A. Definition and Nature of Letter of Credit Usage and customs apply in commercial transactions in the absence of any particular provision in the Code of Commerce, as provided in Article Article 2 of the same Code. Hence, the rule that all parties concerned in documentary credit operations deal in documents and not in goods bind the parties in a letter of credit transaction.
An order of the court releasing the proceeds of an irrevocable letter of credit to the applicant, which was issued to pay for tobacco purchased from the beneficiary of the letter of credit, violates the the irrevocable nature nature of the letter of credit. An irrevocable letter of credit cannot, during its lifetime, be cancelled or modified without the express permission of the beneficiary.
The primary purpose of the letter of credit is to substitute for and therefore support, the agreement of the buyer/importer to pay money under a contract or other arrangement. Hence, the failure of a buyer/importer to open a letter of credit as stipulated amounts to a breach of contract which would entitle the seller/exporter to claim damages for such breach.
In a letter of credit transaction, there are three separate and distinct relationships: a) between the account party (buyer/importer) and the beneficiary (seller/exporter), which may be a contract of sale or non-sale; b) between the account party and the issuing bank, where the former applies to the latter for a specified L/C and agrees to reimburse the bank for amounts paid by it pursuant to the L/C; and c) between the issuing bank and the beneficiary where the former, upon presentation of stipulated documents, pays pays the latter latter the amount under under the L/C. L/C. Such relationships relationships are interrelated but independent of one another.
Commercial letters of credit involve the payment of money under a contract of sale wherein the seller-beneficiary seller-beneficiary presents to the issuing bank documents that would show that he has taken affirmative affirmative steps to comply with the sales sales agreement. On the other hand, standby letters of credit are used in non-sale setting where the beneficiary presents documents that would show that the obligor has not complied with his obligation. The stay order issued by the rehabilitation court pursuant to the Interim Rules of Corporate Rehabilitation does not apply to the beneficiary of the letter of credit against the banks that issued it because the prohibition on the enforcement of claims against
the debtor, guarantors or sureties of the debtors does not extend to the claims against the issuing bank in a letter of credit. credit. Letters of credit are primary primary obligations and not accessory contracts and while they are security arrangements, they are not thereby converted into contracts of guaranty. B. Parties to a Letter of Credit 1. Rights and Obligations of Parties A buyer who applied for a letter of credit to pay for imported dyestuffs must reimburse the issuing bank which paid the beneficiary, even if the shipment contained colored chalks. Banks are not required required to investigate if the contract underlying the letter letter of credit has been fulfilled or not because in a transaction involving involving letter of credit, banks deal only with documents and not with goods.
The issuing bank’s (IBAA) obligation under an Irrevocable Standby Letter of Credit
executed to secure a contract of loan cannot be reduced by the direct payments made by the principal debtors to the creditor. Although a letter of credit is a security arrangement, it is not converted thereby into a contract of guaranty; the obligation of the bank under the letter of credit is original and primary.
The mere fact that a letter of credit is irrevocable does not necessarily imply that the correspondent bank, in accepting the instructions of the issuing bank, has also confirmed the letter of credit. The petitioner, as a notifying notifying bank, assumes no liability liability except to notify the beneficiary of the existence of the letter of credit; it does not give an absolute assurance to the beneficiary that it will undertake the issuing bank’s
obligation as its own according to the terms and conditions of the credit.
Drafts drawn by the beneficiary need not be presented to the applicant for acceptance before the issuing bank can seek reimbursement. Once the issuing bank has paid the beneficiary after the latter’s complia nce with the terms of the letter of credit, the issuing bank becomes entitled to reimbursement.
When the notifying bank entered into a discounting arrangement with the beneficiary, it acts independently as a negotiating bank. As such, the negotiating bank has a right to recourse against the issuer bank and until reimbursement is obtained, the beneficiary, as the drawer of the draft, continues to assume a contingent liability thereon.
A notifying or advising bank does not incur any liability arising from a fraudulent letter of credit as its obligation is limited only to informing the beneficiary of the existence of the letter of credit. Such notifying bank bank does not warrant the genuineness genuineness of the letter of credit but is bound only to check its apparent authenticity.
the debtor, guarantors or sureties of the debtors does not extend to the claims against the issuing bank in a letter of credit. credit. Letters of credit are primary primary obligations and not accessory contracts and while they are security arrangements, they are not thereby converted into contracts of guaranty. B. Parties to a Letter of Credit 1. Rights and Obligations of Parties A buyer who applied for a letter of credit to pay for imported dyestuffs must reimburse the issuing bank which paid the beneficiary, even if the shipment contained colored chalks. Banks are not required required to investigate if the contract underlying the letter letter of credit has been fulfilled or not because in a transaction involving involving letter of credit, banks deal only with documents and not with goods.
The issuing bank’s (IBAA) obligation under an Irrevocable Standby Letter of Credit
executed to secure a contract of loan cannot be reduced by the direct payments made by the principal debtors to the creditor. Although a letter of credit is a security arrangement, it is not converted thereby into a contract of guaranty; the obligation of the bank under the letter of credit is original and primary.
The mere fact that a letter of credit is irrevocable does not necessarily imply that the correspondent bank, in accepting the instructions of the issuing bank, has also confirmed the letter of credit. The petitioner, as a notifying notifying bank, assumes no liability liability except to notify the beneficiary of the existence of the letter of credit; it does not give an absolute assurance to the beneficiary that it will undertake the issuing bank’s
obligation as its own according to the terms and conditions of the credit.
Drafts drawn by the beneficiary need not be presented to the applicant for acceptance before the issuing bank can seek reimbursement. Once the issuing bank has paid the beneficiary after the latter’s complia nce with the terms of the letter of credit, the issuing bank becomes entitled to reimbursement.
When the notifying bank entered into a discounting arrangement with the beneficiary, it acts independently as a negotiating bank. As such, the negotiating bank has a right to recourse against the issuer bank and until reimbursement is obtained, the beneficiary, as the drawer of the draft, continues to assume a contingent liability thereon.
A notifying or advising bank does not incur any liability arising from a fraudulent letter of credit as its obligation is limited only to informing the beneficiary of the existence of the letter of credit. Such notifying bank bank does not warrant the genuineness genuineness of the letter of credit but is bound only to check its apparent authenticity.
While a marginal deposit, a collateral security, earns no interest in favor of the applicant, the bank is not only able to use the same for its own purposes, interest-free, but it is also also able to earn earn interest on the money money loaned loaned to the applicant. applicant. The buyer/importer's marginal deposit should then be set off against his debt, for it would be onerous to compute interest and other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to the bank. ;
An issuing bank which paid the beneficiary of an expired letter of credit can recover payment from the applicant which obtained the goods from the beneficiary to prevent unjust enrichment.
C. Basic Principles of Letter of Credit 1. Doctrine of Independence Where the applicant entered into a contract, the performance of which is secured by a standby letter of credit, the resort to arbitration by the applicant/contractor, in the absence of a stipulation that any dispute must first be settled through arbitration before the beneficiay can draw on the letter of credit, does not preclude the beneficiary to draw on the letter of credit upon upon its issuance of a certificate certificate of default. The claim of fraud will not be sufficient to support an injunction against payment by reason of the “independence principle” which assures the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not.
The issuing bank is not liable for damages even if the shipment did not conform to the specifications of the applicant. Under the “independence “independence principle”, the obligation obligation of
the issuing bank to pay the beneficiary arises once the latter is able to submit the stipulated documents documents under the letter of credit. Hence, the bank bank is not liable for damages even if the shipment did not conform to the specifications of the applicant.
Where the trial court rendered a decision finding the buyer solely liable to pay the seller and omitted by inadvertence to insert in its decision the phrase “ without prejudice to the decision that will be made against the issuing bank “ , the bank can not evade responsibility based on this this ground. The seller who is entitled to draw on the credit credit line of the buyer from a bank against the presentation of sales invoices and official receipts of the purchases and who obtained a court judgment solely against the buyer even though the suit is against the bank and the buyer may still enforce the liability of the same bank under a letter of credit issued to secure the credit line. The so-called "independence principle" in a letter of credit assures the seller or the beneficiary of
prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not.
2. Fraud Exception Principle The untruthfulness of a certificate accomplanying a demand for payment under a standy letter of credit may qualify as fraud sufficient to support injunction against payment. However, under the “fraud exception principle”, this must constitute fraud in relation to the independent purpose or character of the letter of credit and not only fraud under the main agreement; moreover, irreparable injury will be suffered if injunction will not be granted. 3. Doctrine of Strict Compliance When the letter of credit required the submission of a certification that the applicant/buyer has approved the goods prior to shipment, the unjust refusal of the applicant/buyer to issue said certification is not sufficient to compel the bank to pay the beneficiary thereof. Under the doctrine of strict compliance, the documents tendered must strictly conform to the terms of the letter of credit, otherwise, the bank which accepts a faulty tender, acts on its own risks and may not be able to recover from the applicant/buyer.
A. Definition/Concept of a Trust Receipt Transaction 1. Loan/Security Feature The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner or not. The law does not seek to enforce payment of the loan, thus, there is no violation of the constitutional provision against imprisonment for non-payment of debt.
Compensation shall not be proper when one of the debts consists in civil liability arising from a penal offense; moreover, any compromise relating to the civil liability does not automatically extinguish the criminal liability of the accused. The mere failure of the entrustee to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes prejudice not only to another, but more to the public interest. A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased. Under a letter of
credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt as a security for the loan; hence, the transaction involves a loan feature represented by a letter of credit, and a security feature which is in the covering trust receipt which secures an indebtedness.
2. Ownership of the Goods, Documents and Instruments under a Trust Receipt The transaction is a simple loan when the goods subject of the agreement had been purchased and delivered to the supposed entrustee prior to the execution of the trust receipt agreement. The acquisition of ownership over the goods before the execution of the trust receipt agreement makes the contract a simple loan, regardless of the denomination of the contract. Respondent Corporation is not an importer which acquired the bunker fuel oil for resale; it needed the oil for its own operations. More importantly, at no time did title over the oil pass to petitioner bank, but directly to respondent Corporation to which the oil was directly delivered long before the trust receipt was executed; thus, the contract executed by the parties is a simple loan and not a trust receipt agreement. In a trust receipt transaction, the entrustee has neither absolute ownership, free disposal nor the authority to freely dispose of the articles subject of the agreement. Since the goods could not have been subjected to a valid mortgage, there can also be no valid foreclosure especially when the mortgagee who subsequently foreclosed and purchased the said goods were in bad faith, having knowledge of the inclusion of such articles in a trust receipt agreement. B. Rights of the Entruster 1. Validity of the Security Interest as Against the Creditors of the Entrustee/Innocent Purchaser for Value The security interest of the entruster pursuant to the written terms of a trust receipt shall be valid as against all creditors of the entrustee for the duration of the trust receipt agreement, including among others, the laborers of the entrustee. The only exception to the rule is when the properties are in the hands of an innocent purchaser for value and in good faith.
C. Obligation and Liability of the Entrustee Commercial invoices attached to the applications for letters of credit and of trust receipts, which only provide for the list of items sought to be purchased and their prices will not prove delivery of the goods to the entrustee. Hence, criminal liability will not attach and the accused should be acquitted in the estafa cases.
While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to trust receipts and letters of credit, the presumption of consideration applies on the drafts drawn in connection with the letters of credit. Hence, the drafts signed by the beneficiary/suppliers in connection with the corresponding letters of credit proved that said suppliers were paid by the bank (entruster) for the account of the entrustee.
When there is a violation of the Trust Receipts Law, what is being punished is the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. However, failure to comply with the obligations due to serious liquidity problems and after the entrustee was placed under rehabilitation does not amount to dishonesty and abuse of confidence, thus, the entrustee cannot be said to have violated the law.
1. Payment/Delivery of Proceeds of Sale or Disposition of Goods, Documents or Instruments When the goods subject of the transaction, such as chemicals and metal plates, were not intended for sale or resale but for use in the fabrication of steel communication towers, the agreement cannot be considered a trust receipt transaction but a simple loan. P.D. No. 115 punishes the entrustee for his failure to deliver the price of the sale, or if the goods are not sold, to return them to the entruster, which, in the present case, is absent and could not have been complied with; therefore, the liability of the entrustee is only civil in nature.
Under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust receipts. When both parties know that the entrustee could not have complied with the obligations under the trust receipt without his fault, as when the goods subject of the agreement were not intended for sale or resale, the transaction cannot be considered a trust receipt but a simple loan, where the liability is limited to the payment of the purchase price.
When both parties entered into an agreement knowing fully well that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.
2. Return of Goods, Documents or Instruments in Case of Non-Sale
A trust receipt transaction is a security agreement, pursuant to which the entruster acquires a security interest in the goods, which are released to the possession of the entrustee who binds himself to hold the goods in trust for the entruster and to sell or otherwise dispose of the goods or to return them in case of non-sale. The return of the goods to the entruster however, does not relieve the entrustee of the obligation to pay the loan because the entruster is not the factual owner of the goods and merely holds them as owner in the artificial concept for the purpose of giving stronger security for the loan. 3. Liability for Loss of Goods, Documents or Instruments Under the Trust Receipts Law, the loss of the goods subject of the trust receipt regardless of the cause and period or time it occurred, does not extinguish the civil obligation of the entrustee. Hence, the fact that the entrustee attempted to make a tender of goods to the bank and as a consequence of the latter’s refusal, the goods were stored in the entrustee’s warehouse and thereafter gutted by fire, the liability of the entrustee still subsists; the principle of res perit domino will not apply to the bank which
holds only a security of interest over the goods.
4. Penal Sanctions if Offender is a Corporation Recognizing the impossibility of imposing the penalty of imprisonment on a corporation, it was provided that if the entrustee is a corporation, the penalty shall be imposed upon the directors, officers, employees or other officials or persons responsible for the offense. However, the person signing the trust receipt for the corporation is not solidarily liable with the entrustee-corporation for the civil liability arising from the criminal offense unless he personally bound himself under a separate contract of surety or guaranty. When the entrustee is a corporation, the director, officer, employee, or any person responsible for the violation of the Trust Receipts Law is held criminally liable without prejudice to the civil liability, which is imposed upon the entrustee-corporation. The fact that the officer signed in his official capacity means that the corporation is the one civilly liable; however, when such officer also signed a trust receipt in his personal capacity, he will also be held civilly liable together with the corporation, with the scope of liability depending on whether he signed as a surety or as a guarantor.
The fact that the officer who signed the trust receipt on behalf of the entrusteecorporation signed in his official capacity without receiving the goods as he had never taken possession of such nor committing dishonesty and abuse of confidence in transacting with the entrustor, is immaterial. The law specifically makes the director, officer, employee or any person responsible criminally liable precisely for the reason that a corporation, being a juridical entity, cannot be the subject of the penalty of imprisonment.
D. Remedies Available After the infomation is filed in court, compromise of the estafa case arising from violation of the Trust Receipts Law will not amount to novation and will not extinguish the criminal liability of the accused. Although the surrender of the goods to the entruster results in the acquittal of the accused in the estafa case, it is not a bar to the institution of a civil action for collection because of the loan feature (civil in nature) of the trust receipt transaction, which is entirely distinct from its security feature (criminal in nature). Accordingly, Article 31 of the New Civil Code provided that when the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter.
The entruster’s repossession of the subject machinery and equipment, not for the
purpose of transferring ownership to the entruster but only to serve as security to the loan, cannot be considered payment of the loan under the trust receipt and letter of credit. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation.
When the entrustee defaults on his obligation, the entruster has the discretion to avail of remedies which it deems best to protect its right. The law uses the word “may” in granting to the entruster the right to cancel the trust and take possession of the goods; hence, the option is given to the entruster.
A civil case filed by the entruster against the entrustees based on the failure of the latter to comply with their obligation under the Trust Receipt agreement is proper because this breach of obligation is separate and distinct from any criminal liability for misuse and/or misappropriation of goods or proceeds realized from the sale of goods released under the trust receipts. Being based on an obligation ex contractu and not ex delicto , the civil action may proceed independently of the criminal proceedings instituted against the entrustees regardless of the result of the latter.
Novation may take place either by express and unequivocal terms or when the old and new obligations cannot stand together and are incompatible on every point. The execution of the Memorandum of Agreement, which provided for principal conditions incompatible with the trust agreement, extinguished the obligation under the trust receipts without prejudice to the debtor’s civil liability.
As provided under Section 7, P.D. No. 115, in the event of default of the entrustee, the entruster may cancel the trust and take possession of the goods subject of the trust or of the proceeds realized therefrom at any time; the entruster may, not less than five days after serving or sending of notice of intention to sell, proceed with the sale of the goods
at public or private sale where the entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. This is by reason of the fact that the initial repossession by the bank of the goods subject of the trust receipt did not result in the full satisfaction of the entrustee’s loan obligation.
E. Warehouseman’s Lien Notwithstanding the right of PNB over the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees. The warehouseman may demand payment of his lien prior to the delivery of the stocks of sugar because under Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon the goods by surrendering possession thereof.
A warehouseman may enforce his lien under the following instances: 1) he may refuse to deliver the goods until his lien is satisfied; 2) he may sell the goods and apply the proceeds thereof to the value of the lien; and 3) by other means allowed by law to a creditor against his debtor, for the collection from the depositor of all charges and advances which the depositor expressly or impliedly contracted with the warehouseman; or such remedies allowed by law for the enforcement of a lien against personal property. The refusal of the warehouseman to deliver the sugar to the endorsee of the quedans on the ground that it has claimed ownership over the sugar by reason of non-payment of its buyer, not being one of the remedies available to the warehouseman to enforce his lien, caused the loss of the warehouseman’s lien. Nevertheless, the loss did not extinguish the obligation to pay the warehouseman’s fees but merely caused the fees
and charges to cease to accrue from the date of the rejection by the warehouseman to heed the previous lawful demand for the release of the goods.
A. Forms and Interpretation 1. Requisites of Negotiability A check which reads “Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC.” is not negotiable because the payee ceased to be
indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. As worded, it could be accepted as deposit to the account of the party named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate beneficiary.
Without the words "or order or "to the order of", the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. vs.
When the documents provide that the amounts deposited shall be repayable to the depositor, such instrument is negotiable because it is payable to the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him, but the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment.
The language of negotiability which characterizes a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time.
Under the fictitious payee rule, a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument if the payee is not the intended recipient of the proceeds of the check. There is, however, a commercial bad faith exception to this rule which provides that a showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense.
Under the Negotiable Instruments Law, a check made payable to cash is payable to the bearer and could be negotiated by mere delivery without the need of an indorsement. However, the drawer of the post-dated check can not be liable for estafa to the person who did not acquire the instrument directly from drawer but through negotiation of another by mere delivery. This is because the drawer did not use the check to defraud the holder/private complainant.
2. Kinds of Negotiable Instruments Postal money orders are not negotiable instruments, the reason being that in establishing and operating a postal money order system, the government is not engaged
in the commercial transactions but merely exercises a governmental power for the public benefit. Some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances. . Bank withdrawal slips are non-negotiable and the giving of immediate notice of dishonor of negotiable instruments does not apply in this case. Since the withdrawal slips deposited with petitioner’s current account with Citibank were not checks,
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.
A check is “a bill of exchange drawn on a bank payable on demand” which may either
be an order or a bearer instrument. Under Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person like checks issued to “Prinsipe Abante” or “Si Malakas at si Maganda,” who are w ell-known characters in Philippine mythology.
A certificate of deposit is defined as a written acknowledgement by a bank of the receipt of a sum of money on deposit which the bank promise to pay to the depositor or the order of the depositor or to some other person or his order whereby the relation of debtor and creditor between the bank and the depositor is created. A document to be considered a certificate of deposit need not be in a specific form. Thus, a passbook of an interest-earning deposit account issued by a bank is a certificate of deposit drawing interest because it is considered a written acknowledgment by a bank that it has accepted a deposit of a sum of money from a depositor. Thus, it is subject to documentary stamp tax.
B. Completion and Delivery The 17 original checks, completed and delivered to petitioner, are sufficient by themselves to prove the existence of the loan obligation of the respondents to petitioner. Sec. 16 of the NIL provides that when an instrument is no longer in the possession of the person who signed it and it is complete in its terms "a valid and intentional delivery by him is presumed until the contrary is proved.
1. Insertion of Date 2. Completion of Blanks
In any case, it is no defense that the promissory notes were signed in blank as Section 14 of the Negotiable Instruments Law concedes the prima facie authority of the person in possession of negotiable instruments to fill in the blanks.
3. Incomplete and Undelivered Instruments 4. Complete but Undelivered Instruments As Assistant City Fiscal, the source of the salary of the payee is public funds which he receives in the form of checks from the Department of Justice. Since the payee of a negotiable interest acquires no interest with respect thereto until it is delivered, such checks, as a necessary consequence of being public fund, may not be garnished because such funds do not belong to him.
If the post-dated check was given to the payee in payment of an obligation, the purpose of giving effect to the instrument is evident, thus title or ownership the check was transferred to the payee. However, if the PDC was not given as payment, then there was no intent to give effect to the instrument and ownership was not transferred. The evidence proves that the check was accepted, not as payment, but in accordance with the policy of the payee to cover the transaction ( purchase of beer products ) and in the meantime the drawer was to pay for the transaction by some other means other than the check. This being so, title to the check did not transfer to the payee; it remained with the drawer. The second element of the felony of theft was therefore not established. Hence, there is no probable cause for theft.-
The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should have put the bank on guard. It should have verified if the payee authorized the holder to present the same in its behalf or indorsed it to him. The bank’s reliance on the holder’s assurance that he had good title to the three checks constitutes gross negligence even though the holder was related to the majority stockholder of the payee. While the check was not delivered to the payee, the suit may still prosper because the payee did not assert a right based on the undelivered check but on quasidelict.
C. Signature 1. Signing in Trade Name 2. Signature of Agent Under Section 20 of the Negotiable Instruments Law, where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent or as filing a representative character, without disclosing his principal, does not exempt him from personal liability. In the instant case, an inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a representative of the Philippine Education Foundation Company and such failure to disclose his principal makes him personally liable for the drafts he accepted.
3. Indorsement by Minor or Corporation 4. Forgery As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payee’s signature and who collects the
amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful and when the money had been collected on the check, the proceeds are held for the rightful owners who may recover them. The payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not.
The possession of a check on a forged or unauthorized indorsement is wrongful, and when the money is collect ed on the check, the bank can be held ‘for moneys had and received.’ The proceeds are held for the rightful owner of the payment and may be
recovered by him. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected without indorsement at all. The act of the bank amounts to conversion of t he check.
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 and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through or under such signature. However, the rule does provide for an exception, namely: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." In the instant case, it is the exception that applies as the 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. (
A forged signature is a real or absolute defense, and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it. The counterfeiting
of any writing, consisting in the signing of another’s name with intent to defraud, is
forgery.
Even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from the bank as long as he or she is not precluded from setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the payment of a check can arise out of a forged signature. Since the drawer is not precluded by negligence from setting up the forgery, the general rule should apply.
As between a bank and its depositor, where the ba nk’s negligence is the proximate cause of the loss and the depositor is guilty of contributory negligence, the greater proportion of the loss shall be borne by the bank. The bank was negligent because it did not properly verify the genuineness of the signatures in the applications for manager’s checks while the depositor was negligent because it clothed its accountant/bookkeeper with apparent authority to transact business with the Bank and it did not examine its monthly statement of account and report the discrepancy to the Bank. the court allocated the damages between the bank and the depositor on a 60-40 ratio.–Philippine National While its manager forged the signature of the authorized signatories of clients in the application for manager’s checks and forged the signatures of the payees thereof, the drawee bank also failed to exercise the highest degree of diligence required of banks in the case at bar. It allowed its manager to encash the Manager’s checks that were plainly crossed checks. A crossed check is one where two parallel lines are drawn across its f ace or across its corner. Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once — to the one who has an account with the bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. In other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check is crossed,it is the duty of the collecting bank to ascertain that the check is only deposited to the payee’s account.
D. Consideration A check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value. Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to recovery. Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome by other
competent evidence.
In actions based upon a negotiable instrument, it is unnecessary to aver or prove consideration, for consideration is imported and presumed from the fact that it is a negotiable instrument. The presumption exists whether the words "value received" appear on the instrument or not.
Letters of credit and trust receipts are not negotiable instruments, but drafts issued in connection with letters of credit are negotiable instruments. While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to trust receipts and letters of credit, the presumption that the drafts drawn in connection with the letters of credit have sufficient consideration applies.
When promissory notes appear to be negotiable as they meet the requirements of Section 1 of the Negotiable Instruments Law, they are prima facie deemed to have been issued for consideration unless sufficient evidence was adduced to show otherwise.
Upon issuance of a negotiable check, in the absence of evidence to the contrary, it is presumed that the same was issued for valuable consideration which may consist either in some right, interest, profit or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for a consideration or for value. As petitioner alleged that there was no consideration for the issuance of the subject checks, it devolved upon him to present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without valuable consideration. Petitioner, however, has not presented any credible evidence to rebut the presumption, as well as North Star’s assertion, that the checks were issued as payment for the US$85,000 petitioner owed to the corporation and not to the manager who facilitate the fund transfer.
E. Accommodation Party Section 29 of the Negotiable Instruments Law by clear mandate makes the accomodation party "liable on the instrument to a holder for value, notwithstanding that such holder at the time of taking the instrument knew him to be only an accommodation party." It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. It is not correct to say that the holder for value is not a holder in due course merely because at the time he acquired the instrument, he knew that the indorser was only an accommodation party.
When a promissory note which is payable to GSIS is not payable to bearer or order, such instrument is non-negotiable. As such, third party mortgagor who mortgaged his property to secure the obligation of another is not liable as an accommodation party but liable under Article 2085 of the Civil Code to the effect that third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. When the checks are dishonored for lack of funds, the party who indorsed those checks as accommodation endorser is liable for the payment of the checks.
When a married couple signed a promissory note in favor of a bank to enable the sister of the husband to obtain a loan, they are considered as accommodation parties who are liable for the payment of said loan.
While a maker who signed a promissory note for the benefit of his co-maker ( who received the loan proceeds ) is considered an accommodation party, he is, nevertheless, entitled to a written notice on the default and the outstanding obligation of the party accommodated. There being no such written notice, the Bank is grossly negligent in terminating the credit line of the accommodation party for the unpaid interest dues from the loans of the party accommodated and in dishonoring a check drawn against the such credit line.
F. Negotiation 1. Distinguished from Assignment If an assigned promissory note had already been extinguished because its maker is similarly indebted to the assignor, then the defense of set-off or legal compensation could also be invoked against the assignee of the note. The debtor’s consent is not
needed to effectuate assignment of credit and negotiation.
2. Modes of Negotiation Where a check is made payable to the order of ’cash’, the word ‘cash’does not purport to be the name of any person’, and hence the instrument is payable to bearer. The
drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement.
Under the Negotiable Instruments Law, 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 case of a bearer instrument, mere delivery would suffice.
3. Kinds of Indorsements G. Rights of the Holder 1. Holder in Due Course Where the payee acquired the check under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to him, the payee has the duty to present evidence that he acquired the check in good faith. As holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in holder's title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist. vs.
A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and VMS.
Possession of a negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor a holder for value within the meaning of the law. It gives rise to no liability on the part of the maker or drawer and indorsers.
It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser’s title to the check or the nature of his
possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law, and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course.
The disadvantage of not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. One such defense is absence or failure of consideration.
The weight of authority sustains the view that a payee may be a holder in due course. Hence, the presumption that he is a prima facie holder in due course applies in his favor.
However, said presumption may be rebutted and vital to the resolution of this issue is the concurrence of all the requisites provided for in Section 52 of the Negotiable Instruments Law.
2. Defenses Against the Holder H. Liabilities of Parties 1. Maker Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers and liable as such.
2. Drawer The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given. If no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused.
In the case of DAUD, the depositor has, on its face, sufficient funds in his account, although it is not available yet at the time the check was drawn, whereas in DAIF, the depositor lacks sufficient funds in his account to pay the check. Moreover, DAUD does not expose the drawer to possible prosecution for estafa and violation of BP 22, while DAIF subjects the depositor to liability for such offenses.
3. Acceptor To simplify proceedings, the payee of the illegally encashed checks should 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.
As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payee’s signature and who collects the
amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained. The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful and when the money had been collected on the check, the proceeds are held for the rightful owners who may recover them. The payee ought to be allowed to recover directly from the collecting bank,
regardless of whether the check was delivered to the payee or not.
If a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. A bank is liable, irrespective of its good faith, in paying a forged check.
4. Indorser Section 63 of the Negotiable Instruments Law makes "a person placing his signature upon an instrument otherwise than as maker, drawer or acceptor" a general indorser "unless he clearly indicates by appropriate words his intention to be bound in some other capacity."
After an instrument is dishonored by non-payment, indorsers cease to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of the original obligor.The holder of the negotiable instrument need not even proceed against the drawer before suing the indorser.
The collecting bank which accepted a post-dated check for deposit and sent it for clearing and the drawee bank which cleared and honored the check are both liable to the drawer for the entire face value of the check.
5. Warranties The subject checks were accepted for deposit by the Bank for the account of Sayson although they were crossed checks and the payee was not Sayson but Melissa’s RTW.
The Bank stamped thereon its guarantee that "all prior endorsements and/or lack of endorsements (were) guaranteed." guaranteed." By such deliberate and positive act, the Bank had for all legal intents and purposes treated the said checks as negotiable instruments and, accordingly, assumed the warranty of the endorser.
I. Presentment for Payment The effects of crossing a check relate to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments Law, presentment presentment for payment must be made by the holder or by some person authorized to receive payment on his behalf. Who the holder or authorized person depends on the face of the check.
1. Necessity of Presentment for Payment 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.
2. Parties to Whom Presentment for Payment Should Be Made 3. Dispensation with Presentment for Payment 4. Dishonor by Non-Payment J. Notice of Dishonor The term "notice of dishonor" denotes that a check has been presented for payment and was subsequently dishonored by the drawee bank. This means that the check must necessarily be due and demandable because only a check that has become due can be presented for payment and subsequently be dishonored. A postdated check cannot be vs. dishonored if presented for payment before its due date.
1. Parties to Be Notified Notice of dishonor to the corporation, which has a personality distinct and separate from the officer of the corporation, does not constitute notice to the latter. The absence of notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution. If the drawer or maker is an officer of a corporation, the notice of dishonor to the said corporation is not notice to the employee or officer who drew or issued the check for and in its behalf.
Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded payment. payment. In the instant case, all the checks were dishonored for any of the following reasons: "account closed", "account under garnishment", insufficiency of funds", or "payment stopped." In the first three instances, the drawers had no right to expect or require the bank to honor the checks, and in the last instance, the drawers had countermanded payment.
2. Parties Who May Give Notice and Dishonor
When what was stamped on the check was “Payment Stopped Funded” and “DAUD”
which means drawn against uncollected deposits, the check was not issued without sufficient funds and was not dishonored due to insufficiency of funds. Even with uncollected deposits, the bank may honor the check at its discretion in favor of favored clients, in which case there would be no violation of B. P. 22.
3. Effect of Notice In the case of DAUD, the depositor has, on its face, sufficient funds in his account, although it is not available yet at the time the check was drawn, whereas in DAIF, the depositor lacks sufficient funds in his account to pay the check. Moreover, DAUD does not expose the drawer to possible prosecution for estafa and violation of BP 22, while DAIF subjects the depositor to liability for such offenses.
The failure of the prosecution to prove the existence and receipt by petitioner of the requisite written notice of dishonor and that he was given at least five banking days within which to settle his account constitutes sufficient ground for his acquittal in a case for violation of BP 22.
4. Form of Notice A notice of dishonor received by the maker or drawer of the check is thus indispensable before a conviction for violation of BP 22 can ensue. The notice of dishonor may be sent by the offended party or the drawee bank, and it must be in writing. A mere oral notice to pay a dishonored check will not suffice. The lack of a written notice is fatal for the prosecution. vs.
5. Waiver 6. Dispensation with Notice 7. Effect of Failure to Give Notice K. Discharge of Negotiable Instrument 1. Discharge of Negotiable Instrument In depositing the check in his name, the depositor did not become the out-right owner of the amount stated therein. By depositing the check with the bank, depositor was, in a way, merely designating the bank as the collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check, whether a manager’s check or
ordinary check, is not legal tender. As such, after receiving the deposit, under its own rules, the bank shall credit the amount to the depositor’s account or infuse value thereon
only after the drawee bank shall have paid the amount of the check or the check has
been cleared for deposit. The depositor’s contention that after the lapse of the 35 -day period the amount of a deposited check could be withdrawn even in the absence of a clearance thereon, otherwise it could take a long time before a depositor could make a withdrawal is untenable. Said practice amounts to a disregard of the clearance requirement of the banking system.
Mere delivery of a check does not discharge the obligation. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. Thus, although the value of a check was deducted from the funds of the drawer but the funds were never delivered to the payee because the drawee bank set off the amount against the losses it incurred from the forgery of the drawer’s check, the drawer’s obligation to the payee remains unpaid.
While Section 119 of the Negotiable Instrument Law in relation to Article 1231 of the Civil Code provides that one of the modes of discharging a negotiable instrument is by any other act which will discharge a simple contract for the payment of money, such as novation, the acceptance by the holder of another check which replaced the dishonored bank check did not result to novation. There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible on every point. In the instant case, there was no express agreement that the holder’s accepta nce of the replacement check will discharge the drawer and endorser from liability. Neither is there incompatibility because both checks were given precisely to terminate a single obligation arising from the same transaction.
2. Discharge of Parties Secondarily Liable 3. Right of Party Who Discharged Instrument 4. Renunciation by Holder L. Material Alteration 1. Concept An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under
Section 1 of the Negotiable Instruments Law.
The serial number is not an essential requisite for negotiability under Section 1 of the Negotiable Instrument Law and an alteration of which is not material. The alteration of the serial number does not change the relations between the parties.
Alterations of the serial numbers do not constitute material alterations on the checks. Since there were no material alterations on the checks, respondent as drawee bank has no right to dishonor them and return them to petitioner, the collecting bank. vs.
2. Effect of Material Alteration Payment made under materially altered instrument is not payment done in accordance with the instruction of the drawer. When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client's account only for bona fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer's account which it was expected to treat with utmost fidelity.
M. Acceptance 1. Definition The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. , Indeed, "acceptance" and "payment" are, within the purview of the law, essentially different things, for the former is "a promise to perform an act," whereas the latter is the "actual performance" thereof. In the words of the Law, "the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer," which, in the case of checks, is the payment, on demand, of a given sum of money.
2. Manner When a check had been certified by the drawee bank, such certification is equivalent to acceptance because it enables the holder to use it as money. Also, where a holder
procures a check to be certified, the check operates as an assignment of a part of the funds to the creditor. Acceptance may be done in writing by the drawee in the bill itself, or in a separate instrument. , 3. Time for Acceptance 4. Rules Governing Acceptance N. Presentment for Acceptance 1. Time/Place/Manner of Presentment Presentment for acceptance is defined as the production of a bill of exchange to a drawee for acceptance. Presentment for acceptance is necessary only 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 where the bill expressly stipulates that it shall be presented for acceptance, or where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. ,
2. Effect of Failure to Make Presentment While it is true that the delivery of a check produces the effect of payment only when it is encashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in presentment. After more than ten (10) years from the payment in part by cash and in part by check, the presumption is that the check had been encashed, and the failure to encash for more than ten (10) years undoubtedly resulted in the impairment of the check through unreasonable and unexplained delay on the part of the payee.
3. Dishonor by Non-Acceptance O. Promissory Notes Where an instrument containing the words ‘I promise to pay’ is signed by two or more persons, they are deemed to be jointly and severally liable thereon. Under Section 17 (g) of the Negotiable Instrument Law and Art. 1216 of the Civil Code, where the promissory note was executed jointly and severally by two or more persons, the payee of the promissory note had the right to hold any one or any two of the signers of the promissory note responsible for the payment of the amount of the note.
The buyer of a car shall be liable to pay the unpaid balance on the promissory note and not just the installments due and payable before the said automobile was carnapped. Being the principal contract, the promissory note is unaffected by whatever befalls the subject matter of the accessory contract.
When a promissory note expresses "no time for payment," it is deemed "payable on demand.
When there is a discrepancy between the amount in words and the amount in figures in the check, the rule in the Negotiable Instruments Law is that it would be the amount in words that would prevail.
An instrument which begins with I, We, or Either of us promise to pay, when signed by two or more persons, makes them solidarily liable. Also, the phrase ‘joint and several’
binds the makers jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit.
P. Checks 1. Definition Settled is the doctrine that a check is the only a substitute for money and not money; hence, the delivery of such an instrument does not, by itself, operate as payment. This is especially true in case of post-dated check. Thus, the issuance of a post-dated check was not effective payment. It did not comply with the cardholder’s obligation to pay his past due credit card charges. Consequently, the card company was justified in suspending his credit card. 2. Kinds Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top portion of the checks. The crossing is special where the name of a bank or a business institution is written between the two parallel lines, which means that the drawee should pay only with the intervention of that company. The crossing is general where the words written between the two parallel lines are "and Co." or "for payee’s account only," which means that the drawee bank should not encash the c heck but merely accept it for deposit.
The effects of crossing a check are: (1) that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once –– to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning
to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose.
A memorandum 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 on to a third person, will be valid in his hands like any other check.
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 an d general use in the commercial world is regarded substantially to be as good as the money which it represents.
Payment in check by the debtor may be acceptable as valid, if no prompt objection to said payment is made. Consequently, the debtor’s tender of payment in the form of manager’s check is valid. Thus, where the seller of real property tendered the return of the reservation fee in the form of manager’s check because the sale agreement wa s not
fully consummated owing to the failure of the buyer to pay the balance of the purchase price within the stipulated period, the tender of t he manager’s check was considered a
valid tender of payment. When the buyer refused to accept the check, the consignation of the check with the court was sufficient to satisfy the obligation.
While its manager forged the signature of the authorized signatories of clients in the application for manager’s checks and forged the signatures of the payees thereof, the drawee bank also failed to exercise the highest degree of diligence required of banks in the case at bar. It allowed its manager to encash the Manager’s checks that were plainly crossed checks. A crossed check is one where two parallel lines are drawn across its f ace or across its corner. Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once — to the one who has an account with the bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. In other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check is crossed,it is the duty of the collecting bank to ascertain that the check is only deposited to the payee’s account.
3. Presentment for Payment A judgment creditor cannot validly refuse acceptance of the payment of the judgment obligation tendered in the form of a cashier’s check. A cashier’s check issued by a bank
of good standing is deemed as cash.
The obligation of the judgment debtor subsists when the check issued by a judgment debtor was made payable to the sheriff who encashed the same but failed to deliver its proceeds to the judgment creditor. This is because a check does not produce the effect of payment until encashed.
Tendering a check on the last day of the grace period to pay the purchase price is not valid and a seller has a right to cancel the contract. A check, be it 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 by the creditor.
A check may be used for the exercise of the right of redemption, the same being a right and not an obligation. The judgment creditor may validly refuse the tender of payment partly in check and partly in cash. A cashier’s check tendered b y the judgment debtor to satisfy the judgment debt is not a legal tender.
A check does not constitute legal tender, but once the creditor accepted a fully funded check to settle an obligation, he is estopped from later on denouncing the efficacy of such tender of payment. By accepting the tendered check and converting it into money, the creditor is presumed to have accepted it as payment and to hold otherwise would be inequitable and unfair to the obligor.
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.
Where a manager’s check made payable to “cash” and appearing regular on its face, was presented to another bank that immediately honors it – no faulty may be attributed
to such bank in relying upon the integrity of the check, even if payment thereon was later ordered stopped by the drawer-bank because the one who encashed the check was actually not the intended payee. In other words, as between the bank that honored the manager’s check and the drawer -bank, it is the latter that should bear the loss.
a. Time 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 exercise in his own affairs. This is because the nature and theory behind
the use of a check points to its immediate use and payability.
b. Effect of Delay 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 debtors have not alleged, much less shown that they or the bank which iss ued the manager’s check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased.
A.
Concept of Insurance One test in order to determine whether one is engaged in insurance business is whether the assumption of risk and indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that of insurance. But if they are merely incidental and service is the principal purpose, the n the business is not insurance. In this case, Health Maintenance Organizations (HMOs) are not insurance business.
The contract of insurance is one of perfect good faith (uferrimal fidei ) not for the insured alone, but equally so for the insurer; in fact, it is mere so for the latter, since its dominant bargaining position carries with it stricter responsibility.
Being a contract of adhesion, terms of a policy are to be construed strictly against the party which prepared the contract - the insurer. By reason of exclusive control of insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.
The cardinal principle in Insurance Law is that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurance company, yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms, which the parties themselves have used.
Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Accordingly, in interpreting the exclusions in an insurance contract, the
terms used specifying the excluded classes therein are to be given their meaning as understood in common speech. A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. B.
Elements of an Insurance Contract Under Sec. 2(a) of the Insurance Code, an insurance contract is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event, and with the following elements: 1.) Insured has an insurable interest; 2.) Insured is subject to a risk of loss by the happening of the designated peril; 3.) Insurer assumes risk; 4.) Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and 5.) In consideration of the insurer’s promise, the insured pays a premium.
For purposes of determining the liability of a health care provider to its members, a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Limitations as to liability must be distinctly specified and clearly reflected in the extent of coverage which the company voluntary assume, otherwise, any ambiguity arising therein shall be construed in favor of the member. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract - the insurer. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as “ standard charges “, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. Thus, if the member, while on vacation, underwent a procedure in the USA, the standard charges referred to in the contract should mean standard charges in USA and not the cost had the procedure been conducted in the Philippines.
C.
Characteristics/Nature of Insurance Contracts The only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the
