Negotiable Instruments Case Digest: Violago v. BA Finance Corp. G.R. No. 158262 July 21, 2008 Lessons Applicable: Promissory notes and checks (Negotiable Instr uments Law) FACTS: 1983: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a Toyota Cressida Model 1983 to increase the sales quota t o his cousin, Pedro F. Violago and his wife, Florencia. spouses would just have to pay a down payment of PhP 60.5K while the balance would be financed by BA Finance. The spouses would pay the monthly installments to BA Finance while Avelino would take c are of the documentation and approval of financing of the car. August 4, 1983: the spouses and Avelino signed a promissory note under under which they bound themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25 a month, the first installment to be due and payable on September 16, 1983. Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed the net purchase price of the vehicle, down payment, balance, and f inance charges. VMSC then issued a sales invoice in favor of the spouses with a detailed descr iption of the Toyota Cressida car. In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security for the amount of PhP 209,601. VMSC, through Avelino, endorsed endorsed the promissory note to BA Finance Finance without recourse. After receiving the amount of PhP 209,601, VMSC executed a Deed of Assignment of its rights and interests under the promissory note and chattel mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of PhP 60,500 to VMSC through Avelino spouses were unaware that the same car had already been sold in 1982 to Esmeraldo Violago, another cousin of Avelino Since VMSC failed to deliver the car , Pedro did not pay any monthly amortization to BA Finance. March 1, 1984: BA Finance filed with the RTC a complaint for Replevin with Damages against against the spouses RTC: favored BA f inance , however, declared that they are entitled to be indemnified by Avelino CA: affirmed - promissory note was a negotiable instrument and that BA Finance was a holder in due course ISSUE: W/N the holder of an invalid promissory note may be considered a holder in due course HELD: YES. CA reversed because Avelino and VMSC are the sam e negotiable:
Section 1. Form of Negotiable Instruments. – An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable cer tainty. Section 52. What constitutes a holder in due course.––A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. (a) the “Promissory Note”, Exhibit “A”, is complete and regular; (b) the “Promissory Note” was endorsed by the VMSC in favor of t he Appellee; (c) the Appellee, when it accepted the Note, acted in good faith and for value; (d) the Appellee was never informed, before and at the time the “Promissory Note” was endorsed to the Appellee, that the vehicle sold to the Def endants Appellants was not delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch), the sam e occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned its rights over the “Chattel Mortgage” by the Defendants-Appellants to the Appellee. Hence, Appellee was a holder in due course Since BA Finance is a holder in due c ourse, petitioners cannot raise the def ense of non-delivery of the object and nullity of the sale against the corporation. VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was previously sold to Avelino’s other cousin, Esmeraldo Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners’ loss. He cannot now hide behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial court in favor of petitioners. obligation was incurred in the name of the corporation, the petitioner [Arcilla] would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same ===================================================================== Violago v. BA Finance Corp. G.R. No. 158262 July 21, 2008 Lessons Applicable: Promissory notes and checks (Negotiable Instr uments Law) FACTS: 1983: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a Toyota Cressida Model 1983 to increase the sales quota t o his cousin, Pedro F. Violago and his wife, Florencia.
spouses would just have to pay a down payment of PhP 60.5K while the balance would be financed by BA Finance. The spouses would pay the monthly installments to BA Finance while Avelino would take c are of the documentation and approval of financing of the car. August 4, 1983: the spouses and Avelino signed a promissory note under which they bound themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25 a month, the first installment to be due and payable on September 16, 1983. Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed the net purchase price of the vehicle, down payment, balance, and f inance charges. VMSC then issued a sales invoice in favor of the spouses with a detailed descr iption of the Toyota Cressida car. In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security for the amount of PhP 209,601. VMSC, through Avelino, endorsed the promissory note to BA Finance without recourse. After receiving the amount of PhP 209,601, VMSC executed a Deed of Assignment of its rights and interests under the promissory note and chattel mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of PhP 60,500 to VMSC through Avelino spouses were unaware that the same car had already been sold in 1982 to Esmeraldo Violago, another cousin of Avelino Since VMSC failed to deliver the car , Pedro did not pay any monthly amortization to BA Finance. March 1, 1984: BA Finance filed with the RTC a complaint for Replevin with Damages against the spouses RTC: favored BA finance , however, declared that they are entitled to be indemnified by Avelino CA: affirmed - promissory note was a negotiable instrument and that BA Finance was a holder in due course ISSUE: W/N the holder of an invalid promissory note may be considered a holder in due course HELD: YES. CA reversed because Avelino and VMSC are the sam e negotiable: Section 1. Form of Negotiable Instruments. – An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable cer tainty. Section 52. What constitutes a holder in due course.––A holder in due course is a holder who has
taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. (a) the “Promissory Note”, Exhibit “A”, is complete and regular; (b) the “Promissory Note” was endorsed by the VMSC in favor of t he Appellee; (c) the Appellee, when it accepted the Note, acted in good faith and for value; (d) the Appellee was never informed, before and at the time the “Promissory Note” was endorsed to the Appellee, that the vehicle sold to the Def endants Appellants was not delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch), the sam e occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned its rights over the “Chattel Mortgage” by the Defendants-Appellants to the Appellee. Hence, Appellee was a holder in due course Since BA Finance is a holder in due c ourse, petitioners cannot raise the def ense of non-delivery of the object and nullity of the sale against the corporation. VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was previously sold to Avelino’s other cousin, Esmeraldo Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners’ loss. He cannot now hide behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial court in favor of petitioners. obligation was incurred in the name of the corporation, the petitioner [Arcilla] would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same ====================================================================== Bautista v. Auto Plus Traders Inc G.R. No. 166405 August 06, 2008 Lessons Applicable: Consideration and Accommodation Party (Negotiable Instrum ents Law) FACTS: Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport Corporation (Cruiser), purchased various spare parts from Auto Plus Traders, Inc. (Auto Plus) and issued 2 postdated checks The checks were subsequently dishonored 2 Informations for violation of BP Blg. 22 were filed with the MTCC MTCC: Cruiser directed to pay the Auto Plus CA Affirmed RTC: Bautista personally issued the check According to Auto Plus, Bautista, by issuing his check to cover the obligation of the corporation, became an accommodation party
ISSUE: W/N Bautista as an officer of the corporation, is personally and civilly liable for the 2 checks HELD: NO. petition is GRANTED. CA REVERSED and SET ASIDE. Criminal Case DISMISSED Section 29 of the Negotiable Instruments Law accommodation party is liable on the instrument to a holder for value Private respondent adds that petitioner should also be liable for t he value of the corporation check because instituting another civil action against the corporation would result in multiplicity of suits and delay. Generally this Court, in a petition for review on certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But, considering that the findings of the MTCC and the RTC are at variance, we are compelled to settle this issue. 2 check return slips in conjunction with the Current Account Statements would show that the check for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC. Nonetheless, appellate court in error for affirming the decision of the RTC holding petitioner liable for the value of the checks considering that he was acquitted of the crime charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines and Transport Corporation should be held liable. There is no agreement that petitioner shall be held liable for the corporation's obligations in his personal capacity. Hence, he cannot be held liable for t he value of the 2 checks issued in payment for the corporation's obligation Section 29 of the Negotiable Instruments Law accommodation party a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person requisites he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser -present he must not receive value therefor - present he must sign for the purpose of lending his name or credit to some other person - lacking Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no evidence that the debts covered by the subject checks have been paid. ==================================================================== Philippine National Bank v. Erlando Rodriguez G.R. No. 170325 September 26, 2008 Lessons Applicable: Fictitious Persons (Negotiable Instrum ents Law) FACTS: Spouses Erlando and Norma Rodriguez were engaged in the infor mal lending business and had a discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB em ployees
The association maintained current and savings accounts with Philippine National Bank (PNB) PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members. It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the latter. The officers carried this out by forging the indorsement of the named payees in the checks Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. this became the usual practice for the parties. November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804. These were payable to 47 individual payees who were all members of PEMSLA PNB eventually found out about these fraudulent acts To put a stop to this scheme, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason “Account Closed.” The amounts were duly debited from the Rodriguez account Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and PNB. PNB credited the checks to the PEMSLA account even without indorsements = PNB violated its contractual obligation to them as depositors - so PNB should bear the losses RTC: favored Rodriguez makers, actually did not intend for the named payees to receive the proceeds of the checks = fictitious payees (under the Negotiable Instruments Law) = negotiable by mere delivery CA: Affirmed - checks were obviously meant by the spouses to be really paid to PEMSLA = payable to order ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby dismissing PNB from liability HELD: NO. CA Affirmed
GR: when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument (Sections 8 and 9 of the NIL) EX: However, there is a commercial bad faith exception to the fictitious-payee rule. 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. The exception will cause it to bear the loss. The distinction between bearer and order instruments lies in their manner of negotiation order instrument - requires an indorsement from the payee or holder before it may be validly negotiated bearer instrument - mere delivery US jurisprudence: “fictitious” if the maker of the check did not intend for the payee to in fact receive the proceeds of the check In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery underlying theory: one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks’ proceeds PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or otherwise. It was negligent in the selection and supervision of its employees
