Compiled Case Digest-Cabuchan.pdf

Negotiable Instruments Law Case Digests

SBCA-SOL ’14-‘15

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Negotiability

Philippine Education v. Soriano GR L-22405, 30 June 1971 || Negotiability

FACTS: Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each), offering to pay for them with a private check. Montinola was able to leave the building with his check and the 10 money orders without the knowledge of the teller. Upon discovery, message was sent to all postmasters and banks involving the unpaid money orders. One of the money orders was received by the Philippine Education Co. as part of its sales receipt. It was deposited by the company with the Bank of America, which cleared it with the Bureau of Post. The Postmaster, through the Chief of the Money Order Division of the Manila Post Office informed the bank of the irregular issuance of the money order. The bank debited the account of the company. The company moved for reconsideration.

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ISSUE: Whether postal money orders are negotiable instruments

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HELD: Philippine postal statutes are patterned from those of the United States, and the weight of authority in said country is that Postal money orders are not negotiable instruments inasmuch as the establishment of a postal money order is an exercise of governmental power for the public’s benefit. Furthermore, some of the restrictions imposed upon money order by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, postal money orders may be withheld under a variety of circumstances, and which are restricted to not more than one indorsement.

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Caltex Philippines vs. Court of Appeals 212 SCRA 448 G.R. No. 97753 || Negotiability FACTS:  280 Certificates of Time Deposit (CTDs) were issued by the Security Bank and Trust Company in favor of Angel Dela Cruz, who deposited a collective amount of Php 1,120,000. Such CTDs were then delivered by Dela Cruz to Caltex Phils. for the purchase of fuel products.

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Dela Cruz lost all the CTDs in March 1982 and informed the manager of Security Bank. The manager arranged for the replacement of the lost CTDs upon compliance of Dela Cruz to their bank procedure which entails execution of a notarized Affidavit of Loss. Upon replacement of the allegedly lost CTDs, Dela Cruz obtained a loan of P875,000 from same bank. He then executed a notarized Deed of Assignment of Time Deposit, surrendering to the bank full control of the time deposit account, allowing the latter to apply the said time deposits to the payment of whatever amounts may be due on the loan upon maturity. On the other hand, in November 1982, Mr. Aranas, the credit manager of Caltex, presented to Security Bank for verification the CTDs declared lost by Dela Cruz. Aranas claimed that the same were delivered to Caltex “as security for purchases made”. Accordingly, Security Bank rejected Caltex’s demand for the payment of the value of the CTDs. In April 1983, the loan of Dela Cruz with the Security Bank matured and the latter applied the time deposits in question as payment of the matured loan. Caltex then filed a complaint demanding payment of the value of the CTDs plus accrued interest and compounded interest. The Regional Trial Court dismissed the case. The Court of Appeals also dismissed the case.

ISSUE(S): 1. Whether or not the subject Certificates of Time Deposit are negotiable instruments 2. Whether or not Caltex can recover the value of the CTDs HELD: 1. YES. A sample text of the CTD states: “This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. After date, upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum.” Section 1 of the NIL requires among others, that for an instrument to be negotiable, it must be payable to the order or to bearer (par. 1 |C a b u c h a n . N e g o C a s e D i g e s t s




D). The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. The documents provide that the amounts deposited shall be repayable to the depositor. The court ruled that the “depositor” indicated is actually the “bearer”. The documents do not say that the depositor is Angel Dela Cruz and that the amounts deposited are payable only to him. If it was really the intention of the bank to pay the amount to Dela Cruz only, then it could have so expressed in clear and categorical terms instead of having the word “bearer” stamped on the space provided for the name of the depositor in each CTD. The Security Bank, through its manager, testified that the depositor referred to is Angel Dela Cruz. However, the court ruled that the manager merely declared that Dela Cruz is the depositor, “insofar as the bank is concerned,” but obviously other parties not privy to the transaction between them would not know that the depositor is not the bearer stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the plain import of what is written thereon. This need for resort to extrinsic evidence is what is sought to be avoided by the NIL and calls for application of the elementary rule that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 2. NO. Unfortunately for Caltex, although the CTDs are bearer instruments, a valid negotiation thereof for the purpose and agreement between it and Dela Cruz, requires both delivery and indorsement. As stated by Mr. Aranas in a letter addressed to the bank, “these certificates of deposit were negotiated to us by Mr. Dela Cruz to guarantee his purchases of fuel products.” This admission is conclusive upon Caltex. Under the doctrine of Estoppel, an admission is rendered conclusive upon the person making it and cannot be denied against the person relying thereon. If it were true that the CTDs were delivered as payment and not as security, Aranas could have easily said so, instead of using the words “to guarantee.”

Under the NIL, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of a transfer of a legal title, in which case delivery would have sufficed. Here, the delivery of the CTDs was only as security for the purchases of Dela Cruz. Therefore, Caltex could only have been a holder for value by reason of lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument because the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for. Metrobank v. CA 194 SCRA 168 || Negotiability Sesbreno vs. CA GR 89252, 24 May 1993 FACTS: On 9 February 1981, Raul Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note (2731), the Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on 13 March 1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security was issued 10 April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped “non-negotiable” on its face. As Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank. ISSUE: Whether non-negotiability of a promissory note prevents its assignment.

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HELD:

Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in bearer form. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal consequences of negotiation and assignment of the instrument are different. A negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. herein, there was no prohibition stipulated. FIRESTONE TIRE VS CA GR No. 113236 || Negotiability FACTS: Fojas-Arca purchased tires from petitioner with special withdrawal slips drawn upon Fojas-Arca's special savings account with respondent bank. Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioner's current account, then presented the slips for payment to respondent bank. This singular circumstance made plaintiff believe and rely on the fact that the succeeding special withdrawal slips drawn upon the defendant would be sufficiently funded. Thereafter, Fojas-Arca, again, purchased Firestone products on credit using withdrawal slips. On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of Fojas-Arca's funds on deposit. That information came about six months from the time Fojas-Arca purchased tires from petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from petitioner's account, causing the alleged pecuniary damage subject of petitioner's cause of action. ISSUE: Whether or not respondent bank should be held liable for damages suffered by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips HELD:

No, respondent bank should not be held liable. Petitioner admitted that the withdrawal slips in question were non-negotiable. Hence, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case. Thus, respondent bank was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character. Citibank should have known that withdrawal slips were not negotiable instruments. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank — and petitioner as account-holder — must bear the risks attendant to the acceptance of these instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted mistake. Payable to Bearer Ang Tek Lian v. Court of Appeals 87 SCRA 383 || Payable to Bearer Complete but Undelivered Development Bank of Rizal vs. Sima Wei GR 85419 || Complete but undelivered. (Section 16 of Negotiable Instruments Law) Facts: Sima We executed and delivered to the Development Bank of Rizal(DBR) a promissory note, engaging to pay DBR or order the amount of P1,820,000.00 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. Sima Wei issued two crossed checks payable to DBR drawn against China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the promissory note. These two checks were not delivered to DBR or to any of its authorized representatives. For reasons not shown, these checks came into the possession of Lee Kian Huat, who deposited the checks without DBR's indorsement (forged or otherwise) to the account of the Asian Industrial Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager 3 |C a b u c h a n . N e g o C a s e D i g e s t s




of the Balintawak Branch of Producers Bank, relying on the assurance of Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to DBR and bore no indorsement of the latter. Issue: Whether DBR, as the intended payee of the instrument, has a cause of action against any or all of the defendants, in the alternative or otherwise Held: No. A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part that "Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto." Therefore, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. The two (2) China Bank checks were not delivered to the payee, DBR. Without the delivery of said checks to DBR, the former did not acquire any right or interest therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents. Since DBR never received the checks on which it based its action against said respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything which the respondents may have done with respect to said checks could not have prejudiced DBR. It had no right or interest in the checks which could have been violated by said respondents. DBR has therefore no cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against her corespondents, if the allegations in the complaint are found to be true. *A cause of action is defined as an act or omission of one party in violation

of the legal right or rights of another. The essential elements are: (1) legal right of the plaintiff; (2) correlative obligation of the defendant; and (3) an act or omission of the defendant in violation of said legal right. Liability of Persons Signing Philippine Bank of Commerce v. Aruego 102 SCRA 530 || Section 20 FRANSISCO V. COURT OF APPEALS 319 SCRA 354 || Section 20

FACTS: A. Fransisco Realty and Development and Herby Commercial and Construction Corporation entered into a Land Development and Construction Contract. Fransisco was the president of AFRDC while Ong was the president of HCCC. It was agreed upon that HCCC would undertake the construction of housing units and the development of a large parcel of land. The payment would be on a turnkey basis. To facilitate the payment, AFDRC executed a Deed of Assignment to enable the HCCC to collect payments from the GSIS. Further, they opened an account with a bank from which checks would be issued by Fransisco and the GSIS president. HCCC later on filed a complaint for the unpaid balance in pursuance to its agreement with AFRDC. However, an amicable settlement ensued, which was embodied in a Memorandum of Agreement. It was embodied in said agreement that GSIS recognizes its indebtedness to HCCC and that HCCC would also pay its obligations to AFRDC. A year later, it was found out that Diaz and Fransisco had drawn checks payable to Ong. Ong denied accepting said checks and it was further found out that Diaz entrusted the checks to Fransisco who later forged the signature of Ong, showing that he indorsed the checks to her and then she deposited the checks to her personal savings account. This incident prompted Ong to file a complaint against Fransisco. HELD: Ong’s signature was found to be forged by Fransisco. Fransisco’s contention that he was authorized to sign Ong’s name in her favor giving her authority to collect all the receivables of HCCC from GSIS. This contention is bereft of any merit. The Negotiable Instruments Law provides that when a person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he is 4 |C a b u c h a n . N e g o C a s e D i g e s t s




merely signing as an agent in behalf of the principal and must disclose the name of his principal. Otherwise, he will be held liable personally. And assuming she was indeed authorized, she didn't comply with the requirements of the law. Instead of signing Ong’s name, she should have signed in her own name as agent of HCCC. Thus, her contentions cannot support or validate her acts of forgery. Forgery

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands G.R. No. L-29432 || Forgery

FACTS: Petitioner deposited 10 checks in its current account with BPI. The checks which were acquired by petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island Gas Service, Inc. or order. After the checks had been submitted to Inter-bank clearing, InterIsland Gas discovered that all the indorsements made on the checks purportedly by its cashiers were forgeries. BPI thus debited the value of the checks against petitioner's current account and forwarded to the latter the checks containing the forged indorsements which petitioner refused to accept.

65 SCRA 680 || Forgery MWSS vs. Court of Appeals 143 SCRA 20||Forgery FACTS: Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is a government owned and controlled corporation created under Republic Act No. 6234 as the successor-in- interest of the defunct NWSA. The Philippine National Bank (PNB for short), on the other hand, is the depository bank of MWSS and its predecessor-in-interest NWSA. When it was still called NAWASA, MWSS made a special arrangement with PNB so that it may have personalized checks to be printed Mesina Enterprises. These personalized checks are the ones being used by MWSS in its business transactions. From March to May 1969, MWSS issued 23 checks to various payees in the aggregate amount of P320,636.26. During the same months, another set of 23 checks containing the same check numbers earlier issued were forged. The aggregate amount of the forged checks amounted to P3,457,903.00. This amount was distributed to the bank accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon.

ISSUE: Whether BPI had the right to debit from petitioner's current account the value of the checks with the forged indorsements

MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The trial court ruled in favor of MWSS but the Court of Appeals reversed the trial court’s decision.

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

ISSUE: Whether or not PNB should restore the said amount

The depositor of a check as indorser warrants that it is genuine and in all respects what it purports to be. Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those checks " is genuine and in all respects what it purports to be." Republic Bank v. Ebrada

HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven that MWSS has been negligent in supervising the printing of its personalized checks. It failed to provide security measures and coordinate the same with PNB. Further, the signatures in the forged checks appear to be genuine as reported by the National Bureau of Investigation so much so that the MWSS itself cannot tell the difference between the forged signature and the genuine one. The records likewise show that MWSS failed to provide appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. Even if the twenty-three (23) checks in question are considered forgeries,





considering the MWSS’s gross negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law. We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks because the printing of the petitioner’s personalized checks was not done under the supervision and control of the Bank. There is no evidence on record indicating that because of this private printing the petitioner furnished the respondent Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to safeguard its interests. Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent encashment of its checks. The Supreme Court further emphasized that forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. This was not done in the present case. Banco de Oro v. Equitable Banking Corporation 157 SCRA 189 || Forgery Gempesaw vs CA GR. 92244 || Forgery

FACTS: Natividad Gempesaw owns and operates four grocery stores in Caloocan City. She maintains a checking account with respondent drawee Phil. Bank of Communications to issue checks to her suppliers. Alicia Galang, her bookkeeper, makes the checks and petitioner signs them, without verifying the accuracy of each, since she trusted Galang. Petitioner never bothered to verify the correctness of the returned checks. In 2 years, a total of 82 checks were issued, most of them in excess of her actual obligations to the various payees, all crossed checks with forged indorsement signatures. Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver the eighty-two (82) checks to their respective payees. Instead of issuing the checks to the payees as named in the checks, Alicia Galang delivered them to the Ernest Boon, Chief Accountant of PBCOM Buendia branch. Signatures of the first payees as first indorsers were forged. The checks were then indorsed a 2nd time with the names of Alfredo Romero and Benito Lam and donated to their respective accounts. It was only after 2 years that petitioner found out about the fraudulent transactions. Petitioner then demanded respondent drawee Bank to credit her account with the money value of the 82 checks for having been wrongfully charged

against her account. Respondent drawee Bank refused to grant petitioner's demand. ISSUE: WON Petitioner can claim the value of the 82 checks debited against her account since there was forgery HELD: No. While forgery is a real or absolute defense by the party whose signature is forged, it is not applicable to the case at bar. A party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument. In the case at bar, petitioner admitted that the checks were filled up and completed by her trusted employee, Alicia Galang, and were given to her for her signature. Her signing the checks made the negotiable instrument complete. Prior to signing the checks, there was no valid contract yet. As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. In the case at bar, the petitioner relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even verify the accuracy of amounts of the checks she signed against the invoices attached thereto. Furthermore, although she regularly received her bank statements, she apparently did not carefully examine the same nor the check stubs and the returned checks, and did not compare them with the same invoices. Petitioner’s negligence was the proximate cause of her loss. And since it was her negligence which caused the respondent drawee Bank to honor the forged checks or prevented it from recovering the amount it had already paid on the checks, petitioner cannot now complain should the bank refuse to recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of her account. But petitioner can claim for damages under Article 1170 of NCC since the respondent drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors. Associated Bank v. Court of Appeals 6 |C a b u c h a n . N e g o C a s e D i g e s t s




252 SCRA 620 || Forgery FACTS: The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital through checks drawn against its account with the Philippine National Bank (PNB). These checks were drawn payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the provincial government of Tarlac to the said hospital. However, after his retirement, the provincial government still delivered checks to him until its discovery of this irregularity in 1981 by forging the signature of the chief payee of the hospital, Dr. Adena Canlas. Pangilinan was able to deposit 30 checks amounting to P203,000.00 to his account with the Associated Bank. When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred that Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks. ISSUE: What are the liabilities of each party? HELD: The checks involved in this case are order instruments. Liability of Associated Bank. Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder, the payee hospital, is essential to transfer title to the same instrument. When the holder’s indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. A collecting bank, Associated Bank, where a check is deposited and which indorses the check upon presentment with the drawee bank, PNB, is such an indorser. So even if the indorsement on the check deposited by the banks’s client is forged, Associated Bank is bound by its warranties as an indorser and cannot set up the defense of forgery as against the PNB. Exception: If it can be shown that the drawee bank, PNB, unreasonably delayed in notifying the collecting bank which is the Associated Bank, of the fact of the forgery so much so that the latter can no longer collect reimbursement from the depositor-forger. Liability of PNB. The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to pay the check to the order of

the payee, Provincial Government of Tarlac. Payment under a forged indorsement is not to the drawer’s order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer’s, the drawer, account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawer’s account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. Exception: If the drawee bank, PNB, can prove a failure by the customer/drawer (Tarlac Province) to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. In sum, by reason of Associated Bank’s indorsement and warranties of prior indorsements as a party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask reimbursement from PNB because the Province is a party prior to the forgery. Hence, the instrument is inoperative. However, it has been proven that the Provincial Government of Tarlac has been negligent in issuing the checks especially when it continued to deliver the checks to Pangilinan even when he already retired. Due to this contributory negligence, PNB is only ordered to pay 50% of the amount or half of P203, 000.00. But then again, since PNB can pass its loss to Associated Bank by reason of Associated Bank’s warranties, PNB can ask the 50% reimbursement from Associated Bank. Associated Bank can ask reimbursement from Pangilinan but unfortunately in this case, the court did not acquire jurisdiction over him. METRO BANK VS FIRST NATIONAL CITY BANK 118 scra 537|| FORGERY FACTS: August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to CASH, drawn by Joaquin Cunanan & Company on First National City Bank (FNCB) was deposited with Metropolitan Bank and Trust Company (Metro Bank) by Salvador Sales. Earlier that day, Sales had opened a current account with Metro Bank depositing P500.00 in cash





Metro Bank immediately sent the cash check to the Clearing House of the Central Bank with the following words stamped at the back of the check: Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of endorsements Guaranteed. The check was cleared the same day. Private respondent paid petitioner through clearing the amount of P50,000.00, and Sales was credited with the said amount in his deposit with Metro Bank. August 26, 1964: Sales made his 1st withdrawal of P480.00 from his current account August 28, 1964: he withdrew P32,100.00 August 31, 1964: he withdrew the balance of P17,920 and closed his account with Metro Bank September 3, 1964: FNCB returned cancelled Check to drawer Joaquin Cunanan & Company, together with the monthly statement of the company's account with FNCB. notified FNCB that the check had been altered actual amount of P50.00 was raised to P50,000.00 name of the payee, Manila Polo Club, was superimposed the word CASH. September 10, 1964: FNCB wrote Metro Bank asking for reimbursement June 29, 1965: FNCB filed for recovery CA affirmed Trial Court: Metro Bank to reimburse FNCB ISSUE: Whether or not Metrobank should reimsburse FNCB for the altered amount as indorser HELD:

NO. FNCB liable. Under the procedure prescribed, the drawee bank receiving the check for clearing from the Central Bank Clearing House must return the check to the collecting bank within the 24-hour period if the check is defective for any reason. - FNCB failed to do so indorsement must be read together with the 24-hour regulation on clearing House Operations of the Central Bank Metro Bank can not be held liable for the payment of the altered check. Moreover, FNCB did not deny the allegation of Metro Bank that before it allowed the withdrawal of the balance of P17,920.00 by Salvador Sales, Metro Bank withheld payment and first verified, through its Assistant Cashier Federico Uy, the regularity and genuineness of the check deposit from Marcelo Mirasol, Department Officer of FNCB, because its (Metro Bank) attention was called by the fast movement of the account.

FACTS:

GR

Republic Bank vs. Court of Appeals No. 42725 April 22, 1991 || Forgery

On January 25, 1966, drawer San Miguel Corporation (SMC), drew a dividend Check No. 108854 for Php240 on its account in the respondent First National City Bank (FNCB) in favor of J. Roberto C. Delgado, a stockholder. After the check had been delivered to Delgado, the amount on its face was fraudulently and without authority of SMC, altered by increasing it from P240 to P9,240. On March 14, 1966, the check was indorsed and deposited by Delgado in his account with the petitioner Republic Bank, who accepted the said check without ascertaining its genuineness and regularity. Republic endorsed it to FNCB by stamping on the back of the check "all prior and/or lack of indorsement guaranteed" and presented it to FNCB for. Believing the check was genuine, and relying on the guaranty and endorsement, FNCB paid P9,240 to Republic March 15, 1966. SMC then notified FNCB on on April 19, 1966 of the material alteration in the amount of the check in question. Thereafter, FNCB informed Republic in writing of the alteration and the forgery of the endorsement of Delgado, who by then had already withdrawn his account from Republic. FNCB demanded that Republic refund the P9,240 on August 15, 1966 on the basis of the latter’s endorsement and guaranty. Republic refused, claiming there was delay in giving it notice of the alteration and that it was not negligent and SMC’s faulted in drawing the check in such a way as to permit the insertion of numerals increasing the amount. 8 |C a b u c h a n . N e g o C a s e D i g e s t s




ISSUE: Whether or not Republic, as the collecting bank, is protected, by the 24hour clearing house rule, found in CB Circular No. 9, as amended, from liability to refund the amount paid by FNCB, as drawee of the SMC dividend check HELD:

Yes. Under the 24-hour clearing house rule embodied in Section 4(c) of Central Bank Circular No. 9, as amended, such rule is a valid rule applicable to commercial banks. It is true that when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss. But the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation. Thus, when the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability. Every bank that issues checks for the use of its customers should know whether or not the drawer’s signature thereon is genuine, whether there are sufficient funds in the drawers account to cover checks issued, and it should be able to detect alterations, erasures, superimpositions or intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer’s account, and it is supposed to be familiar with the drawer’s signature. Unless an alteration is attributable to the fault or negligence of the drawer himself, such as when he leaves spaces on the check which would allow the fraudulent insertion of additional numerals in the amount appearing thereon, the remedy of the drawee bank that negligently clears a forged and/or altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss. Philippine Commercial International Bank v. CA GR No. 121413 || Forgery

FACTS:

Ramon Ilusorio vs CA GR no. 139130 II FORGERY

Ramon Ilusorio (petitioner) is a prominent businessman who, at the time material to this case, was the Managing Director of Multinational Investment Bancorporation and the Chairman and/or President of several other corporations. He was a depositor in good standing of respondent

bank, the Manila Banking Corporation. As he was then running about 20 corporations, and was going out of the country a number of times, petitioner entrusted to his secretary, Katherine E. Eugenio, his credit cards and his checkbook with blank checks. It was also Eugenio who verified and reconciled the statements of said checking account. Eugenio was able to encash and deposit to her personal account about seventeen (17) checks drawn against the account of the petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal action against her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Private respondent, through an affidavit executed by its employee, Mr. Dante Razon, also lodged a complaint for estafa thru falsification of commercial documents against Eugenio on the basis of petitioner’s statement that his signatures in the checks were forged. ISSUES: (1) whether or not petitioner has a cause of action against private respondent; and (2) whether or not private respondent, in filing an estafa case against petitioner’s secretary, is barred from raising the defense that the fact of forgery was not established. HELD: 1.

Petitioner has no cause of action against Manila Bank. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on the questioned checks. Curiously though, petitioner failed to submit additional specimen signatures as requested by the National Bureau of Investigation from which to draw a conclusive finding regarding forgery. The Court of Appeals found that petitioner, by his own inaction, was precluded from setting up forgery. Petitioner’s failure to examine his bank statements appears as the proximate cause of his own damage. The bank was not shown to be remiss in its duty of sending monthly bank statements to petitioner so that any error or discrepancy in 9 |C a b u c h a n . N e g o C a s e D i g e s t s




the entries therein could be brought to the bank’s attention at the earliest opportunity. But, petitioner failed to examine these bank statements not because he was prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly committed against him. In view of Article 2179 of the New Civil Code, when the plaintiff’s own negligence was the immediate and proximate cause of his injury, no recovery could be had for damages. Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and that Manila Bank had no authority to pay the forged checks. True, it is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. No right to retain the instrument, or to give a discharge therefore, or to enforce payment thereof against any party, can be acquired through or under such signature. However, the rule does provide for an exception, namely: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." In the instant case, it is the exception that applies. Petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. The fact that Manila Bank had filed a case for estafa against Eugenio would not estop it from asserting the fact that forgery has not been clearly established. Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to the criminal action. Samsung Construction v. Far East Bank G.R. No. 129015, August 13, 2004ll Forgery

FACTS: Samsung Construction held an account with Far East Bank. One day a check worth (P999,500.00), payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check was certified to be true by Jose Sempio III, the assistant accountant of Samsung, who was also present during the time the check was cashed. Later however it was discovered that no such check

was ever approved by the Samsung’s head accountant, the president of the company also never signed any such check. ISSUE: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check, which was drawn from the account of Samsung HELD: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged signature makes the instrument “wholly inoperative”. If payment is made the drawee (Far East) cannot charge it to the drawer’s account (Samsung). The fact that the forgery is clever is immaterial. The forged signature may so closely resemble the genuine as to defy detection by the depositor himself. And yet, if the bank pays the check, it is paying out with its own money and not of the depositor’s. This rule of liability can be stated briefly in these words: “A bank is bound to know its depositor’s signature.” The accusation of negligence on the part of Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the ordinary course of business was followed. Material Alteration Philippine National Bank v. CA 256 SCRA 491 || Sections 124 &125 ENRIQUE P MONTINOLA VS THE PHILIPPINE NATIONAL BANK G.R. NO L-2861 || SECTION 124 & 125 FACTS: On April 30, 1942, M. V.Ramos, as a disbursing officer of an army division of the USAFE, went to the neighboring Province Lanao to procure a cash advance in the amount of P800,000 for the use of the USAFFE in Cagayan de Misamis. Pedro Encarnacion, Provincial Treasurer of Lanao did not have that amount in cash. So, he gave Ramos P300,000 in emergency notes and a check for P500,000. On May 2, 1942 Ramos went to the office of Provincial Treasurer Laya at Misamis Oriental to encash the check for P500,000 which he had received from the Provincial Treasurer of Lanao. Laya did not have enough cash to cover the check so he gave Ramos P400,000.00 in emergency notes and a check No. 1382 for P100,000.00 drawn on the Philippine National Bank. According to Laya he had previously deposited P500,000.00 emergency notes in the Philippine National Bank branch in Cebu and he expected to have the check issued by 10 |C a b u c h a n . N e g o C a s e D i g e s t s




him cashed in Cebu against said deposit. Ramos was unable to encash the said check for he was captured by the Japanese. But after his release, he sold P30,000.00 of the check to Enrique P. Montinola for P850,000.00 Japanese Military notes, of which only P45000 was paid by the latter. The writing made by Ramos at the back of the check was to t he effect that he was assigning only P30,000.00 of the value of the document with an instruction to the bank to pay P30,000.00 to Montinola and to deposit the balance to Ramos's credit. This writing was, however, mysteriously obliterated and in its place, a supposed endorsement appearing on the back of the check was made for the whole amount of the check. At the time of the transfer of this check to Montinola, the check was long overdue by about 2-1/2 years. Montinola instituted an action against the PNB and the Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of th e aforesaid check. There now appears on the face of said check the words in parenthesis "Agent, Phil. National Bank" under the signature of Laya purportedly showing that Laya issued the check as agent of the Philippine National Bank. ISSUE:

Whether or not the subject check is a negotiable instrument.

HELD: No. It was not negotiated according to the Negotiable Instruments Law (NIL) hence it is not a negotiable instrument. There was only a partial indorsement and not a negotiation contemplated under the NIL. Only P30k of the P100k amount of the check was indorsed. This merely make Montinola a mere assignee – and this is the clear intent of Ramos. Ramos was merely assigning P30k to Montinola. Montinola may therefore not be regarded as an indorsee and PNB has all the right to dishonor the check. As mere assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the drawer against which Montinola can recover from directly. Such material alteration which was done by Montinola without

the consent of the parties liable thereon discharges the instrument, pursuant to Sec. 124 of the NIL. Montinola cannot be said to be a holder. He is an assignee. And even if he is a holder, he is not in good faith because he did not pay the full amount of the consideration for which the P30k was issued to him – he only paid 45k Japanese notes out of the 90k Japanese notes consideration. At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said check because when he sought to have it encashed in January 1945, it is already stale there being two and half years pass since its time of issuance. Accomodation Party Intestate Estate of Victor Sevilla v. Francisco Sevilla G.R. No. L-17845 April 27, 1967 || Accommodation Party FACTS: Sevilla, Varona and Sadaya executed, jointly and severally, in favor of the Bank of the Philippine Islands (BPI), or its order, a promissory note for P15,000 with interest at 8% per annum, payable on demand. Varona was the only one who received the proceeds of the note. Sevilla and Sadaya signed the note as co-makers to accommodate Varona. Payments were made on account but with an outstanding balance of P4,850. BPI then collected from Sadaya the balance with interest. However, Varona failed to reimburse Sadaya despite repeated demands. Sevilla died which led to naming Francisco Sevilla (Administrator) as administrator. Sadaya then filed a creditor's claim on his estate for the payment made on the note. Administrator resisted the claim on the ground that the deceased Sevilla "did not receive any amount as consideration for the promissory note," but signed it only "as surety for Varona". RTC ruled in favour of Sadaya and directed Administrator to pay the same from the estate of the deceased Sevilla. CA reversed the decision and disallowed Sadaya’s claim against the intestate estate. ISSUE: Whether or not Sadaya can claim against estate of Sevilla as coaccommodation party when Verona as principal debtor is not yet insolvent HELD:





NO, CA decision affirmed. The SC held that since Varona received full value of the promissory note while Sadaya received nothing therefrom, the former is bound by the obligation to reimburse the latter. A solidary accommodation maker — who made payment — has the right to contribution, from his co-accommodation maker, in the absence of agreement to the contrary between them, and subject to conditions imposed by law. Consequently, according to Art. 2073, the requisites before one accommodation maker can seek reimbursement from a coaccommodation maker shall not be applicable, unless the payment has been made in virtue of a judicial demand or unless the principal debtor is insolvent. The following are the rules: (1) A joint and several accommodation maker of a negotiable promissory note may demand from the principal debtor reimbursement for the amount that he paid to the payee; and (2) a joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement from his co-accommodation maker without first directing his action against the principal debtor provided that (a) he made the payment by virtue of a judicial demand, or (b) a principal debtor is insolvent. In this case, Sadaya's payment to BPI "was made voluntarily and without any judicial demand," and that "there is an absolute absence of evidence showing that Varona is insolvent". Hence, Sadaya cannot claim from Sevilla’s estate. Ernesita Crisologo - Jose (petitioner) vs CA and Ricardo Santos, VP for Salses of Mover Enterprises(respondents) 177 SCRA 594 || Section 29 Ponente: Regalado. J FACTS:

Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. Atty. Benares issued Check No. 093553 drawn against Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh. '1') payable to defendant Ernestina CrisologoJose. Since the check was under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time, the

treasurer of Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check as an alternate signatory. Plaintiff Ricardo S. Santos, Jr. did sign the check. The check was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or quitclaim by said defendant over a certain property which the Government Service Insurance System (GSIS) agreed to sell to the clients(Ong Spouses) of Atty. Oscar Benares, with the understanding that upon approval by the GSIS of the compromise agreement with the spouses Ong, the check will be encashed accordingly. However, since the compromise agreement was not approved within the expected period of time, the aforesaid check for P45,000.00 was replaced by Atty. Benares with another Traders Royal Bank check bearing No. 379299 dated August 10, 1980, in the same amount of P45,000.00 , also payable to the defendant Jose. This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement check with her account at Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds. This prompted the petitioner to file a case against Atty. Bernares and Santos for violation of BP22. Meanwhile, during the preliminary investigation, Santos tried to tender a cashier’s check for the value of the dishonored check but petitioner refused to accept such. This was consigned by Santos with the clerk of court and he instituted charges against petitioner. RTC Ruling: The Trial Court held that the consignation was not applicable in the case at bar. CA Ruling: Reversed and set aside the RTC's judgment of dismissal ISSUE: Whether or not Mover Enterprises may be held liable on the accommodation instrument, that is, the check issued in favor of herein petitioner. HELD: SC modified the decision of respondent court in CA by setting aside and declaring without force and effect its pronouncements and findings insofar as the merits of Criminal Case and the liability of the accused therein are concerned. Affirmed the CA decision. Section 29 of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value, 12 |C a b u c h a n . N e g o C a s e D i g e s t s




although such holder at the time of taking the instrument knew him to be only an accommodation party, does not include nor apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of another, he cannot recover against the corporation thereon. By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do so. Corollarily, corporate officers, such as the president and vice-president, have no power to execute for mere accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced against the corporation, especially since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in logic is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their acts in connection therewith. The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby absolve, but should render personally liable, the signatories of said instrument where the facts show that the accommodation involved was for their personal account, undertaking or purpose and the creditor was aware thereof. Stelco Marketing v. CA 210 SCRA 51 || Accomodation Party Travel-On v. CA 210 SCRA 352 || Accomodation Party BPI vs. Court of Appeals 326 SCRA 641|| Accommodation Party FACTS:

Henry Chan owned a Continental Bank Manager’s Check payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00). In 1987, Chan went to the office of Benjamin Napiza and requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. Private respondent Napiza acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them would go to the bank to withdraw the amount of the check upon private respondent’s presentation to the bank of his passbook. Napiza thus endorsed the check and deposited it in a Foreign Currency Deposit Unit (FCDU) Savings Account he maintained with BPI. Using the blank withdrawal slip given by private respondent to Chan, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from Napiza's FCDU account. It turned out that said check deposited by private respondent was a counterfeit check. When petitioner BPI demanded the return of $2,500.00, private respondent claimed that he deposited the check "for clearing purposes" only to accommodate Chan. Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for the amount stated therein in accordance with the provision of the Negotiable Instruments Law on the liability of a general indorser (Sec. 66). ISSUE:

Whether private respondent is obliged to return the money paid out by BPI on a counterfeit check even if he deposited the check "for clearing purposes" only to accommodate Chan HELD: No. The Supreme Court ruled that ordinarily, Napiza would have been liable because he is an accommodation indorser. But due to the attendant circumstances, Napiza is discharged from liability. The withdrawal slip indicates as well as the rules promulgated by BPI that withdrawal from the bank should be accompanied by the presentment of the account holder’s (Napiza’s) savings bankbook. This was not done so in the case at bar because Gayon was able to withdraw without it. Further, BPI allowed the withdrawal even before the check cleared. BPI already credited the $2,500.00 to Napiza’s account even without the drawee bank clearing the check. This is contrary to common banking practices and because of such negligence and lack of diligence, BPI, as the collecting bank, shall suffer the loss.





Agro Conglomerates Inc. v. CA GR No. 117660 || Accommodation Party Holders in Due Course De Ocampo v. Gatchalian 3 SCRA 596 || Holders in due course Mesina v. Intermediate Appellate Court G.R. No. 70145 (1986) || Holder in Due Course

FACTS Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's Check No. 011302 for P800,000.00. Unfortunately, Jose Go left said check on the top of the desk of the bank manager when he left the bank. The bank manager entrusted the check for safekeeping to a bank official, a certain Albert Uy, who had then a visitor in the person of Alexander Lim, Uy had to answer a phone call on a nearby telephone after which he proceeded to the men's room. When he returned to his desk, his visitor Lim was already gone. When Jose Go inquired for his cashier's check from Albert Uy, the check was not in his folder and nowhere to be found. The latter advised Jose Go to go to the bank to accomplish a "STOP PAYMENT" order, which suggestion Jose Go immediately followed. He also executed an affidavit of loss. Albert Uy went to the police to report the loss of the check, pointing to the person of Alexander Lim as the one who could shed light on it. The records of the police show that Associated Bank received the lost check for clearing on December 31, 1983, coming from Prudential Bank, Escolta Branch. The check was immediately dishonored by Associated Bank by sending it back to Prudential Bank, with the words "Payment Stopped" stamped on it. However, the same was again returned to Associated Bank on January 4, 1984 and for the second time it was dishonored. Several days later, respondent Associated Bank received a letter, dated January 9, 1984, from a certain Atty. Lorenzo Navarro demanding payment on the cashier's check in question, which was being held by his client. He however refused to reveal the name of his client and threatened to sue, if payment is not made. Respondent bank, in its letter, dated January 20, 1984, replied saying the check belonged to Jose Go who lost it in the bank and is laying claim to it. Respondent Associated Bank on February 2, 1984 filed an action for Interpleader naming as respondent, Jose Go and one John Doe, Atty. Navarro's then unnamed client. On even date, respondent bank received

summons and copy of the complaint for damages of a certain Marcelo A. Mesina. Simultaneously, respondent bank, thru representative Albert Uy, informed Cpl. Gimao of the Western Police District that the lost check of Jose Go is in the possession of Marcelo Mesina, herein petitioner. When Cpl. Gimao went to Marcelo Mesina to ask how he came to possess the check, he said it was paid to him by Alexander Lim in a "certain transaction" but refused to elucidate further. ISSUE Whether Mesina is a holder in due course HELD Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes and effects of a cashier's check 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 — are general principles which cannot be aptly applied to the case at bar, without considering other things. Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value as shown by the established facts of the case. Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was passed to him. He had therefore notice of the defect of his title over the check from the start. The holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. If a payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the respondent bank would, of course, have the right to refuse payment of the check when presented by the payee, since respondent bank was aware of the facts surrounding I he loss of the check in question. Moreover, there is no similarity in the cases cited by petitioner since respondent bank did not issue the cashier's check in payment of its obligation. Jose Go bought it from respondent bank for purposes of transferring his funds from respondent bank to another bank near his establishment realizing that carrying money in this form is safer than if it wherein cash. The check was Jose Go's property when it was misplaced or stolen hence he stopped its payment. At the outset, respondent bank knew it was Jose Go's check and no one else since Go had not paid or indorsed it to anyone. The bank was therefore liable to nobody on the check but Jose Go. The bank had no intention to issue it to petitioner but only to buyer Jose Go. When payment on it was therefore stopped, respondent bank was 14 |C a b u c h a n . N e g o C a s e D i g e s t s




not the one who did it but Jose Go, the owner of the check. Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money it represents and he is therefore the drawer and the drawee in the same manner as if he has a current account and he issued a check against it; and from the moment said cashier's check was lost and or stolen no one outside of Jose Go can be termed a holder in due course because Jose Go had not indorsed it in due course. The check in question suffers from the infirmity of not having been properly negotiated and for value by respondent Jose Go who as already been said is the real owner of said instrument.

HELD: The court held that respondent Sambok Motors Company is not a qualified indorser. A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser’s signature the words “without recourse” or any words of similar import. Such indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided by section 65 of NIL. However, Sambok indorsed the note “with recourse” and even waived the notice of demand, dishonor, protest and presentment.

Liability of the General Indorser METROPOL v. SAMBOK MOTORS COMPANY G.R. No. L-39641 | LIABILITY OF THE GENERAL INDORSER FACTS: One Dr. Javier Villaruel executed a promissory note in the amount of P15, 939.00 in favor of Ng Sambok Sons Motors Co, LTD. It was agreed that it was payable in twelve (12) equal monthly installments with interest rate at one percent per month. And in case on non-payment of any of the installments, the total principal sum then remaining unpaid shall become due and payable with an additional interest of 25 percent of the total amount due. A sister of Ng Sambok Sons Motors Co., LTD., Sambok Motors Company, negotiated and indorsed the promissory note in favor of Metropol Financing & Investment Corporation. Dr. Villaruel defaulted in the payment of the installements and thus, the promissory note was presented to him. He failed to pay the promissory note as demanded, thus, Ng Sambok Sons Motors Co., Ltd. notified Sambok as an indorsee that the promissory note has been dishonored and demanded payment. Ng Sambok Sons filed a complaint for the collection of sum of money due to the failure of Sambok to pay. During the pendency of the case Villaruel died and the lower court dismissed the case against said defendant Villaruel. Apellant Sambok dissatisfied with the decision, appealed and contested that by adding the words “with recourse” in the indorsement, it becomes a qualified indorser. Therefore, it does not warrant that in case that the maker defaulted to pay upon presentment it will pay the amount to the holder.

Recourse means resort to a person who is secondarily liable after the default of the person who is primarily liable. Sambok by indorsing the note “with recourse” does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Villaruel fails to pay the not the holder can go after it. The effect of such indorsement is that the note was indorsed witout qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case maybe, and that if it be dishonored, he will pay the amount thereof to the holder. The words added by Sambok do not limit his liability, but rather confirm his obligation as general indorser.

ISSUE: Whether or not respondent Sambok Motors Company is a qualified indorser and thus, is not liable upon the failure of payment of the maker

Maralit v. Imperial 301 SCRA 605 (1999) || Liability of General Indorser Sapiera v. CA 301 SCRA 605 (1999) || Liability of General Indorser BPI v. CA and Napiza GR No. 11239 || Liability of General Indorser Presentment for Payment/Acceptance PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R. CHI G.R. No. 74886 December 8, 1992 || (Presentment for acceptance) FACTS: Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries under a five-year deferred payment plan. To effect payment for said machineries, Philippine Rayon Mills opened a commercial letter of credit with the Prudential Bank 15 |C a b u c h a n . N e g o C a s e D i g e s t s




and Trust Company in favor of Nissho. Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank through its correspondent in Japan. Two of these drafts were accepted by Philippine Rayon Mills while the others were not. Petitioner instituted an action for the recovery of the sum of money it paid to Nissho as Philippine Rayon Mills was not able to pay its obligations arising from the letter of credit. The lower court ordered PRMI to pay for the 2 drafts which were accepted the 10 were not yet accepted and for Chi it was dismissed. The Respondent court ruled that with regard to the ten drafts which were not presented and accepted, no valid demand for payment can be made. Petitioner however claims that the drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon. ISSUE: Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon RULING: NO. Petition GRANTED. Philippine Rayon Mills, Inc. liable on the 12 drafts. Anacleto R. Chi (as guarantor) secondarily liable on the trust receipt. In the case at bar, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. There was in fact no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). The said section provides that presentment for acceptance must be made: (a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or (b) Where the bill expressly stipulates that it shall be presented for acceptance; or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. In no other case is presentment for acceptance necessary in order to render any party to the bill liable. Obviously then, sight drafts do not require presentment for acceptance. Wong vs. CA

G.R. No. 117857 February 2, 2001 || PRESENTMENT FOR PAYMENT/ACCEPTANCE FACTS: Petitioner 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. Petitioner, however, had a history of unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed with his wife. Hence, petitioner’s customers were required to issue postdated checks before LPI would accept their purchase orders. In early December 1985, Wong issued six (6) postdated checks totaling P18,025.00, all dated December 30, 1985 and drawn payable to the order of LPI. These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However, following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of petitioner’s unremitted collections for 1984 amounting to P18,077.07. LPI waived the P52.07 difference. Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to replace them within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986, LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned for the reason “account closed.” On June 20, 1986, complainant through counsel notified the petitioner of the dishonor. Petitioner failed to make arrangements for payment within five (5) banking days. On November 6, 1987, petitioner was charged with three (3) counts of violation of B.P. Blg. 224. The trial court found him guilty and the Court of Appeals affirmed the decision. Hence, the present petition. ISSUE: Whether or not LPI deposited the checks within reasonable time. HELD: Yes. Petitioner avers that since the complainant deposited the checks on June 5, 1986, or 157 days after the December 30, 1985 maturity date, the 16 |C a b u c h a n . N e g o C a s e D i g e s t s




presumption of knowledge of lack of funds under Section 2 of B.P. Blg. 22 should not apply to him. Under Section 186 of the Negotiable Instruments Law, “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 six (6) months, or 180 days. Private respondent herein deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. As found by the trial court, private respondent did not deposit the checks because of the reassurance of petitioner 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, petitioner was duly notified of such fact but failed to make arrangements for full payment within five (5) banking days thereof. There is, on record, sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. The International Corporate Bank v. Sps. Gueco GR No. 141968 || Presentment for Payment Checks FACTS:

State Investment House Inc., v. Court of Appeals GR No. 101163 || Checks

Private respondent, Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two (2) postdated Equitable Banking Corporation checks in the amount P50,000.00 each, one dated 30 August 1979 and the other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State Investment House. Inc. Moulic failed to sell the pieces of jewelry so she returned them to the payee before the maturity dates of the checks. However, the checks could no longer be retrieved as they had already been negotiated. Consequently, Moulic withdrew her funds from the drawee bank. Upon presentment for payment, the checks were dishonored for insufficiency of funds so State Investment notified Moulic of the dishonour of the checks, which Moulic denied receiving notice thereof. State Investment then sued to recover the value of the checks. However, Moulic contends that she incurred no obligation on the checks because the jewelry was never sold and the checks were negotiated without her knowledge and consent.

ISSUE:

Whether or not petitioner is a holder in due course therefore making Moulic liable for the value of the checks she issued. HELD:

Sec. 52 of the Negotiable Instruments Law states: A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it was previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. With that, evidence clearly shows that: (a) on their faces the postdated checks were complete and regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their due dates; (c) petitioner took these checks in good faith and for value, albeit at a discounted price; and, (d) petitioner was never informed nor made aware that these checks were merely issued to payee as security and not for value. Consequently, petitioner is indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior parties, and from defenses available to prior parties among themselves; it may, therefore, enforce full payment of the checks. Since she was responsible for the dishonor of her checks, 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. Moulic, as drawer, is liable for the value of the checks she issued to the holder in due course, State Investment, without prejudice to any action for recompense she may pursue against Victoriano as Third-Party Defendants who had already been declared as in default. BATAAN CIGAR AND CIGARETTE FACTORY, INC. vs. THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC. G.R. No. 93048. March 3, 1994 || Section 185 NOCON, J p: FACTS: 17 |C a b u c h a n . N e g o C a s e D i g e s t s




Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George (herein after referred to as George King), to deliver 2,000 bales of tobacco leaf starting October 1978. In consideration thereof, BCCFI, on July 13, 1978 issued crossed checks post dated sometime in March 1979 in the total amount of P820,000.00. Relying on the supplier's representation that he would complete delivery within three months from December 5, 1978, petitioner agreed to purchase additional 2,500 bales of tobacco leaves, despite the supplier's failure to deliver in accordance with their earlier agreement. Again petitioner issued postdated crossed checks in the total amount of P1,100,000.00, payable sometime in September 1979. During these times, George King was simultaneously dealing with private respondent State Investment House, Inc (SIHI). On July 19, 1978, he sold at a discount check TCBT 551826 5 bearing an amount of P164,000.00, post dated March 31, 1979, drawn by petitioner, naming George King as payee to SIHI. On December 19 and 26, 1978, he again sold to respondent checks TCBT Nos. 608967 & 608968, 6 both in the amount of P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by petitioner in favor of George King. In as much as George King failed to deliver the bales of tobacco leaf as agreed despite petitioner's demand, BCCFI issued on March 30, 1979, a stop payment order on all checks payable to George King, including check TCBT 551826. Subsequently, stop payment was also ordered on checks TCBT Nos. 608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's failure to deliver the tobacco leaves. Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming only BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due course. It further said that the non-inclusion of King Tim Pua George as party defendant is immaterial in this case, since he, as payee, is not an indispensable party. RTC ruling: Ruled in favor of SIHI CA Ruling: affirmed RTC Ruling. ISSUE: whether or not SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able to collect from the drawer, BCCFI HELD:

No. The Supreme Court reversed the decision of Court of Appeals. SIHI cannot collect from BCCFI, because SIHI cannot be considered as a holder in due course. BCCFI's defense in stopping payment is as good to SIHI as it is to George King. Because, really, the checks were issued with the intention that George King would supply BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks. The foregoing does not mean, however, that respondent could not recover from the checks. The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were nonnegotiable. 14 Hence, respondent can collect from the immediate indorser, in this case, George King. (Section 185) A check is defined by law as a bill of exchange drawn on a bank payable on demand. There are a variety of checks, the more popular of which are the memorandum check, cashier's check, traveler's check and crossed check. Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. It may be crossed generally or specially. A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only the words "and company" are written or nothing is written at all between the parallel lines. It may be issued so that presentment can be made only by a bank. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed checks," although Article 541 9 of the Code of Commerce refers to such instruments. Sps. George and Librada Moran v. Court of Appeals and Citytrust Banking Corporation GR No. 105836 || Section 185 FACTS: George and Librada Moran are the owners of the Wack-Wack Petron Gasoline station in Mandaluyong. They regularly purchased for bulk fuel and other related products from Petrophil Corporation on COD basis. The orders for bulk fuel and other products were made by telephone and payments were effected by personal checks upon delivery. They had several accounts with Citytrust. Petitioners, through Librada Moran, drew two checks payable to Petrophil Corporation. Petrophil deposited the checks to its account with PNB, who in turn PNB presented them for 18 |C a b u c h a n . N e g o C a s e D i g e s t s




clearing on the same day. Records show that on that day, their current account had a zero balance. The next day, George Librada transferred the amount of the checks from their savings account with Citytrust to their current account with the same bank. George was informed by Librada that Petrophil refused to deliver their orders on a credit basis because the two checks the had previously issued were dishonored due to insufficiency of funds. The non-delivery of gasoline forced petitioners to temporarily stop business operations. In addition, Petrophil cancelled their credit accommodation, forcing them to pay for their purchases in cash. It turned out that it was dishonored due to operational error to which the branch manager acted on and personally present the checks in payment for the two dishonored checks to Petrophil. Months after, George Moran learned that Petrophil had received from Citytrust notifying them that the two checks were inadvertently dishonored due to operational error. Petitioners filed a complaint for damages against Citytrust claiming that the bank’s dishonor of the checks caused them besmirched business and personal reputation, shame and anxiety. RTC Ruling: dismissed the complaint; Citytrust cannot be liable CA Ruling: affirmed the decision of the RTC; Citytrust not liable ISSUE: Whether or not Citytrust should be held liable for the dishonor of the checks HELD: The court held that Citytrust should not be held liable. A check is a bill of exchange drawn on a bank payable on demand. Thus, a check is a written order addressed to a bank or persons carrying on the business of banking, by a party having money in their hands, requesting them to pay on presentment, to a person named therein or to bearer or order, a named sum of money. 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. Petitioner had no reason to complain, for they alone were at fault. 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 check she 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 immediately payment. Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to speak of in the first place. If the demand is by check, a drawer must have to his credit enough to cover the demand. If his credit with the bank is less than the amount on the face of the check, the bank may lawfully refuse payment. Ramon Tan v. CA & Rizal Commercial Banking GR No. 108555 (December 20, 1994) || Section 189

FACTS: Petitioner Ramon Tan had maintained an account with respondent bank’s Binondo branch. He secured a Cashier’s Check from the Philippine Commercial Industrial Bank payable to his order. He deposited the check in his account with RCBC. On the same day, RCBC erroneously sent the same cashier’s check for clearing to the Central Bank which was returned for having been “misspent” or “misrouted. The next day, RCBC debited the amount covered by the same cashier’s check from the account of the petitioner. Respondent bank did not inform the petitioner of its action to which he only learned of the claims 42 days after. Relying on common knowledge that a cashier’s check was as good as cash, petitioner issued two personal checks in the name of Go Lac, without awaiting any notification if it was cleared, which was returned twice for insufficiency of funds. Tan filed a complaint against RCBC for damages. Tan contends that there was negligence on the part of RCBC, therefore they should be held liable. RCBC contended that it was merely acting as petitioner’s collecting agent and it assumed no responsibility beyond care in selecting correspondents under the theory that where a check is deposited with a collecting bank the relationship created is that of agency and not creditordebtor, thus it cannot be held liable. Trial Court Ruling: Ruled against RCBC and made them liable for moral damages and exemplary damages but not for actual damages because Tan failed to prove by any receipt or writing to underpin it. Court of Appeals: Reversed the decision of the Trial court in that it was the fault of Tan which led to his loss. First, it was the Tan who filled up the 19 |C a b u c h a n . N e g o C a s e D i g e s t s




wrong deposit slip which led to the sending of the check to the Central Bank when the clearing should have been made elsewhere. Second, the bank actually tried to advise Tan that the check was misspent, but the telephone number was no longer active. It was Tan who was under obligation to inform RCBC of any changes in the telephone numbers to be contacted. Third, the refusal of RCBC to credit the amount of P30,000.00 is consistent with the accepted banking practice. It is clear that immediate payment without awaiting clearance of a cashier’s check is discretionary with the bank to whom the check is presented and such being the case, the refusal to allow it as in this case is not to be equated with negligence in the basic perception that discretion is not demandable as a right.

this case, therefore, PCIB by issuing the check created an unconditional credit in favor of any collecting bank. All these considered, petitioner's reliance on the layman's perception that a cashier's check is as good as cash is not entirely misplaced, as it is rooted in practice, tradition, and principle. We see no reason thus why this socalled discretion was not exercised in favor of petitioner, specially since PCIB and RCBC are members of the same clearing house group relying on each other's solvency. RCBC could surely rely on the solvency of PCIB when the latter issued its cashier's check.

ISSUE: Whether or not RCBC should bear the loss HELD: The court held that RCBC should bear the loss. RCBC insists that immediate payment without awaiting clearance of a cashier's check is discretionary with the bank to whom the check is presented and such being the case, its refusal to immediately pay the cashier's check in this case is not to be equated with negligence on its part. We find this disturbing and unfortunate. An ordinary check is not a mere undertaking to pay an amount of money. There is an element of certainty or assurance that it will be paid upon presentation that is why it is perceived as a convenient substitute for currency in commercial and financial transactions. The basis of the perception being confidence. Any practice that destroys that confidence will impair the usefulness of the check as a currency substitute and create havoc in trade circles and the banking community. Now, what was presented for deposit in the instant cases was not just an ordinary check but a cashier's check payable to the account of the depositor himself. A cashier's check is a primary obligation of the issuing bank and accepted in advance by its mere issuance. By its very nature, a cashier's check is the bank's order to pay drawn upon itself, committing in effect its total resources, integrity and honor behind the check. A cashier's check by its peculiar character and general use in the commercial world is regarded substantially to be as good as the money which it represents. In


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