Campos - Chapter 5

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Law 108: Negotiable Instruments First Semester

CHAPTER V: LIABILITY OF PARTIES 1st NATL BANK OF CENTRAL CITY V UTTERBACK 177 Ky. 76, 197 S.W. 534, L.R.A. 1918B, 838 (1917) ~mini~ FACTS SUBJECT: negotiable promissory note PAYEE: Davis Coal Company -(the only fact I could find) The payee in the note was (probably) required to comply w/ one of 2 certain sections of Kentucky law before it was authorized to do business in the state. ISSUE WON the failure of a payee in a negotiable promissory note to comply with sections 199b and 571, Kentucky Statutes (sorry Campos did not reproduce the statutes themselves but I think the content doesn’t matter) without which it could not do business in the state, before the execution of the note, renders it uncollectible in the hands of an owner in due course. HELD: NO -The Negotiable Instruments act (I think. In Kentucky statutes.) says in plain language that the maker of an instrument, by making it, admits the payee’s capacity to indorse it. -The act does not say, however, that the maker admits the payee’s capacity to make the contract for which the note was executed, and hence he may have the right to urge such defense against the original payee. BUT again, reiterate the point that the act DOES take from the maker the right to deny the capacity of the payee to indorse and negotiate the note free from defenses available against the payee, even though, as between the original parties, the note was void and unenforceable for any reason. -It has been held in both Colorado and North Dakota that a note to a foreign corporation that he has not complied with the local law, without which it would not do business in the state, is valid against the maker in the hands of a holder in due course. Disposition The judgment overruling the demurrer to the amended answer is reversed for proceedings consistent herewith. MORAN V CA, CityTrust Banking Corp. 230 SCRA 799; GR 105836; Regalado; Mar 7, 1994 ~ajang~ FACTS -Spouses George and Librada Moran are the owners of the Wack-Wack Petron. They regularly purchased bulk

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fuel and other related products from Petrophil Corporation on a cash on delivery (COD) basis. Orders were made by telephone and payments were effected by personal checks upon delivery. -The Morans maintained 3 joint accounts (1 current and 2 savings accounts). As a special privilege to the Morans, as valued clients, the bank allowed them to maintain a zero balance in their current account. Transfers from one of the savings account to the current account could only be made with prior authorization, while transfers from the other savings account can be made be the bank automatically through a Pre-Authorized Transfer agreement or PAT. -On 12 December 1983, the Morans, drew a check for P50,576.00 payable to Petrophil Corporation. The next day, the Moran issued another check in the amount of P56,090.00. The totalling to P106,666.00. Petrophil deposited the two checks to its account with the Pandacan branch of PNB, the collecting bank. In turn, PNB presented them for clearing with the Philippine Clearing House Corporation in the afternoon of the same day. The records show that on 14 Dec 1983, Moran’s Current Account had a zero balance, while Savings Account covered by the PAT had an available balance of P26,104.30 and the other Savings Account had P43,268.39. -The following day, at around 10am, George Moran went to the bank, as was his regular practice, to personally oversee their daily transactions with the bank. He deposited money to the 2 savings account. He then withdrew P40k from Savings Account A and deposited the amount to the current account. P66,666 was also transferred from the other Savings Account to the current account through the PAT agreement. -Librada (wife) told George that Petrophil refused to deliver their orders on a credit basis because the two checks were dishonored due to "insufficiency of funds. Non-delivery of gasoline forced Morans to temporarily stop business operations. In addition, Petrophil cancelled their credit accommodation. Furious and upset, George Moran demanded an explanation from the bank. He was told that Amy Belen Ragodo, the customer service officer, had committed a "grave error". The Morans filed a complaint for damages. ISSUE WON a bank is liable for its refusal to pay a check on account of insufficient funds but wherein a deposit may be made later in the day. HELD: NO. -The relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the contract of deposit between the banker and its depositor, the

Prof. Rogelio V. Quevedo

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banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages. Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. Before a bank depositor may maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand. -The available balance on 14 December 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the two checks, although what was stamped on the dorsal side of the two checks in question was "DAIF/12-15-83," since 15 December 1983 was the actual date when the checks were processed. When the Morans' checks were dishonored due to insufficiency of funds, the available balance of Savings Account which was the subject of the PAT agreement, was not enough to cover either of the two checks. On 14 December 1983, when PNB, Pandacan branch presented the checks for collection, the available balance for Savings Account 1037001372 was only P26,104.30 while Current Account 37-0006-7 had no available balance. It was only on 15 December 1983 at around 10:00 a.m. that the necessary funds were deposited, which unfortunately was too late to prevent the dishonor of the checks. -The bank was also under no obligation to give notice before dishonoring checks drawn upon insufficient funds. If ever the spouses Moran on previous occasions were given notices every time a check was presented for clearing and payment and there were no adequate funds in their accounts, these were, at most, mere accommodations on the part of CityTrust. Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to speak of in the first place. -A drawer must remember his responsibilities every time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain checks he previously issued.A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediate payment. In the present case, between the time of issuance of the checks on Dec 12 and 13 and presentment on Dec 14,

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Morans had, at the very least, 24 hours to replenish their balance in the bank.

from the damages recoverable for injury to business reputation.

ARANETA V BANK OF AMERICA No. L-25414 July 30, 1971; 40 SCRA 144 ~ricky~

HELD 1. YES. Ratio The financial credit of a businessman is a prized and valuable asset, it being a significant part of the foundation of his business. Any adverse reflection thereon constitutes some material loss to him. Reasoning The Bank cites Art 2224 which provides that “temperate or moderate damages, which are more than nominal but less that compensatory damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty,” and contends that Araneta failed to show such loss in this case which the CA upheld. The question is WON there is reason to conclude that Araneta did sustain some pecuniary loss although no sufficient proof of the amount has been adduced. -From the nature of some cases, (citing the Code Commission) definite proof of pecuniary loss cannot be offered although the court is convinced that there has been such loss. For instance, injury to one’s commercial credit or to the goodwill of a business firm is often hard to show with certainty in terms of money. The judge should be allowed to calculate moderate damages in such cases, rather than the plaintiff should suffer, without redress from the defendant’s wrongful act. -Araneta is a merchant of long standing and good reputation in the Philippines. His claim for temperate damages is legally justified. Considering, however, the small size of Araneta’s account with the Bank, the amounts of the checks involved & the fact that the Bank tried to rectify the error, although belatedly, an award of P5T by way of temperate damages is sufficient. 2. NO. Reasoning Araneta contends that moral damages should have been granted for the injury to his business standing or commercial credit, separately from his wounded feelings and mental anguish. It is true that under Art 2217, besmirched reputation is a ground upon which moral damages may be claimed but the CA did take this element into consideration in adjudging the sum of P8T in his favor. The CA considered his reputation as an established and well known international trader as well as his wounded feelings and the mental anguish he suffered which caused his blood pressure to rise beyond unusual limits necessitating medical attendance for an extended period. Disposition Judgment of the CA MODIFIED by awarding temperate damages of P5,000 and increasing attorney’s fees to P4,000.

FACTS DRAWER: Leopoldo Araneta. DRAWEE: San Francisco main office of the Bank of America SUBJECT 1: Check for $500 payable to cash. Dishonored and stamped “Account Closed” despite sufficiency of drawer’s deposit balance. Upon inquiry, Bank acknowledged error and sent a letter of apology to payee Harry Gregory of Hongkong and requesting that no adverse reflection be made on drawer. Matter considered closed. However, similar events occurred later. SUBJECT 2: Check for $500 payable to cash drawn against the same bank. Stamped “Account Closed” and returned to clearing bank despite sufficiency of drawer’s deposit balance. SUBSEQUENT INDORSEMENT: To Rufina Saldaña who deposited it to her account with First National City Bank of New York which in turn cleared it through the Federal Reserve Bank. It was actually paid by the drawee to First National City Bank but later claimed it was inadvertently made and requested the amount be credited back. First National in turn wrote Saldaña but before her reply was received, drawee recalled the check from First National and honored it. (Ano ba talaga, kuya?! ) SUBJECT 3: Check for $150 payable to cash drawn against the same bank. Stamped “Account Closed” and returned to clearing bank (Wells Fargo Bank) despite sufficiency of drawer’s deposit balance. -Because of these incidents, Araneta filed suit for the recovery of the ff: (1) Actual damages P30,000; (2) Moral damages P20,000; (3) Temperate damages P50,000; (4) Exemplary damages P10,000; and (5) Attorney’s fees P10,000. TC awarded all items. CA eliminated actual and temperate (for failure to prove an alleged purchase of jewels for profit) and reduced moral damages to P8,000, exemplary to P1,000 and attorney’s fees to P1,000. ISSUES 1. WON the CA erred in eliminating temperate damages. 2. WON the CA erred in not granting moral damages for mental anguish, besmirched reputation, wounded feelings, social humiliation, etc., separate and distinct


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WOODY V NATIONAL BANK OF ROCKY MOUNT 194 N.C. 549, 140 S.E. 150 (1927) ~joey~ FACTS SUBJECT: check for $6 DRAWER: Woody DRAWEE: Bank of Rocky Mount PAYEE: E.L. Hollingworth INDORSEE: Kingston Garage -The check was dishonored and marked “No Account” by drawee bank although, at that time, drawer had on deposit $50. Drawer was arrested and tried on the charge of having given a worthless check. He was acquitted. -This action for compensatory and punitive damages alleges that drawee’s act was willful, negligent, wanton and malicious. Demurrer sustained in TC. ISSUE WON drawer may recover compensatory and punitive damages from drawee HELD: YES -Upon the refusal or failure of the bank to pay the check of its depositor, the bank is liable for a breach of its contract. The depositor may recover of the bank the amount of his check, with interest and cost; the action being on contract, the recovery is limited to the amount of the check, with interest from date of demand and refusal, and, by virtue of the statute, the costs of the action. -Notwithstanding that the relation of the bank to its depositor is that of debtor and creditor, a bank may be held liable in tort to its depositor whose check it has wrongfully refused or failed to pay. -A depositor, whose check has been wrongfully dishonored by the refusal or failure of the bank on which it was drawn to pay the same, may maintain an action against the bank, not only in contract but also in tort, to recover the damages which he has sustained, and that the jury may, when the plaintiff is a merchant or trader, assess not only nominal but also substantial damages; when the plaintiff is not a merchant or trader, he may recover such sum as special damages as the jury shall find, upon the facts, will compensate him for the injury resulting from the wrong done him by the defendant. -Even if such actual loss or injury is not shown, yet more than nominal damages may be given. It can hardly be possible that a customer’s check can be wrongfully refused payment without some impeachment of his credit, which must in fact be an

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actual injury, though he cannot from the nature of the case furnish independent, distinct proof thereon. Disposition Judgment reversed. SINGSON V BANK OF THE PHIL. ISLANDS 23 SCRA 1117; Concepcion; June 27, 1968 ~chriscaps~ FACTS -Singson was one of defendants in civil case where judgment was rendered against him and co-defendants Lobregat and Villa-Abrille, to pay. Singson and Lobregat appealed, but not Villla-Abrille. Writ of garnishment was served upon BPI in w/c Singson had account, insofar as Villa-Abrille’s credit against the bank were concerned. -Clerk of bank, upon reading name of plaintiff and w/o informing himself that garnishment was merely for deposits of Villa-Abrillle and Bona, prepared letter for Bank President’s signature, informing Singson of the garnishment of his deposits. -2 checks issued by Singson in favor of Lega Corp, drawn against said bank, were deposited by drawee. Believing that Singson had no more control over his deposits, bank dishonored the checks. -Singson commenced present action against bank and its president for damages because of illegal freezing of account. CFI dismissed complaint. ISSUE WON damages may be awarded HELD: YES -Existence of a contract between parties doesn’t bar commission of a tort by one against the other and the consequent recovery of damages therefore. SPEROFF V FIRST-CENTRAL TRUST CO 140 Ohio st. 415, 79 N.E. 2s 119 (1948) ~’del~ FACTS -Vassil Speroff had drawn a check on First-Central Trust Co. (FCTC). -He eventually notified FCTC that said check be not paid. -Now, he sues FCTC to recover the amount of said check. -FCTC admitted to the drawing of the check and to having received the notice not to pay. However, it interposed the defense that Speroff signed a document stating that Speroff agreed to indemnify FCTC against any loss resulting from the nonpayment of said check and that it is expressly understood that it will not be

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held responsible if it paid the check through inadvertency or oversight. -TC rendered a judgment for FCTC. CA reversed saying that said statement of release was void as it was contrary to public policy and void for want of consideration. Hence, this appeal. ISSUE WON the statement of release signed by Speroff constitutes a valid defense HELD: NO. The Court upheld the CA’s two grounds for avoiding the statement of release. On want of consideration -Under the reciprocal rights and obligations inherent in the relationship existing between a bank and its depositors, it was the duty of FCTC NOT to pay after it had received the order of Speroff. -Hence, when Speroff was asked to sign a statement or release to the effect that the bank wouldn’t be held responsible if it would pay the check, this was a new element in the relationship. What consideration or benefit was received by Speroff as promisor and what detriment was suffered by FCTC as promise as a result of this statement? NONE so clearly there was no compliance with either of the fundamental requirements as to consideration. On contrary to public policy -It is elementary that a bank is required by law to act in good faith and exercise reasonable care in its relationship with its depositors. -In this case, the obtaining from Speroff of a purported release from liability for inadvertency or oversight as a condition of the order to stop payment of the check was contrary to public policy and did not relieve FCTC from its duty to act in good faith and exercise reasonable care. -The Court distinguished that FCTC’s defense of purported release was a void and invalid defense. However, the FCTC’s defense of exercising good faith and reasonable care (which it interposed in its amended answer) is a valid defense so the Court remanded the case back to the Court of Common Pleas for trial on that issue. Disposition Judgment was modified and cause remanded.


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CHASE NATL BANK OF CITY OF NY V BATTAT Ny Court of Appeals; 297 N.Y. 185, 78 N.E. 2d, 465 (1948) ~jaja~ FACTS SUBJECT: a check for $25,000 as payment for the purchase of sugar DRAWER: Arbeedee PAYEE: Caracanda Bros. Co & Ltd. DRAWEE: Chase National Bank of City of New York Arbeedee and defendant Caracanda entered into an agreement for the purchase of sugar which provided that Arbeedee and should deliver a check for $25,000 to Caracanda to bind the transaction and that an amount would be returned upon receipt by Caracanda of a letter of credit to obtained by Arbeedee. Arbeedee drew such a check on its account in the plaintiff bank and delivered it to Caracanda. Thereafter Arbeedee requested plaintiff to stop payment on the check. Caracanda presented the check for certification and it was certified by plaintiff through mistake. The following day, Caracanda presented it for payment and plaintiff paid it. When advised of the payment of the check Arbeedee insisted that plaintiff make no debit against it account asserting that Caracanda has no legal right to the money. Plaintiff thereupon demanded payment of the $25,000 from Caracanda. That was refused. The complaint alleges due demand upon both defendants and nonpayment and prays for judgment in the sum of $25,000 against Arbeedee “and/or” Caracanda. ISSUE WON the complaint fails to state a cause of action against Arbeedee HELD: YES -The complaint failed to allege ratification by Arbeedee after learning of the payment by plaintiff to Caracanda and there are no alternative allegations of fact upon which to rest such a cause of action. Our courts have never permitted a bank in a commercial transaction to such as this, after breaching its depositor's instructions to involve him against his will in litigation with a third party in order that the bank may recoup a potential loss resulting from its own error. The doctrine of subrogation or equitable assignment is not properly applicable under such circumstances. A bank may protect itself by contract with its depositor so as to limit liability on a stop payment order. When that has not been done, the common law liability is absolute in the absence of ratification. Judgment affirmed. LAWLESS V TEMPLE

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254 Mass 395, 150 NE 176 (1926) ~iNa~ FACTS SUBJECT: bill PAYEE: Hazel Lawless DRAWER: Norris J. Temple DRAWEE: Maurice E. Temple -On the instrument appears ME Temple's signature -ME Temple contends that the mere signature of the name of the drawee on the bill cannot fulfill the requirements that the signification of the assent of the drawee must be in writing and must be signed.


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account, the cashier made the unsigned notation: "Hold for Moore Brothers $350.00" -G.J. Moore ordered Grand Saline to forward the checks to Kilgore again. One of the checks was paid. The other, however, was not. This prompted Moore to file suit against Kilgore Bank to recover amount of the last mentioned unpaid check. -TC and Civil Appeals: in favor of Moore Brothers. ISSUE WON Kilgore is liable for the other check

HELD: YES -Acceptance must be in writing because sound policy requires that some substantial and tangible evidence of the contract is more reliable in nature than the statement or recollection of witnesses. The common practice before the NIL was to write the word "accepted" + the signature on the face of the bill. -But based on case law, the signature is both a writing and signing. The name alone is constantly holden to satisfy the requirement. -A drawee may be charged as acceptor although he writes merely his name upon the bill and that anyone taking the bill has the right to fill up a blank acceptance on the same principle that a holder may fill up a blank indorsement.

HELD: NO. Section 132 governs. Campos enumerates the ff requisites: 1)it must be in writing 2)it must be signed by the drawee, and 3) it must not change the implied promise of acceptor to pay only in money. Acceptance is usually made by writing "accepted" and signing immediately below. However, the drawee's signature alone is NOT sufficient -The plain purpose of 132 is to prevent any liability to the holder of a check from arising from the bare oral promise of the drawee bank to pay the check. In the present case, the liability of Kilgore Bank to Moore Brothers depends entirely on the BARE ORAL PROMISE of the drawee bank to pay. As we have said, this should have been in writing (and of course, complying as well with the other two requities). -The notation in the bank's ledger "Hold for Moore Brother, $350.00" adds no force to said promise. This statement (as opposed to the oral promise to pay) does NOT EVEN make any contract, oral or written, to pay.

KILGORE NATL BANK V MOORE BROS. LUMBER 102 SW 2d 200 (1937) ~chrislao~

WISNER V FIRST NATIONAL BANK OF GALLITZIN 220 Pa. 21, 68 Atl. 955 (1908) ~apple~

FACTS -Waddell transacted with Moore Brothers, a firm engaged in the lumber business. As payment for the lumber he purchased, Waddell drew 2 checks wroth $350 drawn against Kilgore National Bank. -2 checks were deposited by Moore Brothers in Grand Saline Bank for collection. A few days later, Grand Saline notified G.J. Moore that the checks had been returned by Kilgore Bank unpaid. -Because of this, G.J. Moore brought Waddell to Kilgore Bank where Waddell, Moore and the cashier of Kilgore Bank had an ORAL agreement. Waddell instructed Kilgore bank to pay Moore. The cashier promised Moore the payment of said checks once presented again. On the ledger of the bank in connection with Waddell's

FACTS SUBJECT: 6 checks DRAWER: Samuel R. Bullock DRAWEE: First National Bank of Gallitzin PAYEE: Charles W. Gallaer, Jr. or order -Subject checks were deposited in various banks and then, forwarded by said banks to drawee bank for payment -5 of the checks were not returned by the drawee bank to the forwarding banks for more than 2 days -Holder of the checks sued the drawee bank for payment on the theory that its failure to return the checks within 24 hrs after receipt thereof constituted acceptance

ISSUE WON the signature acceptance

of

the

drawee

is

sufficient

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-TC ruled in favor of drawee bank, saying that mere retention of the checks unaccompanied by its refusal to return them, was not acceptance ISSUE WON failure to return the checks to the holder or the collecting bank within 24 hrs amounts to acceptance HELD: YES. -The drawee to whom a bill is delivered for acceptance is deemed to have accepted it under Section 137 where: 1. he destroys it; 2. where he refuses within 24 hrs after delivery to return the bill accepted or nonaccepted to the holder; and 3. where he refuses within such other period as the holder may allow to return the bill accepted or non-accepted to the holder. WON a demand from the holder for the return of the bill, and a refusal on the part of the drawee, are conditions precedent to an acceptance -No prior demand from holder is required because to require so is not to the convenience or interest of the holder -The manifest purpose in requiring prompt return of the bill is in the interest of and for the protection of the holder -If this section had in view the protection of the holder, then it was evidently the intention of the legislature that the non-return of the bill within the specified time, regardless of the cause, will make the drawee an acceptor -The drawee bank, having failed to return the 5 checks to the collecting bank within 24 hrs after delivery, is deemed to have accepted the checks, and is therefore, liable for their amount *After the decision, Pennsylvania amended Section 137, to destroy the effect of the decision. The following proviso was added: "Provided, that the mere retention of such bill by the drawee, unless its return has been demanded, will not amount to an acceptance..."

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URWILLER V PLATTE VALLEY STATE BANK SC Nebraska; 164 Neb. 630, 83 N.W.2d 88 (1957) ~rach~ FACTS SUBJECT: Holder's action against drawee bank, which had returned check on account of insufficiency of funds on deposit in drawer's account. Lower court dismissed such action; holder appealed. DRAWER: Ira McCord who had an account in defendant bank DRAWEE: Defendant Platte Vlley State Bank PAYEE: Plaintiff Norton Urwiller -In payment of his purchase of hogs, McCord issued to Urwiller his check for the sum of $2,491.11. The next day, Urwiller’s wife deposited this to his account in the Ravenna Bank. The bank then forwarded the check for collection in the usual course of business through regular channels: Ravenna Bank -> Bank in Lincoln -> Omaha branch of the Federal Reserve Bank -> Platte Valley State Bank (PVSB). -The check was received in a cash letter during business hours on Saturday, Dec 12, 1953. The check was proofed on the day it was received and posted for action on the following business day, which was Monday. On Mon it was decided not to pay the check, but mark it for 'return,' because the drawer thereof did not have sufficient funds on deposit in his account with appellee. -Actual return was not made to the Federal Reserve Bank until Wed. This delay was caused by the fact that bank examiners came and assumed control of all the records of the bank, including cash items, on Mon morning. Urwiller was advised by the Ravenna bank late Thurs afternoon, of the fact that payment of the check had been refused although the check was not actually returned to him until Saturday. The check has never been paid. ISSUE WON retention of a check by a drawee bank for more than 24 hours after it is presented to it for payment constitutes an acceptance of the instrument so that the drawee bank is bound to pay it HELD: NO Ratio 'Presentment for payment and presentment for acceptance are two different acts well known to the law of negotiable instruments. The difference between the object and effect of presentation for these respective purposes is very marked. Payment extinguishes the debt and puts an end to the paper evidencing the same, while acceptance has the very opposite effect. It creates a new liability upon the part of the acceptor,

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and gives new life to the instrument.' -‘In absence of statutory right, holder would be left to his common law rights, for either breach of contract or for tortious breach of duty, by drawee bank which had refused payment on grounds of insufficiency of funds in drawer's account.’ Disposition Trial court was correct in dismissing his petition. We affirm.

certification, it voluntarily assumed the obligation of holding so much of the deposit of the province of Samar as would be sufficient to cover the amount of the check, or before allowing the withdrawal that exhausted said deposit, of making the necessary inquiry on the matter. It would be an empty gesture if the appellant did not mean to assume the obligation of paying the check and holding sufficient deposit of the drawer for the purpose. 2. NO. -PNB’s liability is only subsidiary to that of the Province of Samar which is primarily liable thereon. Disposition. Decision affirmed.

SUMCAD V PROVINCE OF SAMAR 52 O.G. 18, 7582 (1956) ~cHa~

PADILLA, dissenting: PNB should not be liable at all. When it requested the Bureau of Posts to furnish it with photostatic copies of the check, it only means that the original check was not presented to it for payment! The act of requesting did not create an obligation on the part of PNB.

FACTS SUBJECT: check for P25k, cannot be paid because of insufficient funds DRAWER: Province of Samar DRAWEE: PNB, Cebu Branch PAYEE: Paulino Santos SUBSEQUENT INDORSEMENTS: Paulino Santos indorsed to James McGuire then transferred to Sumcad et.al. -James McGuire presented the check to municipal treasurer of Borongan for payment, the latter did not pay or did not choose to pay. McGuire wrote letters to the Bureau of Posts seeking payment for check. Director of the Bureau of Posts referred to PNB. (Note: McGuire did not present check directly to PNB.) -PNB requested photostatic copies of the check – was received by bank. (Province of Samar by this time still had P84,287.47) -Procedural requirements still asked from McGuire so by the time the check was transferred to Sumcad et al., Province of Samar already withdrew from their PNB account P83,504.07 leaving only P743.43. -Sumcad et al were not able to encash check so they sued Province of Samar and PNB. PNB was held solidarily liable with Province of Samar. Hence, this appeal. ISSUE 1. WON PNB constructively accepted to assume the obligation 2. WON PNB is solidarily liable HELD 1. YES. -When PNB requested photostatic copies of the check from the Bureau of Posts and McGuire to present check to provincial treasurer and provincial auditor for

COOLIDGE V PAYSON 2 Wheat 66, 4 L. Ed. 185 (1817) ~jojo~ FACTS DRAWER: Cornhwaite & Cary DRAWEE: Collidge & Co. (defendant) PAYEE: John Randall INDORSEE: Payson & Co. (plaintiff) - Coolidge held proceeds of the cargo of the Hiram claimed by Cornthwaite. Corthwaite executed bonds of indembity an executed srolls and drew on them for $2,700, payable to Randall, and endorsed by him to Payson. Coolidge wrote to Corthwaite stating that, since there is no seal to any of the signatures, it is necessary to ascertain the legality of the scrolls. Coolidge wrote to its friend, William, who was to determine whether the draft was to be honored. William replied, approving the bond. -Cornthwaithe called on William to inquire whether he had satisfied Coolidge respecting the bond. Williams stated the substance of the letter he had written, and read to him a part of it. Payson also called on him to make the same inquiry, to whom he gave the same information and also read the letter he had written. -2 days later, a bill was drawn by Cornthwaite and paid to Payson in part of the protested bill of $2,700.it was presented to Coolidge, who refused to accept it.

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ISSUE WON Coolidge is deemed to have accepted the bill, hence liable to Payson HELD: YES -A promise to accept a bill amounts to an acceptance to a person who has taken it on the credit of that promise, although the promise was made before the existence of the bill, and although it is drawn in favor of a person who takes it for a pre-existing debt -Upon a review of several cases, the court holds that a letter written within a reasonable time before or after the bill of exchange, describing it in terms not to be mistaken, and promising to accept it, is if shown to the person who afterwards takes the bill on the credit of the letter, a virtual acceptance binding the person who makes the promise. REPUBLIC V PHIL. NAT’L BANK L-No. 16106, Dec. 30, 1961; 3 SCRA 851 ~kiyo~ FACTS -RP filed a complaint for escheat of certain unclaimed bank deposit balances against several banks under Act. 3936 which provides that “unclaimed balances” (w/c includes credits or deposits of money, bullion, security and other evidence of indebtedness of any kind + interest) in favor of persons not heard from for 10 years or more, with the increase and proceeds thereof, shall be deposited with the Insular Treasurer to the credit of the Phil. Government. Among these banks was the First National City Bank of New York who argued that some of its credits didn’t fall within the purview of the Act. The court held that cashier’s checks and demand drafts fall under the Act but upon MFR changed its view and excluded drafts, hence this appeal. ISSUE WON demand drafts create a creditor-debtor relationship between drawee and payee, thus falling within the meaning of “credits” in Act. 3969 HELD: NO -A demand draft is not of the same category as a cashier’s check which should fall under the Act. In banking terminology, the term bank draft is used interchangeably with a bill of exchange. A bill of exchange under the NIL (sec. 127) does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts. In fact, the law requires presentment w/in a reasonable time or else the drawer is discharged from liability. Since it is admitted in this case that the drafts in question were

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never presented either for acceptance or payment, appellee bank never became a debtor of the payees, hence the drafts never became “credits” under the Act. -Drafts must however be distinguished from cashier’s checks, which is simply a bill of exchange drawn by the bank on itself; it is equivalent to a certified check and its deposit passes to the credit of the holder who then becomes a depositor of that amount. Disposition TC decision modified; telegraphic transfer payment orders should be escheated to RP (see case for telegraphic orders) PAL V CA, Galano, del Rosario, Tan G.R. No. 24188; Jan 30, 1990; Gutierrez, Jr. ~athe~ FACTS -Amelia Tan commenced a complaint for damages. The CFI of Manila rendered judgment in favor of Tan and against PAL. PAL appealed and the amount of damages was lowered to a total of P30, 000.00. The judgment became final and executory there being no further appeal taken. -Tan filed a motion for the issuance of a writ of execution of the judgment. Judge Galano issued its order of execution and it was duly referred to Deputy Sheriff Emilio Z. Reyes. -Four months later, Tan moved for the issuance of an alias writ of execution stating that the judgment remained unsatisfied. -PAL filed an opposition stating that it had already fully paid its obligation to Tan through the deputy sheriff Reyes as evidenced by cash vouchers properly signed and receipted by Sheriff Reyes (PAL issued a check amounting to P30,000.00 in the name of Sherriff Reyes and not in the name of Tan). However, Sherriff Reyes encashed the check but failed to surrender the amount to Tan. He, instead, absconded. -Judge Galano granted Tan’s Motion for Alias Writ of Execution and directed Special Sheriff del Rosario to levy on execution. Consequently, Del Rosario served a notice of garnishment on the depository bank of PAL. Because of this, PAL filed this instant petition ISSUES 1. WON an alias writ of execution be issued without a prior return of the original writ by the implementing officer 2. WON payment of judgment to the implementing officer as directed in the writ of execution constitutes satisfaction of judgment HELD 1. YES.


[Ch5-G]

Ratio Technicality cannot be countenanced to defeat the execution of a judgment for execution is the fruit and end of the suit and is very aptly called the life of the law. A judgment cannot be rendered nugatory by the unreasonable application of a strict rule of procedure. Vested rights were never intended to rest on the requirement of a return, the office of which is merely to inform the court and the parties, of any and all actions taken under the writ of execution. Where such information can be established in some other manner, the absence of an executing officer's return will not preclude a judgment from being treated as discharged or being executed through an alias writ of execution as the case may be. 2. General Rule (under ordinary circumstances): YES Article 1240, NCC. "Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." Exception (under peculiar circumstances like in this case): NO a. Unless authorized to do so by law or by consent of the obligee, a public officer has no authority to accept anything other than money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioner's checks, in the case at bar, does not, per se, operate as a discharge of the judgment debt. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code) A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3). b. It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in decision making. We should not follow rulings to their logical extremes if in doing so we arrive at unjust or absurd results. c. PAL was negligent. Making the checks payable to the judgment creditor would have prevented the encashment or the taking of undue advantage by the sheriff, or any person into whose hands the checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in the name of the

[ch5-H]


sheriff clearly made possible the misappropriation of the funds that were withdrawn. Disposition Petition dismissed. NARVASA, Dissenting Opinion -A sheriff is authorized to receive payments on account of the judgment debt tendered by "a person indebted to the judgment debtor," and his "receipt shall be a sufficient discharge for the amount so paid or directed to be credited by the judgment creditor on the execution" (sec. 41, Rule 39). -The sheriff is an adjunct of the court; a court functionary whose competence involves both discretion and personal liability. Being an officer of the court and acting within the scope of his authorized functions, the sheriff's receipt of the checks in payment of the judgment execution, may be deemed, in legal contemplation, as received by the court itself. -If payment had been in cash, no question about its validity or of the authority and duty of the sheriff to accept it in settlement of PAL's judgment obligation would even have arisen. Simply because it was made by checks issued in the sheriff's name does not warrant reaching any different conclusion. FELICIANO, Dissenting Opinion -The risk of the sheriff faithfully performing his duty as a public officer is most appropriately borne NOT by the judgment debtor/creditor, nor upon those members of the general public who are compelled to deal with him, but by the STATE itself. The judgment creditor, in circumstances like those of the instant case, could be allowed to execute upon the absconding sheriff’s bond. PADILLA, Dissenting Opinion -He has underscored the obligation of the sheriff, imposed upon him by the nature of his office and the law, to turn over such legal tender, checks and proceeds of execution sales to the judgment creditor. The failure of a sheriff to effect such turnover and his conversion of the funds (or goods) held by him to his own uses, do not have the effect of frustrating payment by and consequent discharge of the judgment debtor. -If the plaintiff fails to receive it, his only remedy is against the officer. -When PAL delivered the checks to the Sheriff, the latter was accompanied by the counsel of Tan. Prudence dictates that the counsel of Tan should have insisted on their immediate encashment by the Sheriff with the drawee bank in order to promptly get hold of the amount belonging to his client. FORTUNADO V CA, Campano, Bautista, Register of Deeds, and National Steel Corporation

AY 2008-09

GR 78556; 196 SCRA 269; Cruz; April 21, 1991 ~giulia~ FACTS -In a civil case, the RTC rendered judgment ordering Angel Bautista to pay damages to Alfero Fortunado. Pursuant to said judgment, the Sheriff levied upon 2 parcels of land registered in the name of Bautista, but 1 of the said parcels of land was already sold to the National Steel Corporation (NSC). The properties were sold to the petitioner as the only bidder in a public auction. -NSC then gave notice to the sheriff of its intention to redeem the property it owned. The sheriff suggested as the 2 lots were sold together that both of them should be redeemed. NSC filed with the TC an urgent motion to redeem, which was opposed by the petitioners on the ground that the movant did not have the personality to intervene. -As the motion remained unresolved, the NSC issued to the sheriff a PNB check for the properties.Bautista sent the sheriff a letter bearing NSC's conformity in which he availed himself of SC's check to redeem the properties. His letter contained the ff reservation: This redemption is made solely for the purpose of effecting the execution and delivery to me of the necessary certificate of redemption and the same shall not be taen to mean my accknowledgment of the validity of the said writ of execution and sale, both of which I shall continue to contest, nor shall this be taken to mean as a waiverr on my part of the legal reights and remedies available to me under the circumstances. -Sheriff issued the certificate of redemption in favor of NSC and Bautista. Bautista later on wrote to the sheriff that he would no longer effect the redemption because there was nothing to redeem, the auction sale being null and void. -Bautista, in an Urgent Motion, prayed that the sum covered by the PNB check be delivered to and kept by the clerk of court until such time as all incidents relative to the validity of the auction sale were finally resolved. Sheriff notified the petitioners' counsel of the deposit of the PN check. Counsel told the check that he was rejecting the check as it was not legal tender. -Respondent court held that NSC's redemption was absolute and unconditional in view of its refusal to join Bautista in contesting the validity of the sale. However, the validity of the redemption was dependent on the validity of the certificate of sale, which still has to be resolved by the TC. Motion for partial reconsideration by petitioner was denied.


[Ch5-H]

ISSUE WON there was valid redemption. HELD: YES. Although the private respondents in the case did not file a redemption case against the petitioners, NSC filed an urgent motion for redemption within the redemption period. In the US, it has been held and recognized that a payment by check or draft or bank bill or currency which is not legal tender is effective if the officer accepts such payment. If in good faith, the redemptioner pays, and the officer receives before the expiration of the time of redemption, an ordinary banker's check, the payment is regarded as sufficient. The Court does not, by this decision, sanction the use of check for the payment of obligations over the objection of the creditor. It is just that a check may be used for the exercise of the right of redemption, the same being a right and not an obligation. The tender of a check is sufficient to compel redemption but it is not in itself a payment that relieves the redemption bt is not in itself a payment that relieves the redemtioner from his liiability t pay the redemption price. While the private respondents have properly exercised their right of redemption, they remain liable for the payment of the redemption price. MESINA V IAC [Gonong, Go and Uy] L-70145; Nov. 13, 1986; 145 sCRA 499; Paras ~ajang~ FACTS -Jose Go purchased from Associated Bank a cashier’s check worth P800,000. Accidentally, he left the check on top of the desk of the bank manager when he left the bank. The bank manager entrusted the check for safekeeping to bank official, Albert Uy, who then had a visitor, Alexander Lim. Uy had to answer a telephone call, then he went t the men’s room. When he returned to the desk, his visitor Lim was already gone and so was the check. When Jose Go returned to the bank, the check was nowhere to be found. -Uy advised Go to accomplish a sop payment order. Go also executed an affidavit of loss. Uy also went to the police station to report the loss, pointing to Alexander Lim as the one who could shed light on it. -Associated Bank received the lost check 2 days after for clearing, coming from Prudential bank. The check was immediately dishonored by Associated Bank and returned to Prudential with the words, “Stop Payment.” The check was again returned to Associated Bank and for the 2nd time, it was dishonored.

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Law 108: Negotiable Instruments

-Several days later, Associated Bank received a letter from Atty. Lorenzo Navarro demanding payment for the check and threatened to sue. He refuses to reveal who his client is. Unsure with what to do with the matter, Associated Bank filed for an Interpleader. The client turned out to be one named Mesina. He said the check was paid to him by Alexander Lim in a certain transaction but refused to elucidate further. Mesina filed a complaint for damages. -TC rendered a decision on the interpleader ordering Associated Bank to replace Jose Go’s check or pay its cash equivalent. Mesina’s complaint on the other hand was dismissed. The issue in that case is who between Mesina and Go are entitled for the payment of the check. Since this issue had been resolved in the other case, it has become moot and academic. ISSUE: WON the lower court’s ruling in the interpleader case should be set aside. HELD: NO. Mesina invokes theories on causes and effects of a cashier’s checks such as 1) it cannot be countermanded in the hands of a holder in due course and 2) a cashier’s check is a bill of exchange drawn by the bank against itself. But these are general principles which cannot be aptly applied to the case at bar without considering other things. -Mesina failed to substantiate that he is a holder in due course. He refused to say how and why the check was passed to him. He therefore had notice of the defect of his title over the check from the start. -Next, the check was bought by Jose Go from the bank for purposes of transferring his bank from Associated Bank to a nearby bank, thinking that carrying a check would be safer than carrying cash; it was not issued in payment of an obligation. The check was Jose Go’s property when it was misplaced or stolen. Bank was therefore liable to no one else but Jose Go. -When the payment was stopped, it was not the bank who did it but Jose Go. The bank could not be the drawer and drawee for clearly, Jose Go owns the money it represents and he is therefore the drawer and drawee in the same manner as if he has a current account and he issued a check against it. No one outside Jose Go can be termed a holder in due course because Go had not indorsed it in due course. NOTE: Clear implication from the case is that if Mesina had been a holder in due course, the court would have granted recovery. INT’L CORPORATE BANK V GUECO 351 SCRA 516; Kapunan; Feb 1, 2001

First Semester

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FACTS -Spouses Gueco obtained a loan from International Corporate Bank (now Union Bank of the Philippines) to purchase a car – a Nissan Sentra 1600 4DR, 1989 Model. In consideration, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of installments. The Bank filed a civil action for “Sum of Money with Prayer for a Writ of Replevin” before MTC Pasay City. Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Bank’s Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount, the car was detained inside the bank’s compound. Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00. Dr. Gueco delivered a manager’s check in the amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is their contention that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. However, the Bank insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. After several demand letters and meetings with bank representatives, the Spouses initiated a civil action for damages before MTC Quezon City. -MTC QC: dismissed the complaint for lack of merit. -RTC QC: MTC decision reversed and held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. Also, the Bank is ordered to return the car to the Spouses; the Bank may deposit the Manager’s check – the proceeds of which have long been under the control of the issuing bank in favor of the Bank since its issuance, whereas the funds have long been paid by the Spouses to secure said Manager’s Check, over which the Spouses have no control. Moreover, the Bank is ordered to pay the Spouses the P50,000.00 as moral damages; P25,000.00 as exemplary damages, and


[Ch5-I]

P25,000.00 as attorney’s fees, and to pay the cost of suit. -CA: Petition for review on certiorari is hereby DENIED and the RTC Decision is AFFIRMED in toto as CA essentially relied on the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages. ISSUES 1. WON there was no agreement with respect to the execution of the joint motion to dismiss as a condition for the compromise agreement 2. WON granting moral and exemplary damages and attorney’s fees in favor of Sps Gueco is proper 3. WON the Bank must return the subject car to the Sps. Gueco, without making any provision for the issuance of the new manager’s/cashier’s check by the Spouses in favor of the Bank in lieu of the original cashier’s check that already became stale HELD 1. YES -In support of its claim, The Bank presented the testimony of Mr. Jefferson Rivera who related that Dr. Gueco was aware that the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced amount of indebtedness and the release of the car. The Spouses, however, maintained that no such condition was ever discussed during said meeting. If it is true that the signing of the joint motion was a condition sine qua non for the reduction of the Spouses’ obligation, it is only reasonable and logical to assume that the joint motion should have been shown to Dr. Gueco in the said meeting. Why Dr. Gueco was not given a copy of the joint motion on the day of the meeting, for his family or legal counsel to see to be brought signed, together with the P150,000.00 in manager’s check form to be submitted on the following day? -It is more logical to conclude that only an oral compromise agreement, whereby the original claim of the bank of P184,985.09 was reduced to P150,000.00 and that upon payment of which, plaintiff was informed that the subject motor vehicle would be released to him’ happened during that said meeting. 2. NO -Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal

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Law 108: Negotiable Instruments

fulfillment of obligation. We fail to see how the act of the bank in requiring the Spouses to sign the joint motion to dismiss could constitute as fraud. True, the Bank may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of the bank. However, this can not in anyway have prejudiced Dr. Gueco. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. The law presumes good faith. 3. NO -The Bank would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had become stale. It is their position that delivery of the manager’s check produced the effect of payment and, thus, the Bank was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance the Spouses’ position. -A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. -A check must be presented for payment within a reasonable time after its issue, and in determining what is a “reasonable time,” regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed such diligence as a prudent man exercises in his own affairs. This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check. Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale. Thus, even a delay of one (1) week[27] or two (2) days, under the specific circumstances of the cited cases constituted unreasonable time as a matter of law. -In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager’s check. A manager’s check is one drawn by the bank’s manager upon the bank itself. It is similar to a cashier’s check both as to effect and use. A cashier’s check is a check

First Semester

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[Ch5-J]

of the bank’s cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the bank’s own check and may be treated as a promissory note with the bank as a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. -Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Spouses have not alleged, much less shown that they or the bank which issued the manager’s check has suffered damage or loss caused by the delay or nonpresentment. Definitely, the original obligation to pay certainly has not been erased. -It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. In the case at bar, there is no doubt that the bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the Bank. Disposition Petition for review is given due course. CA decision affirming RTC decision is SET ASIDE. Spouses Gueco is ordered to pay the original obligation amounting to P150,000.00 to the Bank upon surrender or cancellation of the manager’s check in the latter’s possession, afterwhich, the Bank is to return the subject motor vehicle in good working condition.

sale, New Timber deposited with the Clerk of Court the P50,000 check and P13,130 in cash. -Seneris refused to accept check and cash. Sheriff proceeded with the auction sale.

NEW PACIFIC TIMBER & SUPPLY CO V SENERIS L-41764, Dec. 19, 1980; 101 SCRA 686 ~glaisa~

HELD: NO -The general rule is that a check is of right presentable only for payment, and that the bank is under no obligation to certify, although it may do so. -When a bank certifies a check at the request of the holder, a new obligation is created. Under Section 324, the drawer and all the endorsers are discharged from liability if the check is accepted or certified. The acceptance of a bill of exchange, on the other hand, does not discharge the liability. The certification differs in effect from mere acceptance of bills other than checks, in that it is not an added obligation but a substitute obligation. Certification of the check by the

FACTS SUBJECT: Equitable Bank Cashier’s Check for P50k dated Jan. 3, 1975 DRAWER: New Pacific Timber -New Pacific failed to comply with his judgment obligation. Judge issued writ of execution for P63,130 to which the Sheriff levied upon personal properties and set the auction sale on Jan. 15. Prior to the scheduled

ISSUE WON Seneris can validly refuse acceptance of the payment of the judgment obligation made by New Timber, consisting of the Cashier’s Check and cash. HELD: NO -A Cashier’s Check is deemed as cash. Moreover, since the check had been certified by the drawee bank, by the certification, the funds represented by the checks are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. The certification is equivalent to acceptance. -The object of certifying a check as regards both parties is to enable holder to use it, as money. When the holder procures the check to be certified, the check operates as an assignment of a part of the funds to the creditors. WACHTEL V ROSEN 248 NY 386, 164 NE 326 ~RPR~ FACTS Plaintiff received from Arthur Wachtel a check drawn on National Park Bank which plaintiff presented to said bank for certification. The bank refused to certify the check. ISSUE WON the refusal of the drawee bank to certify the check is equivalent to a dishonor of the check such that holder may sue the drawer as if the check was presented for payment and payment had been refused

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bank is equivalent to payment. The bank in this case may not be prepared to substitute itself with the drawer. Disposition Judgment affirmed. ROMAN CATHOLIC BISHOP OF MALOLOS, INC V IAC [Robes-Francisco Realty and Dev’t Corp] G.R. No. 72110; Sarmiento; Nov 16, 1990 ~owen~ FACTS -July 7, 1971 > the subject contract over the land, a 20,655 sq.m. in Bulacan, issued and registered in the name of the Roman Catholic Bishop of Malolos which it sold to the Robes-Francisco Realty and Dev’t for P123,930.00). in question was executed stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to be paid within four (4) years from execution of the contract, that is, on or before July 7, 1975. The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the land in question in case Robes-Francisco Realty and Development would fail to complete payment within the said period. -March 12, 1973 > Robes-Francisco addressed a letter to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished with a copy of the subject contract and the supporting documents. -July 17, 1975 > admittedly after the expiration of the stipulated period for payment, Robes-Francisco wrote Roman Catholic a formal request that her company be allowed to pay the principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment and the accrued interest of P24,000.00 to be paid immediately upon approval of the said request. -July 29, 1975 > Roman Catholic formally denied the said request of Robes-Francisco, but granted the latter a grace period of five (5) days from the receipt of the denial to pay the total balance of P124,000.00, otherwise, the provisions of the contract regarding cancellation, forfeiture, and reconveyance would be implemented. -August 4, 1975 > Robes-Francisco wrote Roman Catholic requesting an extension of 30 days from said date to fully settle its account. -August 7, 1975 > Roman Catholic denied the request for an extension of the grace period. -August 22, 1975 > Robes-Francisco protested alleged refusal of the latter to accept tender of payment purportedly made by the former on August 5, 1975, the last day of the grace period and demanded the execution of a deed of absolute sale over the land in

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question and after which it would pay its account in full, otherwise, judicial action would be resorted to. -August 27, 1975 > Roman Catholic refused to execute the deed of absolute sale due to its failure to pay its full obligation. Moreover, Roman Catholic denied that Robes-Francisco had made any tender of payment whatsoever within the grace period. In view of this alleged breach of contract, Roman Catholic cancelled the contract and considered all previous payments forfeited and the land as ipso facto reconveyed. -TC: Failure of Robes-Francisco to present in court the certified personal check allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof is fatal. And Robes-Francisco was found to have insufficient funds to fulfill the entire obligation considering that its president, Atty. Francisco, only had a savings account deposit of P64,840.00, and although the latter had a money-market placement of P300,000.00, the same was to mature only after the expiration of the 5-day grace period. TC declares the subject contract cancelled and Robes-Francisco’s downpayment of P23,930.00 forfeited in favor of Roman Catholic, and hereby dismisses the complaint -IAC: reversed TC decision as Robes-Francisco has a total available sum of P364,840.00 and their disposal on or before August 4, 1975 to answer for the obligation of the Roman Catholic. It was not correct for the trial court to conclude that Robes-Francisco had only about P64,840.00 in savings deposit on or before August 5, 1975, a sum not enough to pay the outstanding account of P124,000.00. ISSUES 1. WON finding that Robes-Francisco had sufficient available funds on or before the grace period for the payment of its obligation is proof that it did tender of payment for its said obligation within said period 2. WON there is legal obligation on the part of Roman Catholic to execute a deed of absolute sale in favor of the Robes-Francisco before the latter has actually paid the complete consideration of the sale where the contract between and executed by the parties stipulates 3. WON an offer of a check is a valid tender of payment of an obligation under a contract which stipulates that the consideration of the sale is in Philippine Currency HELD 1. NO -A finding that Robes-Francisco had sufficient available funds on or before the grace period for the payment of its obligation does not constitute proof of tender of payment by the latter for its obligation within the said period. Tender of payment involves a positive and


[Ch5-K]

unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor avails himself of such funds to settle his outstanding account remains to be proven by independent and credible evidence. Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. "A proof that an act could have been done is no proof that it was actually done." 2. NO -Although admittedly the documents for the deed of absolute sale had not been prepared, the subject contract clearly provides that the full payment by the private respondent is an a priori condition for the execution of the said documents by Roman Catholic. “That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause the execution of a Deed of Absolute Sale in favor of the VENDEE.” -What Robes-Francisco should have done if it was indeed desirous of complying with its obligations would have been to pay Roman Catholic within the grace period and obtain a receipt of such payment duly issued by the latter. Thereafter, or, allowing a reasonable time, Robes-Francisco could have demanded from Roman Catholic the execution of the necessary documents. In case Roman Catholic refused, Robes-Francisco could have had always resorted to judicial action for the legit enforcement of its right. 3. NO -A certified personal check is not legal tender nor the currency stipulated, and therefore, cannot constitute valid tender of payment. The first paragraph of Art. 1249CC provides that "the payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. -PAL v. CA > Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. -Hence, where the tender of payment by RobesFrancisco was not valid for failure to comply with the requisite payment in legal tender or currency stipulated

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within the grace period and as such, was validly refused receipt by Roman Catholic, the subsequent consignation did not operate to discharge the former from its obligation to the latter. Disposition Petition for review on certiorari granted. IAC decision set aside and annulled. RTC decision reinstated. BULLIET V ALLEGHENY TRUST CO 284 Pa. 561, 131 Atl. 471 (1925) ~maia~ FACTS SUBJECT: a check for $5000 DRAWER: Mitchell, as buyer of an oil property DRAWEE: Allegheny Trust Co PAYEE: Bulliet, as seller of the the oil property -the memorandum of agreement of the parties provided that the 5000 would be given in escrow in evidence of good faith that Mitchell would pay the remainder of the purchase price. In the event of Mitchell’s failure to pay, the 5000 would be forfeited in favor of Buillet. Mitchell made sure with Allegheny that it had enough funds. Buillet then sent a telegram to Allegheny inquiring whether it would honor Mitchell’s check, and the bank replied through wire that it would. -Mitchell did not pay the purchase price. Buillet then claimed from Allegheny, but the latter refused to pay because Mitchell had given a “stop payment order.” Allegheny also insisted that, putting itself in the position of Mitchell, there was no transfer of title as to the property being conveyed as there was failure of consideration, thus it should not be liable to pay since Mitchell itself would not be liable to pay. (in effect, Allegheny invoked the defense available to Mitchell) ISSUE WON Allegheny is liable for the amount under the circumstances HELD: YES -the reply of Allegheny that it would honor the check amounted to certification of the bank, thus making it liable -the effect of the bank’s certifying a check at the request of the holder is to create a new obligation on the part of the bank to that holder, the amount of the check passes to the credit of the holder, who is thereafter a depositor to that amount -the obligation of the acceptor is to pay the instrument according to the tenor of his acceptance. It has been said that an acceptor admits everything essential to the validity of the bill, and on this ground he cannot, for

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example, even set up the defense of want of consideration between the parties. -the acceptor cannot defend on the ground of want of consideration between the drawer and the payee Disposition Judgment affirmed (Allegheny liable to pay Buillet) SUTTER V SECURITY TRUST CO 96 N.J. Eq. 644 A. 435, 35 A.L.R. 938 (1924) ~da~ FACTS SUBJECT: Checks DRAWER: Mr. Sutter DRAWEE: Security Trust Co. PAYEE: Mrs. Sutter INDORSEE: Mr. Mack -Mr. Sutter drew a check in favor of his wife on March 25 1922 in the amount of $1000 for which he procured the certification of drawee Security Trust Co. The check was delivered to his wife in consideration of a certain agreement between them concerning their separation. The wife violated said agreement after the delivery of the check to her. -On March 27, 1922 Mr. Sutter requested that payment be stopped upon the check because of Mrs. Sutter’s violation of their agreement. Mrs Sutter on the same day went to her brother Mr. Mack and indorsed the check to him and he deposited it in his bank in Philadelphia. -March 30, through the Federal Reserve Bank of Philadelphia, the check was presented to Security Trust Co for payment which was refused on ground of “payment stopped”. Respondent told Mr. Sutter that the check was in the hands of an innocent third person for value and that unless he indemnified respondent the check would be paid. He refused to indemnify respondent, thus respondent paid the check upon subsequent presentment. Mr. Sutter demanded the payment to him of his alleged balance of $1034.41 w/c includes the $1000 drawn w/c was refused except as to balance of $34. ISSUE WON Security Trust Co. was justified in paying the indorsee Mr. Mack the $1000 value of the check HELD: YES. -The Bank was justified and legally called upon to make payment to Mrs. Sutter upon presentation and demand as against the notice of the maker of the check to stop payment, its obligation under the facts was likewise to make the payment to the indorsee holder Mr. Mack


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Reasoning: A check may be certified by the bank at the request of the payee or the holder, when the check is certified at the request of the drawer or maker before it reaches the hands f the payee therein named. When such a certification is made and there is delivery to the payee, under the circumstances and conditions making him a bona fide holder for value, without notice of defects therein then the instrument is beyond recall by the maker as against the payee. He may only do so (recall) if the payee is not a bona fide holder for value but has obtained the check by fraud perpetrated by him upon the maker. -In this case since Mr. Mack is not a holder in due course, it is necessary to inquire whether the bank by reason of its certification would have been justified in making payment to Mrs. Sutter the payee upon proper presentation of the check by her notwithstanding the service of notice to stop payment by her husband the maker and the disclosure by him to the bank of the conditions upon which the check was obtained by Mrs. Sutters. There is nothing in the case that indicate that Mrs Sutter procured the check by any fraud perpetrated by her to her husband. PNB V PICORNELL Romualdez; 46 Phil. 716 (1922) ~bry_sj~ FACTS SUBJECT: Bill Of Exchange DRAWER: Bartolome Picornell DRAWEE: Firm Of Hyndman, Tavera And Ventura PAYEE: PNB -Bartolome Picornell, following instruction Hyndman, Tavera & Ventura, bought in Cebu 1,735 bales of tobacco. Picornell obtained from the branch of the National Bank in Cebu the sum of P39,529,83, the value of the tobacco, together with his commission of 1 real per quintal, having, in turn, drawn a bill of exchange. This instrument was delivered to the branch of the Philippine National Bank (PNB) in Cebu, together with the invoice and bill of lading of the tobacco, which was shipped in the boat Don Ildefonso, on 27 February 1920, consigned to Hyndman, Tavera & Ventura at Manila. -On 3 March 1920, PNB presented the bill to Hyndman, Tavera & Ventura, who accepted it. The tobacco having arrived at Manila, the firm of Tambunting, owner of the ship Don Ildefonso, that brought the shipment, requested Hyndman, Tavera & Ventura to send for the goods, which was done by the company without the knowledge of PNB which retained and always had in its possession the invoice and bill of

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lading of the tobacco, until it presented them as evidence at the trial -Hyndman, Tavera & Ventura proceeded to the examination of the tobacco, which was deposited in their warehouses, and wrote and cabled to Picornell, notifying him that of the tobacco received, there was a certain portion which was of no use and was damaged. Through these communications, therefore, Picornell learned that Hyndman, Tavera & Ventura had in their possession the tobacco. -In view of the question raised by the said company as to the quality of the aforesaid tobacco, more correspondence was exchanged between the company and Picornell. Picornell requested PNB to extend the time for payment of the bill for P39,529,83 against Messrs. Hyndman, Tavera & Ventura of Manila for 30 days. PNB granted the request of Picornell; wherefore Hyndman, Tavera & Ventura reaccepted the bill in the terms: "Accepted for thirty days. Due May 2d, 1920. Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de Tavera, member of the firm." 2 May 1920, arrived and the bill was not paid. -On the 4th of the same month, Hyndman, Tavera & Ventura sent a letter to PNB informing the latter that it absolutely refuse to pay draft 2 for P39,529.83, referring to 1,871,235 quintals of Leaf Tobacco Barili, owing to noncompliance of the contract by the drawer. PNB protested the bill, took possession of the tobacco, and had it appraised on the 12th of the same month, its value having been fixed at P28,790.72. The bank brought the action for the recovery of the value of the bill of exchange, and about September 1921, sold the tobacco, obtaining from the sale P6,708. -In a decision rendered January 9, 1922, and amended by an order of February 18th next, the Court of First Instance of Manila sentenced the defendants to pay solidarily to the plaintiff bank the sum of P28, 790.72 with interest at the rte of 9 per centum per annum from May 3, 1921, and costs; and the defendant Bartolome Picornell, to pay said plaintiff the sum of P10,739.11 with interest at 9 per centum per annum, all as aforesaid, deducting the sum of P6, 708.82 from such amounts to be paid by the defendants. -This total sum which the defendants are required to pay represents the value of a bill of exchange drawn by Bartolome Picornell in favor of the National Bank, plaintiff, against the firm of Hyndman, Tavera & Ventura, now dissolved, its only successor being the defendant Joaquin Pardo de Tavera. The sum of P6,708.82, which the trial court ordered deducted from the value of the bill of exchange, is the proceeds received by the bank from the sale of a part of a certain quantity of tobacco shipped by Picornell at Cebu to the Hyndman,

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Tavera & Ventura company at Manila, the price of which, together with his commission, was received by him from the branch of the plaintiff bank in Cebu, and in consideration whereof he drew the bill in favor of the central office of said bank in Manila and against the said Hyndman, Tavera & Ventura company, the consignee of the tobacco. -Joaquin Pardo de Tavera alleged that the bill in question was without consideration and that judgment should not have been rendered against him. The appellant Picornell contended that it should have been taken into account that he merely acted as an agent of Hyndman, Tavera & Ventura in all these transactions; that the tobacco was not of inferior quality, as alleged by the said company; that the condition "D/P" attached to the transaction was not modified; that he had the right to complain because the bank consented to the said company taking possession of the tobacco before the payment of the bill; that the bank held the tobacco as a deposit; that the bank was not authorized to sell the tobacco, said sale not being allowed either by law or by the circumstances; that he should not have been ordered to pay the value of the bill without proof that he was notified of its dishonor, as required by section 89 of the Negotiable Instruments Law. ISSUES 1. WON the bank is subject to the defense of partial want of consideration. 2. WON Picornell is not liable on the instrument on the theory that he is merely a commissioned agent. HELD 1. NO. -The question whether or not the tobacco was worth the value of the bill, does not concern the plaintiff bank. Such partial want of consideration, if it was, does not exist with respect to the bank which paid to Picornell the full value of said bill of exchange. The bank was a holder in due course, and was such for value full and complete. The Hyndman, Tavera & Ventura company cannot escape liability in view of section 28 of the Negotiable Instruments Law. “The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer himself. But the drawer and acceptor are the immediate parties to the consideration, and if the acceptance be without consideration, the drawer cannot recover of the acceptor. The payee holds a different relation; he is a stranger to the transaction between the drawer and the acceptor, and is, therefore, in a legal sense a remote party. In a suit by him against the acceptor, the question as to the consideration between the drawer and the acceptor cannot be inquired into. The payee or


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holder gives value to the drawer, and if he is ignorant of the equities between the drawer and the acceptor, he is in the position of a bona fide indorsee. Hence, it is no defense to a suit against the acceptor of a draft which has been discounted, and upon which money has been advanced by the plaintiff, that the draft was accepted for the accommodation of the drawer. . . ." 2. NO. -As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon proper presentment and paid in due course, and as it was not paid, he became liable to the payment of its value to the holder thereof, which is the plaintiff bank. (Sec. 61, Negotiable Instruments Law.) -The fact that Picornell was a commission agent of Hyndman, Tavera & Ventura, in the purchase of the tobacco, does not necessarily make him an agent of the company in its obligations arising from the drawing of the bill by him. His acts in negotiating the bill constitute a different contract from that made by his having purchased the tobacco on behalf of Hyndman, Tavera & Ventura. Furthermore, he cannot exempt himself from responsibility by the fact of his having been a mere agent of this company, BECAUSE NOTHING TO THIS EFFECT WAS INDICATED OR ADDED TO HIS SIGNATURE ON SIGNING THE BILL. (Sec. 20, Negotiable Instruments Law.) -Concerning the notice to Picornell of the dishonor of the bill, it appears from Exhibit C, which is the protest for the non-payment thereof, that a copy of such protest was sent by mail in good season addressed to Bartolome Picornell, the presumption, now conclusive, that the latter received it (secs. 105, 106, Negotiable Instruments Law), not having been rebutted, or at least, contradicted. Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of recourse, which it exercised, against the drawer. (Sec. 84, Negotiable Instruments Law.) -The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de Tavera, accepted the bill and is primarily liable for the value of the negotiable instrument, while the drawer, Bartolome Picornell, is secondarily liable. However, no question has been raised about this aspect of the responsibility of the defendants. BANCO ATLANTICO V AUDITOR GENERAL G.R. No. L-33549; Fernandez; Jan 31,1978 ~mel~ FACTS SUBJECT: Philippine Embassy check dated Oct 31, 1968 for US$10,109.10

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DRAWER: Luis M. Gonzales, its ambassador and by said Virginia Boncan as Finance Officer DRAWEE: Philippine National Bank branch in New York, U.S.A PAYEE: Azucena Pace INDORSEE: Banco Atlantico, a commercial Bank doing business in Madrid -Virginia Boncan, then the Finance Officer of the Philippine Embassy in Madrid, Spain, negotiated with Banco Atlantico a Philippine Embassy check signed by Luis M. Gonzales, its ambassador and by said Virginia Boncan as Finance Officer, dated October 31, 1968 in the sum of US$10,109.10 payable to Azucena Pace and drawn against the PNB branch in New York, U.S.A. -The check was endorsed by Azucena Pace and Virginia Bonca. The petitioner, without clearing the check with the drawn bank in New York, U.S.A., paid the full amount of US$10,109.10 to Virginia Boncan; that on November 2, 1968, Virginia Boncan negotiated by endorsement with the petitioner another embassy check signed by Luis M. Gonzales as ambassador and by her as finance officer in the sum of US$35,000.75 dated November 2, 1968 payable to Virginia Boncan and drawn against the Philippine National Bank branch in New York, U.S.A.; that the petitioner paid the full amount of the check to Virginia Boncan without clearing said check with the drawn bank, that on November 5, 1968, Virginia Boncan negotiated by endorsement with petitioner another embassy check signed by Ambassador Luis M. Gonzales and by Finance Officer Virginia Boncan in the sum of US$90,000.00 dated November 5, 1968 payable to Virginia Boncan and drawn against the Philippine National Bank in New York, U.S.A.; that the petitioner paid the full amount of the aforementioned check of US$90,000.00 to Virginia Boncan without clearing said check with the drawn bank; -Upon presentment for acceptance and payment of the aforementioned checks by Banco Atlantico through its collecting bank in New York, U.S.A. to the drawn bank, the Philippine National Bank branch in U.S.A., said drawee bank dishonored the checks by non-acceptance allegedly on the ground that the drawer had ordered payments to be stopped; that upon receipt of the notice of the dishonor, the collecting bank of the petitioner in New York, U.S.A. sent individual notices of protest with respect to the checks in question to the Philippine Embassy in Madrid, Spain and to Virginia Boncan as endorser payee that Virginia Boncan and the Philippine Embassy in Madrid, Spain refused to pay the petitioner the amounts of the aforementioned checks. -Petitioner Banco Atlantico filed corresponding money claim with the Auditor General. AUDITOR GENERAL: denied the claim of the petitioner for the amounts of

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the three checks in question, stating that the Embassy never maintained any checking account with Banco Atlantico at any time in the past. Only the individual staff members of the Embassy, including Miss Virginia Boncan, in their personal and private capacities, maintained accounts with said bank. It also stated that while the aforementioned checks of the Embassy may have appeared valid, payment to Miss Boncan in her capacity as endorser and payee of the checks without clearing them first with the drawee bank is definitely not in accordance with normal or ordinary banking practice, especially so in this case where the drawee bank was a foreign bank, and the amounts involved were quite large. The normal procedure would have been for the Banco Atlantico to clear the three cheeks concerned with the drawee bank before paying Miss Boncan. The lower court have gathered enough proof that Miss Boncan had very special relations with the employees and chiefs of the claimant bank's foreign department. This personal relationship that existed between Miss Boncan and said employees and officers was one thing and ordinary banking transactions were something else. Because of this special relationship, the bank took a risk and sacrificed normal banking procedures by cashing the aforementioned checks without prior clearance from the drawee bank. -Further proof of the special relationship between claimant bank and Miss Boncan was the leniency of the bank towards her when it accepted for deposit to Miss Boncan's dollar account an Embassy check for US$75.00 payable to Mr. Antonio P. Villamor without his indorsement. Such leniency on the part of the bank could even lead to the suspicion that there was collusion between the bank and Miss Boncan A photocopy of this check is enclose for ease of reference. In the particular case of the check for US$90,000.00 we can demonstrate that claimant bank likewise has no ewe at all. Section 61 of the Negotiable instruments Law can only be availed of by holders in due course and Banco Atlantico cannot be considered as one ISSUE WON the Philippine Embassy in Madrid is liable, as drawer of the 3 checks in question HELD: NO Ratio: It is apparent that the said three (3) checks were fraudulently altered by Virginia Boncan as to their amounts and, therefore, wholly inoperative. No right of payment thereof against any party thereto could have been acquired by the petitioner. Reasoning: The petitioner paid the amounts of the three (3) checks in question to Virginia Boncan without


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previously clearing the said checks with the drawee bank, Philippine National Bank, New York. This is contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were large. The drawer of the aforementioned checks was not even a client of the petitioner. There is a showing that Virginia Boncan enjoyed special treatment from the employees and chiefs of the petitioner's foreign department. It was probably because of this special relationship that the petitioner, in of the elementary principle that should attend banking transactions, cashed the three (3) checks in question without prior clearances from the drawee bank. -SEC. 52. What constitutes a holder in due course A holder in due course is a holder who has taken the instrument under the following conditions: a. That it is complete and regular on its face; b. That he became the holder of it before it was overdue, and without notice that it has 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 infirmity in the instrument or defect in the title of the person negotiating it. -All four conditions enumerated under this section must concur before a holder can be considered as a holder in due course. The absence or failure to comply with any of the conditions set forth under this section will make one's title to the instrument defective. -The check for US$90,000.00 was a demand note. When Miss Boncan the payee of this check, negotiated the same by depositing it in her account, at the game time informing the bank in writing (copy of her letter is enclosed for ease of reference) that it be not presented for collection until a later date, Banco Atlantico through its agent teller or cashier should have been put on guard that there was something wrong with the check. The fact that the amount involved was quite big and it was the payee herself who made the request that the same not be presented for collection until a fixed date in the future was proof of a glaring infirmity or defect in the instrument. It loudly proclaims, "Take me at your risk." The interest of the payee was the immediate punishment of the check of which she was the beneficiary and not the deferment of the presentment for collection of the same to the drawee bank. This being the case, Banco Atlantico was not a holder in due course as defined by Sec. 52 of NIL, because it was obvious that it had knowledge of the infirmity or defect of the cheek. The fact that the check was honored by claimant bank was proof not only of their gross negligence but a further manifestation of the special treatment they were according Miss Boncan.

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Disposition Decision of Auditor General denying claim of petitioner for payment of the three checks is affirmed McCORNACK V CENTARL STATE BANK 211 N.W. 542, 53 A.L.R. 1297 ~eva~ FACTS DRAWER: Peter McCornack DRAWEE: Central State Bank PAYEE: C.R. Kutsman (fictitious person) -(July 1920) Halverson gained the confidence of McCornack and represented to him that he had a client who wished to borrow money to be secured by mortgage on land, and so McCornack consented to make the loan. Halverson delivered to McCornack a note purporting to be signed by CR Kutsman and secured by a mortgage. McCornack signed a check for $1,005.50 which he gave to Halverson. Halverson indorsed the name Kutsman and his own name on the check and deposited it in his account. The check was paid on presentation to Central State Bank and the amount charged to the account of McCornack. -(1924) It was discovered that the note and the mortgage were forged instruments and no Kutsman in fact existed. Halverson, by like fraudulent means, obtained other checks from McCornack. McCornack sued to recover, as for a conversion, the amount paid by the bank and charged against its (McCornack) account. Court decided in favor of McCornack. Bank now appeals. -Defenses of drawee bank: 1. check paid to person to whom McCornack intended payment to be made 2. the bank was not guilty of negligence 3. McCornack was negligent in making the check in that he failed to ascertain that the payee was a fictitious person 4. that by accepting without objection the statement of their bank account with the check in question cancelled and charged against it, there was account stated, and the plaintiffs were thereby estopped to claim that the check was improperly paid 5. by failing to notify the bank within 6 months after receiving such statement of the alleged irregularity in the payment of the check, the claim was barred by the statute of limitations 6. McCornacks were guilty of negligence in not sooner notifying the bank of the alleged error in the payment of the check, for the reason that they knew, or should have known, that Halverson was receiving the proceeds of checks turned over to him under similar

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circumstances, and so received the proceeds of the check in question, thereby causing loss to the bank. ISSUE WON Central State Bank (drawee) is liable. HELD: YES. a. A check payable to the order of a fictitious person with the knowledge of the drawer is payable to bearer. But where the fact that it is payable to a fictitious person is unknown to the drawer, that bank upon which it is drawn, or paying it, is in no different position than where it pays a check payable to a real party upon a forged instrument. McCornack did not know that the payee was fictitious; the check was not, therefore, payable to bearer, and the bank cannot escape liability on that ground. b. Where an impostor represents himself to be another, whether the person whom he so impersonates be a real or fictitious person, and procures a check payable to the order of such person, the bank is protected in paying the check to the impostor, because it made payment to the person to whom the drawer intended it should be made, no matter what name he assumed. But where one represents himself to be the agent of a ficititious person and fraudulently procures the delivery to himself of a check payable to the order of such fictitious person as payee, and secures the payment of the check to himself by indorsing the name of the fictitious payee upon it, in the absence of estoppel or negligence on the part of the drawer, the loss must be borne by the drawee and not by the drawer. c. The bank in paying the check was bound to know at its own risk that the indorsements by which the holder of the check claimed title were genuine. Its liability for payment not in accordance with the direction of the drawer did not depend upon negligence, but upon a violation of its implied contract with its depositor. The question WON the bank was negligent is immaterial upon the naked and primary question of its liability for having paid a check upon a forged indorsement. Here, the check was paid by the bank without inquiry as to the indorsement of Kutsman. d. McCornack was not negligent. There is no showing that anything had come to his knowledge respecting Halverson to put him upon inquiry as to his honesty. Moreover, McCornack’s failure to ascertain that the payee of his check was a fictitious person did not induce or contribute to the payment of the check by the bank. The drawer of the check, who, through failure to discover the fraud that is being practiced upon him, makes a check payable to the order of a fictitious payee in ignorance of that fact, stands in the same position with reference to the bank upon which it is


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drawn as where his check is payable to the order of a real person. His negligence in so drawing the check is immaterial unless directly and proximately affects the conduct of the bank in paying the check. e. On Sec.9521 of Code 1924 (Sec.61 of NIL): This provision would seem to be, not for the benefit of the drawee, nor designed to relieve the drawee of the duty to pay out the drawer’s money in accordance with his order, but for the protection of holders of the paper in case the drawee refuses to pay. It provides, not only that the drawer admits the existence of the payee and his capacity to indorse, but that he engages that upon dishonor and the necessary proceedings thereon he will pay the amount to the holder or any subsequent indorser who may be compelled to pay it. There is here no engagement to pay the amount to a drawee who has honored the check. -When the payee is a fictitious person and this is unknown to the drawer the statute does not have the effect to bind the drawer by an indorsement of the name of the payee by one to whom he did not intend payment to be made. -If the drawee demanded a genuine indorsement, as it was its duty to do before honoring the check, since there could be no such thing in the case of a fictitious payee, the check would not have been honored. In such case, an innocent holder, upon taking proper steps, would have been protected by Sec.9521. The purpose of that section was to protect the innocent holder of dishonored paper-not the drawee who paid it in violation of duty. LOZANO V MARTINEZ 146 SCRA 323; Yap; Dec. 18, 1986 ~jat~ FACTS -Petitions arose from cases prosecuted under Batas Pambansa Blg.22 (BP 22) or the Bouncing Checks Law. Defendants in these cases moved to quash the informations filed against them on ground that BP 22 is unconstitutional. -Arguments against the constitutionality of BP 22: 1. it offends the constitutional provision on nonimprisonment for debt 2. it impairs freedom of contract 3. it contravenes the equal protection clause 4. it is an undue delegation of legislative and executive powers 5. during its passage, the interim Batasan violated the constitutional provision prohibiting amendments to a bill on 3rd reading

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BACKGROUND ON BP 22: BP 22 punishes a. Anyone who makes/draws & issues any check on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of said check, in full, upon presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds/credit or would have been dishonored for the same reason had not the drawer, w/o any valid reason, ordered the bank to stop payment. b. Anyone who has sufficient funds in or credit with bank when he makes/draws & issues a check but fails to keep sufficient funds or maintain a credit to cover full amount if presented w/in 90 days from date appearing on check resulting to the bank dishonoring the check. Penalty: imprisonment of not less than 30 days nor more than 1 yr or a fine of not less than the amt of the check nor more than double said amount, but it should not exceed P200k or both fine & imprisonment at court’s discretion. Essential element: knowledge of the insufficiency of funds. Prima facie presumption of knowledge: when check is refused by bank due to insufficient funds/credit when presented within 90 days from date of the check. Presumption will not arise if within 5 days from receipt of notice of dishonor, the maker/drawer makes arrangements for payment of check by bank/pays the holder the amount of the check. Prima facie proof of dishonor: introduction as evidence of unpaid and dishonored check with drawee bank’s refusal to pay stamped/written thereon or attached thereto, giving the reason thereof. Purpose of the statute: stop/curb practice of issuing worthless checks due to the injury it causes to the public interests. History of provisions covering bouncing checks: a. Penal Code of Spain Art. 335 penalized act of defrauding another by falsely pretending to possess any power, influence, qualification, property, credit, agency or business or by means of similar deceit. b. 1926, Phil Legislature amended PC Art. 335 penalizing anyone who: 1) issues a check in payment of a debt or for other valuable consideration knowing at the time of its issuance that he does not have sufficient funds in the bank to cover its amount; 2) maliciously signs check differently from his authentic signature as registered at the bank in order that the latter would dishonor it; 3) issues a postdated check & at the date set for its payment doesn’t have sufficient deposit to cover the same.

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c. RPC Art. 315, Par. 2(d) punishes anyone who postdates a check or issues a check in payment of an obligation knowing that at the time he had no/insufficient funds in the bank without informing the payee of such circumstances. However, this provision did not cover checks issued to pay pre-existing obligations since the deceit that causes the defrauding must be prior to or simultaneous with the commission of the fraud. In this case, payee already parted with his money/property before the check was issued thus he’s not defrauded by means of a prior or simultaneous deceit. Drawer on the other hand did not derive any material benefit in return for check’s issuance. d. Aiming to cover checks issued to pay pre-existing obligations, RA 4885 amended Art. 315 2(d) by removing the requirement of drawer’s knowledge of insufficiency of funds and by giving the drawer 3 days from receipt of notice of dishonor to deposit the amount necessary to cover the check. Failure to do so would be a prima facie evidence of deceit. But SC ruled in People vs. Sabio that the amended provision still did not cover pre-existing obligations. e. BP 22 was enacted to cover checks issued to pay pre-existing debts, which statistically constituted the greater bulk of dishonored checks. ISSUE WON BP 22 is constitutional HELD: YES. BP 22 is clear and broad enough to cover all kinds of checks whether present or postdated, or whether issued in payment of a pre-existing obligation or given in mutual or simultaneous exchange for something of value. WON it violates the constitutional prohibition on nonimprisonment for debt -NO. Those who assail the statute claim that the felony is consummated only upon the dishonor/non-payment of check. That it is really a bad debt law rather than a bad check law. It punishes the non-payment of the check & not the act of issuing it. It is a veiled device to coerce payment of a debt under the threat of penal sanction. -BP 22 punishes making & issuing a worthless check and not the non-payment of an obligation. It does not intend to coerce a debtor to pay his debt. It’s punished because of its deleterious effects on the public interest. It punishes the act not as an offense against property, but an offense against public order. -Although the legislature cannot penalize a person for non-payment of a debt ex-contractu, it can proscribe certain acts deemed pernicious & inimical to public


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welfare. It is within the police power of the state (making & issuing of worthless checks is a public nuisance to be abated by the imposition of penal sanctions). Court cannot question its wisdom. It’s sufficient that there be a reasonable nexus between the means & end. A check is a convenient substitute for currency in commercial & financial transactions due to the assurance that it will be paid upon presentation. Central Bank reports show that 1/3 of the entire money supply of the country consists of peso demand deposits (funds against w/c commercial papers like checks are drawn). Considering these facts and that there are approximately 50-80 million pesos worth of bouncing checks per day, we can see that the State has a legitimate purpose in protecting checks. Any practice tending to destroy the confidence in checks should be deterred since it would injure trade & commerce, banking system, the nation’s economy & eventually the welfare of the society & the public interest. It would be mistaken charity of judgment to place this felony alongside a felony committed by an honest man unable to pay his debts. WON BP 22 impairs freedom of contract. -NO. The Constitution only protects the freedom to enter into LAWFUL contracts & not those which contravene public policy. Besides, a check is not a contract. It’s a commercial instrument used as a substitute for money forming part of the banking system & thus not entirely free from state’s regulatory power. WON BP 22 denies equal protection of the laws or is discriminatory since it penalizes the drawer of the check but not the payee. -NO. It would be absurd to punish the person swindled. No sense in talking about swindled’s indispensable participation in the commission of the crime. Classification per se is valid as long as it is not unreasonable/arbitrary. WON BP 22 constitutes undue/improper delegation of legislative/executive powers since completion of act is dependent on the will of the payee. -NO. What cannot be delegated is the power to legislate, or the power to make laws, which means, as applied to the present case, the power to define the offense sought to be punished and to prescribe the penalty. The power to define the crime and prescribe the penalty therefore has not been in any manner delegated to the payee. Nor is the power to enforce the statute delegated to the offended party. WON BP 22 violates Art. VII Sec. 9(2) of the 1973 Consti w/c prohibits the introduction of the amendments to a bill during the 3rd reading.

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-NO. Although there was confusion among Batasan Members regarding this matter, a Special Committee investigated the matter & found that there were actually no amendments introduced during the 3rd reading. Amendment in question was made during the 2nd reading.

PEOPLE V NITAFAN G.R. No. 75954; Oct 22, 1992; 215 SCRA 79 ~kooky~ FACTS SUBJECT: memorandum check dated Feb 9, 1985 DRAWER: K.T. Lim alias Mariano Lim DRAWEE: Philipppine Trust Company PAYEE: Fatima Cortez Sasaki -K.T. Lim was charged with violation of BP 22. for the check he issued to Sasaki for P143,000 which was dishonored by drawee for insufficiency of funds. Despite notice of dishonor, Lim did not pay within 5 days. -Failing in his argument that BP 22 is unconstitutional, Lim now argues that the memorandum check he issued is in the nature of a PN, hence, outside the purview of the statute. ISSUE WON a memorandum check is within the coverage of BP 22 HELD: YES -A memorandum check is in the form of an ordinary check, with the word "memorandum", "memo" or "mem" written across its face, signifying that the maker or drawer engages to pay the bona fide holder absolutely, without any condition concerning its presentment. Such a check is an evidence of debt against the drawer, and although may not be intended to be presented, has the same effect as an ordinary check, and if passed to the third person, will be valid in his hands like any other check. It is still drawn on a bank and should be distinguished from PN. In the business community a PN has less impact and persuadability than a check. -a memorandum check comes within Sec 185 NIL which defines a check as "a bill of exchange drawn on a bank payable on demand." It must therefore fall within the ambit of BP 22 which does not distinguish but merely provides that "[a]ny person who makes or draws and issues any check …” -A memorandum check, upon

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presentment, is generally accepted by the bank. It does not matter for whatever purpose it was issued, for the mere act of issuing a worthless check is malum prohibitum. -a memorandum check may carry with it the understanding that it is not to be presented at the bank but will be redeemed by the maker when the loan falls due. However, with BP 22, this may no longer prevail to exempt it from penal sanction imposed by the law. To require that the agreement surrounding the issuance of check be first looked into and thereafter exempt such issuance from the punitive provision of BP 22 on the basis of such agreement or understanding would frustrate the very purpose for which the law was enacted --to stem the proliferation of unfunded checks. Disposition Petition granted. RTC ordered to proceed. WONG V COURT OF APPEALS, People 351 SCRA 100; Quisumbing; Feb 2, 2001 ~maia~ FACTS -Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer of calendars. LPI would print sample calendars, then give them to agents to present to customers. The agents would get the purchase orders of customers and forward them to LPI. After printing the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come around to collect the payments. Wong, however, had a history of unremitted collections, thus his customers were required to issue postdated checks before LPI would accept their purchase orders. -In December 1985, Wong issued 6 postdated checks totaling P18,025.00. These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of Wong’s unremitted collections for 1984 amounting to P18,077.07. LPI waived the P52.07 difference. -Before the maturity of the checks, Wong told LPI not to deposit the checks and promised to replace them within 30 days. However, Wong reneged on his promise. On June 5, 1986, LPI deposited the checks with RCBC. The checks were returned for the reason “account closed.” -LPI through counsel notified Wong of the dishonor. Wong failed to make arrangements for payment within 5 banking days. Thus, Wong was charged with violation of BP 22 (bouncing checks law) -According to Wong, he issued the checks not as payment for any obligation, but to guarantee the orders


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of his customers. Although these customers had already paid their respective orders, Wong claimed LPI did not return the said checks to him. -RTC: guilty. CA: guilty ISSUE WON Wong should be convicted considering that the checks were issued as guaranty and the accounts that said checks supposedly guaranteed have already been paid by the customers HELD: YES -Wong contends that LPI is not a "holder for value" considering that the checks were deposited by LPI after the customers already paid their orders. Instead of depositing the checks, LPI should have returned the checks to him. -the lowers courts found that although initially intended to be used as guarantee for the purchase orders of customers, the checks were eventually used to settle the remaining obligations of Wong with LPI. Besides, in Llamado v. Court of Appeals, it was held that “[t]o determine the reason for which checks are issued, or the terms and conditions for their issuance, will greatly erode the faith the public reposes in the stability and commercial value of checks as currency substitutes, and bring about havoc in trade and in banking communities. So what the law punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance. The mere act of issuing a worthless check is malum prohibitum.” -2 ways of violating BP 22: (1) by making or drawing and issuing a check to apply on account or for value knowing at the time of issue that the check is not sufficiently funded; and (2) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep sufficient funds therein or credit with said bank to cover the full amount of the check when presented to the drawee bank within a period of ninety (90) days. -The elements of BP 22 under the first situation are: (1) The making, drawing and issuance of any check to apply for account or for value; (2) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. -Wong contends that the 1st element does not exist because the checks were not issued to apply for

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account or for value since the checks were issued as guarantee and the obligations they were supposed to guarantee were already paid. This argument has no legal basis, for what BP 22 punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance. -As to the 2nd element, BP 22 creates a presumption juris tantum that the 2nd element prima facie exists when the 1st and 3rd elements of the offense are present. Thus, the drawer’s knowledge is presumed from the dishonor. Wong avers that since LPI deposited the checks 157 days after the Dec 30, 1985 maturity date, the presumption of knowledge of lack of funds under Sec21 of BP 22 should not apply to him -However, an essential element of the offense is “knowledge” on the part of the drawer of the insufficiency of his funds in or credit with the bank. Since this involves a state of mind difficult to establish, the statute itself creates a prima facie presumption Nowhere in said provision does the law require a maker to maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the ff conditions: (1) presentment within 90 days from date of the check, and (2) dishonor of check and failure of maker to make arrangements for payment in full within 5 days after notice -That the check must be deposited within 90 days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element of the offense nor does it discharge Wong from his duty to maintain sufficient funds in the account -Under Section 186 of NIL: “a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.” By current banking practice, a check becomes stale after more than 6 months or 180 days. LPI deposited the checks 1

Evidence of knowledge of insufficient funds. -The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee.

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157 days after the date of the check. Hence said checks are not stale. Only the presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. Here, LPI did not deposit the checks because of the reassurance of Wong that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were dishonored, Wong was duly notified of such fact but failed to make arrangements for full payment within 5 banking days thereof. There is sufficient evidence that Wong had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks.

checks, which amount is more than the total obligation of Sarangani, Inc. which was accommodated by him. -It is the contention of ALBERTO that with the full payment of the accommodated obligation, the twelve checks subject of the present case have no valuable consideration. -Trial court rendered a decision finding ALBERTO guilty of violation of B.P. Blg. 22 in each of the twelve cases. ALBERTO filed a motion for reconsideration which was denied, Court of Appeals affirmed in toto the decision of the trial court.

LIM V PEOPLE G.R. No. 143231; D ~da~

HELD: NO. -Upon issuance of the said checks, it is presumed, in the absence of evidence to the contrary, that the same was issued for valuable consideration. -BP Blg. 22 punishes the issuance of a bouncing check. It is not the non-payment of an obligation which the law punishes, but the act of making and issuing a check that is dishonored upon presentment for payment. The purpose for which it was issued and the terms and conditions relating to its issuance are immaterial. What is primordial is that such issued checks were worthless and the fact of its worthlessness is known to appellant at the time of their issuance, a required element under B.P. Blg. 22. This is because the mere act of issuing a worthless check is malum prohibitum -The law enumerates the elements of B.P. Blg. 22 to be (1) the making, drawing and issuance of any check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. -The issuance of the twelve checks and its subsequent dishonor were admitted by ALBERTO. His defense rests solely on the payment of the obligation by Sarangani, Inc. including its interests, which was allegedly accommodated by him. ALBERTO insists that as a guarantor, he merely issued the twelve checks to replace the bad checks that were previously issued by Sarangani, Inc., and considering that the total amount of the checks encashed by ROBERT have exceeded the amount of the bad checks including the interest, then the twelve checks already lack valuable consideration.

avide; Oct 26, 2001

FACTS SUBJECT: Checks DRAWER: ALBERTO LIM DRAWEE: Metrobank PAYEE: ROBERT LU -Sometime in May 1992, ALBERTO issued to private complainant Robert Lu for purpose of rediscounting, sixty-four (64) Metrobank checks, including the 12 checks subject of the informations filed in these cases. Upon respective dates of maturity, each of the 12 checks were deposited by ROBERT at the Roosevelt Branch of the United Coconut Planters Bank, which were all dishonored by the drawee bank for the reason "Account Closed." -ROBERT informed ALBERTO of the dishonor and demanded payment but despite receipt of notice of such dishonor ALBERTO failed pay.ROBERT thru his lawyer sent a demand letter dated 29 December 1992 to ALBERTO. ALBERTO received the demand letter on 9 January 1993. For failure to settle his account within the seven days grace period provided in the demand letter, ALBERTO caused the filing of the 12 informations subject of the instant case. -ALBERTO alleged that sometime in 1989, Sarangani Commercial, Inc. (hereafter Sarangani Inc.) issued to ROBERT seven checks as payment for its obligation to the latter in the amount of P1,600,000. -ALBERTO affixed his signature , as guarantor. When the said seven checks bounced, ALBERTO issued more than three hundred checks, including the twelve checks which were the subject of the present case, as replacements. -that ROBERT had already received the total amount of P4,021,000 from the proceeds of the replacements

ISSUE WON ALBERTO is not guilty of violating BP22 (as the subject checks lack valuable consideration)

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-The seven(7) checks issued by Sarangani, Inc. were all dated and dishonored in September 1989. The twelve (12) checks including the other fifty-two (52) checks were all dated November 1992, hence the same cannot be a replacement of the bad checks which were dishonored as far back as three years ago.Even the corresponding amount of the checks negates said conclusion. The total amount of the seven (7) checks, representing the obligations of Sarangani, Inc., is only P1,600,000, while the sum total of the twelve (12) checks and the remaining fifty-two checks is P7,455,000. If we add the P7,455,000 to the value of the more than three hundred checks, which ALBERTO alleged to have been issued also in payment of the said obligation then the total amount of all the replacement checks will be P111,476,000. -Moreover, records show that the twelve(12) checks and the other fifty-two (52) checks were issued sometime May 1992 and all postdated 1992, whereas the 330 checks which were submitted to prove the fact of payment were all encashed before the issuance of the said checks. Thus, if full payment was made as early as July 22, 1991, the date of the last check of the 330 checks, why would ALBERTO issue the twelve (12) checks and the fifty-two (52) checks, if not for a consideration other than to answer for an obligation which was already paid. Hence, the 330 checks submitted by the defense did not prove that the twelve checks were not issued for valuable consideration. On the contrary, it supported the version of the prosecution that the checks were issued for rediscounting and not as replacements for the bad checks of Sarangani, Inc., as claimed by ALBERTO. -Further, if indeed it were true as claimed by ALBERTO that the indebtedness covered by the checks sued upon has been paid, the petitioner should have redeemed or taken the checks back in the ordinary course of business. But the same checks remained in the possession of the complainant who asked for the satisfaction of the obligations involved when said checks became due, without the petitioner heeding the demand for him to redeem his checks which bounced.

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MERIZ V PEOPLE Vitug; 368 SCRA 524 (2001) ~bry_sj~ FACTS SUBJECT: 4 checks DRAWER/ISSUER: Celia Meriz DRAWEE: Pilipinas Bank PAYEE: Amelia SANTOS -Petitioner MERIZ was engaged in the business of manufacturing garments for export using the name and style of "Hi-Marc Needlecraft." During the course of her business undertakings, she obtained a number of loans from Amelia Santos (Santos) and Summit Financing Corporation. Sometime in 1988, petitioner issued in favor of Santos four Pilipinas Bank Checks in the aggregate amount of P188,400.00. Santos deposited the checks with her bank. The checks, however, were later returned, with the notation "Insufficient Funds" stamped on the dorsal portion of each check, by the depositary bank. -Santos, through her counsel, sent a telegram to petitioner, warning her that criminal action will be instituted unless the obligation was paid in cash. MERIZ however was not able to do so due to difficulties encountered in her business. Santos filed a complaint against Meriz, which resulted in the filing of several informations charging her with violation of the Bouncing Checks Law. Trial ensured and Meriz was convicted. -Petitioner Meriz in the instant appeal, would have it that there was an absolute lack of consideration for the subject checks which were issued only as a condition for the grant of loan in her favor and that the requisite element of notice was not complied with. ISSUE WON absolute lack of consideration for the issuance of checks is a valid defense in a prosecution for violation of BP 22 HELD: NO. Ratio The cause or reason for the issuance of the check is inconsequential in determining criminal culpability under BP 22 -The essential elements of the offense penalized under BP 22 are (1) making, drawing & issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and

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(3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment." -The Court has since said that a "check issued as an evidence of debt, although not intended for encashment, has the same effect like any other check" and must thus be held to be "within the contemplation of BP 22." Once a check is presented for payment, the drawee bank gives it the usual course whether issued in payment of an obligation or just as a guaranty of an obligation. BP 22 does not appear to concern itself with what might actually be envisioned by the parties, its primordial intention being to instead ensure the stability and commercial value of checks as being virtual substitutes for currency. It is a policy that can easily be eroded if one has yet to determine the reason for which checks are issued, or the terms and conditions for their issuance, before an appropriate application of the legislative enactment can be made. The gravamen of the offense under BP 22 is the act of making or issuing a worthless check or a check that is dishonored upon presentment for payment. The act effectively declares the offense to be one of malum prohibitum. The only valid query then is whether the law has been breached, i.e., by the mere act of issuing a bad check, without so much regard as to the criminal intent of the issuer. -The element of "knowledge" involves a state of mind that obviously would be difficult to establish; hence, the statute itself creates a prima facie presumption of knowledge on the insufficiency of funds or credit coincidental with the attendance of the two other elements. -The prima facie presumption that the drawer has knowledge of the insufficiency of funds or credit at the time of the issuance, or on the presentment for payment, of the check might be rebutted by payment of the value of the check either by the drawer or by the drawee bank within five banking days from notice of the dishonor given to the drawer. The payment could thus be a complete defense that would lie regardless of the strength of the evidence offered by the prosecution. It must be presupposed then that the issuer receives a notice of dishonor and that, within five days from receipt thereof, he would have failed to pay the amount of the check or to make arrangement for its payment. NOTE: Court deleted prison sentence, imposed a fine of P94,200 against Meriz LAGMAN V PEOPLE 371 SCRA 679; Kapunan; Dec 7, 2001


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~kitik~ FACTS -This is a petition for review of the CA decision of CA which affirmed the RTC decision finding accusedpetitioner guilty of six counts of violation of BP 22. -Accused Gloria Elena Lagman, purchased from the private complainant Delia Almarines, various pieces of jewelry worth P700,250.00 from October, 1985 to December, 1985. As guarantee for the payment of the jewelries, the accused issued to the private complainant several checks. First, she issued twenty nine (29) postdated checks in the total sum of P591,916.00. All the checks bounced either for insufficiency of funds or for the reason that the account of the accused-drawer had been closed. As replacement for said checks she issued eight checks. Of the eight (8) checks, only two became good, more particularly, the April 22, 1991 check and the May 2, 1991 check. The other six (6) other checks were dishonored. The reason for the dishonor of the checks, is: “IF” or insufficiency of funds. -Despite demand, the accused failed to make good or pay for the value of the six (6) checks which had been dishonored. Accused-petitioner was charged with thirtyfive counts for violation of B.P. 22. She was found guilty for issuing six of the last set of checks issued. -Accused-petitioner claims that the six checks subject of the present cases were issued as mere guarantees in replacement of several bounced checks she had previously issued, and private complainant was sufficiently warned that these checks were not to be deposited or encashed. Relying on the case of Magno vs. Court of Appeals, accused-petitioner maintains that she cannot be held liable because she expressly and repeatedly informed private complainant that she would not be able to maintain sufficient funds in or credit with the drawee banks for the payment of the checks due to financial constraints. ISSUE WON the fact that the subject checks were not intended as payments but as mere guarantees of petitioner’s obligations exempt her from liability HELD: NO -The act sought to be prevented by BP 22, or the Bouncing Check’s Law, is the act of making and issuing a check with the knowledge that at the time of issue, the drawer does not have sufficient funds in or credit with the bank for payment and the check was subsequently dishonored upon presentment. What the law punishes is the issuance of a worthless check and not the purpose for which such check was issued nor

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the terms or conditions relating to its issuance. Accused-petitioner’s contention that the checks were merely issued to guarantee payment of her obligation to private complainant is not persuasive. As held in the case of Que v. People of the Philippines, B.P. Blg. 22 “applies even in cases where dishonored checks are issued merely in the form of a deposit or guarantee and does not make any distinction as to whether the checks within its contemplation are issued in payment of an obligation or merely to guarantee the said obligation.” -The records of the case belie accused-petitioner’s allegation that the checks were merely issued as guarantees. Evidence shows that the six checks subject of the present appeal were issued by herein accusedpetitioner to private respondent in the sala of Judge Domingo Garcia of the Pasig RTC, Branch 157 in settlement of the 29 cases pending before the said court which arose from the issuance of 29 bounced checks. When these six replacement checks also bounced, they became the subject of six criminal cases which were filed before Judge Trampe. Later on, these six cases were consolidated with the 29 cases before Judge Garcia. During trial, counsels for herein accusedpetitioner and private respondent were in agreement that these six checks were issued in settlement of some of the pending 29 cases. -Based on the records, therefore, the six checks were issued in partial settlement of the 29 B.P. Blg. 22 cases pending before Judge Garcia. We find nothing in the records that would show that these six checks were issued as mere guarantees. Accused-petitioner herself acknowledged that these eight (8) postdated checks “were issued as replacements of the previous checks” which bounced upon presentment. There is, thus, overwhelming evidence contradicting accusedpetitioner’s posture that the six checks subject of this appeal were mere guarantees. -The case of Magno v. Court of Appeals relied upon by accused-petitioner, does not find application to the present case. In Magno, we held that there was no violation of the bouncing checks law because there was evidence that complainant was told by the drawer that he did not have sufficient funds in the bank. The drawer, from the very beginning, never hid the fact that he did not have funds with which to put up the warranty deposit and openly intimidated the same to complainant. Although the ruling in Magno was reiterated in the case of Idos v. Court of Appeals, again, we note that in Idos, petitioner repeatedly notified the complainant of the insufficency of funds. In both cases, the complainant was duly notified by the drawer of the insufficiency of funds. It also serves to emphasize that in Idos, petitioner’s acquittal was not based on complainant’s knowledge that petitioner did not have

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sufficient funds in the bank but on some other grounds. -In the case under consideration, accused-petitioner failed to adduce any evidence to substantiate her claim that private respondent knew that she had difficulty maintaining sufficient funds in or credit with the bank.


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ADOLPH RAMISH, INC. V WOODRUFF 2 Cal. (2d) 190, 28 P. (2d) 360; 1934 ~aida rose~ FACTS SUBJECT: Question on proper indorsement of P/N to Adolph Ramish MAKER: Woodruff PAYEE: Craig INDORSEE: Adolph Ramish, Inc. -Adolph Ramish held the promissory note of Craig for $13,000. Said note matured on Feb 1932. Craig and Woodruff exchanged their own negotiable notes (each for $10,000) dated February 19 and due in 90 days. -Craig indorsed the note from Woodruff but it was uncertain as to whether or not it was for collateral security for Craig’s indebtedness to Adolph Ramish and was thus treated as an issue in the case. -Adolph Ramish sued Woodruff. Woodruff admitted the note’s execution but denied title of Adolph Ramish, saying that the note was delivered for inspection and investigation only. He also alleged that note served as collateral security for the $6,820 balance of the note and that Adolph Ramish was not a holder in due course because it did not take the note by negotiation under proper indorsement and thus was subject to the available defenses. -According to Woodruff, the indorsement by Craig did not amount to a commercial indorsement but was merely a guaranty which does not operate as a transfer cutting off the defenses of the maker. ISSUE WON the note had been indorsed in accordance with the law (as an ordinary commercial endorsement) HELD: YES -There are two views with regard to this matter: Minority view: A guaranty placed on a bill or note does not constitute a commercial negotiation. The guaranty is considered a separate contract. Majority view: These are the better reasoned arguments and are in accordance with the policy of free circulation of commercial paper as a substitute for money. -A person placing his signature in the instrument, aside from doing so as maker, drawer or acceptor is deemed to be an indorser unless there is a clear indication through the words of being bound in another capacity. -The tendency of the law is to resolve all doubtful cases towards holding the same to be a commercial indorsement in due course. -Commercial instruments take the place of money and requiring every assignee to inquire into circumstances

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bearing upon the original execution, along with taking cognizance of all the equities between the original parties, would destroy their commercial value. -The evidence is conflicting with regard to Woodruff’s argument that the note was delivered for inspection and investigation purposes, along with an allegation that there was no meeting of the minds and that there was no authorization to deliver the note as collateral security. Disposition Judgment reversed.

WACHIOVA BANK & TRUST CO V CRAFTON 181 N.C. 404, 107 S.E. 316 (1921) ~lora~ FACTS SUBJECT: promissory note MAKER: J.M. Carver PAYEE/INDORSER: J.W. Crafton INDORSEE/HDC: Wachovia Bank and Trust Co. -The defendant, the indorser, denied liability, alleging that the P/N was for an amount won in a gambling transaction hence, void. -Lower court ruled in favor of defendant. Plaintiff appealed. ISSUE WON the indorsee, a HDC can recover from a P/N which was for an amount won in a gambling transaction hence, void. HELD: YES. -Statutes applicable render this and all notes and contracts in like cases void and no action thereon can be sustained. The principle however, is allowed to prevail only where the action is on the note to enforce its obligations, and does not affect or extend to suits by an innocent indorsee for value and HDC against the indorser on his contract of indorsement. -The contract of indorsement is a substantive contract, separable and independent of the instrument on which it appears, and where it has been made without ratification, and for value, it guarantees to a HDC, among other things that the instrument, at the time of the indorsement, is a valid and subsisting obligation. -The law which renders these contracts void was enacted for the suppression of gambling but it would tend rather to encourage the vice if a successful gambler could procure the value of such a note on his indorsement. Disposition Judgment Reversed.


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HOROWITZ V WOLLOWITZ 59 Misc. 520, 110 NY Supp. 972 (1908) ~marge~ FACTS SUBJECT: promissory note prepared by Barnet Cohen on 18 Dec 1906: worded as follows: “Six months and five days date I promise to pay the order of myself five hundred dollars at 16-1/2 Carmine St. Value received.” -Said note was delivered to Jacob Jormack. -At the time of making said note, and prior to its delivery to Horowitz, Louis Wollowitz indorsed it w/ intent to charge himself as first indorser. Thereafter and before maturity, Jormack indorsed the note to Horowitz for value. -Horowitz presented the note for payment. Unpaid, he filed suit in court. -Defendants [C, J, and W] set up the defense that the note was tainted with usury in its inception, and was therefore null and void. ISSUE WON an indorser may raise the defense that note is void for usury HELD: NO. -It is not necessary to pass upon the question of the availability to the maker of the defense of usury as against HIDCs, because defendants herein were sued in their capacity, not as makers, but as indorsers of the note in question. -Sec116, US law (Sec 66, NIL): Every indorser who indorses w/o qualification warrants to all subsequent holders in due course: xxx (b) that the instrument is, at the time of his indorsement, valid and subsisting.” -Under the language of the statute, as applied by the decisions in Packard v Windholz and Lennon v Grauer, it must be held that in indorsing the note the defendant warranted its validity, and he cannot be heard now to assert that it is void for usury, any more than for forgery or any other cause. -It is an established rule that the obligation of an indorser is a new and independent contract, separate and distinct from that evidenced by the note. Disposition Judgment reversed. New trial ordered. INGALLS V MARSTON 121 Me. 182, 116 Atl. 216 (1922) ~anton~ FACTS PROMISSORS: Herbert L. Marston, Almeda E. Marston

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INDORSERS: Howard W. Smith and Walter H. Foss, but they signed at the note’s inception, hence the issue whether they are mere indorsers or co-promissors. PAYEE: Ingalls -Herbert L. and Almeda E. Marston signed the note on its face. -Howard W. Smith and Walter H. Foss placed their signatures on the back of the note at its inception, and before the delivery to the payee, Ingalls (plaintiff). -The first instalment was not demanded of the makers, Herbert and Almeda (at maturity), and notice of dishonor was not given o Smith and Foss. Plaintiff’s Claim: All four were original promissors, and therefore liable. Defendants’ Comment: Smith and Foss were merely indorsers, and therefore free from liability because of want of demand and notice. ISSUE WON Smith and Foss became original promissors when they signed the instrument on its back. HELD: NO Ratio Nature of liability must be expressly stated in instances where the instrument was signed other than on its face. Reasoning -Before the enactment of the NIL, the law was firmly settled in states by judicial decisions, that one who signed his name on the back of a note at its inception was a joint or joint and several makers with who signed on the face, so far as necessity for demand and notice of non-payment was concerned. The passage of the NIL abrogated this rule of commercial law. -Sec. 63, NIL: A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity. -Smith and Foss placed their signatures, not on the face (as makers), but on the back—meaning “other than makers”—and they did not indicate by any words, appropriate or otherwise, any intention to be bound in some other capacity. -However Ingalls seeks to differentiate between regular and irregular indorsers. According to him, regular endorsers are entitled to have demand made to the maker first, with due notice of dishonour given to him (indorser). Such right is not available to irregular indorsers. This interpretation however would revert the law back to the time before the NIL was enacted. -Sec. 64, NIL: Where a person not otherwise a party to an instrument, place thereon his signature in blank

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before delivery he is liable as an indorser, in accordance with the following rules: (1) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties.” In the present case the note was made payable to the order of a third person, and therefore this section applies, and these irregular indorsers were made liable to the payee Ingalls and to all other subsequent parties. But their liability is that of “indorsers” as the section unequivocally provides. These necessarily imply the inherent elements of demand and notice of dishonor. Disposition Smith and Foss are not liable as makers, but only as indorsers, which requires prior demand and due notice. WEST RUSTLAND TRUST CO V HOUSTON 104 Vt. 104, 158 Atl. 69, 80 ALR 664 (1932) ~jonas~ FACTS -The note in suit is a promissory note, signed by defendant Buck, an employee of the Buck Lumber Company, as MAKER then INDORSED by defendant Houston. This note is a renewal of another note, also signed by Buck as maker & indorsed by Houston, which was delivered to plaintiff bank as collateral security for the indebtedness of the Buck Lumber Company to it. -Buck testified that before the note was signed, he had a talk with F.L. Jones, treasurer of the plaintiff bank. Jones told him that the bank examiner was expected to visit the bank very soon, & that he wanted a new note, to be held by the bank as collateral, as he thought that the indebtedness of the Buck Lumber Company to the bank was larger than the bank examiner would like. Jones explained that he was afraid not to have some extra collateral to show the examiner, & that the note would be held only until the examiner had examined the books & then returned to either of the defendants. Houston testified that he spoke with Buck about signing the note in suit, & he was told the purpose of the note, after which he signed it. -NOTE: the bank examiner is sent by the commissioner of banking & insurance to oversee & inspect banks in order to protect the public interest. -The receiver of the plaintiff bank (it appears the bank was subsequently placed in receivership) brought an action to recover from the defendants, as makers. The trial was by jury, and at the close of the evidence, a verdict was directed for plaintiff. The defendants excepted to the direction of the verdict & to the judgment thereon. ISSUE/S


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1. WON defendants are bound on the note 2. WON the liability of the defendants is primary & absolute HELD 1. YES Ratio If the note was given to plaintiff bank merely as a semblance of collateral security, the result was to effect a scheme to deceive the bank examiner. If so, it was an illegal transaction, and it is against public policy to permit defendants to rely upon it as a defense. In such circumstances, the defendants are bound as the face of the note discloses. Reasoning Transactions with banks are affected with an unusual public interest. It is of public importance that all dealings with banks be conducted with integrity & honesty. 2. YES Ratio Under the Uniform Act, one who takes a negotiable note as collateral to secure a pre-existing debt takes for value, even though no independent consideration is given. An accommodation party cannot claim the benefit of being treated as a surety as against a holder for value, but is liable as if he were financially interested in the transaction. It follows that the liability of the defendants on the note is primary & absolute and that there was no error in the direction of a verdict against them. Reasoning Under the Negotiable Instruments Act, the previous rule to the effect that, if a holder for value knew a party had signed for accommodation only he must be treated as a surety, has been abolished. An accommodation party is now primarily & absolutely liable on the instrument to a holder for value. Sec. 25 provides that “xxx an antecedent or preexisting debt constitutes value xxx” Sec. 27 provides that “xxx where the holder has a lien on the instrument, xxx he is deemed a holder for value to the extent of his lien xxx”. Disposition Judgment affirmed. GOODMAN V GAUL 244 Mass 528, 138 NE 910 (1923) ~monch~ FACTS SUBJECT: Promissory note MAKER: Bennie Bean PAYEE: D. Goodman INDORSERS: Goodman, Gaull -Bean signed the not and handed it to Goodman. The latter then saw Gaull at his place of business and asked him if he will indorse a note for Bennie Bean. Gaull agreed and signed the note.

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-Goodman instituted the action to recover from Gaull as indorser the amount in the promissory note. ISSUE WON Gaull is liable HELD: NO Ratio An accommodation party is liable to all subsequent parties except to the party whom he accommodated. Reasoning -The circumstances will show if Gaull was indeed an accommodation party. It appears Bean did not ask for the defendant’s indorsement, or authorized the plaintiff to obtain it, or that defendant’s signature was agreed upon to be affixed for the instrument to become complete. -It is clear from the record that defendant signed in accommodation of the plaintiff. The party for whose accommodation a not is given cannot enforce it against the accommodator. It is a mere gratuity. -The plaintiff asks to be allowed to amend and to proceed on the indorsement as a written guaranty. But the contract itseld fails to show any conract of guaranty. His signature being on the note, he is presumed to be a indorser, unless by some words he indicates his intention to be bound by another capacity. Such is lacking in the case. CLARK V SELLNER 42 Phil. 384 (1921) ~ice~ FACTS SUBJECT: Promissory Note MAKER: Sellner and two others PAYEE: Clark -Sellner and two others signed a note in favor of Clark. The note reads: “Php.12,000 Manila, July 1, 1914 “Six months after date, for value received….xxx (Sgd.) W.H. Clarke, “John Maye. “By W.H. Clarke, his attorney. (Internal Revenue Stamp) “Geo C. Sellner.” -The note matured but was not paid. Defendant argued that he did not receive or the whole of the amount of the debt; also, that the instrument was not presented to him for payment; finally that he is an accommodation party thus failure to negotiate means lack of liability. ISSUES

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1. WON he is liable. 2. WON presentment is necessary. 3. WON he is merely an accommodation party. HELD 1. YES. It is not dependent on whether or not he has received any or part of his debt. So long as he is one of the joint and several debtors which he is, makes him liable. 2. NO. There is no requirement for presentment. 3. NO. By putting his signature to the note, he lent his name not to the creditor, but to those who signed with him placing himself with respect to the creditor in the same position and with the same liability as the said signers. It should be noted that the phrase “witout receiving value therefor,” as used in Sec. 29 of the aforesaid Act, means “without receiving payment for lending out his name.” If, as in the case, a sume of money was received by virtue of the note, it is immaterial, so far as the creditor is concerned, whether one of the signers has, or has not, received anything for the use of his name. In reality the legal situation of the defendant in this case may properly be regarded as that of a joint surety, rather than that of an accommodation party. The defendant as a joint surety, may, upon the maturity of the note, pay the debt, demand the collateral security and dispose of it to his benefit; but there is no proof whatsoever that this was done. As to the plaintiff, he is the “holder for value” under the phrase of said Sec. 29 for he had paid the money to the signers at the time the note was executed and delivered to him. Who is the “holder” is defined in section 191 of the said law thus: “Holder” means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.” And as such holder, he has the right to demand payment of the debt from the signer of the note, even though he knows that sai signer is merely an accommodation party (Sec. 29 above cited), assuming the subject to be such, which as has been stated, is not the case. Disposition: Judgment reversed. MAULINI V SERRANO 28 Phil. 640; Moreland; Dec 16, 1914 ~rean~ FACTS -The action was brought by plaintiff Maulini upon the contract of indorsement alleged to have been made in his favor by defendant Serrano upon a PN. A PN was issued by Padern, Moreno and Gimenez in favor of Serrano for P3K due on Sept. 5 1912. The note was


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indorsed on the back as follows: "Pay to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.) A. G. Serrano." -CFI: (1) By verbal agreement between the indorser Serrano and the indorsee Maulini, the indorser, in making the indorsement, was acting as agent for the indorsee, as a mere vehicle for the transference of naked title, and that his indorsement was wholly without consideration. (2) It was immaterial whether there was a consideration for the transfer or not, as the indorser, under the evidence offered, was an accommodation indorser. So Maulini appealed. ISSUES 1 WON CFI erred in ruling that the indorsement was without consideration, 2 WON CFI erred in holding that Serrano was an accommodation indorser. HELD 1 YES -It seems that Serrano was a broker doing business in Manila and that part of his business consisted in looking up and ascertaining persons who had money to loan as well as those who desired to borrow money and, acting as a mediary, negotiate a loan between the two. According to his custom in transactions of this kind, and the arrangement made in this particular case, Serrano obtained compensation for his services of the borrower, the lender paying nothing. Sometimes this was a certain % of the sum loaned; at other times it was a part of the interest which the borrower was to pay, the latter paying 1% per mo.for use of the money, the lender taking 1% and the broker 1/2%. According to the method usually followed in these transactions, and the procedure in this particular case, the broker Serrano delivered the money personally to the borrower, took the note in his own name and immediately transferred it by indorsement to the lender. In this case, this was done at the special request of the indorsee Maulini and simply as a favor to him, Maulini stating to Serrano that he did not wish his name to appear on the books of the borrowing company as a lender of money and that he desired that the broker take the note in his own name, immediately transferring to him title thereto by indorsement. This was done, the note being at once transferred to the lender. -There never was a moment when Serrano was the real owner of the note. It was always the note of the indorsee Maulini, he having furnished the money which was the consideration for the note directly to the maker and being the only person who had the slightest interest therein, Serrano, the broker, acting solely as an agent, a vehicle by which the naked title to the note

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passed from the borrower to the lender. The only payment that the broker received was for his services in negotiating the loan. He was paid absolutely nothing for becoming responsible as an indorser on the paper, nor did the indorsee lose, pay or forego anything, or alter his position thereby. 2. YES. Defendant Serrano was not an accommodation indorser. Ratio Where an indorsement is made as a favor to the indorsee, who requests it, not to secure payment, but to relieve himself from a distasteful situation, and where the only consideration for such indorsement passes from the indorser to the indorsee, the situation does not present one creating an accommodation indorsement, nor one where there is a consideration sufficient to sustain an action on the indorsement. Reasoning -Sec. 29 of NIL defines an accommodation party as "one who has signed the instrument as maker, drawer, acceptor, or indorser, w/o receiving value, 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 the same to be only an accommodation party." -CFI misunderstood this definition. The accommodation to which reference is made in Sec29 is not one to the person who takes the note i.e., the payee or indorsee, but one to the maker or indorser of the note. It is true that in this case it was an accommodation to the plaintiff, in a popular sense, to have the defendant indorse the note; but it was not the accommodation described in the law, but, rather, a mere favor to him and one which in no way bound Serrano. In cases of accommodation indorsement, the indorser makes the indorsement for the accommodation of the maker. Such an indorsement is generally for the purpose of better securing the payment of the note – i.e., he lends his name to the maker, not to the holder. -In other words: An accommodation note is one to which the accommodation party has put his name, without consideration, for the purpose of accommodating some other party who is to use it and is expected to pay it. The credit given to the accommodation party is sufficient consideration to bind the accommodation maker. Disposition Judgment reversed and complaint dismissed. PHIL. NAT’L BANK V MAZA Malcolm; 48 Phil. 207 (1925) ~mel~ FACTS

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SUBJECT: five promissory notes of ten thousand pesos each MAKER: Ramon Maza and Francisco Mecenas PAYEE: PNB -The notes were not taken up by Maza and Mecenas at maturity. To recover the amounts on the face of the notes with interest, action was begun by PNB against Maza and Mecenas in CFI Iloilo. -Defendants’ defense was that a.) the notes were went in blank to them by Enrique Echaus with the request that they sign them so that he, Echaus might negotiate them with PNB in case of need; b.) defendants have not negotiated the notes with the bank, nor have they received the value thereof, or delivered them to the bank in payment of any preexisting debt c.) it was Echaus who negotiated the notes with the bank and who is accordingly the real party in interest and the party liable for the payment of the notes. -Trial judge rendered judgment in favor of plaintiff and against defendants jointly and severally ISSUE WON The defendants are liable to pay the amount on the promissory note (considering that they are accommodation parties) HELD: YES. Their liability on the instruments is primary and unconditional. Echaus is merely secondarily liable. -The most plausible and reasonable stand for the defendant sis that they are accommodation parties. But as accommodation parties, the defendants having signed the instruments without receiving value therefore and for the purpose of lending their names to some other person, are still liable on the instruments. The law now is that the accommodation party can claim no benefit as such, but he is liable according to the face of his undertaking the same as if he were himself financially interested in the transaction. -Even if defendants never received the value of the notes, even assuming that it is fundamental that an instrument given without consideration does not create any obligation in favor of the payee, however, to fasten liability upon an accommodation maker, it is not necessary that any consideration should move to him. The consideration which supports the promise of the accommodation maker is that parted with by the person taking the note and received by the person accommodated. *When accommodation parties make payment to the holder of the notes, they have a right to sue the accommodated party for reimbursement, since the relation between them in effect is that principal and sureties, the accommodation parties being the sureties.


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Disposition Judgment affirmed ACUÑA V VELOSO 50 Phil 241; Street; 1927 ~javi~ FACTS -Xavier is an agent working in Manila of Veloso. Veloso has certain properties in Manila but is based in Cebu. Xavier on his own, is in the practice of trading real estate as far as his credit allowed. Xavier wanted to purchase a property in Legarda for which he lacked P25000 for partial purchase. He asked assistance from Veloso. They approached Gonzalez and Gonzalez agreed to lend the money on two conditions: 1)Xavier and Veloso execute a joint and several note in the amount lent by Gonzalez; 2) that Xavier (only) purchases ½ interest which Gonzalez had in a mortgage credit on a property in Pangasinan. -Acuna sued Veloso and Xavier for the amount in the note and interests. TC gave judgment jointly and severally against the defendants. TC having found that Veloso was a mere accommodation maker as regards Xavier, gave judgment over in favor of Veloso against Xavier for whatever the former should pay upon the judgment, and lastly ordered that Veloso be subrogated to the rights of the plaintiff Acuna in a mortgage given by Xavier to secure the debt. -after execution of note, it was found that the Legarda property was already encumbered with a mortgage to another bank. Thus to secure himself further, Gonzalez asked Xavier to execute a second mortgage to him upon the Legarda property. The encumbrance on the Legarda property was now 25000 plus 22,070 (1/2 interest in the Pangasinan property) *Acuna is a transferee of the note executed by Xavier and Veloso. But he is said to be a holder only and not a holder in due course for although he purchased the note for value, he purchased the note 2 years after it fell due. (the court discussed the case by putting Gonzalez in the shoes of Acuna. ISSUE WON Veloso is jointly and severably liable with Xavier HELD: YES -In this case the accommodating party and the accommodated party unite in making a joint and several note to a person who advances the face value of the note to one of its makers at the very time of its creation. The consideration for the note, as regards both makers, was the money which the payee advanced to Xavier; and it cannot be said that the note was lacking in consideration as to Veloso because he

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himself received non of this money. Value was given for the note, and this was enough. In equity as between Veloso and Xavier, the former is entitled to all the rights of surety, and Xavier is the real debtor; but as to the creditor, both Veloso and Xavier are mere joint and several makers. *however the Court noted that the second mortgage was already under foreclosure. Thus it held that if the amount received for the foreclosure of such property is enough to cover the indebtedness of Xavier and Veloso, Gonzales would thus be fully paid and that would end the matter. *issue of Veloso’s subrogation (Veloso on appeal raised the issue of his right to be subrogated to the rights of Gonzalez in case amount after foreclosure of Legarda property was not enough) -“ Veloso's right of subrogation in case enough is not realized to pay off the whole, must be understood to extend to such proportion of the proceeds of the contemplated foreclosure sale of the mortgaged property on Legarda Street as the amount of the note, and interest, bears to the entire secured indebtedness.” *if hindi nyo maintindihan and feeling nyo kulang sa details, feel free to approach me. Mejo magulo talaga yung case and may stuff na hindi nilagay si Campos. ANG TIONG V TING L-26767, February 22, 1968; 22 SCRA 713 ~brian b~ FACTS SUBJECT: PBCom check for P4k, payable to “cash or bearer” DRAWER: Lorenzo Ting INDORSER: Felipe Ang (indorsement in blank) BEARER: Ang Tiong, presented check to drawee bank. When the check was dishonored, he made written demands to Lorenzo and Felipe. Unheeded, he filed collection suit in Manila MTC. -MTC ruled in his favor. CFI affirmed. Case was elevated to CA, but the latter certified the same to SC since it involves pure questions of law. ISSUE WON Felipe is liable HELD: YES -A check is a negotiable instrument governed by NIL (Secs. 1 and 185). TF, appellant’s reliance on Art. 2071, CC is irrelevant -A person placing his signature upon an instrument otherwise than as a maker, drawer or acceptor is a general indorser unless he clearly indicates by

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appropriate words his intention to be bound in some other capacity (Sec. 63, NIL) -Even assuming that appellant is just an accommodation party, he is still liable to HDC even if the latter, at the time of taking the instrument, knew him to be only an accommodation party (Sec. 29) -Again assuming that Art. 2071, CC applies (being an accommodation indorser, he may obtain security from the maker to protect himself against the danger of insolvency of the latter,) said remedy is between accommodation indorser and accommodated party only and cannot diminish nor defeat the rights of a holder for value. Disposition Judgment affirmed. SADAYA V SEVILLA L-17845, April 27, 1967; 19 SCRA 924 ~mini~ FACTS SUBJECT: promissory note for P15k, with ineterest at 6% per annum, payable on demand MAKERS: Sevilla, Varona and Sadaya, jointly and severally PAYEE: BPI INDORSEE: C.I.T. Corp, a holder for value in due course -Sevilla and Sadaya signed as co-makers as a favor to Varona. The proceeds of the note, P15k, was received by Varona alone. As of June 15, 1950, the outstanding balance was at P4,850. No payment was made after that date. -The bank collected the balance plus interest from Sadaya. Varona didn’t reimburse him. -Sevilla died. Sadaya filed a creditor’s claim against his estate for the sum Sadaya paid on the note. The administrator resisted the claim saying that the deceased Sevilla did not receive any amount as consideration for the promissory note, and that he signed it only as surety for Varona. ISSUE WON Sadaya can demand reimbursement for the amount he paid on the note from his co-accomodation maker, Sevilla HELD: NO -The court goes to the Civil Code for this case, because nothing extant in the Negotiable Instruments Law defines the right of one accommodation maker to seek reimbursement from another. -Sevilla and Sadaya are, in themselves, co-guarantors of Varona, so their case is covered by Art. 2073: “When there are two or more guarantors of the same debt, the one among them who has paid may demand of each of


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the others the share which is proportionally owing from him. If any of the guarantors should be insolvent, the share shall be borne by the others, including the payer, in the same proportion. The provisions of this article shall not be applicable unless the payment has been made in virtue of a judicial demand or unless the principal debtor is insolvent.” -Based on that provision, a joint and several accommodation maker who pays on a promissory note may directly demand reimbursement from his coaccommodation maker without first directing his action against the principal debtor provided that (a) he made the payment by virtue of a judicial demand or (b) the principal debtor is insolvent. -In this case, Sadaya’s payment to the bank was made voluntarily and w/out any judicial demand, and there is no evidence showing Varona is insolvent. Disposition CA judgment affirmed. PRUDENCIO V CA L-34339 July 1, 1986; 143 SCRA 7 ~ricky~ FACTS SUBJECT: Promissory note (PN) for P10,000 payable to PNB secured by a real estate mortgage on the property of the Prudencios. Concepcion & Tamayo Construction Company (Company) had a pending contract with the Bureau of Public Works for the construction of the municipal building of Puerto Princesa, Palawan. As the Company needed funds for the construction, Toribio, a relative of the Prudencios and the attorney-in-fact of the Company, prevailed upon the Prudencios to mortgage their property to secure the loan of P10,000 being negotiated with PNB. They were finally persuaded as Toribio also signed on the day of the signing of the PN a Deed of Assignment (DA) assigning all payments from the Bureau to the Company in favor of PNB. MAKER: Jose Toribio as attorney-in-fact of the Company and the Spouses Prudencio as accommodation parties. PAYEE: PNB -Unknown to the Prudencios and contrary to the DA, the Bureau, with the approval of PNB, made 3 payments totaling P11,234.40 directly to the Company for labor and materials. Another payment for P5,000 was, however, denied by PNB as the loan was already overdue. The Company abandoned the work and subsequently, its life as a partnership expired. The Bureau rescinded the contract and assumed the work. The Prudencios wrote PNB requesting the cancellation of the mortgage since the conditions of the contract were changed without their knowledge when PNB

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allowed payment to the Company instead of on account of the loan. PNB refused. The trial court ruled for PNB and ordered the Prudencios to pay jointly and severally with the owners of the Company, Concepcion and Tamayo. The CA affirmed. ISSUES 1. WON the CA erred in holding the Prudencios as solidary co-debtors instead of sureties. 2. WON the CA erred in not holding that the Prudencios were released from their obligation when PNB, without their knowledge and consent, changed the tenor and condition of the assignment of payments made by the principal debtor and released to such principal debtor payments from the Bureau which were more than enough to wipe out the indebtedness to the PNB. HELD 1. NO. Ratio In lending his name to the accommodated party, the accommodation party is in effect a surety. However, unlike a contract of suretyship, the liability of the accommodation party remains not only primary but also unconditional to a holder for value such that even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor. 2. YES. Ratio Between the immediate parties to a negotiable instrument – the parties between whom there is privity – the consideration may be inquired into; and as to them the only superiority of a bill or note over other unsealed evidence of debt is that it prima facie imports a consideration. Reasoning Although as a general rule, a payee may be considered a holder in due course, in this case, such a rule cannot apply to PNB. Not only was PNB an immediate party or in privy to the PN, that is, it had dealt directly with the Prudencios knowing fully well that the latter only signed as accommodation makers but more important, it was the DA executed by the Company in favor of PNB which principally moved the Prudencios to sign the PN also in favor of PNB. Under the terms of the DA, it is clear that there are no further conditions which could possibly alter the agreement without the consent of the Prudencios. Yet, PNB approved the Bureau’s release of 3 payments directly to the Company in violation of the DA and without notice to the Prudencios who stood to lose their property once the PN falls due without it having been paid because PNB, in effect, waived payment of the

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first three releases. PNB cannot be regarded as having acted in good faith which is also one of the requisites of a holder in due course. Thus, the Prudencios can validly set up their personal defense of release from the real estate mortgage against PNB. Disposition Petition is GRANTED. Decision of the CA reversed. AUSTIN, NICHOLS & CO V GROSS 98 Conn. 782, 120 Atl. 596 (1923) ~joey~ FACTS SUBJECT: check in payment for goods by State Street Grocery DRAWER: (?) State Street Grocery/ Gross, principal stockholder DRAWEE: Pallotti, Andretta & Co., Bankers PAYEE: Austin, Nichols & Co. Inc. -The check had the following tenor: “Pay to the order of Austin, Nichols & Co., Inc., $334 86/100, three hundred thirty-four 86/100 dollars. M. Gross.” “State Street Grocery Co. Inc.” -The check was duly presented for payment and has not been paid. At this time, plaintiff had no account with Gross personally. -Plaintiff sued Gross, not State Street Grocery. -Parol evidence, offered by Gross for the purpose of showing that the check sued on was the check of the State Street Grocery Co., was excluded. Judgment against Gross. ISSUE WON parol evidence is admissible to prove that the signature “M. Gross” was not an individual signature but was the signature of State Street Grocery Co. Inc. HELD: YES -The decision must be based upon the terms of Sec. 20 of the Negotiable Instruments Law. This section covers at least five classes of cases. The instant case falls under the fifth class: “Where the negotiable instrument contains words indicating that one has signed for or on behalf of a principal, or in a representative capacity, he is not liable if he was duly authorized.” -Whether defendant Gross was authorized to sign or not, and whether the check contains words indicating that he signed for and in behalf of a principal or in a representative capacity, might be proved by evidence outside the check for the purpose of carrying out the intention of the parties and establishing just what the contract was, not to vary it, but to ascertain it.


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-We do not understand how the fact of authorization could be proved in any case where it was not established by the instrument except by extraneous evidence. The body of the check does not contain any reference to the State Street Grocery as the drawer of the check. But this section of the statute does not say that the words indicating the relation in which Gross signed the check must appear in the body of the check. -If words appear on any part of the check indicating that Gross signed in behalf of the State Street Grocery, that will be sufficient, whether the words appear at the head of the check or on its margin. All that is necessary between the original parties is that these words should be such as to reasonably apprise or put on notice the payee that it was or might be the check of the company, and not of Gross. By such proof the true contract is revealed, and the intention of the parties effected. Disposition A new trial is in order. NEW GEORGIA NATL BANK OF ALBANY V J&G LIPPMANN 249 NY 307, 164 NE 108, 80 ALR 1344 (1927) ~chriscaps~ FACTS Plaintiff is owner thru indorsement of promissory note signed J&G Lippmann, LJ Lippmann, Pres. It asks for judgment in the alternative against corporation (maker of note) or against the president personally if he acted w/o authority. ISSUE WON the president should be personally liable HELD: YES -At common law, remedy against agent signing a note w/o authority was not upon note itself, but for breach of implied warranty. -The proviso that the agent or representative shall not be liable on instrument if he was authorized to sign, carries w/ it a fair implication that he shall be liable if not authorized. -Held in a case: a note bearing name of corp in margin, signed by pres and treas in own names w/ addition of official titles, and discounted by a bank w/o notice dehors the instrument, was in law the individual promise. -The statute doesn’t distinguish between cases where he has indicated his intention unmistakably and where he has done so more obscurely. Liability is imposed upon agent, not in the aid of his intention, for the hypothesis intention to the contrary has been

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adequately revealed. Liability exists as a duty imposed by law. -If agent signing w/o authority isn’t liable, there might be a failure of justice when note wrongfully issued was in the hands of later holders. No doubt a remedy in tort is available to such holder if agent had misrepresented his authority as to be guilty of fraud. -In proportion as the agent was relieved of liability if he acted w/ authority, there was need to charge him w/ liability if authority was lacking. PRATT V HOPPER 12 Cal App.(2d) 291, 55 P. 2d 517 (1936) ~’del~ FACTS -Mabel Pratt conveyed a tract of land to Mitchell Mayer. -Mayer then executed a deed of trust to the California Trust Co.(CTC) as trustee and Pratt as beneficiary therein. -Mayer also executed a deed of the property to Hopper and Payne. -Trimble carried on the negotiations for the purchase of the property for the parties. -The trust from Mayer to the CTC secured the payment of a note representing a portion of the purchase price. -Said note was signed by Mayer in his individual capacity and not designating himself as an agent. Neither did he disclose in the note the names of any of the other interested parties in the transaction. -Pratt sued Mayer, Hopper, Payne and Trimble to recover a deficiency on the note. ISSUE WON Mayer is liable on the instrument as agent HELD: NO. -All the exhibits show that Mayer signed in his individual capacity and not as agent for other defendants. The exhibits don’t show either that a tradename was used or that the parties thereto were partners. -An undisclosed principal has been held liable except in cases of negotiable instruments and specialties, but the law seems well settled that in the case of negotiable instruments an undisclosed principal could not be charged at any time. -In the case of negotiable instruments, this restriction arises, not by reason of the status of the parties, but by reason of the character of the instrument. When a negotiable instrument is executed by an agent without sufficiently indicating on its face who the principal is, parol evidence cannot be introduced

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to charge the principal, although the agent executed the instrument as an agent. -This exception to the rule is based upon the reason that each party who takes a negotiable instrument makes his contract with the parties who appear on its face to be bound for its payment; and in suits upon negotiable instruments no evidence to charge any principal thereto unless his name in some way is disclosed on the instrument itself. -The instrument in question here was a negotiable instrument (even if it was secured by a deed of trust as it is negotiable in form). To go beyond the face of the instrument is to nullify Sec. 3099 of the US CC. Disposition Judgment affirmed. INSULAR DRUG CO V PHIL. NAT’L BANK Malcolm; G.R. No. L-38816 58 Phil. 684 (1933) ~jaja~ FACTS -The Insular Drug Co., Inc., is a Philippine corporation with offices in the City of Manila. U.E. Foerster was formerly a salesman of drug company for the Islands of Panay and Negros. Foerster also acted as a collector for the company. He was instructed to take the checks which came to his hands for the drug company to the Iloilo branch of the Chartered Bank of India, Australia and China and deposit the amounts to the credit of the drug company. Instead, Foerster deposited checks, including those of Juan Llorente, Dolores Salcedo, Estanislao Salcedo, and a fourth party, with the Iloilo branch of the Philippine National Bank. The checks were in that bank placed in the personal account of Foerster. Some of the checks were drawn against the Bank of Philippine National Bank. After the indorsement on the checks was written "Received payment prior indorsement guaranteed by Philippine National bank, Iloilo Branch, Angel Padilla, Manager." The indorsement on the checks took various forms. In this connection it should be explained that Carmen E. de Foerster was his stenographer. As a consequence of the indorsements on checks the amounts therein stated were subsequently withdrawn by U. E., Foerster and Carmen E. de Foerster. -Eventually the Manila office of the drug company investigated the transactions of Foerster. Upon the discovery of anomalies, Foerster committed suicide. But there is no evidence showing that the bank knew that Foerster was misappropriating the funds of his principal. The Insular Drug Company claims that it never received the face value of 132 checks here in the question covering a total of P18,285.92. ISSUE


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WON the bank is responsible to the drug company for the amounts represented by the checks HELD: YES -The bank could tell by the checks themselves that the money belonged to the Insular Drug Co., Inc., and not to Foerster or his wife or his clerk. When the bank credited those checks to the personal account of Foerster and permitted Foerster and his wife to make withdrawals without there being made authority from the drug company to do so, the bank made itself responsible to the drug company for the amounts represented by the checks. The bank could relieve itself from responsibility by pleading and proving that after the money was withdrawn from the bank it passed to the drug company which thus suffered no loss, but the bank has not done so. The bank will have to stand the loss occasioned by the negligence of its agents. Disposition Judgment affirmed. PBCOM V ARUEGO L-25736, Jan 31, 1981; 102 SCRA 530 ~iNa~ NATURE Appeal from an order of trial court denying motion to set aside order of default. (Remember requirements to set aside default order: failure to answer was due to FAME and that defendant has meritorious defense.) The SC found that failure was due to E; but defendant (Aruego) does not have a meritorious defense. FACTS -Involves 22 transactions between Bank and Aruego for the printing of defendant's periodical. Defendant had a credit accommodation with Bank. The printers would collect the cost of printing from Bank. The total amount demanded was P35k. -The instruments were signed: "Jose Aruego (Acceptor) (Sgd.) Jose Aruego" Aruego's defenses: 1. he signed in his capacity as President of Philippine Education Foundation (PEFC), publisher of the periodical 2. he's not a principal obligor, but only an accommodation party 3. the documents are not legally bills of exchange but only instruments evidencing indebtedness because payments were made before acceptance ISSUES 1. WON Aruego is a mere representative 2. WON Aruego is a primarily liable 3. WON the documents are bills of exchange

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HELD 1. NO -Sec. 20 of NIL says that an agent who does not disclose his principal is not exempt from liability. Aruego did not disclose that he was signing as a representative of PEFC. For failure to disclose his principal, Aruego is personally liable. 2. YES -Accomodation party = one who signs instrument as maker, drawer, indorser, without receiving value for the purpose of lending his name = surety; therefore, primarily liable. -The defendant who is a lawyer should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts. 3. YES -As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not. COLUMBIAN BANKING CO V BOWEN 134 Wis. 218, 114 N.W. 451 (1908) ~chrislao~ FACTS -Farmer's Merchant Bank (drawer) sold $400 draft drawn on National Bank of North America (drawee) payable to Bowen (payee). -Bowen indorsed and forwarded by mail the draft to Trabert, a traveler. The endorsement was made on June 16, 1903. -Trabert indorsed the draft to Columbian Banking Co. Columbian presented the draft to drawee bank for payment. This was refused. Columbian demanded payment from Bowen. ISSUE WON Bowen (as an indorser, hence, secondarily liable) was released from liability on the draft because of period intervening between his indorsement and the presentation to drawee for payment. HELD: NO. Bowen was NOT released from liability. -The only time to be considered here is the time intervening between the last negotiation and the presentment (meaning between time when Trabert negotiated it to Columbia and the time when Columbia

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presented the said draft to drawee bank for payment, NOT the time when Bowen let go of the draft) -Bowen unqualifiedly indorsed the draft and put it in circulation by sending it to Trabert at a distant part of the country and probably knowing that Trabert was travelling to San Francisco where he would negotiate the paper. At any rate, the important thing is that after Trabert negotiated the draft, said draft was immediately presented for payment. *Note that this case involves a draft which is a bill of exchange. In the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof. As to what constitutes reasonable time is a question of fact. In the case at bar, the court is satisfied that the draft was presented for payment within a reasonable time. Campos Notes: Under Sec. 71 (on demand nego instruments), the liability of the drawer and indorsers (emphasis by me), of a demand bill can be preserved indefinitely, provided presentment is made WITHIN A REASONABLE TIME FOR LAST NEGOTATION. But take note, under Sec. 53, where an instrument payable on demand is negotiated in an unreasonable length of time after issue, the holder is NOT a HDC. THUS (as a way of reconciling the two), although a reasonable time may not have elapsed between the last negotiation and presentment for payment of a demand bill (and so the secondary parties remain liable), the holder who takes the instrument after the lapse of a reasonable time from issue, will be subject to personal defenses. FICK V JONES 185 Wash. 365, 55 P. 2d 334 (1936) ~apple~ FACTS SUBJECT: Check DRAWER: J.W. Jones DRAWEE: People's Bank and Trust Company PAYEE: E.P. Fick -Fick brought an action on the check against Jones -Judgment was rendered in Fick's favor [*it was neither alleged nor proven that the check was ever presented to the drawee for payment: the TC found it had not been presented to drawee but to drawer in 1933 (check dated 1929), who refused to pay it] -Jones appealed on the ground that an action on a check cannot be had against the drawer without allegation and proof of presentment and demand on the drawee ISSUE


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WON an action on a check can be had against the drawer without presentment and demand on the drawee HELD: NO. -Fick cited a number of cases to support his contention that failure to present a check to the drawee does not release the drawer unless he sustains loss or injury in consequence of such failure -However, these cases go only to the extent of holding that the debt, which the check was designed to pay, is charged only to the extent that the drawer has sustained loss by the failure or negligent delay of the payee to present the check to the drawee for payment -Issue of loss or injury to drawer arises only when he claims the debt is discharged by reason of negligence of payee in presenting the check for payment--this is not the case -Such cases do not encroach upon the rule that presentment, demand and notice of dishonor are essential prerequisites to an action against the drawer on a check Disposition Judgment reversed, case remanded, with direction to dismiss. GORDON V LEVINE Morton; 194 Mass. 418, 80 NE 505; (1907) ~rach~ FACTS SUBJECT: Check dated December 30, 1905, Saturday DRAWER: Max Levine, defendant DRAWEE: Provident Securities & Banking Company PAYEE: Samuel Gordon, plaintiff -Gordon’s version: Levine asked him not to present the check for a couple of days; still, he presented it on Monday morning and was told there were no funds. Gordon then passed the check to one Saievitz in payment of a bill. On Tues, Saievitz indorsed it to one Rootstein who deposited it on Thurs, in the Faneuil Hall National Bank, Boston, for collection. On Friday, that bank's messenger then went to the bank on which the check was drawn, the Provident Securities & Banking Company, and found its doors closed. Hence, with this non-payment, Levine should still be liable. -Levine’s version: When the check was drawn, he had sufficient funds on deposit at the bank to meet it, and continued to maintain such account. The check should have been presented for payment within a reasonable time -the check in suit should have been presented before the close of banking hours on Mon, Jan 1. -The court refused to instruct the jury that the transfer to successive holders would not extend the time, or that a presentment on Friday was not within a

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reasonable time. Defendant seeks exceptions from this ruling.

presented check January 1958, payment refused, duly protested, notice given to McCartney.

ISSUE WON there was proper diligence in presentment

ISSUE WON Morrison was entitled to recover, notwithstanding their failure to present the check on the day after it was endorsed to them, upon showing that the drawer sustained no injury by the delay, and that before suit, brought, and within a reasonable time, demand, protest, and notice were duly given

HELD: NO -Where the drawer, the drawee and the payee of a check are all in the same city or town, the check should be presented for payment before the close of banking hours on the day after its delivery, and its circulation from hand to hand by indorsement does not extend the time for its presentment. If it is presented and paid afterwards the drawer suffers no harm. But if not presented within the time thus fixed, and there is a loss it falls not on him but on the holder. -The general rule is that a check must be presented for payment within a reasonable time after it is issued. If it is not so presented and the drawer sustains a loss by reason of the failure of the drawee, he will be discharged from liability to the extent of such loss, continuing liable otherwise. This results from the nature of the instrument which though defined in the negotiable instruments act as 'a bill of exchange drawn on a bank payable on demand' is intended for immediate use and not to circulate as a promissory note, and it consequently would be unjust to subject the drawer to the loss if any resulting from failure to present it for payment within a reasonable time. -'In determining what is a 'reasonable time' or an 'unreasonable time' regard is to be had to the nature of the instrument, the usage of trade or business, if any, with respect to such instruments and the facts of the particular case.' Disposition Exceptions sustained. MORRISON V McCARTNEY 30 Mo. 183 ~cHa~ FACTS SUBJECT: check delivered and transferred on Oct.2, 1957 but was presented only on January 1958 DRAWER: McCartney DRAWEE: E.W. Clark & Brothers (C&B) PAYEE: Bohn & Co. SUBSEQUENT INDORSEMENTS: Bohn & Co. to Morrison -Check was not presented Oct.3 because C&B was closed or stopped payment. On Oct.6, McCartney who previously commenced suits by attachment compromised the suits, settled with the C&B then withdrew his deposits with C&B. Morrison only

HELD: YES -The drawer is treated as in some sort of principal debtor, and he is not discharged by any laches of the holder in not making due presentment thereof, or in not giving him notice of the dishonor, unless he has suffered some loss or injury thereby, and then only pro tanto. -The drawer is the principal debtor. The check is the acknowledgement of a certain sum due. It is an absolute appropriation of so much money in the hands of his banker to the holder if the check, and there it ought to remain till called for; and unless the drawer actually suffers by the delay, as by the intermediate failure of his banker, he has no reason to complain of delay not unreasonably protracted. If the holder does so unreasonably delay, he assumes the risk of the drawee’s failure, and he may, under circumstances, be deemed to have made the check his own to the discharge of the drawer. Disposition. Judgment for plaintiff is affirmed. PHIL. NAT’L BANK V SEETO Labrador; 91 Phil. 756 (1952) ~jojo~ FACTS On March 13, 1948, Benito Seeto called at the Surigao Branch of PNB, and presented a check in the amount of P5,000, payable to cash or bearer, and drawn by one Gan Yek Kiao against the Cebu branch of the Philippine Bank of Communications (PBC). After consultation with the employees of the branch, Seeto made a general and unqualified indorsement of the check, and PNB's agency accepted it and paid Seeto the amount of P5,000 therefor. The check was mailed to PNB's Cebu branch on March 20, 1948, and was presented to PBC for payment on April 9, 1948, but the check was dishonored for "insufficient funds." So the check was returned to PNB's Surigao agency, and upon receipt thereof by it on April 14, 1948, said branch sent two letters to Seeto demanding immediate refund of the value of the check, to Seeto answered asking that PNB's contemplated suit be deferred while he was


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making inquiries about the reasons for the dishonor of the check. Thereafter, Seeto refused to make the refund demanded, claiming that at the time of the negotiation of the check the drawer had sufficient funds in the drawee bank PBC, and that had PNB's Surigao agency not delayed to forward the check until the drawer's funds were exhausted, the same would have been paid. ISSUE WON indorsee Seetois liable for the refund demanded by PNB HELD:NO. -Section 84 of the Negotiable Instrument Law is applicable, but its application is subject to the condition imposed by Section 186, to the effect that the check must be presented for payment within a reasonable time after its issue. SEC. 84. Liability of person secondarily liable, when instrument dishonored. Subject to the provisions of this Act, when the instrument is dishonored by nonpayment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder. SEC. 186. Within what time a check must be presented. A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. -The silence of Sec. 186 as to the indorser is due to the fact that his discharge is already expressly covered by the provision of Section 84, the indorser being a person secondarily liable on the instrument. The reason for the difference between the liability of the indorser and that of the drawer in case of dishonor is that the drawer is not probably or necessarily prejudiced thereby, while an indorser is, actually or by legal presumption. -There is no authority sustaining the proposition that an indorser of a check is not discharged from liability for an unreasonable delay in presentation for payment. This is contrary to the essential nature and character of negotiable instruments -their negotiability. They are supposed to be passed on with promptness in the ordinary course of business transactions; not to be retained or kept for such time as the holder may want, otherwise the smooth flow of commercial transactions would be hindered. -It is not claimed by PNB that the conclusion of the CA that there was unreasonable delay in the presentation of the check for payment at the drawee bank is erroneous. The fact, admitted by the witnesses for the petitioner, that checks of the drawer issued subsequent to March 13, 1948, drawn against the same bank and cashed at the same Surigao agency, were not

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dishonored positively shows that the drawer had enough funds when he issued the check in question, and that had it not been for the unreasonable delay in its presentation for payment, the petitioner herein would have been able to receive payment therefor. The check is dated March 10 and was cashed by the petitioner's agency on March 13, 1948. It was not mailed until seven days thereafter, or ten days after issue. No excuse was given for this delay. Assuming that it took one week, or say ten days, or until March 30, for the check to reach Cebu, neither can there be any excuse for not presenting it for payment at the drawee bank until -- The supposed assurances of refund in case of dishonor of the check are precisely the ordinary obligations of an indorser, and these obligations are, under the law, considered discharged by an unreasonable delay in the presentation of the check for payment. CRYSTAL V CA [Ocang, de Gracia] L-No. 35767, June 18, 1976; 71 SCRA 443 ~kiyo~ FACTS -The SC affirmed a CA decision, holding that Raymundo Crystal’s redemption of the 4 parcels of land in question acquired by Pelagia Ocang, et al, was invalid as the check which Crystal used in paying the redemption price of P11,200 had been either dishonored or had become stale hence, the value of the check was never realized. Crystal filed and MFR. ISSUE WON the conflicting circumstances of the check being dishonored and becoming stale affect the validity of the redemption sale HELD -For a check to be dishonored upon presentment and to be stale for not being presented at all in time are incompatible developments that have variant legal consequences. If indeed the questioned check was dishonored, the redemption was null and void. If it had only become stale, it becomes imperative that the circumstances that caused its non-presentment be determined, for if it was not due to the fault of the drawer, it would be unfair to deprive him of the rights he had acquired as redemptioner. In this case, there is a strong showing that the check was not dishonored, although it became stale, and that Pelagia Ocang had actually been paid the full value thereof. Disposition SC decision is reconsidered and the case remanded to the TC.

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CHAN WAN V TAN KIM Bengzon; 50 O.G. 1554 (1960) ~athe~ FACTS -Tan Kim drew 11 checks payable to “cash or bearer” upon the Equitable Banking Corp payable to Pinong and Muy for some shoes the former had promised (8 of these checks bear two parallel lines between which these words are written: non-negotiable-China Banking Corporation). -The checks were deposited with the CBC and the latter presented to the drawee for collection. However, as the drawee had no funds they were unpaid and returned. -The checks reached the hands of Chan Wan. He presented them to the drawee bank (EBC) but they were all dishonored on the ground that the plaintiff (a) failed to prove he was a holder in due course, and (b) the checks been crossed checks should not have been presented to the drawee for “payment”, but should have been deposited instead with the bank mentioned in the crossing. HELD -Chan Wan is indeed not a holder in due course since he knew that the checks had already been dishonored. However, it does not follow that simply because he was not a HDC, he could not recover on the checks. His only disadvantage is that the negotiable instrument is subject to defenses as if it were non-negotiable. But since lower court did not mention what defenses Tan Kin prove, the case was remanded to the trial court for determination of whether any defense existed between the original parties. ASSOCIATED BANK, Cruz V CA, Reyes 208 SCRA 465; Cruz; May 27, 1992 ~giulia~ FACTS Reyes in engaged in the business of RTW garments under the firm name 'Melissa's RTW.' The companies she deals with issue in payment crossed checks payable to Melissa's RTW. When Reyes went to the companies to collect on what she thought were still unpaid accounts, she was informed of the issuance of the crossed checks. Further inquiry revealed that the said checks had been deposited with the Associated Bank (bank) and subsequently paid to Sayson. According too the branch manager, Cruz, Sayson had not been authorized by the private respondent to deposit and encash the said checks.


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Reyes sued the petitioners to which RTC rendered a decision requiring the petitioners to pay the respondehnt the total value of the checks. Petitioners appealed saying that the the respondent had no cause of action and should have proceeded against the companies instead. CA affirmed the judgment of the RTC. ISSUE WON Reyes had cause of action against the petitioners HELD: YES. There being no evidence that the crossed checks were acutally received by the respondent, she would have a right of action against the drawer companies, which in turn could sue the petitioner as a collecting bank. In a similar situationn, to simplify the proceedings, tha payee of the illegally encashed checks could be allowed to recover directly from the bank responsible for such encashment regardless of whether or not the checks were actually delivered to the payee. Crossing a check is special where the name of a bank or a business institution is written between 2 parallel lines, which means that the drawee should pay only with the intervention of that company. This means that the drawee should not encash the check but merely accept it for deposit. In State Investment House v IAC the court held that the effects of crossing a check are: (1) that the check may not be encashed but only deposited in the bank; and (2) that the check may be negotiated only once – to one who has account with a bank and; (3) that the act of crossing the chec serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he ahs received the check pursuant to that purpose. Under Sec 72,NIL, presentment of payment, to be sufficient, must be made by the holder or by some person authorized to receive payment on his behalf. Who the holder or authorized person is depends on the instruction stated on the face of the check. The possession of a check on a forged or unauthorized indorsement is wrongful, and when the money is collected on the check, the bank can be held for moneys had and received. The bank was negligent. The petitioners also argued that the respondent's husband was the one who indorsed the check. Assuming that he did, the bank would still be liable because the husband was not authorized to make the indorsements. There is no substantial difference between an actual forging of a name to a check as an endorsement by a person not authorized to make the

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signature and the affixing of a name to a check as an indorsement by a peson not authorized to indorse it. GULLAS V PHIL. NAT’L BANK Malcolm; 62 Phil 519 (1935) ~ajang~ FACTS -Atty. Gullas has a current account with PNB. The treasurer of the U.S. for the United Veterans Bureau issued a treasury warrant worth $361 payable to the order of Sabectoria Bacos. Atty. Gullas and Pedro Lopez signed as indorsers of this check. Thereupon, it was cashed by PNB. However, the treasury warrant was dishonored by the Insular Treasury, so PNB sent notices by mail to Gullas which could not be delivered to him at that time because he was in Manila. In the letter, the bank said that in view of the fact that the treasury warrant was dishonored, the bank has applied the outstanding balances of his current accounts (worth P509) to the part payment of the check. -When Atty. Gullas went back to Cebu, he received the notice of dishonor and immediately paid the unpaid balance of the treasury warrant. -However, Atty. Gullas was inconvenieced because of this. Check including one for his insurance was not paid because of lack of funds. Also, periodicals in the vicinity gave prominence to this news, to great mortification of Gullas. ISSUES: 1. WON PNB had right to apply a deposit to debt of the depositor to the bank 2. WON award for damages should be given to Atty. Gullas HELD 1. YES. -As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of the depositor. In Louisiana however, the rule is denied and it is held that a bank has no such right without an order from or special assent of the depositor. The basis of this doctrine is the theory of confidential contracts arising from irregular deposits e.g. the deposit of money with a banker. The court decided to adopt the general rule as more in harmony with modern banking practice. From this premise that PNB had the right, the next question is whether the bank properly enforced such right. The bank mailed the notice of dishonor, but made use of the money standing in hi saccount without waiting for any action by Gullas. Thus, Gullas didn’t have any notice of the set off when he issued the other

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checks. It must be noted that Gullas was merely an indorser of the treasury warrant. As to an indorser, the situation is different, notice should actually have been given to him in order that he might protect his interest. 2. YES. -Atty. Gullas should be awarded nominal damages, P250, because of the premature action of the bank against Gullas, he had no means of protection. STATE BANK OF EAST MOLINE V STANDAERT 335 Ill. App. 519, 82 N.E. 2d 393 ~glaisa~ FACTS SUBJECT: a promissory note MAKERS: Alfons and Lena Standaert INDORSEES: Alois and Anna de Vos -Alfons and Lena made and delivered the PN to Alois and Anna. The note recited it was secured by real estate mortgage. -Alois and Anna sold the note and the mortgage to the plaintiff bank. Note was not paid. Bank sued the makers and the indorsees. -During trial, bank offered the testimony of its tellerbookkeeper who said that it was unswerving custom of the bank to send to the parties, 10 days prior to its maturity date. -Anna maintains she did not receive any notice that the note was dishonored. ISSUE WON the plaintiff bank gave the indorser notice of dishonor as required under the Negotiable Instruments Law HELD: NO -To charge an indorser with the payment of the note, the plaintiff must establish that the notice of dishonor was addressed and was actually made which may be proven by direct or circumstantial evidence. -In the case, other that the description of the general custom of the bank of notifying indorser, the only evidence tending to prove, even circumstantially, that the notice of dishonor was prepared and mailed to the defendant was the inference from the tellerbookkeeper’s self-serving declaration that she always did her duty and never failed to send out notice of dishonor. ARTERBURN V WAKEFIELD 309 Ky. 212, 217 S.W. 2nd 203 (1949) ~RPR~ FACTS


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-Arterburn drew a check for $1,000 payable to JH and HA Wakefield and delivered the same for value. The check was dishonored on presentment. The payee sued. As defense, the maker alleged that since the petition did not aver that notice [of the non-payment of the check when presented at the bank] was given to him, no cause of action was stated. Arterburn argued that a check is a bill of exchange and hence a notice must be given the drawer; otherwise, maker is discharged. In support of this contention the defendant cited two provisions of the law as follows: “356.185. Check defined. A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this chapter applicable to a bill of exchange payable on demand apply to a check. “356.089. Notice of dishonor. Except as otherwise provided in this chapter, when a negotiable instrument has been dishonored by non-acceptance or nonpayment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.” ISSUE WON in an action on a check the petition must aver that the maker of the check was given notice that it was dishonored HELD: NO -The two sections quoted by the defendant, when taken independent of the other provisions, would seem to imply that a failure to give notice of dishonor of a check discharges the maker. However, several provisions of the NIL stand in pari material and must be construed as to give each a field of operation. While Article 356.185 makes a check a bill of exchange, it does not so unqualifiedly but only “except as herein otherwise provided”. On the other hand, Article 356.186 seem to create a distinction between a check and a bill of exchange in that the maker of the check is released upon the delay of the payee in presenting a check payment but only to the extent of the loss caused by the delay. -Even assuming that he is entitled to notice, the following provision of Article 356.114 would apply: “356.114. When notice to drawer not required. Notice of dishonor is not required to be given to the drawer in either of the following cases: (1) Where the drawer and the drawee are the same person; (2) Where the drawee is a fictitious person or a person not having capacity to contract; (3) Where the drawer is the person to whom the instrument is presented for payment; (4) Where the drawer has no right to expect or require that the

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drawee or acceptor will honor the instrument; (5) Where the drawer has countermanded payment” -Banks would normally not pay or dishonor a check due to insufficiency of funds in the account of the maker or to a stop payment order by the maker. In which case, if the dishonor or non-payment of the check is due to the stop payment order, then it is covered by the fifth condition of Article 356.114. If on the other hand, nonpayment is due to lack of funds, he has no right to expect or require the bank to pay his check. This situation is covered by the fourth condition of Article 356.114. Disposition Judgment affirmed.

SIMON V PEOPLE’S BANK & TRUST CO 116 N.J.L. 390, 184 Atl. 793 (1936) ~owen~ FACTS DRAWER: Robert H. Simon PAYEE/INDORSER: Frucht INDORSEE/HDC: Ruth Simon DRAWEE BANK (payable at): People’s Bank & Trust Company of PASSAIC COLLECTING BANK: Hamilton Trust Company of PATERSON The note, which was sent to the Federal Reserve Bank, was presented to PASSAIC for payment but it was dishonored. The notice of dishonor was mailed, addressed to each party liable thereon, in the care of PATERSON. These notices were received by PATERSON the next day. Thereupon, the notices were mailed to Ruth Simon, who failed to collect against the Robert H. Simon and Frucht, brought an action against PASSAIC, its cashier, and PATERSON for negligence District Court: in favor of PASSAIC et al Supreme Court on appeal: reserved judgment ISSUE WON PASSAIC, its cashier, and PATERSON are liable as agents because they did not give sufficient notice HELD: NO Ratio The holder of a note taking it to a bank for collection is familiar with the financial responsibility of the maker and indorsers, and can easily disclose the addresses of those to be charged and request that they be notified in event of default. In the absence of specific instructions, the bank need do no more than

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promptly report the fact to its principal, and the principal may then notify those to be charged. PASSAIC as a mere agent of PATERSON for effecting collection (sub-agent) 1. bound to make legal demand on promisor of payment 2. and upon non-payment, to give due notice of the dishonor to PATERSON >>to hold PASSAIC to a greater duty would be most unreasonable because it had not discounted the paper and presumable knew nothing of the indorsers or their residences. If Ruth Simon desired PASSAIC to notify the indorsers, she could have given SPECIFIC INSTRUCTIONS (Phipps v Milbury Bank) PATERSON as mere AGENT for Ruth Simon for collection >>knew nothing of their indorsers or their residences >>duty as agent fully performed when it gave TIMELY NOTICE if the dishonor of the note so she could notify the prior parties. It does not matter that a notice placed in the mail is not received -Section 94 NIL: Where the instrument has been dishonored in the hands of an agent, he may either himself give notice to the parties liable thereon, or he may give notice to his principal; if he gives notice to his principal, he must do so within the same time as if he were the holder, and the principal upon receipt of such notice has himself the same time for giving the notice as if the agent has been an independent holder. -Mailing of notices to the principal is sufficient to relieve the agent. Any other rule would cast too great an obligation upon banks. Disposition Judgment is reversed.


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PEOPLE’S NATL BANK OF YPSILANTI V DICKS 258 Mich. 441; 242 NW 825 (1932) ~maia~ FACTS SUBJECT: promissory note MAKER: Ives HOLDER: People’s National Bank (substituted by Deake et al. as plaintiffs) INDORSER: Dicks -People’s National Bank sued Dicks and Ives for the promissory note. The note was signed on its face by Ives and Dicks. Opposite the signatures and directly opposite Dicks’ name was stamped the word “indorsed.” -Above the signatures of the parties, there was no guaranty of payment, no waiver of demand or notice of non-payment or protest, and no waiver of extension. Such waiver was on the face of another part of the note (the back of the instrument). -there was no presentment of the note for payment to Ives, no demand of payment made to him, no dishonor by Ives, no notice of dishonor to Dicks, no protest on the note. Thus, if Dicks was a joint maker of the note he is liable. If he is an indorser and is bound by the waiver printed on the note, he is likewise liable. If he is a mere indorser, not bound by the warranty or guaranty printed on the note, he is not liable. ISSUE WON Dicks was liable HELD: NO -when the waiver is embodied in the instrument itself it is binding upon all parties; but when it is written above the signature of an indorser, it binds him only. “Embodied in the instrument” means embodied in the original contract, not in detached words on the back of the instrument. -in the construction of negotiable instruments, the NIL provides that where the signature is so placed upon the instrument that it is not clear in what capacity the person making it intended to sign, he is deemed an indorser. -further, Sec. 109 provides that notice of dishonor may be waived, either before the time of giving notice has arrived, or after the omission to give notice, and the waiver may be express or implied. -the NIL has intended to make a distinction between waivers appearing on the body of the instrument itself, and those appearing at the back thereof above the signature of the indorser. An indorser is not bound in all events by a waiver that is not embodied in the body of the instrument, but placed at the back thereof.

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-prior to NIL, there was no such distinction. The effect of a waiver appearing at the back of an instrument has the same effect as that of one appearing at the back thereof, i.e. binds all indorsers. Now, there is a distinction. -here, Dicks was an indorser, thus he is not bound by the printed guaranty of payment or waiver of the note. Nothing indicates that Dicks signed, accepted, or approved of the printing upon the instrument. No presentment, demand, or notice of dishonor was given defendant, thus he is not bound by the same.

STATE INVESTMENT HOUSE V CA G.R. No. 101163; Bellosillo: Jan 11, 1993 ~da~ FACTS: SUBJECT: 2 Post dated checks DRAWER: Nora Moulic DRAWEE: PAYEE: Corazon Victoriano Indorsee: SIHI -Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two (2) post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos (P50,000.00) each who thereafter negotiated the checks to State Investment House. Inc. (STATE).MOULIC failed to sell the pieces of jewelry, so she returned them to Victoriano before maturity of the checks. The checks could no longer be retrieved since they had already been negotiated. Before their maturity dates, MOULIC withdrew her funds from the drawee bank. -The checks were dishonored for insufficiency of funds. On 20 December 1979, STATE allegedly notified MOULIC of the dishonor of the checks and requested that it be paid in cash instead, although MOULIC avers that no such notice was given her. ISSUE WON MOULIC is liable for the value of the checks even if STATE failed to give her notice of dishonor HELD: YES. -The fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The need for such notice is not absolute; there are exceptions under -Sec. 114 of NIL: When notice need not be given to drawer. Notice of dishonor is not required to be given to the drawer in the following cases:


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(a) Where the drawer and the drawee are the same person; (b) When the drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded payment. -Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she returned the jewelry. She simply withdrew her funds from her drawee bank and transferred them to another to protect herself. After withdrawing her funds, she could not have expected her checks to be honored. In other words, she was responsible for the dishonor of her checks, hence, there was no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not been paid, and that the party notified is expected to pay it.

ELLENBOGEN V STATE BANK 197 N.Y. Supp. 278 (1922) ~bry_sj~ FACTS SUBJECT: draft DRAWER: State Bank DRAWEE: Polish National Loan Bank PAYEE: Meyer Ellenbogen’s agent -Ellenbogen sued to recover $1650 on a draft drawn by defendant to the order of her agent for the equivalent of Polish money of that sum. Ellenbogen alleged that the check was duly presented to the Polish National Bank but said bank refused payment for the reason that the defendant had no money on deposit in the bank with which to pay the check. -The trial court dismissed the complaint because it was not pleaded that the draft was protested citing section 260 of the Negotiable Instruments Law, which provides that a foreign bill of exchange, appearing on its face to be such, which is dishonored for nonpayment, must be duly protested for nonpayment, and that if it is not so protested the drawers and indorsers are discharged. ISSUE

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WON the lower court erred in holding that protest is a condition precedent to recovery against the drawer HELD: NO. -Section 185 of the NIL provides that notice of dishonor is not required to be given to the drawer, if the drawer has no right to expect or require that the drawee or acceptor will honor the instrument and under Section 267 (which is only required in the case of foreign bills of exchange) is dispensed with by any circumstances which would dispense with the notice of dishonor. Further, under Section 139, presentment for payment is not required, in order to charge the drawer, where he has no right to expect or require that the drawee or acceptor will pay the instrument. -It follows that neither presentment nor dishonor was necessary in light of the facts pleaded by the plaintiff and therefore, protest was not required. TAN LEONCO V GO INQUI Johnson; 8 Phil. 531 (Sept 13, 1907) ~mel~ FACTS SUBJECT: bill of exchange worth P800 DRAWER: Go Inqui, as representative of the plaintiff’s mercantile co, "J.C.," DRAWEE: Lim Uyco, of Manila. PAYEE: Tan Leonco -In the year 1897 the plaintiff left the Philippine for China, and prior to his departure turned over to Tan Tonguan, for his management, the plantations of abaca (hemp) which the plaintiff then possessed in this province. While the plaintiff was in China, Tan Tonguan worked the abaca and obtained 800 pesos worth of fiber, which he caused to be stored, by direction of the defendants, in a warehouse in Buhang, and after storing the draft or check in question, handing it to the plaintiff, who in the mean time had returned from China. The plaintiff then, desiring to leave again for China, presented the draft for payment in Manila, but as the defendants had suspended the payment of the same, the plaintiff was unable to collect the amount thereof. When the said abaca was stored by Tan Tonguan in Buhang it became the property of the defendants (although it did not go through their hands), and on the face of the draft they acknowledge having received the amount of said draft. Therefore, it is evident that the defendants can not alleged now that they had not received the amount of the said draft. -In the years 1896 and 1897 the plaintiff entered into an agreement with the then head of the firm, of J.C., wherein it was agreed that the plaintiff could transfer the shop at San Isidro to the Chinaman Tan Tonguan,

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and the shop of Buhang tot he Chinaman Lim Joco and Tim Bico; and by reason by such transfers it was agreed between them that the said Chinamen to whom the two should had been transferred would become liable for the debt of the plaintiff directly in connection with the said two shops, one being for the sum of about 600 pesos and the under these conditions, the plaintiff can not now be held to the liable for the 2,390 odd pesos claimed by the defendants in their counterclaim; they must look for payment of this sum to the Chinamen in whose favor the two shops were transferred. -When the draft in question was presented by the plaintiff in Manila for payment, having failed to collect the amount,. he did not cause the protest to be drawn up in the manner provided by the Code of Commerce. Whether this draft or check is considered as a bill of exchange, it is my opinion that said draft or check should the plaintiff should therefore be relieved from the formalities of the protest for want of payment of the same, as provided for with regard to bills of exchange. The lower court indicated a sentence in the cause against the defendant and in favor of the plaintiff for the sum of 800 pesos, Mexican currency, or its value in the Conant, at the rate of P1.30, with interest 6 per cent from 3d day of march, 1901, and costs, including the fees of the arbitrators appointed at its request of the respective the counterclaim presented by the defendant. ISSUE 1. WON defendant received the hemp so as to constitute consideration for the bill of exchange. 2. WON the plaintiff has a right to recover upon said bill of exchange without the same having been duly protested. HELD 1. YES -It is not disputed that the warehouse in which the hemp was deposited was the warehouse of the defendant. The hemp became the property of the defendant upon the delivery thereof in the warehouse of the defendant (arts. 1462 and 1463, Civil Code), and was property of the defendant at the time a complete delivery of the said abaca to the defendant, and the loss occuring thereafter,. without any fault of the plaintiff, was loss of the defendant . We that the delivery of the hemp as above stated was duly made to the defendant and constituted a valuable consideration for the said bill of exchange or check. 2. YES -It was alleged that he said bill of exchange, after being presented to the drawee in Manila, was not protested and that there is some question of the right of the


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p[plaintiff to recover upon said bill of exchange without the same having been duly protested. The action was not brought upon the bill of exchange; the bill of exchange was used only as evidence of the indebtedness. We believe, however, that inasmuch as the defendant had himself ordered the drawee not to pay the said bill of exchange, that protest and notice of nonpayment under these conditions was unnecessary in order to render the drawer, or defendant in this case, liable. Disposition: The judgment of the lower court is affirmed BISHOP V DEXTER 2 Conn. 419 (1817) ~eva~ FACTS Maker: Wittlesey Payee/First Indorser: Dexter Indorsees: Converse, then indorsed to Judd, indorsed finally to Bishop -Dexter indorsed a negotiable note to Converse after it was due -after indorsement by Dexter, no demand was ever made of Whittlesey and no notice ever given to Dexter. -Bishop claims he has a right to recover of Dexter on his indorsement, the note never having been paid by Whittlesey ISSUES 1. WON Dexter is liable. 2. WON when a note is indorsed by the payee after due, a subsequent indorsee without knowledge that the first indorsement was made after the note was due, has a right to presume that a proper demand had been made and notice given when it fell due. HELD 1. NO. The indorsement of a bill or note after due is equivalent to drawing a new bill payable at sight; and demand must be made by the indorsee of the drawer of the bill, or maker of the note, and notice given to the indorser, as in cases of bills payable at sight. It appears that no demand was ever made of Whittlesey, by any of the indorsees of the note, and no notice ever given to the defendant for non-payment; of course, he became discharged of any liability on his indorsement. 2. NO. To hold that the indorsee has a right to presume is not only repugnant to the principle that the indorsement after due is equivalent to drawing a new bill, and must be proceeded with as such; but would lead to the

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practice of the grossest fraud, for the first indorsee might neglect to make demand, and give notice, by which the liability of his indorser would be discharged, and then, by a subsequent indorsement, he might create a new right in his indorsee to recover against the first indorser, after the note had been lost by his negligence. -That the note had been put in suit would not excuse demand and notice. **With respect to the necessity of demand on the maker by the indorsee, the reasonable notice to the indorser, there can exist no serious question. A bill may be negotiated after it has become due. The indorsement of it afterwards is equivalent to the act of drawing a bill payable at sight. The indorser is a new drawer, and has the right to insist, that the same steps should be resorted to for the collection of it, as he had been the drawer of the bill originally. By drawing, he incurs the same legal obligation. BINGHAMPTON PHARMACY V FIRST NATL BANK 131 Tenn. 711, 176 S.W. 1038, 2 A.L.R. 1377 (1915) ~jat~ FACTS -Binghampton Pharmacy and Kilpatrick brothers W.A. Kilpatrick and L.H. Kilpatrick (makers) executed a note payable to the order of “ourselves,” due on Dec.29, 1912 and PAYABLE AT the Chickasaw Bank and Trust. The note was indorsed in blank and discounted at said Chickasaw Bank, which later rediscounted the same note at First Natl. Bank before it became due. -First Natl. Bank did not present the note for payment at Chickasaw Bank on Dec.29 and instead presented the note on Jan.1, 1913. -Because Chickasaw Bank failed to pay, First Natl. Bank demanded payment from the makers who declined, their defense being that they are discharged from liability on the note because of the omission of the First Natl. Bank to present it for payment at the Chickasaw Bank, where the note was made payable, when it fell due. -First Natl. Bank instituted action against the makers in the lower court, which decided in its favor. The makers then filed this certiorari, invoking chapter 94 of the Tennessee Act (Sec.87 NIL) as their defense. They argue that Sec.87 puts upon the holder of a note payable at a bank the same duties as those upon the holder of an ordinary check. ISSUES WON Sec. 87 should be interpreted to mean that a note made payable at a bank requires presentment for

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payment in order to charge the maker, failure of which discharges the maker from liability HELD: NO. Sec.87 should be interpreted in light of the other provisions of the NIL. -Although Sec.87 authorizes a bank, at which an instrument is made payable, to pay the same for the account of the principal debtor, its language must not be so expanded to mean that it converts the maker into a drawer. -The duty of the holder of a note toward the maker cannot be assimilated to the duty of a holder of a check toward the drawer: (1) The maker is primarily liable, while the drawer is only liable after dishonor. (2) Sec.70 excuses presentment of the instrument as to the maker of a note, but the same does not apply to the drawer of a check or bill of exchange (3) Sec.186 places an absolute duty upon the holder of a check to present the instrument for payment at the place where it is payable, within a reasonable time otherwise the drawer is discharged from liability. No such duty rests upon the holder of a note with respect to presentment because the maker of a note, by the terms of the instrument, is absolutely required to pay. His obligation as the maker is not a conditional promise to pay only at a special place, but is a promise to pay generally, even though a place of payment is named. Disposition Petition for certiorari denied.


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Campos - Chapter 5

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