Page 1 of 7 NEGO FINALS DIGEST WEEK 11 - BPI vs. Spouses Reynaldo and Victoria Royce, G.R. No. 176664, July 21, 2008
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Producers Bank of the Philippines vs. Excelsa Industries, Inc. G.R. No. 157071, May 8, 2009
G.R. No. 152071 May 8, 2009 PRODUCERS BANK OF THE PHILIPPINES vs. EXCELSA INDUSTRIES, INC. Facts: Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularly charcoal briquettes, as
an alternative fuel source. Sometime in January 1987, Excelsa applied for a packing credit line or a credit export advance with Producers Bank of the Philippines. The application was supported by Letter of Credit No. M3411610NS2970 dated 14 October 1986. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of credit through its correspondent bank, the Bank of the Philippine Islands, in the amount of US$23,000.00 for the account of Shin Sung Commercial Co., Ltd., also located in Seoul, Korea. T.L. World Development Corporation was the original beneficiary of the letter of credit. On 05 December 1986, for value received, T.L. World transferred to respondent all its rights and obligations under the said letter of credit. Petitioner approved respondent’s application for a packing credit line in the amount of P300,000.00, of
which about P96,000.00 in principal remained outstanding. Respondent executed the corresponding promissory notes evidencing the indebtedness. Prior to the application for the packing credit line, respondent had obtained a loan from petitioner in the form of a bill discounted and secured credit accommodation in the amount of P200,000.00, of which P110,000.00 was outstanding at the time of the approval of the packing credit line. The loan was secured by a real estate mortgage dated 05 December 1986 over respondent’s properties. Significantly, the real estate m ortgage contained the following clause: For and in consideration of those certain loans, overdraft ov erdraft and/or other cr edit accommodations on this date obtained from the MORTGAGEE, and to secure the payment of the same, the principal of all of which is hereby fixed at FIVE HUNDRED THOUSAND PESOS ONLY (P500,000.00) Pesos, Philippine Currency, as well as those that the MORTGAGEE may hereafter extend to the MORTGAGOR, including interest and expenses or any other obligation owing to the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE, its successors or assigns, the parcel(s) of land which is/are described in the list inserted on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the MORTGAGOR declares that he/it is the absolute owner, free from all liens and encumbrances. On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable that the Korean buyer refused to pay respondent’s export documents on account of typographical discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the export documents. Upon learning about the Korean importer’s non-payment, respondent sent
petitioner a letter dated 27 July 1987, informing the latter that respondent had brought the matter before the Korea Trade Court and that it was ready to liquidate its past due account with petitioner. Respondent sent another letter dated 08 September 1987, reiterating the same assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd. informed petitioner that it would be returning the export documents on account of the non-acceptance by the importer. Petitioner demanded from respondent the payment of the peso equivalent of the export documents, plus interest and other charges, and also of the other due and unpaid loans.Due to respondent’s failure to heed the demand, petitioner moved for the extrajudicial foreclosure on the real estate mortgage over respondent’s properties.
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At the public auction held on 05 January 1988, the Sheriff of Antipolo, Rizal issued a Certificate of Sale in favor of petitioner as the highest bidder. The certificate of sale was registered on 24 March 1988. On 12 June 1989, petitioner executed an affidavit of consolidation over the foreclosed properties after respondent failed to redeem the same. As a result, the Register of Deeds of Marikina issued new certificates of title in the name of petitioner. On 17 November 1989, respondent instituted an action for the annulment of the extrajudicial foreclosure with prayer for preliminary injunction and damages against petitioner and the Register of Deeds of Marikina. On 18 December 1997, the t he RTC rendered a decision decisi on upholding the validity validit y of the extrajudicial foreclosure and ordering the issuance of a writ of possession in favor of petitioner, as the RTC also found that by its admission, respondent had other loan obligations obtained from petitioner which were due and demandable; hence, petitioner correctly exercised its right to foreclose the real estate mortgage, which provided that the same secured the payment of not only the loans already obtained but also the export advances. The CA invalidated the extrajudicial foreclosure of the real estate mortgage on the ground that the posting and publication of the notice of extrajudicial foreclosure proceedings did not comply with the personal notice requirement under paragraph 12 of the real estate mortgage executed between petitioner and respondent. The Court of Appeals also overturned the RTC’s finding that respondent was guilty of estoppel by laches in questioning the extrajudicial foreclosure sale. Issue: Was there a valid foreclosure of the real estate mortgage? Held: Respondent executed a real estate mortgage containing a "blanket mortgage clause," also known as a
"dragnet clause." It has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. In Union Bank of the Philippines v. Court of Appeals, the nature of a dragnet clause was explained, thus: Is one which is specifically phrased to subsume all debts of past and future origins. Such clauses are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A "dragnet clause" opera tes as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. xxx Petitioner, therefore, was not precluded from seeking the foreclosure of the real estate mortgage based on the unpaid drafts drawn by respondent. In any case, respondent had admitted that aside from the unpaid drafts, respondent also had due and demandable loans secured from another account as evidenced by Promissory Notes (PN Nos.) BDS-001-87, BDS030/86 A, BDS-PC-002-/87 and BDS-005/87. However, the Court of Appeals invalidated the extrajudicial foreclosure of the mortgage on the ground that petitioner had failed to furnish respondent personal notice of the sale contrary to the stipulation in the real estate mortgage. Petitioner, on the other hand, claims that under paragraph 12 of the real estate mortgage, personal notice of the foreclosure sale is not a requirement to the validity of the foreclosure sale. A perusal of the records of the case shows that a notice of sherif f’s sale was sent by registered mail to respondent
and received in due course. Yet, respondent claims that it did not receive the notice but only learned about it from petitioner. In any event, paragraph 12 of the real estate mortgage requires petitioner merely to furnish respondent with the notice and does not oblige petitioner to ensure that respondent actually receives the notice. On this Page 3 of 7
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score, the Court holds that petitioner has perf ormed its obligation oblig ation under paragraph paragra ph 12 of the real estate mortgage. As regards the issue of whether respondent may still question the foreclosure sale, the RTC held that the sale was conducted according to the legal procedure, to wit: Plaintiff is estopped from questioning the foreclosure. The plaintiff is guilty of laches and cannot at this point in time question the foreclosure of the subject properties. Defendant bank made demands against the plaintiff for the payment of plaintiff’s outstanding loans and advances with the defendant as early as July 1997. Plaintiff Plaintif f acknowledged such outstanding loans and advances to the defendant bank and committed to liquidate the same. For failure of the plaintiff to pay its obligations on maturity, defendant bank foreclosed the mortgage on subject properties on January 5, 1988 the certificate of sale was annotated on March 24, 1988 and there being no redemption made by the plaintiff, title to said properties were consolidated in the name of defendant in July 1989. Undeniably, subject foreclosure was done in accordance with the prescribed rules as may be borne out by the exhibits submitted to this Court which are Exhibit "33," a notice of extrajudicial sale executed by the Sheriff of Antipolo, Exhibit "34" certificate posting of extrajudicial sale, Exhibit "35" return r eturn card evidencing e videncing receipt by plaintiff of the notice of extrajudicial sale and Exhibit "21" affidavit of publication. The Court adopts and approves the aforequoted findings by the RTC, the same being fully supported by the evidence on record.
WEEK 13 Sps. Moran vs. CA, G.R. No. 105836, March 7, 1994 -
Facts: Petitioner spouses Moran maintained three joint accounts with respondent Citytrust Banking Corporation.
As a special privilege to the Morans, M orans, a pre-authorized transfer t ransfer (PAT) agreement was entered entere d into by the parties. The PAT letter-agreement contained the following provisions: (1) xxx “the checks would be honored if the savings account has sufficient balance to cover the overdraft; xxx (3) that the bank has the right to refuse to effect transfer of funds at their sole and absolute option and discretion; (4) Citytrust is free and harmless for any and all omissions or oversight in executing this automatic transfer of funds.” On December 12, 1983, petitioners, through Librada Moran, drew a check payable to Petrophil Corporation. The next day, petitioners issued another check in favor of the same corporation. Later, the bank dishonored the checks due to “insufficiency of funds”. As a result, Petrophil refused to deliver the orders of petitioners on a credit. The non-delivery of gasoline forced petitioners to temporarily stop business operations. Petitioners wrote Citytrust claiming the dishonor of the checks caused them besmirched business and personal reputation, shame and anxiety. Hence, they were contemplating filing legal actions, unless the bank clears their name and paid for moral damages. The trial court dismissed the complaint. The CA affirmed. Issue: Whether or not petitioners had sufficient funds in their accounts when the bank dishonored the checks in
question. Held: No. Under the clearing house rules, a bank processes a check on the date it was presented for clearing.
The available balance of December 14, 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the two checks, although what was stamped on the dorsal side of the two checks was “DAIF/12-15-83”, since December 15, 1983 was the a ctual date when the checks were processed. When petitioners’ checks were dishonored, the available balance of the savings account, which was subject of the PAT
agreement, was not enough to cover either of the two checks.
(Negotiable Instruments –Checks)
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Page 5 of 7 Facts: M who regularly purchased bulk fuel from P maintained 3 joint accounts with Citytrust Bank, namely:
Current Account No. 1 (CA1), Savings Account No. 1 (SA1), and Savings Account No. 2 (SA2). M had a pre-authorized transfer (PAT) agreement with Citytrust wherein the former have written authority to the latter to automatically transfer funds from their SA1 to their CA1 at any time whenever the funds in their current account were insufficient to meet withdrawals from said current account. On December 12, 1983, M drew a check for P50, 576.00 payable to P. On December 13, 1983, M issued another check in the amount of P56, 090.00 in favor of the same. On December 14, 1983, P deposited the 2 aforementioned check to its account with the PNB. In turn, PNB presented them for clearing and the record shows that on December 14, 1983, the accounts has insufficient funds (CA1 had a zero balance, while SA1 [covered by PAT] had an available balance of P26, 104.30 and SA2 had an available balance of P43, 268.39). Hence the checks were dishonoured. On December 15, 1983 at 10:00 AM, M went to the bank as was his regular practice and deposited in their SA2 the amounts of P10, 874.58 and P6, 754.25, and he deposited likewise in the SA1 the amounts of P5, 900.00, P35, 100.00 and 30.00. The amount of P40,000.00 was then transferred by him from SA2 to their CA1. At the same time, the amount of P66,666.00 was transferred from SA1 to the same current account through PAT agreement. Sometime on December 15 or 16, 1983 M was informed that that P refused to deliver their orders on a credit basis because the two checks they had previously issued were dishonored upon presentment for payment due to “insufficiency of funds.” The non-delivery of orders forced petitioners to stop business operations, allegedly causing them to suffer loss of earnings. On December 16 or 17, 1983, P got the signature of M on an application for a manager’s check so that the
dishonoured checks could be redeemed and presented the checks in payment for the two dishonoured checks. On July 24, 1984, claimed P1,000,000.00 for moral damages. Issue: WON the bank is liable for damages for its refusal to pay a check on account of insufficient funds considering the fact that a deposit may be made later in the day. Held: No, Petitioners had no sufficient funds in their accounts when the bank bank dishonoured the checks in question. First, a check is a bill of exchange drawn on a bank payable on demand . Thus, a check is a written order addressed to a bank or persons carrying on the business of banking, by a party having money in their hands, requesting them to pay on presentment, to a person named therein or to bearer or order, a named sum of money. Second, the relationship between the bank and the depositor is that of a debtor and creditor . By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. Thirdly, where the bank possesses funds of the depositor, it is bound to honor his checks to the extent of the amount deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages . Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. Before a bank depositor may maintain a suit to recover a specific amount form his bank, he must first show that he had on deposit sufficient funds to meet demand. Considering the clearing process adopted, it is clear that the available balance on December 14, 1983 was used by the bank in determining whether or not there was sufficient cash dep osited to fund the two checks. When M’s checks were dishonored due to insufficiency of funds, the available balance of SA1 which was the subject of the PAT agreement was not enough to cover either of the two checks. On December 14, 1983, when PNB presented the checks for collection, the available balance for SA1 was only P26, 104.30 while CA1had no available balance. It was only on December 15, 1983 at around 10:00 AM that the necessary funds were deposited, which unfortunately was too late to prevent the dishonour of the checks.
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HSBC vs. Cecilia Diez Catalan, G.R. No. 159590, October 18, 2004
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FACTS: Frederick Arthur Thomson drew 5 checks payable to defendant Cecilia. Catalan presented these checks to Hongkong and Shanghai Banking Corporation Limited (HSBANK). The checks were dishonored for having insufficient funds. Thomson demanded that the checks be made good because he, in fact, had sufficient funds. Still, HSBANK did not accept the checks. Subsequently, Thomson died but Catalan was not paid yet. The account was transferred to HSBC International Trustee Limited (TRUSTEE). Catalan then requested TRUSTEE to pay her but still refused and even asked her to submit back to them the original checks for verification. Catalan and her lawyer went to Hong Kong on their own expense to personally submit the checks. They still were not honored, leading Catalan to file a suit against HSBC to collect the money. ISSUE: Whether the check can be encashed. RULING: The SC held that the HSBC was being sued becasue of their evident failure to heed the instructions of Thomson. HSBANK cited Sec. 189 of the NIL but the SC said that what is being sued is how they acted in relation to Catalan's claim for payment despite repeated requests and not of the check's value. The reason was likewise the same towards TRUSTEE as Catalan even went to Hong Kong to personally deliver the checks. -
Firestone Tire and Rubber Company vs. CA, G.R. No. 113236, March 5, 2001
FACTS: Fojas Arca and Firestone Tire entered into a franchising agreement wherein the former had the privilege to purchase on credit the latter’s products. In paying for these products, the former could pay through special withdrawal slips. In turn, Firestone would deposit these slips with Citibank. Citibank would then honor and pay the slips. Citibank automatically credits the account of Firestone then merely waited for the same to be honored and paid by Luzon Development Bank. As this was the circumstances, Firestone believed in the sufficient funding of the slips until there t here was a time that Citibank Cit ibank informed it that one of the slips was dishonored. It wrote then a demand letter to Fojas Arca for the payment and damages but the latter refused to pay, prompting Firestone to file an action against it.
HELD: The withdrawal slips, at the outset, are non-negotiable. Hence, the rule on immediate notice of dishonor is nonapplicable to the case at hand. Thus, the bank was under no obligation to give immediate notice that it wouldn't make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips are not negotiable instruments. It couldn't expect then the slips be treated like checks by other entities. Payment or notice of dishonor from respondent bank couldn't be expected immediately in contrast to the situation involving checks. Page 6 of 7
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In the case at bar, bar, Citibank relied on the fact that LDB honored honored and paid the withdrawal slips which made it automatically credit t he account of Firestone with the am ount of the subject withdrawal slips then merely m erely waited for LDB to honor and pay the same. It bears stressing though that Citibank couldn't have missed the non-negotiable character of the slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument instrum ent lies in its freedom to be a substitute for money. The withdrawal slips in question lacked this character. The withdrawal slips deposited were not checks as Firestone admits and Citibank generally was not bound to accept the withdrawal slips as a valid mode of deposit. Nonetheless, Citibank erroneously accepted the same as such and thus, must m ust bear the risks risk s attendant to the acceptance of the instruments. Firestone and Citibank could not now shift the risk to LDB for their committed mistake.
Firestone Tire vs. CA Firestone Tire & rubber Co. vs. Court of Appeals GR No. 113236 March 5, 2001 Quisumbing, J.: Facts: Forjas-Arca Enterprise Company is maintaining a special savings account with Luzon Development Bank, the latter authorized and allowed withdrawals of funds though the medium of special withdrawal slips. These are supplied by Fojas-Arca. Fojas-Arca purchased on credit with FirestoneTire & Rubber Company, in payment Fojas-Arca delivered a 6 special withdrawal slips. In turn, these were deposited by the Firsestone to its bank account in Citibank. With this, relying on such confidence and belief Firestone extended to Fojas-Arca other purchase on credit of its products but several withdrawal slips were dishonored and not paid. As a consequence, Citibank debited the plaintiff’s account representing the aggregate amount of t he two dishonored special withdrawal slips. Fojas-Arca averred that the pecuniary losses it suffered are a caused by and directly attributes to defendant’s gross negligence as a result Fojas -Arca filed a complaint. Issue: Whether or not the acceptance and payment of the special withdrawal slips without the presentation of the depositor’s passbook thereby giving the impression that it is a negotiable instrument like a check.
Held: No. Withdrawal slips in question were non negotiable instrument. Hence, the rules governing the giving immediate notice of dishonor of negotiable instrument do not apply. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character.
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