks had already been dishonored.
2. The Negotiable Instruments Law does not provide
that a holder who is not a holder in due course,
may not in any case, recover on the instrument. If B
purchases an overdue negotiable promissory note
signed by A, he is not a holder in due course; but he
may recover from A, if the latter has no valid excuse
for refusing payment. The only disadvantage of
holder who is not a holder in due course is that the
negotiable instrument is subject to defense as if it
were non- negotiable.
Sec. 57 of NIL (Rights of HDC)

36. BPI v Alfred Berwin & Company and Anselmo
Diaz
G. R. no. 29075, October 2, 1928
FACTS
Plaintiff bank prayed the Court of First Instance to
summon appellant Anselmo to testify concerning
defendant firm Alfred Berwin & Co.’s (Alfred for
brevity) credit against him. Anselmo personally
appeared in court and acknowledged that he was
indebted to Alfred in the sum of 20,000php, the
balance of credit for a greater amount.
Said remaining debt is evidenced by two promissory
notes issued by Anselmo in favor of Alfred. However,
from the record, it does not appear that such PNs
are still in the hands of Alfred, or whether they have
been negotiated by the latter, according to
Anselmo’s belief.
ISSUE
Whether appellant Anselmo Diaz may be compelled
to pay the sum of the promissory notes.
HELD
No. As it does not appear from the record that the
PNs in question are still at the disposal of Alfred so
that they may return them to the maker Anselmo
upon the latter’s making the payment thereof,
Anselmo cannot be compelled to pay the sum of said
PNs to any person save the holder of such
documents in due course, for said person is the one
entitled to receive it.
Sec. 57 of the NIL provides:
Rights of holder in due course. —A holder in due
course holds the instrument free from any defect of
title of prior parties, and free from defenses
available to prior parties among themselves, and
may enforce payment of the instrument for the full
amount thereof against all parties liable thereon.
It is not known whether the judgment debtor
Alfred is still the HDC of such PNs or not, that is to
say, that it is not known whether they still have their
credit 20,000php represented by such PNs, or
whether the same has already been alienated, and
as the latter possibility exists, that is,that Alfred is no
longer entitled to the amount of the PNs on account
of having negotiated them, it is not just to compel
the maker Anselmo to satisfy the credit of Alfred if
the latter is no longer entitled to such credit. To
compel Anselmo to pay Alfred would be to expose
the former to the situation in which, having paid the
amount of the PNs without settling the same, a HDC
may appear and within all, reason demand its full
payment.
Nor does the question change by the fact that
Anselmo was given notice not to deliver the
payment of debt to Alfred when the preliminary
attachment was ordered. The debt was secured by
negotiable instruments, and notwithstanding such
notice it was beyond Anselmo’s power to prevent
Alfred from negotiating the PNs.
The Court held the lower court’s judgment
premature inasmuch as it orders appellant to pay
plaintiff bank said sum of 20,000php which is the
amount of the PNs in question, with nothing to
show, in accordance with law, who has actually the
right to receive such amount.
Appealed order revoked, case remanded to the
lower court.
37. CHAN WAN v TAN KIM
G.R. No. L-15380, September 30, 1960
FACTS:
Tan Kim issued 11 checks payable to “cash
or bearer” to be drawn against their account with
the Equitable Banking Corporation. Chan Wan
presented these for payment but , but they "were
all dishonored and returned to him unpaid due to
insufficient funds and/or causes attributable to the
drawer."
At the hearing of the case, Chan Wom did
not take the witness stand. His attorney, however,
testified only to identify the checks plus the letters
of demand upon defendants.
On the other hand, Tan Kim declared
without contradiction that the checks had been
issued to two persons named Pinong and Muy for
some shoes the former had promised to make and
"were intended as mere receipts".
In view of such circumstances, the court
declined to order payment for two principal reasons:
(a) plaintiff failed to prove he was a holder in due
course, and (b) the checks being crossed checks
should not have been deposited instead with the
bank mentioned in the crossing.
ISSUE:
1. Whether Chan Wan is a holder in due
course.
2. Whether Chan Wan has the right to collect.
RULING:
1. No. As a general rule, a dishonored
check/instrument may still be negotiated
either by indorsement or delivery and the
holder may be a holder in due course
provided that he received no notice
regarding the dishonor of the instrument. In
this case, the checks were already crossed
on their face hence Chan Wan was properly
notified of the dishonor of the checks at the
time of his acquisition.
2. Yes. The Negotiable Instruments Law does
not provide that a holder who is not a
holder in due course, may not in any case,
recover on the instrument. The holder may
recover directly from the drawee, in this
case Tan Kim and Chen So, unless the
drawees have a valid excuse in refusing
payment. The only disadvantage of a holder
who is not a holder in due course is that the
negotiable instrument is subject to defense
as if it were non- negotiable.
The case was remanded to the lower court for a
proper determination as to how Chan Wan acquired
the checks and to determine if he is indeed entitled
to payment based on some other transactions
involving those checks.
38. Section 59. Who is Holder in Due Course
#38. VICENTE R. DE OCAMPO & CO. vs. ANITA
GATCHALIAN, ET AL.
G.R. No. L-15126 November 30, 1961
FACTS: The action is for the recovery of the value of
a check for P600 payable to the plaintiff and drawn
by defendant Anita C. Gatchalian. Manuel Gonzales
represented to defendant Anita that he was duly
authorized by the owner of the car, Ocampo Clinic,
to look for a buyer of said car and to negotiate for
and accomplish said sale, but which facts were not
known to plaintiff.
Satisfied by the price, Anita was advised by
Manuel that the owner of the car will not be willing
to give the certificate of registration unless there is a
showing that the party interested in the purchase of
said car is ready and willing to make such purchase
and that for this purpose Manuel Gonzales
requested Anita to give him (Manuel Gonzales) a
check which will be shown to the owner as evidence
of buyer's good faith in the intention to purchase the
said car, the said check to be for safekeeping only of
Manuel and to be returned to Anita the following
day when Manuel brings the car and the certificate
of registration, but which facts were not known to
plaintiff.Relying on these representations of Manuel,
Anita drew and issued a check.
Upon failure of Manuel to appear and bring
the car and its certificate of registration and to
return the check, Anita issued a "Stop Payment
Order"with the drawee bank there having no more
reason for the said check.
Meanwhile, Manuel delivered the said
check to the Ocampo Clinic, in payment of the fees
and expenses arising from the hospitalization of his
wife. The plaintiff for and in consideration of fees
and expenses of hospitalization and the release of
the wife of Manuel from its hospital, accepted said
check, applying P441.75 thereof to payment of said
fees and expenses and delivering to Manuel
Gonzales the amount of P158 representing the
balance on the amount of the said check.
The plaintiff filed a complaint for estafa
against Manuel for the acts in paying his obligations
with plaintiff and receiving the cash balance of the
check.
In their appeal, Anita et. al. contended that
the check is not a negotiable instrument and that
plaintiff is not a holder in due course
ISSUES:
1. Whether or not the plaintiff Ocampo is a holder
in due course. (No)
2. Whether or not prima facie holder in due course
applies. (No)
HELD:
1. Section 52, Negotiable Instruments Law, defines
holder in due course, thus:
A holder in due course is a holder who has taken
the instrument under the following conditions:
(a) That it is complete and regular upon its
face;
(b) That he became the holder of it before it
was overdue, and without notice that it had
been previously dishonored, if such was the
fact;
(c) That he took it in good faith and for
value;
(d) That at the time it was negotiated to
him he had no notice of any infirmity in the
instrument or defect in the title of the
person negotiating it.
The stipulation of facts expressly states that
plaintiff-appellee Ocampo was not aware of the
circumstances under which the check was delivered
to Manuel, but we agree with the defendants-
appellants that the circumstances indicated by them
in their briefs, such as the fact that appellants Anita
had no obligation or liability to the Ocampo Clinic;
that the amount of the check did not correspond
exactly with the obligation of Matilde Gonzales to Dr.
V. R. de Ocampo; and that the check had two parallel
lines in the upper left hand corner, which practice
means that the check could only be deposited but
may not be converted into cash — all these
circumstances should have put the plaintiff-appellee
to inquiry as to the why and wherefore of the
possession of the check by Manuel Gonzales, and
why he used it to pay Matilde's account. It was
payee's duty to ascertain from the holder Manuel
Gonzales what the nature of the latter's title to the
check was or the nature of his possession. Having
failed in this respect, we must declare that plaintiff-
appellee was guilty of gross neglect in not finding
out the nature of the title and possession of
Manuel Gonzales, amounting to legal absence of
good faith, and it may not be considered as a
holder of the check in good faith.
In order to show that the defendant had
"knowledge of such facts that his action in taking the
instrument amounted to bad faith," it is not
necessary to prove that the defendant knew the
exact fraud that was practiced upon the plaintiff by
the defendant's assignor, it being sufficient to show
that the defendant had notice that there was
something wrong about his assignor's acquisition of
title, although he did not have notice of the
particular wrong that was committed. Paika v. Perry,
225 Mass. 563, 114 N.E. 830.
The above considerations would seem
sufficient to justify our ruling that plaintiff-appellee
should not be allowed to recover the value of the
check.
2. Section 52 (c) provides that a holder in due
course is one who takes the instrument "in good
faith and for value;" Section 59, "that every
holder is deemed prima facie to be a holder in
due course;" and Section 52 (d), that in order
that one may be a holder in due course it is
necessary that "at the time the instrument was
negotiated to him "he had no notice of any . . .
defect in the title of the person negotiating it;"
and lastly Section 59, that every holder is
deemed prima facieto be a holder in due course.
In the case at bar the rule that a possessor
of the instrument is prima facieholder in due course
does not apply because there was a defect in the
title of the holder (Manuel Gonzales), because the
instrument is not payable to him or to bearer.On
the other hand, the stipulation of facts indicated by
the appellants in their brief, like the fact that the
drawer had no account with the payee; that the
holder did not show or tell the payee why he had the
check in his possession and why he was using it for
the payment of his own personal account — show
that holder's title was defective or suspicious, to say
the least. As holder's title was defective or
suspicious, it cannot be stated that the payee
acquired the check without knowledge of said
defect in holder's title, and for this reason the
presumption that it is a holder in due course or that
it acquired the instrument in good faith does not
exist. And having presented no evidence that it
acquired the check in good faith, it (payee) cannot
be considered as a holder in due course. In other
words, under the circumstances of the case, instead
of the presumption that payee was a holder in good
faith, the fact is that it acquired possession of the
instrument under circumstances that should have
put it to inquiry as to the title of the holder who
negotiated the check to it. The burden was,
therefore, placed upon it to show that
notwithstanding the suspicious circumstances, it
acquired the check in actual good faith.
When the case has taken such shape that
the plaintiff is called upon to prove himself
a holder in due course to be entitled to
recover, he is required to establish the
conditions entitling him to standing as such,
including good faith in taking the
instrument. It devolves upon him to
disclose the facts and circumstances
attending the transfer, from which good or
bad faith in the transaction may be inferred.
In the case at bar as the payee acquired the
check under circumstances which should have put it
to inquiry, why the holder had the check and used it
to pay his own personal account, the duty devolved
upon it, plaintiff-appellee, to prove that it actually
acquired said check in good faith. The stipulation of
facts contains no statement of such good faith,
hence we are forced to the conclusion that plaintiff
payee has not proved that it acquired the check in
good faith and may not be deemed a holder in due
course thereof.
41. CHAN WAN v. TAN KIM and CHEN SO
G.R. No. L-15380
September 30, 1960
Topic: Section 61 – Liability of Drawer
FACTS:
This is a suit to collect eleven checks
totaling P4,290. The checks payable to "cash or
bearer" and drawn by Tan Kim and Chen So (her
husband) against their account with Equitable
Banking Corporationwere negotiated to White
House Shoe Supply. The shoe company deposited
the checks to China Bank and the latter presented it
to Equitable Bank but the checks were returned
because Equitable Bank then had no funds to cover
the checks.
Thereafter, Chan Wan got hold of the
checks and wants to encash them but Equitable Bank
said that the checks "were all dishonored and
returned to him unpaid due to insufficient funds
and/or causes attributable to the drawer." He then
filed a case at the Manila Court of First Instance
against the drawer to collect the amount on said
checks.
At the hearing of the case,the plaintiff did
not take the witness stand. His attorney, however,
testified only to identify the checks plus the letters
of demand upon defendants.
On the other hand, Tan Kim declared
without contradiction that the checks had been
issued to two persons named Pinong and Muy for
some shoes the former had promised to make and
"were intended as mere receipts".
The trial court declined to order payment
for two principal reasons: (a) plaintiff failed to prove
he was a holder in due course, and (b) the checks
being crossed checks should not have been
deposited instead with the bank mentioned in the
crossing. The court dismissed it for failure of proof,
and from such dismissal they did not appeal.
ISSUE: Whether or not the defendants are liable
even without due presentment as contemplated
under Section 61 of the Negotiable Instruments Law.
HELD:
YES.
Section 61 of the Negotiable Instruments
Law states that:
Sec. 61. Liability of drawer. - The
drawer by drawing the instrument
admits the existence of the payee and
his then capacity to indorse; and
engages that, on due presentment,
the instrument will be accepted or
 paid, or both, according to its tenor,
and that if it be dishonored and the
necessary proceedings on dishonor be
duly taken, he will pay the amount
thereof to the holder or to any
subsequent indorser who may be
compelled to pay it. But the drawer
may insert in the instrument an
express stipulation negativing or
limiting his own liability to the holder.
Here, eight of the checks here in question
bear across their face two parallel transverse lines
between which these words are written: non-
negotiable — China Banking Corporation. These
checks have, therefore, been crossed specially to the
China Banking Corporation, and should have been
presented for payment by China Banking, and not by
Chan Wan. Inasmuch as Chan Wan did present
them for payment himself — CFI said — there was
no proper presentment, and the liability did not
attach to the drawer.
The Court agrees to the legal premises and
conclusion. It must be remembered, at this point,
that the drawer in drawing the check engaged that
"on due presentment, the check would be paid, and
that if it be dishonored . . . he will pay the amount
thereof to the holder". Wherefore, in the absence
of due presentment, the drawer did not become
liable.
However, the Court finds, on the backs of
the checks, endorsements which apparently show
they had been deposited with the China Banking
Corporation and were, by the latter, presented to
the drawee bank for collection.
These 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". How they reached
his hands, plaintiff did not indicate.
Hence, in this case, although there was no
due presentment by Chan Wan as what was
required by the Law to hold the defendants liableas
drawers but the instruments showed that
endorsements were properly undertaken gave rise
to the liability of the defendant spouses.
The Court remanded the case to the lower
court for proper determination of facts which were
found to be lacking such as how Chan Wan acquired
the checks and if he is really entitled to payment.
44. Ang v. Ting
Facts:
On August 15, 1960 Lorenzo Ting issued Philippine
Bank of Communications check K-81618, for the sum
of P4,000, payable to "cash or bearer". With Felipe
Ang's signature (indorsement in blank) at the back
thereof, the instrument was received by the plaintiff
AngTiong who thereafter presented it to the drawee
bank for payment. The bank dishonored it. The
plaintiff then made written demands on both
Lorenzo Ting and Felipe Ang that they make good
the amount represented by the check. These
demands went unheeded; so he filed in the
municipal court of Manila an action for collection of
the sum of P4,000, plus P500 attorney's fees. On
March 6, 1962 the municipal court adjudged for the
plaintiff against the two defendants.
Only Felipe Ang appealed to the Court of First
Instance of Manila (civil case 50018), which rendered
judgment on July 31, 1962, amended by an order
dated August 9, 1962, directing him to pay to the
plaintiff "the sum of P4,000, with interest at the legal
rate from the date of the filing of the complaint, a
further sum of P400 as attorney's fees, and costs."
Felipe Ang then elevated the case to the Court
of Appeals, which certified it to this Court because
the issues raised are purely of law.
The appellant imputes to the court a quo three
errors, namely, (1) that it refused to apply article
2071 of the new Civil Code to the case at bar; (2)
that it adjudged him a general indorser under the
Negotiable Instruments Law (Act 2031); and (3) that
it held that he "cannot obtain his release from the
contract of suretyship or obtain security to protect
himself against any proceedings 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."
This, appeal is absolutely without merit.
1. The genuineness and due execution of the
instrument are not controverted. That the appellee
is a holder thereof for value is admitted.
Having arisen from a bank check which is
indisputably a negotiable instrument, the present
case is, therefore, in so far as the indorsee is
concerned vis-a-vis the indorser, governed solely
plaintiff the Negotiable Instruments Law (see secs. 1
and 185). Article 2071 of the new Civil Code, invoked
by the appellant, the pertinent portion of which
states, "The guarantor, even before been paid, may
proceed against the principal debtor; (1) when he is
sued for the payment; . . . the action of the
guarantor is to obtain release from the guaranty, to
demand a security that shall protect him from any
proceedings by the creditor . . .," is here completely
irrelevant and can have no application whatsoever.
We are in agreement with the trial judge that
nothing in the check in question indicates that the
appellant is not a general indorser within the
purview of section 63 of the Negotiable Instruments
Law which makes "a person placing his signature
upon an instrument otherwise than as maker,
drawer or acceptor" a general indorser, — "unless
he clearly indicates plaintiff appropriate words his
intention to be bound in some other capacity,"
which he did not do. And section 66 ordains that
"every indorser who indorses without qualification,
warrants to all subsequent holders in due course" (a)
that the instrument is genuine and in all respects
what it purports to be; (b) that he has a good title to
it; (c) that all prior parties have capacity to contract;
and (d) that the instrument is at the time of his
indorsement valid and subsisting. In addition, "he
engages that on due presentment, it 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." 1
2. Even on the assumption that the appellant is
a mere accommodation party, as he professes to be,
he is nevertheless, by the clear mandate of section
29 of the Negotiable Instruments Law, yet "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." To paraphrase, the
accommodation party is liable to a holder for value
as if the contract was not for accommodation. It is
not a valid defense that the accommodation party
did not receive any valuable consideration when he
executed the instrument. Nor is it correct to say that
the holder for value is not a holder in due course
merely because at the time he acquired the
instrument, he knew that the indorser was only an
accommodation party. 2
3. That the appellant, again assuming him to be
an accommodation indorser, may obtain security
from the maker to protect himself against the
danger of insolvency of the latter, cannot in any
manner affect his liability to the appellee, as the said
remedy is a matter of concern exclusively between
accommodation indorser and accommodated party.
So that the fact that the appellant stands only as a
surety in relation to the maker, granting this to be
true for the sake of argument, is immaterial to the
claim of the appellee, and does not a whit diminish
nor defeat the rights of the latter who is a holder for
value. The liability of the appellant remains primary
and unconditional. To sanction the appellant's
theory is to give unwarranted legal recognition to
the patent absurdity of a situation where an
indorser, when sued on an instrument by a holder in
due course and for value, can escape liability on his
indorsement by the convenient expedient of
interposing the defense that he is a mere
accomodationindorser.
54. GULLAS v. PNB
G.R. No. L-43191, November 13, 1935
FACTS:
PaulinoGullas, the plaintiff-appellant, is a
member of the Philippine Bar and a resident of Cebu
City. Atty. Gullas has an account with the defendant-
appellant bank, Philippine National Bank (PNB).
On August 2, 1933, the Treasurer of the
United States for the United States Veterans Bureau
issued a Warrant in the amount of $361, payable to
the order of Francisco SabectoriaBacos. Atty. Gullas
and Pedro Lopez signed as endorsers of this check.
Thereupon it was cashed by the PNB. Subsequently
the treasury warrant was dishonored by the Insular
Treasurer.
The bank on learning of the dishonor of the
treasury warrant sent notices by mail to Atty. Gullas
which could not be delivered to him at that time
because he was in Manila. PNB in the letter
informed the petitioner the outstanding balance on
his account was applied to the part payment of the
dishonored check. Upon petitioner’s return, he
received the notice of dishonor and immediately
paid the unpaid balance of the warrant.As a
consequence of these happenings, two occurrences
transpired which inconvenienced Attorney Gullas. In
the first place, as above indicated, checks including
one for his insurance were not paid because of the
lack of funds standing to his credit in the bank. In the
second place, periodicals in the vicinity gave
prominence to the news to the great mortification of
Gullas.
ISSUE:
WON PNB had the right to apply Gullas’s
deposit for the payment of the indorsed check
HELD:
No.The NIL establishes the liability of a
general indorser and giving theprocedure for a
notice of dishonor. The general indorser of
negotiable instrumentengages that if he be
dishonored and the, necessary proceedings of
dishonorbeduly taken, he will pay the amount
thereof to the holder. (Negotiable InstrumentsLaw,
sec. 66.)
Notice of dishonor is in order to charge all
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 byGullas, the
bank made use of the money standing in his account
to make good forthe treasury warrant. At this point,
Gullas was merely an indorser and had issued ingood
faith.Atty. Gullas should be awarded nominal
damages because of the premature actionof the
bank against which Atty. Gullas had no means of
protection.