Negotin 682 Reviewer- Digests 2

PACHECO V. COURT OF APPEALS 319 SCRA 595 Sec. 12 – 13 / 186 FACTS: Spouses Pacheco were in the construction business. Due to the delay in payment of receivables from DPWH they were constrained to obtain loans from Mrs. Vicencio who owns a pawnshop and whose husband was a former Judge. The Spouses Pacheco loaned a total of P85,000 from Mrs. Vicencio. As a condition for the loan, Mrs. Vicencio required the Spouses Pacheco to issue an undated check every time they contracted a loan assuring the Pachecos that the check are merely evidence of their indebtedness and will not be presented to the bank for payment since the bank account of the Pachecos no longer had funds. Of the P85,000 loaned, the Pachecos were able to settle P70,000. When the remaining balance of P15,000 became due and demandable the Pachecos were not able to pay. Mrs. Vicencio, her husband and daughter asked the Pachecos to place a date of Aug. 15, 1992 on two of the six undated checks. Despite being informed by the Pachecos that their RCBC account was already closed in Aug. 17, 1989 Mrs. Vicencio insisted on the dating of the check and again assuring the Pachecos that the checks will not be presented to the bank and will only serve as evidence of their indebtedness. The Pachecos placed the date on the checks fearing that they would not be able to obtain loans in the future from Mrs. Vicencio if they did not comply with the request. On Aug. 29, 1992 the Pachecos received a demand letter informing them that the two dated checks were presented for payment and were dishonored due to the closing of the account. A complaint was then filed by Mrs. Vicencio’s husband against the Pachecos and two informations for estafa were filed against them. The informations alleged that the dishonored checks were issued in payment of a diamond ring. ISSUE: W/N the Spouses Pacheco are guilty of estafa RULING: Estafa may be committed in several ways, one of which is by postdating a check or issuing a check in payment of an obligation when the offender has no funds in the bank or his funds deposited are not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover the check within 3 days from receipt of notice

from the bank and/or the payee or holder that the check is dishonored shall be prima facie evidence of deceit constituting a fraudulent act. Elements of Estafa 1. that the offender postdated or issued a check in payment of an obligation contracted at the time the check was issued 2. that such postdating or issuing a check was done when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check 3. deceit or damage to the payee In this case the first and third elements are not present. A check has the character of negotiability and at the same time constitutes an evidence of indebtedness. By mutual agreement of parties the negotiable character of the check may be waived which is exactly what happened in this case. Hence there cannot be deceit on the part of the Pachecos because there was an agreement with Mrs. Vicencio at the time of the issuance of the checks that the same will not be encashed or presented to the banks. The checks therefore became mere evidence of indebtedness. It has been ruled that a drawer who issues a check as security or evidence of investment is not liable for estafa. Also, Mrs. Vicencio was informed that the Spouses Pacheco no longer had funds with RCBC when the checks were issued and that when she asked for the postdating of the checks in 1992 she was also made aware that the account was closed as early as 1989. Knowledge of the complainant that the drawer does not have sufficient funds in the bank at the time it was issued to him does not give rise to a case for estafa through bouncing checks. Also, the checks were not presented within reasonable time from issue. The current banking practice is that a check becomes stale after more than 6 months. In this case, the checks were issued more than 3 years prior to their presentment. There were a total of 6 check issued, but only 2 presented for payment, this fact shows that the 2 checks were chosen to cover the remaining balance of the loan and that the checks were not to be modes of payment but mere promissory notes. The argument that the checks were issued as payment for jewelry purchased in 1992 is also untenable since as mentioned earlier the RCBC account was closed as early as 1989. The Pachecos, however, remain liable for the amount of P15,000.

P 1 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

HSBC v. PEOPLES BANK & TRUST CO. 35 SCRA 140 Sec. 124 and 125

REPUBLIC BANK v. CA 196 SCRA 100 Sec. 124 and 125

FACTS:  PLDT drew a check worth P14,608.05 on HSBC in favor of the same bank  The check was sent by mail to the payee  Check fell in the hands of Florentino Changco who was able to erase the name of HSBC and typed his own name as payee  Altered check was deposited with Peoples Bank  Check was presented by Peoples Bank for clearing wherein Peoples Bank made the indorsement: “For clearance, clearing office. All prior endorsements and/or lack of endorsements guaranteed. Peoples Bank and Trust Company.”  Check was duly cleared by HSBC. Peoples Bank credited Changco’s account  Changco began to withdraw his account and eventually closed it  Cancelled check went the regular route of the regular routine and it was returned to PLDT when the alteration was discovered  Peoples Bank was notified of the alteration on the same day; HSBC requested Peoples Bank to refund the amount. Peoples Bank refused

FACTS:  San Miguel Corporation drew a dividend check on its account in First National City Bank (FNCB) in favor of J. Roberto Delgado, one of its stockholders. After delivery to Delgado, the amount was altered by increasing it from P240 to P9,240.  The check was indorsed and deposited by Delgado in his account with Republic Bank.  Republic accepted the check without ascertaining its genuineness. Republic endorsed the check to FNCB by stamping on the back of the check “all prior and/or lack of indorsement guaranteed” and presented it to FNCB for payment through the Central Bank Clearing House.  FNCB paid P9,240 to Republic through the CB Clearing House.  SMC notified FNCB of alteration; FNCB recredited SMC.  FNCB informed Republic Bank of alteration and forgery. FNCB demanded refund but Republic refused.

ISSUE:  Whether or not Peoples Bank should refund HSBC HELD:  NO, Peoples Bank is not liable to refund HSBC  HSBC’s failure to call the attention of Peoples Bank as to the alteration until after the lapse of 27 days would negate whatever right it might have had against Peoples Bank in the light of the 24hour clearing house rule.  It is a settled rule that a person who presents for payment checks such as are here involved guarantees the genuineness of the check, and the drawee bank need concern itself with nothing but the genuineness of the signature, and the state of the account with it of the drawee.  Whatever remedy the HSBC has would lie not against the Peoples Bank but against the party responsible for changing the name of the payee.  The attempted distinction sought to be made by HSBC to the effect that it refers to forged but not to altered checks is not warranted.

Petitioner’s Contentions (Republic Bank):  Republic refused to refund claiming that there was delay on the part of FNCB in giving them notice of the alteration.  Republic also said that it was not guilty of negligence and that it was SMC’s fault in drawing the check in such a way as to permit the insertion of numerals increasing the amount. Private Respondent’s Contentions (FNCB):  FNCB demanded that Republic refund the P9,240 on the basis of the latter’s endorsement and guaranty. ISSUE:  Whether or not Republic Bank is liable to refund FNCB HELD:  NO, Republic is not liable. FNCB failed to detect the fraudulent character of the SMC check and so it failed to warn Republic within the 24-hour clearing house rule.  The unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation.  When the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability.  Unless an alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for payment is against the P 2 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

party responsible for the forgery or alteration. Otherwise, it bears the loss.  CA erred in laying upon Republic, instead of on FNCB the drawee bank, the burden of loss for the payment of the altered SMC check. BANCO ATLANTICO V. AUDITOR GENERAL 81 SCRA 335 Sec. 124 and 125

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NATURE: An appeal from the decision of the Auditor General who disallowed the claim of Banco Atlantico against the Philippine Embassy in Spain FACTS: The case involves three checks all issued by the Philippine Embassy with Luis Gonzales (ambassador) and Virginia Boncan (finance officer) as signatories and all paid by Banco Atlantico to Boncan. 1.

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3.

A $ 10K check issued by the Philippine Embassy, with Azucena Pace as payee and drawn against the Philippine National Bank in New York, was negotiated by Boncan with Banco Atlantico. Said check was said to be indorsed by the payee and Boncan. Banco Atlantico paid the check in full without clearing with the drawee bank, PNB New York. A $ 35K check issued by the Philippine Embasy, with Virginia Boncan as payee, was negotiated by Boncan with Banco Atlantico. Banco Atlantico paid the check in full without clearing with the drawee bank, PNB New York. A $ 90K check issued by the Philippine Embassy, with Virginia Boncan as payee, was negotiated by Boncan with Banco Atlantico. Banco Atlantico paid the check in full without clearing with the drawee bank, PNB New York.

Banco Atlantico presented the check to PNB for payment. PNB dishonored the check on the ground that the Philippine Embassy, the drawer, had ordered the payments stopped. It then sent notices of protests to the Philippine Embassy and Boncan who both refused to pay the value of the checks. Banco Atlantico filed the corresponding money claim with the Auditor General. The Auditor General denied the claim and concurred with the views of Luis Gonzales, the ambassador that: 1. 2.

The Embassy did not have an account with Banco Atlantico. Only the embassy’s employee Virginia Boncan did. That the 3 checks were not honored and paid out to Boncan in the ordinary course of its banking transactions. Boncan had special personal relations with the bank’s employees and enjoyed a preferential treatment.

The $10K and $35K checks were materially altered. They were originally only $109 and $75 respectively. While the $90K check was a demand note and Boncan requested that it not be presented to the drawee bank until a later date. The fact that Boncan did not want the check to be presented for collection was proof of the glaring infirmity of the instrument. Yet the bank took the check and paid the amount to Boncan. Bank is not a holder in due course. The conditions set in Sec. 52 for it to be a holder in due course are not present.

HELD: The petitioner asked the court to rule on two issues: 1. If there was forgery according to Sec. 23 which bars it from collecting from the Philippine Embassy 2. Do the payment of the checks without clearing them with the drawee bank constitute actual notice of defective title in the indorser or an assumption of risk by the petitioner as to defeat its claim? The court ruled that Banco Atlantico paid the checks contrary to normal or ordinary banking practice. The large amounts and the fact that the drawee bank was a foreign bank should have been a red flag that required prior clearance. It is also apparent that Boncan altered the amounts of the check and that it was because of her special relations with the bank that the latter encashed the checks without clearing them first. Therefore, the Philippine Embassy as drawer of the checks cannot be held liable for the amounts. The material alterations made by Boncan made the checks wholly inoperative. No right of payment thereof against any party thereto could have been acquired. AMERICAN BANK V. MACONDRAY 4 Phil. 695 Sec. 124 and 125 FACTS: V.S. Wolff – Drawer Macondray & Co. - Indorser - (magulo un facts sorry basta sure ako sa nakasulat sa taas) $300.00 At sight pay to my order 300$, value received, charge to my account V.S. Wolff To F.H. Taylor “V.S. Wolff. The signature is ok. Payment guaranteed. Protest, demand, and notice of nonpayment waived. Macondray & Company. P 3 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

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This bill of exchange was sent to American Bank (plaintiff- BANK) but the company (F.H. Taylor which was supposed to pay the amount could not be found BANK claims the right to recover from the Macondray & Co. (defendant-MACONDRAY), the amount of the bill of exchange, together with the expenses incurred by the protest BANK claims that MACONDRAY guaranteed the bill of exchange “V.S. Wolff. The signature is ok. Payment guaranteed. Protest, demand, and notice of nonpayment waived. Macondray & Company.” MACONDRAY claims, on the other hand, through its representative that he did not guarantee the payment of the bill of exchange; that he only certified that the signature, V.S. Wolff was genuine; that the statement which appears in the indorsement “Payment guaranteed. Protest, demand, and notice of nonpayment waived.” was not written on the indorsement at the time he signed the firm name of Macondray &Co.

ISSUE: W/N MACONDRAY is liable upon said bill of exchange as an indorser If indorsement was made by Macondray in the form alleged by the BANK, then MACONDRAY is clearly liable RULING: MACONDRAY is not liable “Payment guaranteed. Protest, demand, and notice of nonpayment waived.” was added by some person after the signature of the defendant was affixed The liability of an indorser of a bill of exchange after due protest and notice of nonpayment and dishonor, is the same as that of original obligors on such a contract, any material alteration in the terms of the contract by the holder of the same, without the consent of the obligor, will RELIEVE obligor from all liability There was a material alteration in this case and the original indorsement created no liability on the part of MACONDRAY The orig indorsement was only for the purpose of assuring the BANK that the signature of VS Wolff was genuine (that it was in fact VS Wolff who signed the bill of exchange); it was an indorsement for the identification of the person only and not for the purpose of incurring liability PNB v. CA 88 Phil. 178 Sec. 124 and 125

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DECS issued a check with serial no. 7-3666-223-3, dated Aug. 1981 in the amount of P97,650 It was payable to F. Abante marketing and drawn against PNB Drawee – DECS Drawee Bank – PNB Payee – F. Abante

- On Aug. 11, 1981, Abante, deposited the check in its savings account with Capitol bank - Capitol, on the other hand, deposited the same in its account with PBCOM - PBCOM, in turn, sent it to PNB for clearing - PNB cleared the check as good; PBCOM then credited Capitol’s account with the amount of the check - On Oct 19, 1981, PNB returned the check to PBCOM and debited its account for the reason that there was a ‘material alteration’ in the check number - PBCOM then debited Capitol’s account; however, Capitol could not debit Abante’s account since the latter had already withdrawn the amount of the check as early as Oct 15 (4 days before) - PNB’S main contention is that there was a material alteration in the check (serial no.) and that the TCAA check (a medium of exchange of governments) through its serial number is determined to have been issued by a particular office of the gov. ISSUE: 1) w/n the change of the serial no. of the check was a material alteration 2) w/n the certification issued by Batonghinog (cashier of DECS) saying the check was not issued by DECS should be given due course by the court 3) w/n the drawee bank may still recover the value of the check from the collecting bank if it failed to return the check within the 24-hour clearing period RULING: 1)NO. An alteration is said to be material if it alters the effect of the instrument or if it modifies the obligation of the parties. serial number is not an essential requisite for negotiability it did not change the relations of the parties name of drawer and drawee was not altered the contention that the serial no. determines the origin of the check is erroneous since the issuer of the check is clearly printed on its face “MINISTRY OF EDUCATION AND CULTURE” and below the name of the payee are rubber-stamped words”Ministry of Educ and Culture” ownership of check is still clearly established

FACTS: P 4 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

2) NO. Even if there was a claim by PNB that Batonghinog as cashier prepared a letter saying the check was altered and was not issued by DECS, no person appeared before the trial court to be cross-examined and to attest to the fact of preparing that certification

MONTINOLA V. PNB 88 SCRA 179 Sec. 124 / 32 / 52-59 / 186 NATURE:

3) Since there was no material alteration in the check, PNB has no right to dishonor it and return it to PBCOM (no right to recover since the check was in fact a negotiable instrument without any material alteration)

Collection suit instituted by Montinola against PNB and the Provincial Treasurer of Misamis Oriental FACTS:       

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Ubaldo Laya is the Provincial Treasurer of Misamis Oriental and exofficio agent of PNB Manzano Ramos is an assistant agent who through the recommendation of Laya was inducted into the USAFFE as disbursing officer of an army division As disbursing officer Ramos went to Lanao to procure a cash advance of P880K for USAFFE The Treasurer of Lanao gave Ramos P300K in emergency notes (which were being used prior to the occupation of Japan) and a check for P500K Ramos went to Misamis Oriental to encash the check. Laya did not have enough cash to cover the checks so he gave Ramos P400K in emergency notes and a check for P100K drawn on PNB Ramos was not able to cash the check because he was imprisoned by the Japanese. He was in prison until 1943, after which, he was released and he resumed his status as a civilian. Ramos allegedly indorsed the P100K check to Montinola in 1944. Montinola now seeks to enforce payment of the said check against PNB and the Provincial Treasurer of Misamis Oriental who issued the check supposedly as agent of PNB. According to Montinola, Ramos indorsed the check to him because Ramos needed money to buy food and medicine. Montinola allegedly went to the president of PNB in Manila to ensure that the check was genuine and negotiable. Said president certified the genuineness and negotiability of the check. After the examination, Ramos and Montinola finally agreed to the sale of the check. The indorsement of Ramos to Montinola now appear at the back of the check, the words ‘pay to the order of’ rubber stamped in violet ink and placed one inch from the top of the check. The words are followed by ‘Enrique Montinola’ typewritten. The edges of the check appear to have been burned. The signature ‘M.V. Ramos’ in green ink can also be found. Ramos on the other hand claims that he was only selling P30K of the check and for this reason he wrote the following at the back of the check:

P 5 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

‘Pay to the order of Enrique Montinola P30,000 only. The balance to be deposited in the PNB to the credit of M.V. Ramos.’ These words, now, can no longer be found at the back of the check.

a government official and nothing else. Hence the liability of PNB as drawee cannot be converted into that of a drawer.

ISSUE: W/N Montinola can claim payment from PNB Sub-issue (on material alteration): W/N PNB is also the drawer of the check HELD: From SC inquiries it was found that: The check was issued by Laya in his capacity as Provincial Treasurer of Misamis with PNB as drawee. Ramos only sold 30,000 of the check to Montinola. The wirting made by Ramos at the back of the check was an instruction to PNB to pay only P30,000 and to deposit the remaining in Ramos’ account. At the time of the transfer of the check from Ramos to Montinola the check which was payable on demand was long overdue (by 2 and ½ years) No. Aside from the reason of the material alterations made by Montinola on the check and the lack of authority of Ramos to negotiate or assign the check in his personal capacity the following arguments were made by the SC The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Sec. 32 provides: the indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable (as in this case) does not operate as negotiation of the instrument Montinola may therefore not be considered as an indorsee. At most he may be regarded as mere assignee of the P30K sold to him by M.V. Ramos. As assignee, he is subject to all defenses available to the drawer and against Ramos. Montinola is also not a holder in due course because he became holder of the check long after it was overdue. In fact, Montinola is not even a holder because he is neither a payee or an indorsee but a mere assignee. He also did not take the check in good faith, since he still has not paid the full amount of consideration for the P30K value of the check. Hence, Montinola cannot claim from PNB Sub-issue: PNB is not the drawer of the check, the treasurer is not an agent of PNB. The words “agent of” were placed by Montinola after the check was issued. The check was issued by the Treasurer of Misamis in his capacity as P 6 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

INTERNATIONAL CORP BANK INC v CA 501 SCRA 20 Sec. 124 and 125

the serial number is not an alteration of any of the requisites under Sec 1. The serial number is not the sole indication of the check’s origin. 2) W/N the 24-Hour Clearing period should be applied----NO

FACTS: The Ministry of Education and Culture issued checks drawn against Philippine National Bank (hereinafter, PNB) which International Corporate Bank, Inc (hereinafter, International) accepted for deposit. After 24 hours from submission of the checks to PNB for clearing, International paid the value of the checks and allowed the withdrawals of the deposits. On Oct 14 1981, PNB returned all the checks to International without clearing them on the ground that they were materially altered. It appears that the serial numbers on the checks were altered. Thus, International instituted an action for collection against PNB to recover the value of the checks. Trial Court: International is liable and cannot recover from PNB. PNB cannot be faulted for the delay in clearing the checks considering the ingenuity in which the alterations were affected. On the other hand, International, as collecting bank, should have inquired from PNB regarding the status of the checks, but this it failed to do. CA: CA reversed, applying CB Circular 580 which mandated the 24-Hour Clearing Time. It held that checks which have been materially altered should be returned within the 24-hour clearing time to relieve the drawee bank of liability. It also said that even if the return of the checks in question is done within 24 hours after discovery of the alteration and not within the 24-hour clearing time, the drawee bank will still not be relieved of liability. Moreover, if it can be shown that the drawee bank had been patently negligent in the performance of its verification function, then such bank should not be relieved of liability. Thus it declared PNB liable for failure to recognize the within a reasonable period the altered checks and in not returning the checks within the period. PNB filed for reconsideration and CA reversed itself holding International liable this time, affirming the Trial Court’s decision that International’s loss was caused by the lack of caution of its personnel. Thus International appealed to the SC. ISSUES AND HELD: 1) W/N the checks were materially altered----NO The alterations in the checks were made on their serial numbers. In PNB v CA, the court held that the alteration on the serial number of a check in NOT a material alteration. A material alteration is an alteration changing the effect of the instrument; an unauthorized change that purports to modify in any respect the obligation of a party or an authorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. A material alteration is one which changes the items which are required to be stated under Sec 1 of NIL. An alteration of

The Court did not deem it necessary to rule on the application of the CB Circular 580 on the 24-Hour Clearing Time because there were NO material alterations made on the checks. PNB therefore, had no right to dishonor the checks and return them to International. Thus, PNB is liable to International for the value of the checks. METROPOLITAN BANK and TRUST COMPANY v CABILZO 510 SCRA 259 Sec. 124 and 125 FACTS: Renato Cabilzo was one of Metrobank’s clients who maintained a current account with them. On Nov 12, 1994 Cabilzo issued a Metrobank Check payable to “CASH” and postdated on Nov 24, 1994 in the amount of P1,000. The check was paid by Cabilzo to a certain Mr. Marquez, as his sales commission. The check was presented to Westmont Bank for payment. Westmont in turn indorsed the check to Metrobank for appropriate clearing. Metrobank cleared the check in accordance with the Phil Clearing House Corporation (PCHC) Rules. On Nov 16, 1994 Cabilzo’s representative was asked by a Metrobank personnel if Cabilzo had issued a check amounting to P91,000. Cabilzo’s rep answered in the negative. Cabilzo then called Metrobank and said he did not issue such check and requested that said check be returned to him for verification. The said check with P91,000 was apparently the check issued to Marquez with the original amount of P1,000. Cabilzo demanded Metrobank to re-credit the amount of P91,000 to his account. After several demands, Metrobank still failed to re-credtit such amount. Thus the present case. Metrobank’s Defense: Upon receipt of said check through the PCHC, it examined the genuineness and authenticity of drawer’s signature and the technical entries and no alterations were noted. After verifying as well as the indorsement that stated, “all prior indorsements and lack of indorsement guaranteed,” Metrobank cleared the check. It also claimed that as collecting bank and the last indorser, Westmont should be held liable because it assumed the liability of a general indorser. Also, it claimed that Cabilzo was partly liable for leaving spaces on the check which made the fraudulent insertion of the amount and figures possible. Cabilzo’s negligence was the proximate cause of the loss. RTC: Metrobank is liable to Cabilzo because of its negligence in not detecting the alteration. CA affirmed RTC decision. ISSUES AND HELD: P 7 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

W/N Metrobank as drawee bank should be held liable----YES An alteration is said to be material if it changes the effect of the instrument. 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. A material alteration is one which changes the items which are required to be stated under Sec 1 of NIL. The check was altered so that the amount was increased from P1,000 to P91,000 and the date was changed from Nov 24, 1994 to Nov 14, 1994. These alterations are therefore material. Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express or implied acts. There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which could have otherwise prevented the loss. Cabilzo was never remiss in the preparation and issuance of the check. Cabilzo even placed asterisks before and after the amount in words and figures in order to forewarn the subsequent holders that nothing follows before and after the amount indicated. Therefore, he cannot be held liable The doctrine of equitable estoppel cannot also apply against Cabilzo. This doctrine states that when one of the two innocent persons, each guiltless of an intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of injury. Negligence is never presumed. Metrobank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The CA observed that the material alterations on the check were actually visible to the naked eye which Metrobank failed to detect: a) The number “1” in the date is imposed with a white figure in the shape of a number “2” b) The 4 asterisks before the amount in words were noticeable erased. c) The numeral “9” was superimposed over a whitish mark. d) The word “NINETY” was typed differently and with lighter ink than the other words that followed. The check was examined by the cash custodian whose functions do not include the examination of checks. The employee allowed by Metrobank to examine the check was not competent to handle such duty. This proves Metrobank’s negligence. Metobank cannot also rely on Westmont’s indorsement of the check. Metrobank owes the highest degree of fidelity to its clients and should not therefore lightly rely on the judgment of other banks on occasions where its client’s money is involved. Metrobank therefore, is held liable to Cabilzo. Metrobank may still run after the author of the alteration. And as it already did, Metrobank may still pursue its separate case against Westmont (collecting bank).

BANK OF THE PHILIPPINE ISLANDS VS. LAGUNA OIL CO. 48 Phil. 5 Sec. 24 FACTS:  Laguna Coconut Oil Company (LCOC), thru its president Baldomero Cosme, executed the following promissory note in favor of the Philippine Vegetable Oil Company (PVOC) for P50k. “One month after date we promise to pay the Philippine Vegetable Co. Inc, or order…the sum of 50K; Value received. In case of non-payment at maturity, we are to pay interest (9%/annum), and P5k in full…”  The Fidelity Surety Co. of the Philippine Islands duly represented by the vice President J. Elmer Delaney and its secretary Treasurer A.D. Tanner stated the ff at the bottom of the note “For Value received, we hereby obligate ourselves to hold the Laguna Coconut oil Co. harmless against loss for having discounted the foregoing note at the value stated therein.” Therefore binding itself to any holder of the note.  On the following day, the PVOC indorsed the note in blank and delivered it to the plaintiff. Plaintiff then paid it, signing in the back of the Note: “PHILIPPINE VEGETABLE OIL CO. INC, BY CHAS. D. AYTON, Treasurer.”  The Laguna Coconut Oil Company became Insolvent (had no property to make the payment) and failed to pay the note.  Plaintiff: Notwithstanding demands made upon LCOC, and as well as Fidelity & Surety Co. of the Philippine Islands, for payment of the note with interest, none of them has paid any amount (whether principal or interest)  Fidelity & Surety Co: admitted its corporate existence and the due execution of the note but denied all other allegations in the complaint. LCOC: made no defense  In the action brought by the Bank of the Philippine Islands upon the guarantee, the complaint contained to allegation that this guarantee did not express the true intent of the parties, BUT at the trial of the case, the plaintiff contended that the words “Laguna Coconut Oil Company” in said guarantee were erroneous and should be read as “Bank of the Philippine Islands”. HELD:  Reformation: The interpretation contended by the plaintiff amounted to reformation of the instrument and in the absence of the corresponding averment in the complaint, could not be considered by the court. Allegations must show that the instrument sought to be reformed fails to express the real agreement or transaction between the parties by reason of their mutual mistake, fraud, inequitable condition in one side and mistake on the other.  It is true as asserted by the council for the appealees, that there are cases where the courts have proceeded as mere matter of construction of a contact to substitute the real name of a party for that of a party P 8 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

erroneously written, but in all these cases it will be found that the contracts themselves left no possible doubt as to who the real parties were and as to the real intent of the document. (best example : Richard vs. Woodward where Woodward executed a bond $10k to the sheriff (Richard) …tho the name “Minot Wheeler” occurred nowhere else in the instrument, it was held that the bond should be construed as if the name Harvey Woodward had been originally written therein instead of “Minot Wheeler”.)  The writing upon which the action is brought does not in terms show ant obligation in favor of the plaintiff and the action can only be maintained upon the theory that the writing does not express the true intent of the parties. We may surmise that the guarantee in question was intended for the benefit of the party who subsequently discounted the note, but we cannot be certain. The note may have been merely an accommodation note and the guarantee may have been intended for the protection of the maker in the event of the discounting of the note or its transfer to 3 rd parties.  Apealee contends that this hypothesis is negatived by the fact that the words “value received” appear in the note as quoted in the stipulation of facts. But that proves nothing. Unless otherwise stated in the instrument, a negotiable promissory note IMPLES prima facie valuable consideration moving to the maker, whether the words “value received” appeared in it or not. Nothing in the note that distinguishes it from an accommodation note. Remember: Contracts of guarantee and Surety ship are strictly construed in favor of the surety or guarantor. TRAVEL ON INC. VS. CA 210 SCRA 351 Sec. 24 FACTS:  Travel-On is a travel agency selling airline tickets on commission basis for and on behalf of diff airline companies. PR, Arturo Miranda had a revolving credit line with petitioner, Travel-On (a travel agency). He procured the tickets on behalf of airline passengers and derived commissions there from.  Travel-On fileled a suit to collect amount of 6 checks which was issued by Miranda worth P115k. Pet. Said that it sold and delivered various airline tickets to respondent totalling P200k+. To settle the amounts, he pain in cash and in kind and later on issued 6 post-dated checks, which were dishonored upon presentment to the drawee banks.  Miranda said that he paid, and even overpaid his obligations and infact he is entitled to a refund. He argued that these checks were merely given for the purpose of accommodation only. He says these were given in order that the Gen. Manager Elita Montilla, manager of Travel-On, could show the company’s Board of Directors that their accounts receivable are still good and that Montilla tried to encash the same but were dishonoured and returned to him.

 Travel-Ons witness Montinolla explained the accommodation exrended to Travel on by Miranda related to situations where one or more of its passengers needed money in Hongkong, and upon request of his friends in travel On, Miranda would contact his friends in HK to advance money to the passengers. The Passenger paid Travel-on upon his return to Manila and payment would be credited by Travel-on to respondent’s running account.  Both the RTC and CA absolved him from payment. They considered the fact that the financial statements adduced in evidence did not show that Miranda was indebted to the company. ISSUE:  Whether or not Miranda is liable for the check that he issued. HELD:  The decision of the CA was reversed by the SC. They say that the reliance of the RTC and CA on the financial statements of the company was wrong. The statements reviewed by the lower courts were not updated to show the recent indebtedness of Miranda. SC says that the most telling piece of evidence are the checks themselves.  Sec. 24 says that there is a prima facie presumption that a check was issued for valuable consideration and that the signatories thereto are liable for such. This provision puts the burden on the drawer to prove that the check was not issued for valuable consideration. The Court considers that Miranda was unable to rebut this legal presumption.  Only clear and convincing evidence, not mere self-serving testimony of drawer, can rebut presumption. Travel on was entitled to the benefit of the statutory presumption that it was a holder in due course, that the checks were supported by valuable consideration. In this case, Miranda failed to prove that the check was not for valuable consideration. His defense that the checks were for the purpose of accommodation does not hold water because the check clearly treats Travel-On as a payee and not an accommodated party. The SC also took note of the fact that Miranda only issued the checks after a letter was sent to him, reminding him of his liabilities to the company. In fact, his contentions that these were given in order that the Gen. Manager Elita Montilla, manager of Travel-On, could show the company’s Board of Directors that their accounts receivable are still good was a claim that the checks were merely simulated and he did not intend to be bound by it. In addition the accommodation extended to Travel ons passengers are not the accommodation transactions recognized by NIL but rather a circumvention of then existing foreign exchange regulations. PINEDA V. DELA RAMA 121 SCRA 671 P 9 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

Sec. 24 FACTS: Pineda was involved in a case against the National Rice and Corn Administration (NARIC) for allegedly misappropriating 11,000 cavans of palay deposited in a ricemill located at Concepcion, Tarlac. He then hired Atty. Dela Rama to “delay” the filing of the action against him while he worked out an amicable settlement with NARIC. Pineda hired Dela Rama because the latter is a close friend of the NARIC administrator Jose Rodriguez having worked with him at the Philippine consulate at Hongkong. Later on, Pineda signed a promissory note for P9,300.00 in favor of Dela Rama. This note is now subject of a collection claim by Dela Rama together with P5,000.00 as Attorney’s fees.

Grant of loan by a lawyer to a moneyed client without security and interest for the loan and whom he had known only for 3 months, not believed;case at bar; Pineda had just purchased a hacienda in Mindoro for P210,000, owned sugar and rice lands in Tarlac of around 800 hectares , and had P60,000 in deposits. It would be more logical to believe that he would not borrow 9.3k 5 days apart. The Promissory note was VOID AB INITIO because the consideration to influence public officials is contrary to law and public policy. CLARK V. SELINER 42 Phil. 384 Sec. 29 / 66 Keyword: Accommodation maker

Pineda’s claim: He only signed the promissory note because Dela Rama told him that the amount was already advanced to “grease” the palms of the Chairman and General Manager of NARIC, but Pineda later found out that no such amount was forwarded to the NARIC authorities.

FACTS: Sellner together with Clarke (with an e!) and Maye signed a note in favor of Clark (without an e!), the note dated July 1, 1914 states:

Dela Rama’s claim: He loaned the amount in two installments in two occasions 5 days apart. First loan was 5k, 2nd loan was for 4.3k.

Six months after date, for value received, we jointly and severally promise to pay to the order of R.N Clark at his office in the city of Manila. The sum of twelve thousand pesos, Philippine currency, with interest thereon in like currency from date until paid at the rate of ten percent per annum, payable quarterly. If suit is necessary to collect this note, we hereby agree to pay as attorney’s fees ten per centum of the amount found due.

CA ruled for Dela Rama, relying on section24 of NIL: Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value. ISSUE:

(sgd) W.H. Clarke John Maye. By W.H.

W/N Dela Rama has a right to collect. RULING: No. presumption that a negotiable instrument is issued for a valuable consideration is only prima facie, thus it can be rebutted by proof to the contrary. Dela Rama’s claim that the 9.3k was a loan by the second sentence of the promissory note that states: “this represents the cash advances made by him in connection with my case for which he is my attorney in law” Note: Pineda’s son also purchased an airconditioning unit valued at 1,250.00 and gave it to Dela Rama because according to Dela Rama, Rodriguez requested for such to be installed in his NARIC office, this together with 6 cavans of first class rice also intended for Rodriquez were never delivered to him and were kept by Dela Rama.

Clarke,

his

attorney. Geo. C. Sellner. Defendant claims the following: 1. He did not receive any part of the debt 2.the instrument was not presented to him for payment and 3. That he is only an accommodation party and should only be held liable if the note is negotiated. ISSUE: W/N Clark can collect payment from Sellner. RULING: Yes. P 10 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

1.As one of the signers of the note his liability is not dependent on whether or not he has received any part of the amount of the debt. In fact, he is expressly liable as one of the joint and several debtors on the noteand is liable under sec 60 of NIL 2.Presentment for payment is not necessary to charge the person primarily liable such as the defendant ( Sec 70 of NIL) 3.By putting his signature on the note, he lent his name, not to the creditor, but to those who signed with him placing himself with respect to the creditor in the same position and with the same liability as the said signers a. “with out receiving value by virtue of the therefore” as used in sec29 of NIL means “without receiving value by virtue of the instrument” and not, as it apparently is supposed to mean, “without receiving payment for lending his name.” b. He can also be regarded as a joint surety and as to the plaintiff he is the “holder for value” under sec29.



When FNCB tried to collect from Gueson, Caneda affixed his signature on an undertaking acknowledging his debt.

In RTC, Gueson presented testimonies that he merely accommodated Caneda upon prodding of his townmates Spouses Rivera; that the jeep and registration papers were always in the possession of Caneda. Caneda failed to attend hearing. Caneda filed for postponement and was denied. RTC held that there was novation absolving Gueson when Caneda signed the acknowledgment of debt (a substitution of debtors). Caneda’s appealed to the CA and it was dismissed. Caneda elevated it to the SC saying he was not served a copy of the CA November 28, 1986 decision. Decision of CA was mailed to Caneda’s neighbor thus he never received it. The SC recognized this but did not remand case to RTC to be retried. Instead the found sufficient facts in the RTC and CA decisions to give final judgment. ISSUES:

Doctrine: the mere fact that a joint and several note has been signed by one or various of the makers thereof for the accommodation by one or more of his comakers, does not render him or them an accommodation maker or makers with respect to the CREDITOR who, upon the receipt of the note, pays the full value thereof.

(1) Whether Gueson can be held liable considering he is only an accommodating party. (2) Whether novation occurred, extinguishing the debt.

Note: mere delay in the part of the creditor, after the maturity of the note, in enforcing said note, does not affect the liability of the maker and the latter is not released even if the guaranty becomes worthless by the lapse of time.

Caneda is liable. (Dapat Gueson din as a surety)

CANEDA, JR. V. COURT OF APPEALS 181 SCRA 762 Sec. 29 FACTS: On November 8, 1977, Buenaventura Gueson executed a promissory note (PN) of Php 18,960 (payable every month Php790 for 24 months with 14% interest per annum) in favor of Gregorio Caneda, Jr. To secure the obligation, Gueson executed a chattel mortgage (CM) and with a Toyota Jiffy as collateral. The PN and CM were assigned by Caneda to Investors Finance Corporation (FNCB). Gueson defaulted and refused to pay despite repeated demands. FNCB filed for replevin and/or sum of money against Gueson and John Doe (who will turn out to be Caneda). Undisputed Facts:  Gueson knew and consented to the PN and CM being assigned to FNCB.

HELD:

(1) Sec 29- An accommodation party is a person who signed the instrument as maker, drawer, indorser, without receiving value therefore, and for the purpose of lending his name to some other person is liable on the instrument to a holder for value, notwithstanding the fact that such holder at the time of taking the instrument knew him to be only an accommodation party. As between Gueson and Caneda, their private agreement is binding between them alone and not to FNCB. FNCB can go against Caneda as the principal debtor and Gueson as surety. If Gueson paid the obligation, he has the right to recover what he paid from Caneda. Here, the lower court erred in dismissing the claim against Gueson, but FNCB did not appeal it. FNCB can still collect the full amount from Caneda. (2) There was no novation as it cannot be presumed. Caneda’s acknowledgment of debt did not novate the obligation and release Gueson by substituting the person of the debtor. TOWN SAVING & LOAN BANK, INC. V. CA 223 SCRA 459 Sec. 29 P 11 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

FACTS: Spouses Hipolito contracted a loan from TSLB for Php 700k with 24% interest and issued a PN with maturity date in 3 years. They They defaulted in their payment. Hipolitos contend that they were not personally liable because the loan was for the account of Pilarita Reyes (sister of Miguel Hipolito). Spouses Hipolito only signed the note because they were persuaded by Joey Santos, president of TSLB. They said that Santos told them the demand letters were mere formality for Pilarita’s obligation. Hipolitos contend they were merely guarantors. RTC- Hipolitos liable as accommodation party. CA- Reversed saying that Hipolitos accommodated TSLB. This is because TSLB could only loan a maximum of Php 700k pursuant to a Central Bank regulation while Pilarita needed to borrow Php 1.4M.

In this case, Maulini, a client, obtained a promissory note from Serrano in the amount of Php3000, originally payable to Serrano, with Padern, Moreno and Co.. Maulini did not want his name to appear on the books of the borrowing company as the lender of money, and thus requested Serrano to take the note in his own name, then, at once, transfer to Maulini title by indorsement. Serrano did so as a favor to Maulini. Maulini now goes to court on appeal regarding the collection of money in the promissory note.

ISSUE:

Trial Court Trial court held that 1) parol evidence was not admissible to alter, vary, or modify the terms of the contract of indorsement therefore, it refused to consider evidence showing that by verbal agreement the indorser was a mere vehicle for the transfer of title and thus without consideration and 2) it was immaterial whether there was consideration because the indorser was a mere accommodation party

Whether Hipolitos are liable on the PB they executed.

ISSUES:

HELD:

W/N PN was indorsed without consideration W/N Serrano was accommodation indorser W/N Parol evidence should be considered

Yes, they are liable as an accommodation party. There is no credibility that the bank would go out of its way to convince Hipolito to accommodate Pilarita. It was Pilarita who asked her brother to accommodate her so she could borrow Php 1.4M. *The case of Maulini v. Serrano was used by CA to justify decision absolving Hipolitos. In that case, the one signing the PN was acting as an agent for the actual lender. The Hipolitos were agents of the debtor, Pilarita. MAULINI V. SERRANO 28 Phil. 640 Sec. 29 FACTS: “Broker” Serrano was in the practice of being a broker between borrowers and lenders by acting as a mediary and negotiating between the parties. His practice was to collect a certain amount, sometimes in percentage of the transacted amount between lender and borrower, or as a percentage of the interest to be paid to the lender, with the lender taking 1 percent, and Serrano (the broker) taking ½ percent. Serrano would deliver the money personally to the borrower, take the note in his own name, and immediately transfer it by indorsement to the lender.

HELD: 1) Yes. There was never a moment when Serrano owned the note. It was Maulini, who provided for the money borrowed, which was the consideration of the instrument, who owned it. Serrano acted merely as an agent by which naked title was passed, his only payment would be for the transaction of the loan. He was paid nothing as to be an indorser, nor did Maulini lose or forego anything nor alter his position. 2) No. An accommodation note is one which the accommodation party has put his name, without consideration, for the purpose of accommodating some other party who is to use it and is expected to pay it. The reference to “accommodation party” in Nego.In. law refers to the maker, not the lender nor indorser. A favor was made by Serrano to Maulini, but this is not the same situation contemplated by the law. 3) Yes. The prohibition of accepting parol evidence in the civil code is to prevent alteration, change and modification of the terms of a written contract. In this case, the purpose of the evidence was to show that no contract of indorsement ever existed. The prohibition therefore does not apply in the case at hand. Parole evidence is deemed admissible, and since no counter evidence was presented, was considered true as to the merits of the case. P 12 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

debtor. But in the eyes of the creditor, both of them are mere joint and several makers. ACUNA VS. VELOSO AND XAVIER 50 Phil 241 Sec. 29 FACTS: Xavier wanted to buy a land situated in Legarda. However, he lacks funds which would enable him to acquire the property. He then asked Veloso his principal (Xavier, being an agent of Veloso with regards the latter’s properties in Manila) to help him secure the funds. Veloso then approached Gonzales who was described as a “man of means”. Gonzales promised to advance the money. It turned out that Gonzales approached one of his clients named Rosario who then issued a check worth Php 25,000.00 This same check was delivered by Gonzales to Xavier. In turn, Xavier gave Gonzales a promissory note signed by him and Veloso saying that they are jointly and severally liable to pay the payee. Xavier turned over the check to Ramon Sotelo, the vendor of the Legarda property. It turned out that the Legarda property was already mortgaged to Shanghai Life Insurance Company. A foreclosure proceeding took place. But while waiting for the results of the proceeding, the note became due. It turned out that Gonzales transferred the note to a certain Mariano Acuna who filed an action in court to recover the Php 25,000 plus the interest. The trial court held that Veloso is an accommodation maker of the note and ordered that Veloso be subrogated to the rights of the plaintiff Acuna in a mortgage given by Xavier to secure the debt. The defendants cite the case of Rylee vs. Wilkinson in their contention that where an accommodation paper is not negotiated after maturity, the accommodation party cannot be held liable thereon. ISSUE: W/N Veloso should still be held liable considering that the promissory note was transferred to Acuna only two years after the note became due. DECISION: Yes. Rylee vs. Wilkinson cannot be applied in the case at bar for in said case, the accommodation maker draws a note payable to the accommodated payee and the payee first negotiates the note after the date of maturity. In the case at bar, the accommodating party and the accommodated party unite in making a joint and several note to a person who advanced such at the time of the its creation. It cannot be said that the note is lacking of consideration just because Veloso received no amount whatsoever. Value was given for the note, and this is enough. In equity, Veloso is entitled to all rights of a surety while Xavier is the real

Note: The fact is, Acuna became a holder only two years after the note became due. we are to follow section 52, he will not be considered as holder in due course. Thus, Veloso can raise this defense. The decision is questionable. PNB V. MAZA AND MACENAS 48 Phil 207 Sec. 29 NATURE: Collection suit of PNB against Maza and Macenas FACTS: Maza and Macenas executed 5 promissory notes in favor of PNB, with 2 due 3 months after date and 3 due 4 months after date. The notes were not paid at maturity. PNB is now suing for collection of the amounts due with interest totaling to P65K. PNB brought the case to CFI-Iloilo. The court ruled in favor of PNB despite the following arguments and special defense that the defendants interposed: 1. 2. 3.

The promissory notes were given to them in blank by Enrique Echaus, who asked them to sign so that he (Echaus) could negotiate with PNB They did not negotiate with PNB or receive value for the notes or deliver the notes as payment for a prior debt Echaus is the real party in interest and should therefore be included as party defendant and should be the one held liable.

HELD: On appeal Maza and Macenas assigned 4 errors. The first is on the refusal of the lower court to include Echaus as party-defendant. The SC said that Echaus is not an indispensable party. The 3 errors go to the merits and rest on the same foundation as their special defense. Maza and Macenas admit to the genuineness and due execution of the notes and that there was no mistake or alteration in the amounts on the notes. Hence, whether they are principals and Echaus their agent or they are makers which is exactly what they appear to be, both must keep their engagement and pay as promised. They are primarily and unconditionally liable. P 13 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

Also even if they claim that they are just accommodation parties, lending their names to some other person, they are still liable according to terms of the notes as if they were really financially interested in the transaction. And, although they never received the value of the notes, to fasten liability of an accommodation party, it is not necessary that any consideration should move to him. The consideration of the accommodation party is the principal consideration of the person taking the note and the person accommodated. Obiter: An accommodation party that makes payment to the holder has the right to sue and ask reimbursement from the accommodated party. Their relationship is that of a principal and a surety, the accommodation party being the surety.

contract, effected by the creditor w/o knowledge and consent of sureties, completely discharges the sureties from liability on the contract of suretyship. They state that when respondent PNB did not apply the initial and subsequent payments to the petitioners’ debt as provided for in the deed of assignment, they were released from their obligation as sureties and the REM executed by them should be cancelled. ISSUE: 1) Petitioners as accommodation makers are discharged from liability 2) W/N PNB can be considered a holder for value under Sec29 of the NIL (barring the petitioners from setting up the defense of what consideration or some other personal defenses which may be set up against a party who is not a holder in due course) HELD:

PRUDENCIO VS. COURT OF APPEALS 143 SCRA 7 Sec. 29 / 66 FACTS: Appellants mortgaged their property (a parcel of land in Sampaloc, Manila) to PNB to guarantee a loan of P1,000.00 extended to one Domingo Prudencio. Sometime in 1955, the Concepcion & Tamayo Construction Co. (the company) had a pending contract with the Bureau of Public Works (the bureau) for the construction of the municipal building in Palawan, in the amount of P 36,800.00. As said company needed funds for said construction, Jose Torribio ,Appellant’s relative and Atty-in-fact of the Company ask the appellants to mortgage their property to secure the loan of 10,000 which the Company was negotiating with PNB. After some persuasion appellants signed the ‘Amendment of real Estate Mortgage’. The promissory note covering the loan of 10,000 dated Dec 29, 1955 to mature on April 27 1956 was signed by Toribio and the appellants. Toribio also executed the ‘Deed of Assignment’ assigning all payments to be made by the Bureau to the Company on account for the contract of construction in favor of PNB. The Bureau’s last request for P5,000 was denied by PNB for the reason that since the loan was already overdue as of Apr 28 1956, the remaining balance of the contract should be applied to the loan.

xxxin lending his name to the accommodated party, the accommodation party is in effect a surety.xxxhowever, unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but also unconditional to a holder for value such thateven if the accommodated party receives an extension of the period of payment w/o consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him bec as far as a holder for value is concerned, he is a solidary co-debtor. A holder for value under Sec29 of the NIL is one who must meet all the requirements of a holder in due course under Sec52 of the same law except notice of want of consideration. Gen.Rule: a payee may be regarded as a holder in due course but such rule cannot apply w/ respect to the respondent PNB. PNB cannot be regarded as having acted in GoodFaith w/c is one of the requisites of a holder in due course under Sec52 of the NIL. The PNB as privy to the PN knew that the promissory note w/c it took from the accommodation makers was signed by the latter bec of full reliance on the Deed of Assignment, w/c PNB had no intention to comply with. STELCO MARKETING CORP VS CA 210 SCRA 51 Sec. 29 / 52-59 FACTS:

As a consequence, the Company abandoned the work and the Bureau rescinded the construction contract. . Petitioners contend that as accommodation makers, their liability is only that of mere sureties instead of solidary co-debtors such that “a material alteration in the principal

Stelco sold to RYL Construction quantities of steel bars worth P126,859. Corresponding invoices issued by Stleco stipulated that RYL would pay “COD” but no payments were made despite demands. P 14 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

NATURE: RYL gave to Armstrong Industries(sister corp and manufacturing arm of STELCO), a check drawn against Metrobank amounting to P126,129. The check was a company check of Steelweld corp. of the Phil.,signed by its President, Peter Liamson, and its VPres., Artemio Torres.The check was issued by Limson at Romeo Lim’s request (Pres. Of RYL). Limson agreed to give Lim a check only by way of accommodation (only as guaranty but not to pay for anything) when the former asked for financial assistance. The check was given by RYLim to Armstrong Industries, when the check was deposited, it was dishonored bec. “drawn against insufficiency of funds”. The check bore 2 indorsements, that of the RYL and Armstrong. On complaint of Armstrong due to the dishonored check, Limson and Torres were charged in the RTC of Manila for violating BP22 but were acquitted on the ground that the check in question was not issued by the drawer ‘to apply on account for value’, it being merely for accommodation purposes. 4 years after issuance of check, STELCO filed a complaint for recovery against RYL and steelweld but RYL cannot be found. Steelweld contends that it was a complete stranger to the contract and that the check was only given as collateral. ISSUE: 1) W/N Stelco was a holder in due course such that it can recover from RYL and Steelweld

Collection for a sum of money FACTS: Lorenzo Ting issued a PBCOM check for P4,000 payable to cash or bearer. The check later on found its way into the hands of Ang Tiong with the signature of Felipe Ang on the back (indorsement in blank). Ang Tiong presented the check for payment to the drawee bank. PBCOM dishonored the check. Ang Tiong made written demands on Ting and Ang, but the two did not pay the amount of the check. He then filed a collection suit against the two. CIF ruled in favor of Ang Tiong. Ang elevated the case to the CA which forwarded it to the SC since the issues are questions of law ISSUES: 1) W/N Art. 2071 which deals with the right of a guarantor to collect from the principal debtor is applicable to the case 2) W/N Felipe Ang is a general indorser 3) W/N Felipe Ang can obtain release from the suretyship or obtain a security to protect himself against any proccedings on the part of the creditor and against the danger of insolvency of the principal debtor because he is jointly and severally liable on the instrument

HELD: HELD: The record does not show any intervention b/w Steelweld and Stelco, or b/w either of them and Armstrong, anytime before the dishonor of the check, neither it shows that after the check had been deposited and dishonored, Stelco came into possession of it several years after the check is dishonored. Possession of a negotiable instrument after presentment and dishonor is utterly consequential; it does not make the possessor a holder for value within the meaning of the law. It is clear from the circumstances that Stelco cannot be deemed a holder of the check for value. It does not meet the two essential requisites prescribed by the statute. It did not become “the holder of it before it was overdue, and w/o notice that it had been previously dishonored,” and it did not take the check “in good faith for value.” ANG TIONG V. TING 22 SCRA 713 Sec. 29

The instrument is genuine and duly executed, hence Ang Tiong is a holder for value. 1) The bank check is a negotiable instrument, hence Art. 2071 of the Civil Code is not applicable. 2) Felipe Ang is a general indorser according to Sec. 63 (He who signs the instrument not as a maker, drawer or acceptor is a general indorser unless he clearly indicates that he is to be bound in another capacity) of the Negotiable Instruments Law. As general indorser he warrants to all subsequent holders in due course: a) the genuiness of the instrument b) that he has good title to it c) that all parties to it have capacity to contract and d) the instrument is at the time of his indorsement valid and subsisting. As general indorser he also engages that the instrument on due presentment will be accepted and paid and if dishonored he shall pay the amount to the holder P 15 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

3) Even on the assumption that Felipe Ang is only an accommodation party, he is still 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 4) That appellant can obtain a security from the maker to protect himself against insolvency of the latter cannot affect his liability to Ang Tiong as accommodation party. The remedy of obtaining a security is between Felipe Ang and Lorenzo Ting only and is immaterial to the claim of Ang Tiong. The liability of Felipe Ang is primary and unconditional SADAYA V. SEVILLA 19 SCRA 924 Sec. 29

An accommodation party on the other hand who made payment has the right to contribution from his co-accomodation maker, in the absence of stipulation to the contrary. This rights comes from the implied promise between the accommodation makers to share equally the burdens that they might encounter in placing their signatures on the promissory note. They placed themselves as joint guarantors of the former. The requisites before an accommodation party can seek reimbursement are governed by Art. 2073 of the Civil Code (the negotiable instruments law has no specific provision that defines the rights of one accommodation party to seek reimbursement from another). When there are two or more guarantors of the same debtor and for the same debt, the one among them who has paid may demand of each of the others the share which is proportionally owing from him.

FACTS: Sadaya, Sevilla and Varona executed jointly and severally a promissory note in favor of BPI for P15K. Only Varona received the proceeds of the note with Sadaya and Sevilla signing the note as co-makers only as a favor to Varona. Payments were made on the note but a balance of P4,850 remained. The bank collected from Sadaya. Varona failed to reimburse Sadaya despite the demands of the latter. Sevilla on the other hand died. Sadaya then filed a creditor’s claim on the estate of Sevilla which was opposed by the estate administrator on the ground that Sevilla did not receive any amount as consideration for the promissory note and that Sevilla signed only as a surety. The trial court issued judgment in favor of Sadaya while the CA reversed the judgment. HELD: Sevilla and Sadaya were joint and several accommodation parties of the P15K note. Their individual obligation is no different to the obligation of Varona notwithstanding that they did not receive the proceeds of the loan. They executed the note for the purpose of lending their names to Varona and the bank can claim against any one of them as it did against Sadaya.

If any guarantors should be insolvent, his share shall be borne by the others, including the payer, in the same proportion. The provisions of this article shall not be applicable, unless the payment has been made by virtue of a judicial demand or unless the principal debtor is insolvent. Hence: 1) A joint and several accommodation maker may demand from the principal debtor reimbursement for the amount he paid to the payee 2) A joint and several accommodation maker may demand reimbursement from his co-accomodation maker without first directing his action to the principal debtor provided that he made payment by virtue of a judicial demand or the principal debtor is insolvent In the case at bar, Sadaya’s payment to BPI was voluntary and not made because of a judicial demand. There is also no cogent proof that Varona is insolvent. Hence he cannot demand reimbursement from Sevilla’s estate. Ca judgment affirmed

Sadaya can seek for reimbursement from Varona of what he paid out. There is an implied contract of indemnity between the two, Varona is bound by the obligation to reimburse Sadaya. The relationship of the three signatories to the bank is that of joint and several obligors. But the obligation of Varona and Sevilla to Sadaya (who paid the balance) cannot be said to be joint and several. If the payment was made by Varona, he cannot seek reimbursement from Sevilla and Sadaya who are merely accommodation parties. P 16 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

AGRO CONGLOMERATES, INC. V. CA. 348 SCRA 450 Sec. 29 FACTS: Petitioner Agro Conglomerates sold 2 parcels of land to Wonderland Food Industries, inc. In their MOA the purchase price was P5,000,000.00 (5M) subject to payment in the following manner: 1M in cash upon signing of the agreement. 2M worth of common shares of stock of Wonderland and the balance of 2m in four equal instalments ( 1 st instalment 180 days after the signing of the agreement, subsequent instalments after every 6 months. With an interest rate of 18%/ annum) Subsequently, the vendor, vendee and Regent Savings & Loan Bank executed an addendum to the MOA concerning the initial payment of 1,000,000.00 and P360,000 (18% interest) wherein instead of paying P1,360,000 in cash, the Vendor will be given a loan from Summa Savings and Loan Association. In addition to this the vendee undertakes to pay the full amount to the Financier. Consequently, Petitioner Mario Soriano signed as the maker of several promissory notes, payable to respondent bank. The bank eventually filed three separate complaints of Sums of money.

that the promissory notes, which bound the petitioners to pay, were executed after the addendum. CRISOLOGO-JOSE V. CA. 177 SCRA 594 Sec. 29 FACTS: Ricardo Santos Jr the Vp of Mover Enterprises while Atty. Benares was the President. Atty. Benares, in accommodation of his clients, the spouses Ong, issued a check drawn against Traders Royal Bank. The check should have been signed by the treasurer, but in his absence, Benares asked Santos to sign the instrument. The check (45,000) was issued to Ernestina Crisologo- Jose in consideration of the waiver or quitclaim by her over a certain property which the GSIS agreed to sell to the spouses Ong . The check was dishonoured for insufficiency of funds. Petitioner alleges that the accommodation party is Movers enterprise and not the private respondent who merely signed the check in question in a representative capacity. ISSUE:

The petitioners argue that according to the promissory note, Wonderland should be liable for the payment thereof.

1) Whether or not Mover Enterprises may be held liable on the accommodation instrument.

ISSUE: HELD: W/N the addendum constitutes a novation of the contract by substitution of debtor which exempts the petitioners from any liability over the promissory notes. HELD: No. By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as maker and accommodation party for the benefit of Wonderland. Requirements of novation: 1. Previous valid obligation 2. Agreement of the parties to a new contract 3. Extinguishment of the old contract 4. Validity of the new contract

No. The provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be the only accommodation party, DOES NOT INCLUDE OR APPLY TO CORPORATIONS WHICH ARE ACCOMODATION PARTIES. This is because the issue or indorsement of negotiable paper by the corporation without consideration and for the accommodation of another is ultra vires. Except when the officer is specifically authorized to do so. Since such accommodation paper cannot thus be enforced against the corporation, the inescapable conclusion is that the signatories thereof shall be personally liable.

There was no novation by substitution of debtor because there was no prior obligation which was substituted by a new contract. It will be noted P 17 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

CALTEX V. CA 212 SCRA 449 Sec. 30 FACTS:  Angel dela Cruz deposited Php 1.12M with Security Bank and Trust Company (SBTC), Sucat Branch. For this he was issued 280 Certificate of Time Deposit (CTD).  Dela Cruz delivered these CTDS to Caltex for the purchase of fuel.  Dela Cruz gave SBTC an affidavit of loss for the CTDS. He was issued new ones.  Caltex presented the lost CTDs to SBTC for payment alleging the CTDs were securities for purchases made with Caltex.  SBTC refused to pay when Caltex did not furnish documents evidencing guarantee agreement with dela Cruz.  Caltex filed complaint for collection  CA ruled CTDs not NI. ISSUE: (1) Whether CTD’s were negotiable instruments (2) Whether CTD’s were validly negotiated and W/N Caltex can recover from Security Bank. (this is the important part) HELD: (1) Yes. They were negotiable to bearer because it was payable to ‘depositor’ which courts interpreted to mean bearer. (2) No. Being a bearer instrument, a valid negotiation requires both delivery and indorsement. The CTDs were only delivered as security and not payment. Caltex verified this in a letter made by its Credit Manager. Hence it is estopped from claiming otherwise. Sec 30 of NIL an instrument is negotiated when it is transferred from one person to another in such as manner as to constitute the transferee the holder thereof. In this case, there was no negotiation to transfer legal title of the CTDs in favor of Caltex even though there was delivery. Delivery without indorsement means there was no valid negotiation. The CTDs were not for payment as evidenced by the inability of Caltex to produce a Bill of Particulars which would show how the CTDs would be applied to the indebtedness of dela Cruz. They also could not produce receipts evidencing payment made through the CTDs. Hence, the possession of Caltex of the CTDs is in effect possession of a security as in the case of a pledge. Absent indorsement or a public document proving a contract of pledge or guarantee Caltex has no right over the CTDs. Mere delivery of the CTD’s

did not legally vest in petitioner any right effective against and binding upon the respondent bank. When a bearer instrument is not delivered for purposes of negotiation but physically delivered merely as security for another obligation, there is no negotiation in the sense of transfer of legal title to the instrument and would constitute the subsequent holder merely as a holder for value and not a holder in due course. Accordingly, negotiation for such purpose cannot be effected by mere delivery of the instrument, since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually proved. The assignment of the CTDs by Angel Dela Cruz to the bank, on the other hand, was evidenced by a public instrument and is therefore valid. MANUEL LIM V. CA 251 SCRA 408 Sec. 30 FACTS:  Manuel and Rosita Lim charged with Estafa and violating BP 22 for issuing 7 checks that bounced.  Lims were president and treasurer of Rigi Bilt Industries Inc.  They purchased several construction materials from Linton, an old business partner. (steel plates, purlins)  Lims allege that they told bank to stop payment because the materials were not in accordance with purchase orders.  Checks were issued and delivered at Navotas, dishonored in Kalookan.  Linton sent a collector who received the checks in Kalookan.  RTC found them guilty of both estafa and BP 22  CA acquitted them of estafa because the checks were not made in payment of an obligation contracted at the time of their issuance, but affirmed conviction for BP 22 ISSUES: (1) Whether RTC of Malabon acquired jurisdiction as Lim contends the elements of the crime all happened in Kalookan. (recall crimpro venue and jurisdiction) (2) Whether delivery to collector constituted issuance and delivery HELD: (1) A violation of BP 22 is a transitory crime and may be convicted anywhere the offense was in part committed. Information alleged that P 18 of 51

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2D Negotiable Instruments – Atty. Mercado

crime was committed in municipality of Navotas and is sufficient to confer jurisdiction to RTC of Malabon. (2) The receipt of the checks by the collector of Linton was not the issuance and delivery to the payee in contemplation of the law. Collector was not the person who could take the checks as a holder (as a payee or indorsee with the intent to transfer title thereto) BP 22 is a transitory/continuing crime and may be validly tried in a any municipality or territory where the offense was in part committed. The checks were issued and delivered in Navotas and not in Kalookan as what is being claimed by petitioners. Although the checks were received by Linton’s collector in Kalookan, there was no proper issue or delivery to Linton, since the collector cannot be considered as a holder of the said instrument. It was only when Linton received the check in its office in Navotas was there actual issue and delivery. The checks were then dishonored in Kalookan. Knowledge on the part of the maker or drawer of the check of the insufficiency of his funds is by itself a continuing enventuality, whether the accused be within one territory or another. Consequently, venue or jurisdiction lies either in the RTC of Kalookan or Malabon. Venue or jurisdiction is determined by the information and the information alleged that the offenses were committed in the municipality of Navotas vesting jurisdiction to the RTC of Malabon. CA ruling affirmed. Lim convicted of violation of BP 22 because they were not able to overcome the prima facie presumption (drawing and issuance of check that is refused for insufficient funds). They also did not make arrangements to pay in full within 5 days from notice that checks were not paid. Issue – the first delivery of the instrument complete in form to a person who takes it as a holder Holder – the payee or indorsee of a bill or note who is in possession of it or the bearer therefor. Collector or messenger could not take checks as holder (payee or indorser). He is also not an agent of Linton with respect to the checks because he is a mere employee. Delivery – final act essential to its consummation as an obligation. It must be made to a person who takes it as a holder or an agent of the holder. It signifies transfer of possession whether actual or constructive, from one person to another with intent to transfer title thereto METROPOL (BACOLOD) SAMBOK MOTORS CO. 120 SCRA 864

FINANCING

&

INVESTMENT

CORP.

v.

Sec. 38 / 65 FACTS: Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., in the amount of P15,939 payable in 12 equal monthly installments. On the same day Sambok Motors Company (Sambok), sister company of Ng Sambok Sons and under the same management, negotiated and indorsed the note in favor of Metropol with the following indorsement: “Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor; Protest: and Presentment are hereby waived. SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO G. NONILLO Asst. General Manager” Dr. Villaruel defaulted in the payment of his installments, so Metropol presented the PN for payment to the maker (Dr. Villaruel). Dr. Villaruel failed to pay the PN as demanded, hence Metropol notified Sambok as indorsee of the fact that the same has been dishonored and demanded payment. Sambok likewise failed to pay, hence this collection case. Sambok contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been declared insolvent. During the pendency of the case, Dr. Villaruel died and the case against him was dismissed. Sambok was held liable by trial court. Sambok’s contentions: that by adding the words “with recourse” in the indorsement, it becomes a qualified indorser; that being a qualified indorser, it does not warrant that if said note is dishonored by the maker on the presentment, it will pay the amount to the holder; that it only warrants the following pursuant to Sec 65 of NIL: a) that the instrument is genuine and in all respects what it purports to be; b) that he has good title to it; c) that all prior parties had capacity to contract; d) that he has knowledge of any fact which would impair the validity of the instrument or render it valueless. ISSUE: Whether Sambok is a general indorser making it liable ---- YES! A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser’s signature the words “without recourse” or any words of similar import. Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Sec 65 of NIL. Sambok P 19 of 51

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2D Negotiable Instruments – Atty. Mercado

indorsed the note “with recourse” and even waived the notice of demand, dishonor, protest and presentment. “Recourse” means resort to a person who is secondarily liable after the default of the person who is primarily liable. Sambok by indorsing the note “with recourse” does not make itself a qualified indorser but a general indorser who is secondarily liable because by such indorsersement, it agreed that if Dr. Villaruel fails to pay the note, Metropol can go after Sambok. The note was indorsed without qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. Sambok’s intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand, dishonor, protest and presentment were all waived. Moreover, after an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and becomes a principal debtor. His liability becomes the same as that of the original obligor. The holder need not even proceed against the maker before suing the indorser. BPI v CA, et al. GR No. 136202 Sec. 49 FACTS:  AA Salazar and Engineering Services filed an action for a sum of money with damages against BPI.  Private respondent Salazar prayed for the recovery of P267,707.70 debited by BPI from her account.  BPI alleged that Templonuevo demanded from the former payment of the amount P267,692.50 representing the aggregate value of 3 checks which were allegedly payable to him but which were deposited with BPI to Salazar’s account without his knowledge and corresponding endorsement.  Accepting Templonuevo’s claim as a valid one, BPI froze the account of AA Salazar instead of Salazar’s personal account where the checks were deposited since this was already closed by Salazar or had insufficient balance.  Salazar was advised to settle the matter with Templonuevo but they did not arrive at a settlement.  BPI decided to debit the amount of P267,707.70 from the AA Salazar account since Salazar was not entitled to the funds represented by the checks.  The sum of P267,692.50 was paid to Templonuevo by means of a cashier’s check.  RTC ruled in favor of private respondent Salazar; CA affirmed.

ISSUE:  Does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally such depositor’s account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed? HELD:  YES, petitioner had the right to debit Salazar’s account for the value of the checks it previously credited in her favor.  It is of no moment that the account debited by the petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar.  The transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among other prior parties.  The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability.  Something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any facts from which the authority to receive payment may be inferred.  It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. It is but fair to the maker and prior holders to require possessors to prove without aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder.  Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstance despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same.  Petitioner’s liability is that of a general indorser. His liability to the designated payee cannot be denied. CHAN WAN v. TAN KIM and CHEN SO Sec. 52-59 FACTS:  This is a suit to collect 11 checks totaling P4,290.  Checks were payable to “cash or bearer” and drawn by Tan Kim upon Equitable Bank.

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Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

  

Checks were presented for payment by Chan Wan to Equitable but they were all dishonored and returned to him due to insufficient funds and/or causes attributable to the drawer. Tan Kim claims that the checks had been issued to two persons named Pinong and Muy for some shoes they promised to make. Checks were intended as mere receipts. Lower court declined to order payment to Chan Wan.

ISSUE:  W/N Chan Wan was a holder in due course HELD:   



    

NO, Chan Wan was not a holder in due course. Eight of the checks have been crossed specially to China Banking Corporation and should have been presented for payment by China Bank and not by Chan Wan. Circumstances would seem to show deposit of the checks with China Banking Corporation and subsequent presentation by the latter through the clearing office; but as drawee had no funds, they were unpaid and returned, some of them stamped “account closed”. There was no indication of how plaintiff got hold of the checks. Most probably, as the trial court surmised, he got them after they had been returned because he presented them in court with such “account closed” stamps without bothering to explain. Lower court rightly held Chan Wan not to be a holder in due course since he knew, upon taking the checks, that they had already been dishonored. It does not follow that simply because Chan Wan was not a holder in due course that he could not recover the checks. NIL does not provide that a holder who is not a holder in due course may not recover on the instrument. The only disadvantage of a holder who is not a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. If it were true that checks had been issued in payment for shoes that were never made and delivered, Tan Kim would have a good defense as against a holder who is not a holder in due course.

BATAAN CIGAR AND CIGARETTE FACTORY INC. VS. COURT OF APPEALS 230 SCRA 642 Sec. 52 to 59 / 185 FACTS:







  

Bataan Cigar and Cigarette Factory Inc. (BCCFI) engaged one of its suppliers, George King, to deliver 2k bales of tobacco leaf. In consideration thereof, BCCFI issued crossed checks that post dated in the total amount of P820k. Relying on the supplier’s representation that he would complete delivery within 3months, the petitioner agreed to purchase additional 2,500 bales of tobacco leaves, despite the supplier’s failure to deliver in accordance with their earlier agreement. Petitioner, once again issued postdated crossed checks in the total amount of P1,100,000.00 (payable Sept.) At the same time, George King was also dealing with SIHI (private resp.). He sold to SIHI at a discount the postdated check bearing the amount of P164k drawn by pet. In favor of George King. Later on, he sold 2 more post dated checks both worth 100k drawn by petitioner in favor of George King. (so 3 post dated checks sold) George King failed to deliver the bales of tobacco leaf as agreed upon despite pet’s demands. BCCFI issued a stop payment order on all checks payable to George King. SIHI (private resp.), tried to collect from BCCFI but failed. So SIHI instituted the present case. The trial court ruled in favor of SIHI as having a valid claim as a holder in due course and that the noninclusion of George King as a party defendant is immaterial since as a payee, he was not an indispensable party.

ISSUE: 1) Whether SIHI, a second indorser, and holder of crossed checks, is a holder in due course, to be able to collect from the drawer BCCFI. HELD and RATIO: Sec. 59 of the NIL gives prima facie presumption that every holder is a holder in due course. However, if it is shown that the title of any person who negotiated the instrument is defective then the holder has the burden of proving that he is a holder in due course. SIHI is not a holder in due course. It is 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. In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King. Because, really, the checks were issued with the intention that George King would supply BCCFI with the bales of tobacco P 21 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks.

FACTS: 

The foregoing does not mean, however, that respondent could not recover from the checks. The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were nonnegotiable. Hence, respondent can collect from the immediate indorser, in this case, George King. Notes:  (This case mentions the next case, State Investment house vs. IAC, because their facts are on all fours. They’re the same)  A check is defined by law as a bill of exchange drawn on a bank payable on demand. Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. It may be crossed generally or specially.  A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only the words "and company" are written or nothing is written at all between the parallel lines. It may be issued so that the presentment can be made only by a bank. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed checks," although Article 541 of the Code of Commerce refers to such instruments.  The negotiability of a check is not affected by it being crossed. It may still be legally negotiated form one person to another so long as the one who encashes the check with the drawee bank is another bank or if specially crossed, by the bank mentioned between the parallel lines  In the Philippine business setting, however, we used to be beset with bouncing checks, forging of checks, and so forth that banks have become quite guarded in encashing checks, particularly those which name a specific payee. Unless one is a valued client, a bank will not even accept second indorsements on checks.  In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following effects: o the check may not be encashed but only deposited in the bank; o the check may be negotiated only once — to one who has an account with a bank; o and the act of crossing the check serves as 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, otherwise, he is not a holder in due course. STATE INVESTMENT HOUSE vs. INTERMEDIATE APPELLATE COURT 175 SCRA 310 Sec. 52 – 59 / 72









   

New Sikatuna Wood Industries, Inc. (Sikatuna) requested for a loan from private respondent Harris Chua. The Harris Chua (private resp.) agreed to grant the same subject to the condition that the former should wait until December 1980 when he would have the money. In view of this agreement, private respondent-wife (Anita Pena Chua) issued 3 crossed checks payable Sikatuna all post dated which amounted to a total of P 299,450.00. Sikatuna entered into an agreement with herein petitioner State Investment House, Inc. (SIHI) whereby for and in consideration of the sum of Pl,047,402.91 under a deed of sale, the former assigned and discounted with petitioner 11 postdated checks including the 3 postdated checks mentioned earlier. When the 3 checks issued by private respondent Anita Pena Chua were allegedly deposited by petitioner, these checks were dishonored by reason of "insufficient funds", "stop payment" and "account closed", respectively. SIHI (pet) claims that despite demands on private respondent Anita Peña to make good said checks, the latter failed to pay the same necessitating the former to file an action for collection against the latter and her husband Harris Chua before the RTC of Manila. (The Chua’s filed a third party complaint against Sikatuna for reimbursement and indemnification in the event that they be held liable to SIHI. For failure of third party defendant to answer the third party complaint despite due service of summons, the latter was declared in default.) RTC rendered judgement against the Chua spouses and in the 3rd party complaint Sikatuna was ordered to pay the Chua spouses for the amount they will pay SIHI. SIHI  Chuas  Sikatuna. CA reversed the decision. Pet’s Contention : at the time of the negotiation and endorsement of the checks in question Sikatuna, it had no knowledge of the transaction and/or arrangement made between the latter and private respondents.

ISSUE:



1) Whether or not petitioner is a holder in due course as to entitle it to proceed against private respondents for the amount stated in the dishonored checks. Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the check. The crossing may be special wherein between the two parallel lines is written the name P 22 of 51

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2D Negotiable Instruments – Atty. Mercado

of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or crossing may be general wherein between two parallel diagonal lines are written the words "and Co." or none at all as in the case at bar, in which case the drawee should not encash the same but merely accept the same for deposit. 

The effect of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some person authorized to receive payment on his behalf ... As to who the holder or authorized person will be depends on the instructions stated on the face of the check.



The three subject checks in the case at bar had been crossed generally and issued payable to Sikatuna, which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the drawer.



When SIHI rediscounted the check knowing that it was a crossed check he was knowingly violating the avowed intention of crossing the check. Furthermore, his failure to inquire from the holder, Sikatuna, the purpose for which the three checks were cross despite the warning of the crossing, prevents him from being considered in good faith and thus he is not a holder in due course. Being not a holder in due course, plaintiff is subject to personal defenses, such as lack of consideration between appellants and Sikatuna.



Thus, in the absence of due presentment, the drawer did not become liable. Consequently, no right of recourse is available to petitioner against the drawer of the subject checks (private respondent wife) considering that petitioner is not the proper party authorized to make presentment of the checks in question.



Yet it does not follow as a legal proposition that simply because petitioner was not a holder in due course as found by the appellate court for having taken the instruments in question with notice that the same is for deposit only to the account of payee named in the subject checks, petitioner could not recover on the checks. The NIL does not provide that a holder who is not a holder in due course may not in any case recover on the instrument for in the case at bar, petitioner may recover from the Sikatuna if the latter has no valid excuse for refusing payment. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were nonnegotiable.



That the subject checks had been issued subject to the condition that private respondents on due date would make the back up deposit for said checks but which condition apparently was not made, thus resulting in the non-consummation of the loan intended to be granted by private respondents to Sikatuna, constitutes a good defense (which is lack of consideration) against petitioner who is not a holder in due course.

Notes:  Section 52 of the NIL defines a holder in due course as one who takes the instrument "in good faith and for value" and that in order that one may be a holder in due course, it is necessary that "at the time the instrument was negotiated to him he had no notice of any defect in the title of the person negotiating it." However, under Section 59 every holder is deemed prima facie to be a holder in due course.  Admittedly, the Negotiable Instruments Law regulating the issuance of negotiable checks as well as the lights and liabilities arising therefrom, does not mention "crossed checks". But this Court has taken cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and may not be converted into cash.  New Sikatuna Wood Industries negotiated the three checks in breach of faith in violation of Article (sic) 55, Negotiable Instruments Law, which is a personal defense available to the drawer of the check, Anita Chua.  Section 541 of the Negotiable Instruments Law as follows: The maker or any legal holder of a check shall be entitled to indicate therein that it be paid to a certain banker or institution, which he shall do by writing across the face the name of said banker or institution, or only the words "and company." The payment made to a person other than the banker or institution shall not exempt the person on whom it is drawn, if the payment was not correctly made.  Read notes in previous case

P 23 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

STATE INVESTMENT V. CA 217 SCRA 32 Sec. 52-59 / 119 FACTS: Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission 2 post-dated checks ( from Equitable Bank) in the amount of P50,000 Each one dated 30 Aug 1979 and 30 Aug 1979 Payee (Victoriano) then negotiated the checks to State Investment House (STATE) Moulic failed to sell the jewelry so she returned the jewelry before the maturity of the check The checks could no longer be negotiated coz they were already negotiated Before maturity date, MOULIC withdrew her funds Upon presentment for payment, the checks were dishonored STATE alleges that the checks were dishonored and that she pay in cash instead STATE sued to recover the amount of the checks MOULIC’s defense: she incurred no liability since the jewelry was not sold and checks were negotiated without her consent She instituted a 3rd party complaint against Victoriano who later assumed responsibility for the checks TC: STATE lost CA: affirmed TC; that checks should never have been presented for payment since the jewelry were returned ISSUE: w/n STATE is a holder in due course HELD: YES it is an HDC there is always a prima facie presumption of being an HDC evidence shows that: 1)on their face the checks were complete and regular 2) pertitioner boufht the checks from the payee, before their due dates 3) pet. Took the checks in good faith and for value, albeit discounted price 4) pet was never informed no r made aware that the checks were merely issued as a security and not for value STATE holds it free from all defects of title of prior parties and may enforce full payment MOULIC cant set up defense of failure of consideration since it is a personal defense which she can invoke only if STATE was privy to the purpose for which they were issued MOULIC cant also invoke SEC 119 of the NIL (on discharge of instrument):

a) b) c) d) e) -

-

payment on behalf of principal debtor paument in DC by accommodated party intentional cancellation of holder other act that will discharge contract principal debtor becomes holder of instrument after maturity or after maturity in his own right MOULIC can only invoke c and d as grounds However, there was no intentional burning, tearing or writing of the word ‘CANCELLED’; MOULIC didn’t get back the possession of the checks 1231 of the CIVIL CODE cant apply to them because in the present action, payee Victoriano was no longer MOULIC’s creditor at the time the jewelry was returned (par d cant apply) Failure of STATE to give Notice of Dishonor is also immaterial since it is not absolute in all instances Also she merely withdrew her funds so she should not expect that her check would be honored It would also not be unjust enrichment on the part of STATE There was a prior transaction between STATE and Victoriano (a real estate mortgage where property mortgaged to STATE was 1.9m while the bid price at the auction sale was only 1m) STATE as mortgagee can claim deficiency (STATE has a right to recover balance) MOULIC as drawer to STATE as a holder indue course without prejudice to action for recompense against Victoriano for being in default

SALAS V. CA 181 SCRA Sec. 8 / 52-59 FACTS: Juanita Salas bought a motor vehicle from the Violago Motor Sales Corporation (VMS) for P58,138.20 as evedienced by a promissory note PN was subsequently indorsed to Filinvest Finance and Leasing Corp which financed the purchase Salas defaulted in the payment of the PN allegedly due to discrepancies in the engine and chassis numbers in the sales invoice, certificate of registration and deed of chattel mortgage which she allegedly discovered when the motor vehicle got into an accident Filinvest then filed for collection of the sum of money against Salas TC: ordered Salas to pay P28,414 CA: ordered Salas to pay balance of P54,908 Salas filed petition before SC alleging fraud, bad faith and misrepresentation of Violago Motors which supposedly released Salas from liability to Filinvest who should instead go against Violago P 24 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

-

She contends it is not necessary to implead VMS in this case, since there is already a case for ‘breach of contract’ pending in a separate case (which was still on appeal)

ISSUE: W/N Filinvest is a mere assignee of the Promissory note or a holder in due course RULING: -Filinvest is a holder in due course The promissory note has all the earmarks of negotiability: 1) it is in writing and signed by the maker Juanita Salas 2) it contains an unconditional promise to pay the amount of P58,138.20 3) it is payable at a fixed or determinable future time which is P1,614.95 monthly for 36 monthly installments 4) it is payable to violago or order 5) drawee was named with certainty It was an HDC 1) the PN was complete and regular upon its face 2) It became the holder before it was overdue or without notice that it was previously dishonored 3) It took the same in good faith and for value 4) when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS  Filinvest now holds it free from all defenses and defects that Salas may set up against Violago CONSOLIDATED PLYWOOD INDUSTRIES V. IFC LEASING 149 SCRA 448 Sec. 52-59 FACTS: Consolidated Plywood bought two used tractors from Atlantic Gulf and Pacific Company through its sister company and marketing arm, Industrial Products Marketing. Industrial assured Consolidated, after inspecting the jobsite, that the used tractors were fit for the job. It even gave Consolidated a 90-day warranty. Consolidated, through president and vice-president, agreed to purchase the tractors on installment and with a 210K downpayment. Simultaneously with the execution of the deed of sale, the chattel mortgage and promissory note, Industrial assigned its rights and interest in the chattel mortgage to IFC Leasing.

The tractors were delivered with mechanics of Industrial stationed at the jobsite to supervise the operations of the machines. One of the tractors broke down after just 14 days, the other followed after 9 days. Consolidated asked Industrial to repair the tractors based on the warranty. The tractors, however, were no longer serviceable. Consolidated stopped payment of installments as listed on the promissory note. The president of Consolidated suggested to Industrial that the tractors should be reconditioned and sold. The proceeds would then be given to IFC Leasing and the excess to be divided between Consolidated and Industrial. Industrial did not respond to the letter. Instead, IFC Leasing filed a complaint against Consolidated for collection for non-payment of its obligation. The trial court ruled in favor of IFC Leasing and ordered Consolidated to pay 1M. Consolidated brought the case to the CA which also ruled in favor of IFC Leasing saying that: 1. there was no provision of warranty and therefore no breach on the part of Industrial 2. the breach of warranty cannot therefore be used by Consolidated as a defense in order to be free from its liability under the promissory note 3. the promissory note is a negotiable instrument and IFC Leasing is a holder in due course and is entitled to recover from Consolidated the full amount of the obligation Consolidated brought the case to the SC with the following assignment of errors: 1. the promissory note is not a negotiable instrument 2. IFC leasing is not a holder in due course, it is at best a mere assignee 3. Consolidated can raise the defense of breach of warranty against IFC Leasing since it is not a holder in due course, but a mere assignee 4. Consolidated is not liable for payment of the promissory note because Industrial is guilty of breach of warranty 5. the transaction cannot be transformed from being a sale on installments to a pure loan 6. the promissory note cannot be accepted as evidence in court because the requisite documentary stamps were not affixed. ISSUE: (in order of importance) 1. 2. 3.

W/N the promissory note is negotiable W/N IFC Leasing is a holder in due course W/N there was a breach of warranty P 25 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

VICENTE R. de OCAMPO & Co. v. GATCHALIAN 3 SCRA 596 Sec. 52-59

RULING 1.

There was a breach in the warranty given by Industrial to Consolidated. Industrial then is liable to Consolidated and this liability extends to the corporation to whom it assigned its rights and interests unless the assignee is a holder in due course of the promissory note in question.

2.

The promissory note is not a negotiable instrument, it is only payable to Industrial and not to its order or to bearer.

3.

Consequently, since the note is not a negotiable instrument, IFC Leasing cannot be a holder in due course. It is but a mere assignee who steps into the shoes of the assignor and being such, Consolidated may raise against IFC all defenses available to it as against Industrial. This fact was even admitted by IFC Leasing as evidenced by the records of the court.

4.

Even assuming that the instrument is negotiable, IFC Leasing cannot be considered a holder in due course. The Deed of Sale with Chattel Mortgage, the Deed of Assignment and the Disclosure of Loan/Credit Transaction were all executed on the same day by Consolidated, Industrial and IFC Leasing. Threfore, IFC Leasing had actual knowledge of the fact that Industrial’s right to collect the purchase price was not unconditional, and that it was subject to the condition that the tractors sold were not defective. It knew that if the tractors turned out to be defective, it would be subject tot the defense of failure of consideration and cannot recover the purchase price. IFC’s taking of the promissory note with actual knowledge of the foregoing facts amounted to bad faith and therefore cannot be considered as a holder in due course and is subject to all defenses which Consolidated may raise against Industrial.

Sections 52 and 56 of the NIL are applicable. IFC Leasing failed to take the promissory note (1) in good faith and for value and (2) he had notice of the infirmity or defect in title of the person negotiating it, in this case Industrial. He had actual knowledge of the infirmity and the defect in title. Campos v. Campos and Commercial Credit Corp v. Orange Country: a financing company is not a holder in good faith. It is a moving force in the transaction from its inception. Sec. 58 also provides that in the hands of a holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable.

FACTS: Anita Gatchalian, interested in looking for a car, was shown and offered a car by Manuel Gonzales. Gonzales represented to Gatchalian that he was duly authorized by the owner of the car, Ocampo Clinic (hereinafter Ocampo), to look for a buyer of said car and to negotiate for and accomplish said sale, but these facts were not known to Ocampo. Gatchalian requested Gonzales to bring the car the following day together with the certificate of registration of the car. Gonzales however, advised her that the owner of the car will not be willing to give the certificate of registration unless there is showing that the party interested in the purchase of said car is ready and willing to make such purchase and that for this purpose Gonzales requested Gatchalian to give him a check which will be shown to the owner as evidence of the buyer’s good faith in the intention to purchase the car. The said check was to be for safekeeping only of Gonzales and to be returned to Gatchalian the following day when Gonzales brings the car and certificate of registration. Gatchalian then issued a check. These facts were again not known to Ocampo. On the failure of Gonzales to appear with the car and its certificate the following day, Gatchalian issued a “Stop Payment Order” on the check with the drawee bank. Subsequently, Gonzales, having received the check from Gatchalian, delivered the same to Ocampo Clinic, in payment of fees and expenses arising from the hospitalization of his wife, Matilde. Ocampo, for and in consideration of fees of hospitalization accepted the said check from Gonzales. As the check was issued for P600, while the hospital bills amounted to P441.75, Ocampo delivered to Gatchalian the difference of P158.25. This transaction was made without inquiry by Ocampo from Gonzales. A case for estafa was thereafter filed by Ocampo against Gonzales as the check bounced (by virtue of Gatchalian’s “Stop Payment Order”). The estafa case was dropped and now a collection case against Gatchalian was filed. GATCHALIAN’s CONTENTIONS: The check is not a negotiable instrument because it was only for safekeeping, hence, there was no delivery required by law. Assuming that there was delivery, it was subject to a condition which was not fulfilled. Ocampo is not a holder in due course because Ocampo as the following facts brought suspicion about Gonzales’ possession of the check: 1) Check is not personal check of Manual Gonzales 2) Maker, Gatchalian, a complete stranger, is not in any manner obligated both to Gonzales and Ocampo P 26 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

3) 4)

The check could not have been initiated to pay the hospital fees as it was in the amount of P600 and not P441.75. Check is payable to bearer, hence any person who holds it should have been subject to inquiries.

ISSUE: Whether Ocampo is a holder in due course ---NO, requisite of good faith is lacking. Gatchalian had no obligation to Ocampo; the amount of the check did not correspond exactly with Gonzales’ obligation to Ocampo; and the check was a crossed check- these facts should have put Ocampo to inquiry as to the why and wherefore of the possession of the check by Gonzales. It was Ocampo’s duty to ascertain from Gonzales what the nature of the latter’s title to the check was or the nature of his possession. Ocampo is therefore guilty of gross neglect in not finding out the nature and title and possession of Gonzales, amounting to legal absence of good faith. It is sufficient to show that Ocampo had notice that there was something wrong about his assignor’s acquisition of title to show absence of good faith because actual knowledge of the particulars or nature of the fraud committed are not necessary. *Story of the 15-year old boy, less than 5 ft tall, immature in appearance and bearing on his face the stamp of a degenerate, who presented stolen liberty bonds to a clerk of Liberty Loan department for sale. The boy claimed the bonds belonged to his mother and so the clerk paid the bonds without inquiry. Held: Owner of the bonds can recover the value from Loan department. “Bad faith” here is used in the commercial sense. Although gross negligence does not of itself constitute bad faith, it is evidence from which bad faith may be inferred. *The rule that a possessor of the instrument is prima facie a holder in due course does not apply because there was a defect in the title of the holder. The burden was placed upon the payee to show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith, this it failed to do. *Gill v. Cubitt: the purchaser of a negotiable paper must exercise reasonable prudence and caution and that if the circumstances were such as ought to have excited the suspicion of a prudent and careful man, and he made no inquiry, he did not stand the legal position of a bona fide holder. *Goodman v. Harvey: nothing short of actual bad faith or fraud in the purchaser would deprive him of the character of a bona fide purchaser and let in defenses existing between prior parties, that no circumstances of suspicion merely, or want of proper caution in the purchaser, would have

this effect, and that even gross negligence would have no effect, except as evidence tending to establish bad faith or fraud. *It is finally settled that negligence on the part of the plaintiff, or suspicious circumstances sufficient to put a prudent man on inquiry, will not of themselves prevent a recovery, but are to be considered merely as evidence bearing on the question of bad faith. When the plaintiff is called upon to prove himself a holder in due course to be entitled to recover, he is required to establish the conditions entitling him to standing as such, including good faith in taking the instrument. It devolves upon him to disclose the facts and circumstances attending the transfer, from which good or bad faith in the transaction may be inferred. PEOPLE VS. MANIEGO 148 SCRA 30 Sec. 52-59 FACTS: CFI of Rizal indicted Lt.Rizalino Ubay, Milagros Pamintuan, and Julia Maniego for the crime of Malversation. Lt.Rizalino, officer of the Armed Forces of the Phil., was designated as Disbursing Officer in the Office of the Chief of Finance and entrusted with the control of public funds. He accepted from his co-accused several personal checks drawn against the Philippine National Bank and the Bank of the Phil Islands, of which the accused Pamintuan is the drawer and Maniego, the indorser. They cashed said checks in the amount of P66,434.50 and using for this purpose the public funds entrusted to Lt. Ubay though they all knew that said checks are worthless. Maniego prayed that she be absolved from civil liability. She(Maniego) contends that as mere indorser, she may not be made liable on account of the dishonor of the checks indorsed by her. ISSUE: W/N a mere indorser is liable on account of the dishonor of the checks indorsed HELD: (YES) Under the law, the holder or last indorsee of a negotiable instrument for the full amount thereof against all parties liable thereon. Among the “parties liable thereon” is an indorser of the instrument. Maniego may also be deemed an accommodation party in the light of the facts i.e. “a person who has signed the instrument as a maker, drawer, P 27 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

acceptor., or indorser, without receiving value therefore, and for the purpose of lending his name to some other person.” As such, she is under the law “liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew **(her) to be only an accommodation party. UCPB vs. IAC 183 SCRA 38 Sec. 52-59 FACTS: Altiura delivered a check to Makati Bel-Air as part of the payment on an office condominium unit. Petitioner Bank received from Altiura instructions to hold payment on the manager’s checks, in view of a material discrepancy in the area of the office unit purchased by Altiura. Makati BelAir proposed a possible reduction in the price. Altiura requested Bank to give both parties 15 days within which to settle their differences. The Bank requested Makati Bel-Air that the presentation of the manager’s check be held in abeyance until after 15 days but Makati refused. Bank filed a complaint-interpleader against Makati and Altiura to require both to litigate within them their respective claims over the funds represented by the manager’s check. Altiura rescinded the contract of sale of the condominium unit. Makati delivered to petitioner Bank the original Manager’s check and funds were released to Alturia.

2. Secure and deliver a Usd 200,000 dollar draft. Chandiramani obliges himself to: 1. In exchange for the 2 manager’s checks, deliver 1 managers check worth Php 4.2M from Philippine Commercial International Bank (PCIB) 2. In exchange for the dollar draft, deliver another dollar draft also worth Usd 200,000 from Han Seng Bank of Hong Kong. Yang and Chandiramani would then split the difference of Php 26,000. To reiterate, Yang drew 3 Instruments: 1. Equitable cashier’s check worth Php 2.087M payable to order of Fernando David 2. FEBTC cashier’s check worth Php 2.087M payable to order of Fernando David 3. FEBTC dollar draft drawn on Chemical Bank of NY worth Usd 200,000 payable to PCIB FCDU account no. 4195-01165-2. On December 22, 1987 1PM- Yang gave the 3 instruments to business associate Liong who gave it to his messenger for delivery to Prem Chandiramani at Philippine Trust Banks. Prem would then give the Php 4.2M Manager’s check and Han Seng dollar draft to the messenger. Messenger alleged that Prem was not there and the 3 instruments were lost. 3PM- Chandiramani delivered to Fernando David the 2 checks payable to order of Fernando David. Chandiramani received Usd 360,000 for the 2 checks. Chandiramani also deposited the FEBTC dollar draft into PCIB account. 430PM- Yang reported the loss to the police.

ISSUE: W/N Makati Bel-Air is a holder in due course

Yang requested FEBTC and Equitable to stop payment. Both banks complied but the Usd 200,000 dollar draft was paid upon representation of PCIB.

HELD: (NO) Makati was a party to the contract of sale. Makati was fully aware, at the time it had received the manager’s check, that there was at least a partial failure of consideration since it was unable to comply with its obligation to deliver office space amounting to 165 square meters to Altiura. YANG V. CA 409 SCRA 159 Sec. 52-59 FACTS: Agreement between Cely Yang and Prem Chandiramani: Yang obliges himself to: 1. Deliver 2 managers checks worth Php 2.087M

Yang filed a case against Equitable, Chandiramani and David for injunction and damages, amended for Equitable to return Php 2.087M with interest until paid. Yang filed a similar case against FEBTC amended to return Php 2.087M and the value of the FEBTC dollar draft with interest 18% until fully paid. While the case was pending, amount of the checks were converted to Tbills so as to earn interest to be awarded to the winner. RTC- Fernando David is a holder in due course. He is entitled to the checks and proceeds and Yang must collect from Chandiramani. CA- Affirmed RTC’s ruling MAIN ISSUE: P 28 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

Whether Fernando David was a holder in due course and therefore entitled to the proceeds of the 2 checks. Yang contended to SC that (1) Lack of proof the David tendered valuable consideration for the 2 checks and (2) David failed to inquire from Chandiramani how he came to possess the checks, resulting in David’s intentional ignorance tantamount to bad faith. HELD: Yes, David is a holder in due course. The checks were complete in form. They were not yet overdue and he had no notice of their dishonor. He paid for it in good faith and for value. He had no notice of any infirmity or defect in title of the drawer. In fact, he even asked the manager of China Banking Corp to inquire on genuineness of the checks. Every holder of a negotiable instrument is deemed prima facie a holder in due course. A ‘holder’ is the payee in possession. David was the payee and had possession. Since there was no evidence to the contrary, the presumption holds. (1) Sec 24 presumes valuable consideration. No evidence was presented to overcome this presumption. (2) There is no circumstance that should raise David’s suspicion. It was Yang and Chandiramani who had an agreement which David knew nothing about. David’s own dealing with Chandiramani was for the latter to deliver the checks with David as payee. David also took every step to inquire about the genuineness of the checks and only accepted them after being assured that there was nothing wrong with them. David did not close his eyes to the fraud Chandiramani committed because he had no knowledge of it. He is not in bad faith.

MESINA V. IAC 145 SCRA 497 Sec. 52 – 59 / 185 FACTS: Jose Go purchased a manager’s check from Associated Bank (AB) worth 800,000. He left the check on the manager’s table when he left the bank. So, the bank manager entrusted the check to a bank official (Uy). Uy, in turn, had a visitor (Lim). Uy answered a telephone call, then proceeded to the men’s room. When he returned, the Go’s managers check was gone. Go issues a stop order. Uy on the other hand goes to the police pointing to Lim as the perpetrator. Later, AB receives the check for clearing from Prudential Bank. It dishonors it. It receives it for clearing again, and Associated Bank dishonors it for the 2 nd time, saying that it was a stolen check. AB subsequently receives a letter from a certain Atty. Navarro demanding payment on the cashier’s check. Navarro however refuses to reveal the name of his client. The police sends a letter to Prudential asking how it had acquired the stolen check. Prudential does not divulge information, as it wanted to protect its client. AB then files an action for Interpleader with Jose Go and a John Doe. Prudential later discloses that the John Doe is Mesina, who allegedly received the check from Lim in “a certain transaction”. He would not disclose further. Mesina posits that he was a holder in due course, as the check was validly negotiated to him by Lim. TC denies Mesinas motion to dismiss, holds Mesina in default. IAC affirms the denial of the motion ISSUES: W/N Mesina was holder in due course W/N interpleader was proper remedy W/N Mesina was in default in TC HELD: 1) NO. Not willing to explain how the check came to be in his possession, and as indorsed by Lim, Mesina was said to have known the defect in his title over the check. Moreover, Go purchased the check from AB to transport funds to another bank. AB had no other intention that to issue it to Go alone. When the check was lost, no one except Go could be said to be a holder in due course as he had not indorsed it in due course. The check was never properly negotiated and was never for value. A holder of a cashier’s check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors it. If a payee obtained the check by fraud or there is some other reason that the payee is not entitled to collect, the bank can refuse payment since the bank is aware of the facts surrounding the loss. P 29 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

2) YES. The bank in filing an interpleader took proper precaution on whom as between Go and Mesina to pay the money. The Bank is not avoiding liability by the filing of the interpleader, in fact it expressed willingness to deposit the amount of the check with the clerk of court for whoever will be found by the court as validly entitled to it. 3) YES. Petitioner here argues that since he is presumably a holder in due course and for value, he cannot be compelled to litigate against Go who was not named in the check. The court ruled that, following such line of thought, even Mesina himself was not privy, not being named therein as well. ASIA BANKING CORPORATION V TEN SEN GUAN Y SOBRINOS 44 PHIL 511 Sec. 52-59 FACTS:  Defendants ordered from “Snow’ Ltd.” Ten cases of mercerized batiste of the value of $10,266.98  The batiste was to be shipped from New York to be received by the defendants in Manila  A draft for the amount alleged drawn by “Snow’s Ltd.” Against the defendants was presented to them through the plaintiff as agent of “Snow’s Ltd.” For acceptance  Delivery of the bill of lading and other documents relating to the merchandise was refused by the plaintiff until the draft was accepted by the defendants, and that delivery was contingent upon the acceptance of the draft.  Being assured by the plaintiff that the cases contained the batiste, they accepted the draft.  When the cases were opened they contained “burlap” of little value, which was not in any sense or manner the batiste ordered.  Defendants declined to receive the goods and left them in the possession of the customs authorities. ISSUE: W/N the plaintiff is a holder in due course HELD:  No. It would have been a very easy matter to give an account of the whole transaction but there is no such evidence on record.  Evidence tends to show that it was held for collection only, it follows that the defendants would have a right to make any



defense to the draft which they would have a right to make against “Snow’s Ltd.” (fraud) The defendants conditionally accepted the draft and upon discovery of the fraud the defendants promptly notified the bank.

FOSSUM V FERNANDEZ HERMANOS 44 PHIL 675 Sec. 52-59 FACTS:  The defendants placed an order with the American Iron Products Co Inc for “300 Fathoms, best quality Iron Chain Links 6 ½” x 3 7/8” x 1 ¼ “ to be made in accordance with blueprint which you submitted in your inquiry of 18 December 1919”  “this chain is to fit into a gipsy wheel, so therefore, the size must be exact. Material is to be made up according to Lloyd’s rules and the material is to be stamped with test marks and certificate of origin is to be sent with shipping documents. Price, $18.70 per 100 lbs, FLF Manila.”  The defendants received the chain and accepted the draft. However, when demand was made, the defendant refused to pay.  The defendant claims that they accepted the chain believing that the chain was in conformity to the specifications made. However, they claim that the chain did not follow the specifications ISSUE: W/N the defendants are liable on the draft HELD:  Yes. Having received the chain and accepted the draft, the defendants became at least primarily liable for the payment of the draft. The defendants have the burden of proving that the chain did not meet the standard.  The defendant’s answer did not specify or point out any specific defect in the chain, or how, or in what manner or particular it does not comply with the conditions and terms of the contract.  Furthermore, the chain came with the proper test marks and certificate of origin. NO DIGESTS FOR SEC. 60 to 63

P 30 of 51

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2D Negotiable Instruments – Atty. Mercado

VELASCO VS. TAN LIUAN & CO. 43 PHIL 196 Sec. 66 FACTS: Tan Liuan & Co. executed to Aw Yong Chiow Soo four certain promissory notes, each payable six months after its respective date. March 17, 1919, Aw Yong Chiow Soo drew a bill of exchange or sight draft, for 33,500 Yen on Jing Kee & Co., 2 Kaisandori 5-Chone, Kobe, in favor of the Philippine National Bank, which at first it refused to cash. Velasco was then induced to endorse the draft as condition for encashment. The bank cashed the draft but no part of which was received by Velasco, as all of the money was paid to Tan Liuan & Co, whose name does not appear on the instrument. In the ordinary course of business, the draft was dishonored when presented, and later Velasco was requested to personally execute to the Philippine National Bank his promissory note, for the amount of the draft, interest and expenses. August 18, 1919, as consideration for Velasco’s indorsement, Tan Liuan made a statement promising to pay Velasco or order within 10 days after he has been obligated to pay. The four promissory notes originally drawn by Tan Liuan was unqualifiedly endorsed by Aw Yong Chiow Soo to Velasco. Velasco made a statement that in case he is released from liability, he will reassign the notes back to Aw Yong Chiow Soo. Tan Liuan failed to pay Velasco, thus Velasco notified Aw Chong of Liuan’s non-payment. Aw Yong Chiow Soo alleged that Velasco cannot hold him liable upon failure of Tan Liuan to pay because he (Aw Yong Chiow Soo) is merely an accommodation party. ISSUE: Whether Aw Yong Chiow Soo is liable as unqualified indorser---YES The indorsement of Aw Yong Chiow Soo of the notes to Velasco was unqualified, and the law fixes the liability of an unqualified indorser. Oral testimony is not admissible to vary or contradict the terms of the written instrument. If it was not its purpose or intent to assume and agree to pay the notes, it should have indorsed them “without recourse” or in such a manner as to disclaim liability. Moreover, the testimony is conclusive that Tan Liuan & Co. was insolvent and that Aw Yong Chiow Soo knew that none of the notes would be paid if presented. At the time the unqualified indorsement was made, 2 of the notes had been protested and Aw Yong Chiow Soo knew that Tan Liuan & Co. was insolvent, and had no reason to expect that the notes would be paid. Aw Yong Chiow Soo therefore as unqualified indorser is liable to Velasco. GULLAS V PNB 62 PHIL 519 Sec. 66

FACTS: The Treasurer of the United States for the United States Veterans Bureau issued a warrant in the amount of $361, payable to the order of Francisco Sabectoria Bacos. Paulino Gullas and Pedro Lopez signed as indorsers. Thereupon it was cashed by PNB. Subsequently the treasury warrant was dishonored by the Insular Treasurer. At that time the outstanding balance of Attorney Gullas on the books of PNB was P509. Against this balance he had issued certain checks which could not be paid when the money was sequestered by the bank. Without giving notice to Gullas, PNB applied the P509 in his account to the treasury warrant that was dishonored. PNB subsequently sent a letter to Gullas informing him of the dishonored checks and the fact that they applied his account as part payment for the said treasury warrant. As a consequence, Gullas’ insurance was left unpaid since his check was dishonored for lack of sufficient funds. Moreover, periodicals in the vicinity gave prominence to the news to the great mortification of Gullas. PNB claims the right to set-off the account of Gullas against that indorsed treasury warrant by virtue of the NCC provisions on compensation. It further claims that there is a creditor-debtor relationship between the bank and its client. ISSUE: Whether PNB has the right to apply the deposit of a depositor to the bank—Generally yes, but if the depositor is an indorser and not maker (as in this case), he should first be notified before applying compensation. NIL contains provisions establishing the liability of a general indorser and giving the procedure for notice of dishonor. The general indorser of a negotiable instrument engages that if it be dishonored and the necessary proceedings of dishonor be duly taken, he will pay the amount thereof to the holder. Notice of dishonor is therefore necessary in order to charge an indorser and that the right of action against him does not accrue until the notice is given. As a general rule, a bank has a right of set off-of the deposits in its hands for the payment of any indebtedness to it on the part of a depositor. However, the fact is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been held that he has a right of action against the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against him. However this rule should be differently applied to an indorser because NIL clearly provides that notice should actually have first been given him in order that he might protect his interests before compensation may be applied by the bank. The action of the bank was clearly prejudicial to Gullas. ASSOCIATED BANK V. TAN P 31 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

446 SCRA 282 Sec. 66 (NO DIGEST) GONZALES V. RCBC 508 SCRA 459 Sec. 66 (NO DIGEST) FAR EAST REALTY INVESTMENT INC. VS CA 166 SCRA 256 Sec. 71 Facts:  Petitioner (Far East Realty Investment, Inc.) alleged that Dy Hian Tat, Siy Chee, and Gaw Suy An approached the petitioner at its office in Manila on September 13, 1960 and obtained a loan in the amount of P4,500 (Philippine currency).  The defendants promised to repay the amount solidarily plus a 14% per annum interest rate in one month in cash.  And to to back this promise up, Dy Hian Tat drew a check from his bank, China Banking Corporation to Far East on the same day the loan was obtained and in the same amount which was P4,500.  He assured that the check would be redeemed by them in one months time by paying P4,500 in cash or that the check can be presented for payment immediately after one month and the bank would honor the same.  Siy Chee and Gaw Suy An, signed on the back of the check as accommodation parties.  The check was dated September 13, 1960 (which was the time they obtained the loan)  March 4, 1964 (around 4 years later), Far East presented the check to China bank but the check bounced and was not cashed by the bank because the current account of the drawer had already been closed.  Far East gave formal notice of the check’s dishonor by letter dated April 27, 1968 (around 4 years later) and demanded payment.  Far East then brought suit in the City Court of Manila, which ruled in their favor.  The defendants appealed the decision to the Court of First Instance of Manila, which affirmed the decision. However, when brought to the Court of Appeals, it reversed the previous rulings.  The Court of Appeals held that Far East had failed to present the check for payment “within a reasonable time”.  Far East appealed to the Philippine Supreme Court hence this petition.  Petitioner contends that presentment for payment may be dispensed with if its useless like in this case where there was insufficiency of funds so the drawer is still liable. Plus drawer cant be included in the exception because he hasn’t proven any loss.  Defendants contends that the petitioner is not a holder for value because the drawer drew the check and it was delivered to Sin Chin

Juat Grocery in payment of grocery goods for Goodyear Lumber and not the Far East which it had no transactions with. The check was not delivered to Far East as consideration. Issue: Whether or not presentment for payment and notice of dishonor of the questioned check were made within reasonable time Held and Ratio:  No. Where an instrument is payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof.  Notice may be given as soon as the instrument is dishonored and unless delay is excused, it must be given within the time fixed by law.  “reasonable or unreasonable time” depends upon the peculiar facts and circumstances in each case.  Reasonable time is so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights and possibility of liss, if any, to the other party.   

The check in question was issued on Spetemnet 13, 1960, BUT was presented by the drawee ONLY on March 5, 1964 (around 4 years later), and dishonored on the same date. After dishonor, a formal notice of dishonor was made only 4 more years after on April 27, 1968. Under these circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do as required by law. There was also no justification as to his delay.

REPUBLIC VS PNB/ THE FIRST NATIONAL CITY BANK OF NEW YORK 3 SCRA 851 Sec. 71 / 127 / 185 FACTS: 



The Republic of the Philippines filed a complaint for escheat of certain unclaimed bank deposits balances under the provisions of Act No. 3936 against several banks, among them the First National City Bank of New York. It is alleged that pursuant to Section 2 of said Act defendant banks forwarded to the Treasurer of the Philippines a statement under oath of their respective managing officials of all the credits and deposits held by them in favor of persons known to be dead or who have not made further deposits or withdrawals during the period of 10 years or more. Wherefore, it is prayed that said credits and P 32 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

deposits be escheated to the Republic of the Philippines by ordering defendant banks to deposit them to its credit with the Treasurer of the Philippines. 

In its answer the First National City Bank of New York claims that, while it admits that various savings deposits, pre-war inactive accounts, and sundry accounts contained in its report submitted to the Treasurer of the Philippines pursuant to the Act, totalling more than P100k, which remained dormant for 10 years or more, are subject to escheat however, it has inadvertently included in said report certain items amounting to P18,589.89 which, properly speaking, are not credits or deposits within the contemplation of Act No. 3936. Hence, it prayed that said items be not included in the claim of plaintiff.



After hearing the court a quo rendered judgment holding that cashier's is or manager's checks and demand drafts (as those which defendant wants excluded from the complaint) come within the purview of Act No. 3936, BUT not the telegraphic transfer payment which orders are of different category.



The complaint was dismissed with regard to the telegraphic transfer payment. But, after a motion to reconsider was filed by defendant, the court a quo changed its view and held that even said demand drafts do not come within the purview of said Act and so amended its decision accordingly. Plaintiff has appealed.lawphil.net

ISSUE: Do demand draft and telegraphic orders come within the meaning of the term "credits" or "deposits" employed in the law? Can their import be considered as a sum credited on the books of the bank to a person who appears to be entitled to it? Do they create a creditor-debtor relationship between drawee and the payee therefore subject o eschaeat? HELD and RATIO: No. a demand draft is a bill of exchange payable on demand. Considered as a bill of exchange, a draft is said to be, like the former, an open letter of request from, and an order by, one person on another to pay a sum of money therein mentioned to a third person, on demand or at a future time therein specified. On the other hand, a bill of exchange within the meaning of our Negotiable Instruments Law does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts it. This is the clear import of Section 127. It says: "A bill of exchange of itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereon and the drawee is not liable on the bill unless and until he accepts the same."

In other words, in order that a drawee may be liable on the draft and then become obligated to the payee it is necessary that he first accepts the same. In fact, our law requires that with regard to drafts or bills of exchange there is need that they be presented either for acceptance or for payment within a reasonable time after their issuance or after their last negotiation thereof as the case may be (Section 71, Act 2031). Failure to make such presentment will discharge the drawer from liability or to the extent of the loss caused by the delay Since it is admitted that the demand drafts herein involved have not been presented either for acceptance or for payment, the inevitable consequence is that the appellee bank never had any chance of accepting or rejecting them. Verily, appellee bank never became a debtor of the payee concerned and as such the aforesaid drafts cannot be considered as credits subject to escheat within the meaning of the law. (Re telegraphic orders: If the latter choose to demand payment of their telegraphic transfers at the time the same were received by the defendant bank, there could be no question that this bank would have to pay them. Now, the question is, if the payees decide to have their money remain for sometime in the defendant bank, can the latter maintain that the ownership of said telegraphic payment orders is now with the drawer bank? The latter was already paid the value of the telegraphic payment orders otherwise it would not have transmitted the same to the defendant bank. Hence, it is absurd to say that the drawer banks are still the owners of said telegraphic payment orders) INTERNATIONAL CORPORATE BANK V. SPOUSES GUECO 315 SCRA 516 Sec. 71 / 186 FACTS: Spouses Gueco obtained a loan from International Corporate Banik (Union Bank) for the purchase of a car (Nissan Sentra 1600 4DR 19889 Model). As evidence of the loan, they issued a promissory note payable in monthly installments and a chattel mortgage on the car as security for the note. They defaulted in payment of the installments and Union Bank instituted a Civil Case for collection of sum of money with a prayer for a writ of replevin. Spouses Gueco were served summons, after which they had a meeting with the Bank representatives and entered into negotiations for the reduction of their debt. On Aug. 25, 1995 the Bank agreed to reduce the debt from 184K to 154K and on Aug. 28, 1995 to further reduce it to 150K. On Aug. 29, 1995 Dr. Gueco delivered a manager’s check for 150K to the bank but the car was not released because of his refusal to sign the Joint Motion to Dismiss. Dr. P 33 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

Gueco argued that the joint motion was unnecessary since he has not yet filed an answer. However, the bank insisted saying that it is a standard operating procedure.

b.

The Spouses Gueco initiated a civil action for damages after several demands and meetings with the bank representatives. The MTC dismissed the case but the RTC reversed the decision. It said that there was a meeting of the minds as to the reduction of the debt but said agreement did not include the signing of a joint motion to dismiss. Hence the car should be returned to the Spouses Gueco immediately and the Bank may deposit the Manager’s check. The court also awarded damages to the Spouses Gueco.

c.

d.

The CA affirmed the decision ISSUES: 1. 2.

W/N the signing of the Joint Motion to Dismiss is a condition sine qua non of the compromise agreement W/N the car should be returned without making any provision for the issuance of a new manager’s check by the Spouses Gueco in favor of the Bank in lieu of the original cashier’s check that already became stale

e.

HELD: f. 1.

2.

The signing of the Joint Motion to Dismiss is not a condition sine qua non of the compromise agreement. It has been established and resolved by the trial court that the parties had agreed to the reduction of the loan through an oral compromise agreement made on Aug. 28, 1995 and that the compromise agreement did not include the condition of signing a Joint Motion to Dismiss. The requirement of the Bank that Dr. Gueco sign a Joint Motion to Dismiss only surfaced in Aug. 29, 1995 when he was to make payment of the 150K. There is no need to reverse the ruling of the trial court and the CA on this matter. However the award of damages is deleted as fraud on the part of the Bank was not proven by its insistence that Dr. Gueco sign the Joint Motion to Dismiss. It is not correct to say that the Bank was negligent in opting not to deposit the check and should therefore suffer the loss occasioned by the fact that the original check had become stale. a. Stale check - a check which is not presented for payment within a reasonable time after its issue. It is valueless and therefore should not be paid. Under the NIL an instrument not payable on demand should be presented for payment on the day it falls due. An instrument payable on demand should be presented within reasonable time after its issue.

In the case of the bill of exchange presentment is sufficient if made within a reasonable time after its issue. Reasonable time – depends on the circumstances of each case. A check must be presented for payment within a reasonable time after its issue. This is because of the nature and theory behind the use of a check points to its immediate use and payability. In the case at bar the check involved is not an ordinary check, but a manager’s check, similar to a cashier’s check, which the manager of the bank draws upon the bank itself. Its issue is equivalent to acceptance. If treated as a promissory note, the drawer is the maker. Holder need not prove presentment for payment or present the bill to the drawee for acceptance. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. Even if assuming that presentment is needed. Failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on time does not wipe out all liability. The Gueco spouses nor the bank upon whom the check was drawn did not suffer damage or loss caused by the delay of presentment. Hence the original obligation to pay the 150K has not been erased. Union Bank held on to the check and refused to encash it because of the controversy surrounding the signing of the joint motion to dismiss. There is no bad faith or negligence in the position taken by the Bank and the Spouses Gueco are ordered to pay 150K.

ANSALDO V. CA 177 SCRA 8 Sec. 74 FACTS: Transoceanic Factors Corporation (TFC) issued 6 promissory notes signed by its President A.S. Moreno in favor PCIB. The notes were made out in various amounts totaling to 150K. During the same span of time TFC extended two loans, one for the petitioner Jose Ansaldo for the amount of 28,697.39 and another for Teofilo Reyes for the amount of 26,000.00. The loans were evidenced by negotiable promissory notes wherein Ansaldo and Reyes both (1) waived “demand, presentment, protest and notice of protest and non-payment” and (2) undertook in case of default the payment of damages. P 34 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

TFC only paid 78K of its total obligation to PCIB. It endorsed Ansaldo’s and Reyes’ promissory notes to PCIB. Despite repeated demands made by PCIB, TFC, Ansaldo and Reyes still failed to pay. PCIB now asks for the enforcement of the notes. The trial court and the CA ruled in favor of PCIB. Only Ansaldo is appealing the judgment of the CA. ISSUES: 1. 2.

W/N there was a valid assignment of credit by TFC to PCIB W/N Sec. 74 of the NIL was violated by alleged failure of PCIB to present the note for payment to Ansaldo

HELD: 1.

2.

There was a valid assignment of credit according to the provisions of articles 1625, 1626 and 1627 of the civil code. Consent of the debtor need not be secured for the credit to be assigned to a third person. Notice is the only requirement of the law. Evidence shows that Ansaldo received the required notice of assignment of credit. It is of no consequence that the notice was given by PCIB and not the assignor TFC. The assignee, PCIB, has a greater interest in notifying the debtor than TFC. It is not necessary that the assignment be evidenced by a public document. The public document is only for the purpose of binding third persons. Ansaldo and Reyes are not third persons. Sec. 74 provides that “the instrument must be exhibited to the person from whom payment is demanded, and when it is paid must be delivered to the party paying it” a. This is issue was never raised in either the CA or trial court and cannot be raised first time on appeal. b. If the exhibition was necessary to determine the genuineness of the note, this has already been rendered unnecessary not only by Ansaldo’s own omission to contest the note but also from his admission of the authenticity of the note implicit of his averments that he had made substantial payments thereon (3,011.40 – which were credited by the trial court to him) c. Also Ansaldo had expressly waived “demand, presentment, protest and notice of protest and non-payment” of the note.

Judgment of CA affirmed. PHILIPPINE NATIONAL BANK v. SEETO 91 Phil 757 Sec. 84 / 186

FACTS:  Benito Seeto called Philippine National Bank (PNB) Surigao and presented a check worth P5,000 dated at Cebu on March 10, 1948, payable to cash or bearer and drawn by Gan Yek Kiao against Philippine Bank of Communications (PBC) Cebu.  Seeto made a general and unqualified indorsement of the check to PNB. PNB Surigao accepted and paid Seeto P5,000.  The check was made to PNB Cebu on March 20 and presented to PBC for payment on April 9. The check was dishonored for insufficient funds.  Check was returned to PNB Surigao and PNB demanded immediate refund from Seeto.  Seeto asked PNB to delay the filing of the suit so he could inquire as to why the check was dishonored. Thereafter, Seeto refused to refund saying that the drawer had sufficient funds at the time the check was issued and that PNB delayed in forwarding the check to PBC until the funds of Gan Yek Kiao were exhausted. Had it not delayed, it would have been paid.  Trial court ruled in favor of PNB saying that Seeto undertook to refund in case of dishonor and that this assurance was what motivated PNB (testified by witnesses) to pay the check and that there was no unreasonable delay in forwarding the check for payment  CA reversed. There is delay, parol evidence is incompetent and an indorser is merely a surety or guarantor ISSUE:  HELD:  





Whether or not Seeto is liable No, Seeto is not liable. Sections 143 and 144 of the Negotiable Intstruments Law are not applicable because these provisions refer to presentation of bills of exchange and not to checks. In checks, presentment for acceptance is not required. Section 84 s the applicable provision. Section 84 says that when an instrument is dishonored an immediate right of recourse is given to the holder against the persons secondarily liable such as an indorser Applicability of Section 84 is subject to Section 186 which provides that presentment must be made within a reasonable time after issuen otherwise the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.

P 35 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado



The silence of Section 186 1 as to the indorser is due to the fact that his discharge is already expressly covered by Section 84, the indorser being a person secondarily liable on the instrument.  The reason for the difference between the liability of the indorser and that of the drawer is not probably or necessarily prejudiced thereby, while an indorser is actually or by legally presumed to be prejudiced. (US Case: only when there is proof that the indorser knew that when he cashed the check that there would be no funds in the bank to meet it can the rule be avoided)  The fact that checks of the drawer subsequent to March 13, 1948, drawn against the same bank and cashed at the same Surigao agency, were not dishonored positively shows that the drawer had enough funds when he issued the check in question, and that had it not been for the unreasonable delay in its presentation for payment, PNB would have been able to receive payment.  We find no reason for disturbing the conclusion of the CA that there was unreasonable delay in the presentation of the check for payment at the drawee bank, and that as a consequence thereof, the indorser (Seeto) was thereby discharged.  Negotiable instruments – character of negotiability  must be passed on with promptness Even if there were assurances made by Seeto to refund the check, the assurances are the ordinary obligations of an indorser which are considered discharged by the unreasonable delay in presentation of the check for payment

ASIA BANKING CORPORATION v. JAVIER 44 Phil 777 Sec. 89 FACTS:  On May 10, 1920, Salvador Chaves drew a check on PNB worth P11,000 in favor of La Insular.  Limited partners of La Insular indorsed the check and then deposited by Chaves in his current account with Asia Banking Corporation on July 14.  On June 25, Chaves drew another check worth P18,000++ on PNB in favor of La Insular; again indorsed by limited partners and again deposited by Chaves in Asia Banking on July 6.  Amounts in both checks were used by Chaves after deposit by drawing checks against Asia Banking.  Checks were presented by Asia Banking to PNB for payment but PNB refused to pay (no funds).  Lower court ruled in favor of Asia Banking. ISSUE:  Whether or nor liability of Javier as indorser was extinguished HELD:  Yes, liability of Javier was extinguished.  We may say in connection with this assignment of error that the liability of Javier never arose.  According to Section 89, indorsers are not liable unless they are notified that the document was dishonored.  It will be incumbent upon plaintiff, who seeks to enforce defendant’s liability upon the checks as indorser, to establish said liability by proving that notice was given to Javier within the time, and in the manner, required by the law that the checks in question had been dishonored. There is no proof in the record tending to show that plaintiff gave any notice whatsoever to the defendant that the checks in question had been dishonored, and therefore it had not established a cause of action.

1

Sec. 186.—Within what time a check must be presented.—A check must be presented for payment within a reasonable time after issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. P 36 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

FIRESTONE TIRE & RUBBER CO V. CA AND LUZON DEVELOPMENT BANK. 353 SCRA 601 Sec. 89 FACTS: Forca-Arca Enterprises Co maintains and account with Luzon Development Bank (LDB). They are given special privileges like a special savings account where withdrawal of funds is made through special withdrawal slips give by LDB. Forca-Arca bought products from Firestone and paid Php 4.9M thru the withdrawals slips which was honored. Relying on this transaction, ForcaArca received around Php 2.08M worth of products using the withdrawals slips. Firestone deposited the withdrawal slips to Citibank which presented it for payment from LDB. LDB did not honor the withdrawal slips due to lack of funds. LDB did not inform Firestone of its dishonor until 6 months from the date of Forca-Arca’s purchase. Firestone sues LDB for damages due to giving the withdrawal slips the treatment as if it were checks and for failure to inform them within reasonable time of its dishonor. Firestone lost in the RTC and CA.

the account had been closed. FERI demanded payment from the respondents and was refused. Gaw Sun An raised the defense that he was merely an agent of Victory Hardware (VH). Or even if he was considered an indorser, he was discharged by FERI’s delay in presentment for payment. Dy Hian Tat raised the defense that he never approached FERI; that his signature appeared on the check because it was delivered to him by Sin Chin Juat Grocery and not FERI. He says according to Gaw Sun An, FERI being an accommodation party of VH because the check was delivered to Asian Surety and Insurance Co for VH’s indebtedness, FERI is not a holder for value and cannot collect from Dy being an indorser. He also raised the same defense of delay in presentment for payment. FERI argues that presentment may be dispensed with if it will be useless, as when drawer has insufficient funds. Thus drawer will be liable without the check having been presented to the bank for payment. ISSUE: Whether presentment for payment and notice of dishonor was made within reasonable time.

ISSUE:

HELD/RATIO:

Whether the belated notice of dishonor makes LDB liable for damages.

Respondents are not liable. Presentment must be paid on the date it falls due, or within reasonable time after issue if it is payable on demand. "Reasonable time" has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights, and possibility of loss, if any, to the other party. In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee bank only on March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor was made by the petitioner through a letter dated April 27, 1968. Under these circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do al. required by law. The petitioner likewise failed to show any justification for the unreasonable delay.

HELD/RATIO: No. The withdrawal slip being a non-negotiable instrument, no obligation to give notice of dishonor arises. Firestone is negligent for assuming that the withdrawal slips were ‘good’ when it is clearly marked ‘non-negotiable’. FAR EAST REALTY INVESTMENT V. CA 166 SCRA 256 Sec. 102 FACTS: On September 13, 1960, Dy Hian Tat, Siy Chee and Gaw Sun An (RESPONDENTS) approached Far East Realty Investment (FERI) in their Manila branch for an accommodation loan worth Php 4,500. The terms of the loan were that respondent would be solidarily laible, interest of 14% per annum and payable in one month. The respondents delivered a check to FERI drawn against China Banking Corp (CBC) for Php 4,500, signed by all of them at the back and dated September 13, 1960. Respondents assured CBC that they would pay the loan in one month or that FERI could present the check to CBC, which CBC will honor. FERI presented the check to CBC for payment only on March 5, 1964 and was dishonored because

LAO V. CA 274 SCRA 572 Sec. 102 FACTS: Lina Lim Lao (hereinafter Lim) was a junior officer of Premiere Investment House and as such is authorized to sign checks for and on behalf of the corporation. Father Artelijo Palijo (Society of Divine Word Treasurer) invested donations in Premiere totaling Php 514,484.04. He received 3 checks as payment for interest; 2 of them for Php 150,000 and the other P 37 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

for Php 26,010.73. The checks were signed by Lim and Teodulo Asprec (Head of Operations). The checks were dishonored. Palijo went to the corporation president and was paid Php 5,000 but no other payments were made. Premiere was subsequently placed under receivership. Palijo filed three cases of BP22 violation against Lim and Asprec (1 case for each check that bounced). Asprec could not be found and Lim was found guilty for 2 counts corresponding to the 2 checks worth Php 150,000. Requisites for BP22 1. person makes or draws and issues any check 2. the check is to apply on account or for value 3. the person knows at the time of issue he does not have sufficient funds for full payment upon presentation 4. checks is subsequently dishonored for lack of funds, or would have been dishonored for the same reason if the drawer, without any valid reason, ordered the bank to stop payment Lim raised the defense of lack of knowledge of insufficiency of funds. In the normal course of business, she signs the check in blank and Asprec takes care of filling up the amount and payee. Her job took her mostly out on the field and gives strength to her defense of lack of knowledge. Another defense she raises is lack of adequate notice of dishonor. Lim was not informed that the checked bounced.

CITY TRUST BANK 196 SCRA 553 Sec. 126

ISSUE:

What are the liabilities of citytrust and MM

Whether she can be convicted for violating BP 22. Whether notice of dishonor is required.

RULING:

HELD/RATIO: Lim is acquitted. Lack of knowledge of insufficiency of funds and lack of notice of dishonor are valid defenses. Without notice of dishonor, there can be no prima facie evidence of knowledge of insufficiency of funds. BP22 provides for a presumption that the drawer had knowledge of the lack of funds. However, BP22 states that this presumption only applies if after receiving the notice of dishonor, there is no payment after 5 banking day. Without the notice, this presumption will not apply. Sec 102 of NIL states that notice must be given as soon as the instrument is dishonored and, unless delay is excused as hereinafter provided, must be given within the time fixed by this act.

FACTS: On Dec. 10. 1980 Samara purchased from Citytrust Bank a Bank Draft worth 40,000$usd , the payee being Thai International airways and the drawee bank in the US being Marine Midland. On Dec. 23, 1980, Samara executed a stop-payment order of the bank draft instructing Citytrust to inform Marine Midland about the order through Teletex. Citytrust transmitted the message to MM the next day and followed it up with cable, which MM acknowledged to have received on Jan 14, 1981 stating that it has not paid the bank draft. Citytrust credited Samara’s account due to the non-payment. But after 7 months, Citytrust re-debited S’s account after discovering that MM debited the account of Citytrust. TC: MM is bound by its letter that it did not pay the bank draft and did not give credence to defense of Citytrust that MM debited Citytrust’s account before the stop-payment order was made by Samara ISSUE:

Citytrust form which Samara purchased the bank draft, was the drawer of the draft throught which it ordered MM, the drawee bank, to pay the amount of 40k USD in facor of Thai International, payee. The drawee bank acting as a “payor” bank is solely liable for acts not done in accordance with the instructions of the drawer bank or the purchaser of the draft. The drawee bank has the burden of proving that id did not violate. Meanwhile, the drawer, if sued by the purchaser of the draft is liable for the act of debiting the customer’s account despite an instruction to stop payment. The drawer has the duty to prove that he complied with the order to inform the drawee. MM was the primary cause of the loss to Samara and is held primarily liable. **** The joint and several obligation to pay the private respondent and the right of the petitioner to be reimbursed are retained. But the decision is modified in so far as the amount of liability is concerned: a. Citytrust- 40usd plus 12% compounded interest per annum plus damages b. MM- 40usd plus 6% simple interest plus attorney’s fees because the previous decision was appealed only by MM, the modified or reduced amount of liability inured only to its benefit the Court will not allow a situation where a codefendant who is primarily liable would be charged for a lesser amount than its codefendant. MM is the source of injury and cant be unjustly enriched P 38 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

THE PHILIPPINE BANK OF COMMERCE V. ARUEGO 102 SCRA 530 Sec. 19-20 / 126 / 143 FACTS:  The PBC filed a complaint against Aruego based on 22 causes of action resulting from 22 different transactions for the sum of P35,000 plus interest.  Aruego published a periodical entitled “ WORLD CURRENT EVENTS” and to facilitate the printing, he obtained a credit accommodation from the plaintiff. Thus, for every printing , ENCAL PRESS AND PHOTO-ENGRAVING, collected the cost of printing by drawing a draft against the plaintiff, which were sent to defendant for acceptance.  Aruego also executed a trust receipt wherein he held in trust for plaintiff the periodicals and to sell them and use the proceeds to pay off his obligation to the bank.  The defendant argues that: o He signed the bills in a representative capacity as the President of the Philippine Education Foundation Company, publisher of the periodical. o He merely signed as an accommodation party and as such, should be made liable only after a showing that the drawer is incapable of paying o The drafts are not bills of exchange, rather they are pieces of evidence of indebtedness. ISSUE: W/N Aruego is liable on the said drafts. HELD: Yes 

  

A party who signs a bill of exchange as an agent, but failed to disclose his principal becomes personally liable for the draft he accepted. Nowhere did the defendant disclose that he was signing as representative of the Philippine Education Company. He merely signed as follows. “Jose Aruego(acceptor) Sgd Jose Aruego” In lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. Liability of an acceptor or drawee is primary; A party, a lawyer, who intends to be secondarily liable should not have signed as an acceptor drawee. A commercial paper which conforms under the definition of a bill of exchange is a bill of exchange. The nature of the acceptance is important only in the determination of the liability of the parties , but not to determine whether a commercial paper is a bill of exchange or not. P 39 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

BANK OF AMERICA V. CA 228 SCRA 357 Letters of Credit FACTS: Bank of America received by registered maul an Irrevocable Letter of Credit purportedly issued by Bank of Ayudha in Thailand for the account of General Chemicals (Thailand) for $2,782,000 to cover the sale of plastic ropes and agricultural files. Bank of America acted as the advising bank to the beneficiary Inter-Resin Industrial Corporation. Bank of America notified Inter-resin of the letter of credit. Inter-resin then sent its lawyer to confirm the letter of credit. A bank official said that there was no need to confirm because the letter of credit would not have been transmitted if it was not genuine. Inter-resin sought to make partial availment of the letter of credit for the shipment of goods worth $1,320,600. Bank of America issued a cashier’s check in pesos and subsequently asked for reimbursement from the Bank of Ayudha. Inter-resin again wanted to make a second availment of the letter of credit. Bank of America received a telex from the Bank of Ayudha declaring the letter of credit as fraudulent. The letter of credit had been issued for the account of Siam Union Metal in favor of Electrolutic Zinc Co. and not for the account of General Chemicals in favor of Inter-resin. Hence, Bank of America stopped processing Inter-resin’s request. Bank of America sought the help of its branch in Thailand and the NBI to determine the authenticity of the letter of credit. It was found that the vans exported by Inter-resin did not contain plastic ropes but plastic strips and waste materials. Bank of America files criminal charges against the officials of Inter-resin for estafa which was dismissed for insufficiency of evidence. It is now seeking recovery of the payment it made to Inter-resin. Inter-resin on the other hand is claiming that it is entitled to be paid for the remaining balance of the letter of credit covering the second shipment of goods. It is arguing that Bank of America made assurances that enticed it to send merchandise to Thailand and that Bank of America was at fault for not verifying the authenticity of the letter of credit. The trial court and the CA ruled in favor of Inter-resin and held the Bank of America as liable for payment of the balance. Hence, this petition. P 40 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

ISSUE: 5. 1. 2. 3.

Whether or not Bank of America warranted the genuineness and authenticity of the letter of credit Whether or not it has acted merely as an advising bank of a confirming bank Whether or not Bank of America following the dishonor of the letter of credit by the Bank of Ayudha may recover from Inter-resin

HELD: Read the annotations on letters of credit. The court explained the structure and relationship of parties in letters of credit. 1.

2.

The Bank of America is merely an advising bank and not a confirming bank as proved by the letter of credit itself, the letter of advice, the bank’s request for payment of the advising fee and the admission of Inter-resin that it has paid the same. The letter of credit is an engagement of the issuing bank and not the advising bank. In this case the draft to be drawn was under the name of General Chemicals to be paid by the Bank of Ayudha and not the Bank of America. a. Also the Bank of America’s letter of advice to Inter-resin said that “the enclosure is solely an advise of credit opened by the abovementioned correspondent and conveys no engagement by us.” The written reservation limits the obligation of the Bank of America merely as an advising bank. b. As an advising bank the Bank of America did not incur any obligation other than notifying Inter-resin of the letter or credit. The statement of the bank employee did not effectively novate the letter of credit or the letter of advise and hold the bank wholly liable Inter-resin cannot argue that the Bank of America induced it to send merchandise to Thailand. It is strange if it did not enter into a contract with General Chemicals prior to the issuance of the letter of credit. A perfected contract precedes the issuance of a letter of credit

3.

Art. 18 of the UCP: Banks assume no liability or responsibility for the consequences arising out of the delay and or loss of any messages, letters or documents, or for delay, mutilation or other errors arising in the transmission of any telecommunication

4.

The Bank of America as advising Bank is bound only to check the apparent authenticity of the letter of credit. a. Apparent – unaided senses that is not or may not be borne out by more rigorous examination or greater knowledge

The Bank of America may also recover what it has paid to Interresin. What happened was a discounting arrangement, where Bank of America acted independently as a negotiating bank. Inter-resin did not have to present the documents to the Bank of Ayudha in Thailand to recover payment. a. As negotiating bank, Bank of America has a right of recourse against the issuing bank and until reimbursement Inter-resin has contingent liability b. Bank of Ayudha in turn can claim reimbursement from General Chemicals. But since the Bank of Ayudha disowned the letter of credit, Bank of America may now turn to Interresin for payment

FEATI V. CA 196 SCRA 576 Letters of Credit FACTS: Villaluz and Christiansen entered into an agreement to sell lauan logs. Christiansen issued a purchase order for the logs in favor of Hanmi Trade and Development Corp. Christiansen acted as the broker of the sale. Hanmi instructed the Security Pacific and National Bank to issue an irrevocable letter of credit for $54,000 available at sight in favor of Villaluz. The letter of credit was sent to Feati Bank (now Citytrust) with the instruction that it “forward the enclosed letter of credit to the beneficiary.” The letter of credit provided that the draft be drawn by Villlaluz against the Security Pacific and National Bank and that it be accompanied by certain documents including the certification of Christiansen stating that the logs have been approved prior to shipment. Also incorporated by reference in the letter of credit is the Uniform Customs and Practice for Documentary Credits. The logs were then loaded on the vessel Zenlin Glory and were inspected and certified by the representatives from the Bureau of Customs and Bureau of Forestry. The logs were also approved by the Chief Mate of the vessel. Christiansen, however, refused to issue his certification. As a consequence, Feati refused to advance payment on the letter of credit. Although it had allowed Villaluz to obtain a loan for P45,000 in order to cover the cost of shipment. Villauz appealed to the Central Bank and the Central Bank issued a memorandum stating that the certification of the Bureau of Forestry is sufficient to approve the shipment of the logs. P 41 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

a.

The logs arrived at Korea and received by Hanmi and were later on sold to Taitsung Lumber Company. The demand of Villauz for payment of the draft were unheeded by Feati because of the absence of the certification of Christiansen. Villaluz filed a petition for mandamus and specific performance against Christiansen and the Feati Bank. 5. The trial court and the Ca rule din favor of Villaluz. Hence this petition. ISSUE: 1. 2.

Whether or not a correspondent bank is to be held liable under the letter of credit despite the non-compliance of the beneficiary with the terms thereof Whether or not FEATI is a notifying of confirming bank

HELD: 1.

2.

3.

4.

Irrevocable credit – means that the issuing bank may not without the consent of the beneficiary and the applicant revoke his undertaking under the letter of credit b. Confirmed Credit – obligation assumed by the correspondent bank. Correspondent bank gives 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. And even if FEATI be considered as a negotiating or a confirming bank, it cannot be forced to pay the amount under the letter because there was a failure on the part of Villaluz to comply with the terms of the letter of credit.

KENG HUA PAPER PRODUCTS V. CA 286 SCRA 257 Letters of Credit FACTS:

It is a settled rule that the documents tendered by the beneficiary must strictly conform to the terms of the letter of credit. The tender must include all the documents required by the letter. a. A correspondent bank bears the risk of non-reimbursement if it decides to pay the beneficiary despite the noncompliance with the terms of the letter of credit b. The rule is recognized in the United States and has been adopted by the Philippines The letter of credit also incorporates the Uniform Customs and Practice for Documentary Credit (UCP) as such the said rules are applicable in the relations between the parties. Also, even if there was no incorporation in the letter of credit, Art. 2 of the Code of Commerce states that in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by the customs and usages generally observed. Hence, the applicability of the UCP particularly articles 3, 7 and 8. The mentioned provisions state that the bank may only negotiate, accept or pay, if the documents tendered to it are on their face in accordance with the terms and conditions of the documentary credit. The absence of any document required justifies the refusal by the correspondent bank to negotiate, accept or pay the beneficiary. It is not its obligation to look beyond the documents. It merely has to rely on the completeness of the documents tendered by the beneficiary. FEATI is merely a notifying bank. The credit is irrevocable but not confirmed and FEATI is not bound to pay without presenting the documents required by the letter of credit.

Keng Hua Paper Products bought 50 tons waste paper from Ho Kee Waste Paper in Hong Kong as manifested by a letter of credit issued by Equitable Bank. Partial shipment was allowed and that the remaining balance of the shipment was only 10 more tons. Sea Land Service received at its Hong Kong terminal a sealed container with the waste paper for shipment to Keng Hua Paper Products. The shipment was discharged at the port in Manila. Notices were then sent to Keng Hua but the latter failed to discharge the shipment and the waste paper remained inside the container of Sea Land Service for 481 days. During the 481 days, demurrage charges accrued. Sea Land Service is now asking for payment for the demurrage from Keng Hua. Keng Hua on the other hand alleges that it only agreed for the shipment of the remaining balance of 10 tons of waste paper and that what Sea Land Service was asking Keng Hua to accept was 20 tons of waste paper and that Keng Hua informed Sea Land that the shipment was wrong. Keng Hua also argued that Sea Land should collect payment of the demurrage from Ho Kee Waste Paper, since the later was the one that hired Sea Land. ISSUE: 1. Whether or not Keng Hua accepted the Bill of Lading and is therefore liable for the payment of the demurrage charges. HELD: 1.

Keng Hua is liable for payment of the demurrage P 42 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

2.

3.

4.

Bill of lading has two functions: a. Receipt for the goods shipped b. Contract by which three parties, namely the shipper, the carrier and the consignee undertake specific responsibilities and assume the stipulated obligations c. The acceptance of the bill of lading by the shipper and the consignee, with ful knowledge of its contents, gives rise to the presumption that the same was a perfected and binding contract Both lower courts held that the bill of lading was a valid and perfected contract between Ho Kee and Keng Hua and Sea Land and that Keng Hua and Sea Land are liable to pay the demurrage charges as provided for in the contract of carriage in the bill of lading. The SC agrees that Keng Hua accepted the bill of lading and failed to object or dissent from any term or stipulation in said bill of lading. It was only after six months that it sent a letter to Sea Land that it is refusing to accept the shipment. Also the letter only stated that it is refusing to pick up the cargo because of the noncompliance of the shipper with the terms and conditions of the letter of credit which state that the shipment should only be for 10 tons, it was not an actual rejection of the bill of lading. Hence it is liable to pay for the demurrage charges.

Judgment of the trial court and the CA are affirmed with only the payment of interest modified. Keng Hua is liable for payment of the demurrage charges.

Bill of Lading separate from other letter credit arrangements Three distinct and independent contracts in a letter of credit: 1. the contract of sale between the buyer and the seller 2. the contract of the buyer with the issuing bank 3. letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. A transaction for the purchase of goods may also require apart from the letter of credit a contract of transportation. The contract of transportation or carriage is stated in the bill of lading. It must be treated independently of the contract of sale and the contract for the issuance of the letter of credit. A discrepancy in the amount of goods in the invoice, in the contract of sale and in the letter of credit will not affect the and enforceability of the contract of carriage in the bill of lading. The banks cannot be expected to look beyond the documents presented to it pursuant to a letter of credit. The carrier also cannot be expected to go beyond the representation of the shipper in the bill of lading and verify the accuracy vis-à-vis the commercial invoice and the letter of credit. Discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate Keng Hua’s liability arising from the contract of carriage. Keng Hua’s remedy for overshipment lies against Ho Kee and not Sea Land. P 43 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

INSULAR BANK V. IAC 167 SCRA 450 Letters of Credit

Omission by Philam to draw the required drafts on the standby LCs can be explained by the fact that it was the Mendozas who prepared, predated and pre-accepted them

FACTS: Respondent spouses obtained 2 loans from from Philam Insurance total amount of P6000,000 to finance construction of their residential house at Mandaue. The loans were to be liquidated in equal amortizations over a period of 5 years from March 1972 to March 1982 To secure payment, Philam Life required that amortizations be guaranteed by an irrevocable standby letter of credit of a commercial bank. Thus, the mendozas contracted with pet. Insular bank (IBAA) for the issuance of 2 irrevocable standby letters of Credit (L/C). 1 st was for 500k 2 nd was for 100k. the 2 L/Cs, were in turn, secured by an REM on the houses of the respondent spouses Mendozas executed a promissory note in favor of IBAA Both Notes authorized IBAA to sell their properties or securities to be applied as payments on their obligations Mendozas failed to pay Philamlife due on September 1979, Philamlife again informed IBAA that it eas declaring the entire balance outstanding on both loans, including damages, “immediately due and payable. Philamlife wanted to recover P274k while IBAA said they should pay only the remaining obligation under the LCs for 30k only REM secured was extrajudicially foreclosed in favor of IBAA ISSUE: 1.

TRANSFIELD V. LUZON 443 SCRA 307 Letters of Credit FACTS: Transfield and Luzon LHC entered into a turnkey contract. Trans, undertook to construct on a turnkey basis , a 70 megawatt hydro-electric power station at the Bakun River in the provinces of Benguet. Trans was given sole responsibility for the design Contract provides that 1)target date of completion is june 2000 or such later date as maybe agreed upon 2) Trans can ask for extensions of time for example due to force majeure or delay by LHC. To secure the performans of petitioner’s obligation, it opened in favor of LHC 2 letters of credit on the local branch of ANZ bank and with Security bank corporation. In the course of the project, LHC sought many extensions. The banks sent letters to pet. That they will pay if and when LHC calls on them. LHC asserted that the additional extension would not be warranted and that pet. Is declared in default and asked that payment of 75k usd to be paid for each day of delay from june 28m 2000 Pet sought injunction against respondent LHC and the banks from paying on or in any manner disposing of the securities in favor of LHC LHC argues that the Securities are independent of the main contract between them as shown of the face of the letters of credit.

Whether or not IBAA has liability to Phlam under the LCs and whether it is direct and primary and cannot be reduced by direct payments made by Mendozas to Philam

ISSUE: 1.

RULING: IBAA has primary obligation under the LCs. The intention of the parties must prevail. The LCs secure the payment of any obligation of the Mendozas to Philam life including all interest, etc provided it does not exceed 600k. While they are a security arrangement, they cant be converted to a contract of guaranty for it would be ultra vires. They are an absolute undertaking for the money advanced. They are separate and independent contracts. Payments by mendozas to philam are due to their own prestation under the loan agreement

Whether or not the “independent principle of LCs” apply as well as the “fraud exception rule” and if it can be invoked by LHC

RULING: Yes it applies. Where the credit is irrevocable as in this case, there is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated docs are presented. To say that the independence principle may only be invoked by the banks and not the beneficiary would make the principle nugatory. If, as argued by pet that there should be a compromise between LHC and Pet first would concert the LC into a guarantee. P 44 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

SUBISSUE: Whether trans can file for injunction against respondents No. it failed to show the clear and unmistakable right to restrain LHC’s call on the securities which would justify the injunction. There was an express stipulation in favor of LHC to call upon the securities VINTOLA v. INSULAR BANK 159 SCRA 140 Trust Receipts

sufficient finds and 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. The goods purchased by Vintolas through IBAA financing remains their own property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and the creditor. Since IBAA is not the factual owner of the goods, the Vintolas cannot justifiably claim that because they have surrendered the goods to IBAA, and subsequently deposited them in custody of the court, they are absolutely relieved of any liability under the Letter of Credit.

FACTS: Spouses Tirzo Vintola and Loreta Dy Vintola are the proprietors of Dax Kin International (Dax), a company engaged in the manufacture of raw seashells into finished products. On August 20, 1975, the Vintolas applied for and were granted, a commercial letter of credit with the Insular Bank of Asia and America (IBAA), Cebu City. The letter of credit authorized the bank to negotiate for their account, drafts drawn in favor of one of their suppliers, Efren Alani, on Dax in the amount of P35, 000 to represent a shipment of a variety of puka and olive shells. The Vintolas promised and agreed to pay the bank at maturity said amount. To secure the release of the raw seashells, on the same day, the Vintolas executed in favor of IBAA a trust receipt agreement, which was to mature on October 19, 1975. Three months after IBAA demanded the payment of the P35, 000. the Vintoals offered to return the raw seashells to IBAA instead because they were not able to dispose them. IBAA refused to accept the shells. IBAA instituted the present action against the spouses for their failure to pay their obligation for the crime of estafa. ISSUE: Whether the Vintolas still owed IBAA even though the goods held in trust were not sold---YES!

PRUDENTIAL BANK vs. IAC 216 SCRA 257 Trust Receipts FACTS: Philippine Rayon Mills (Rayon) entered into a contract with Nissho Co. of Japan for the importation of textile machineries under a five0year deferred payment plan. To effect payment, Philippine Rayon applied for a commercial letter of credit with the Prudential Bank in favor of Nissho. Drafts were drawn by Nissho, which were all paid by Prudential through its correspondent bank in Japan, Bank of Tokyo. Two of the drafts were accepted by defendant through its president, Anacleto Chi. Upon arrival of the machines, prudential indorsed the shipping documents to defendants. To enable Rayon to take delivery of the machineries, it executed a trust receipt, which was signed by Anacleto in his capacity as president of the company. At the back of the trust receipt is a printed form to be accomplished by two sureties who were to be jointly and severally liable to Prudential Bank. In 1969, Rayon ceased business operation, five years later, the trust receipt remained unpaid. Thus, Prudential filed the present suit impleading Rayon and Anacleto. Both claim that the action has prescribed. ISSUES:

HELD: Vintolas are still liable under the Letter of Credit arrangement! A letter of credit-trust receipt arrangement is endowed with its own distinct features and characteristics. Under the set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt as a security for the loan. The transaction involves a loan feature represented by the letter of credit, and a security feature, which is in the covering trust receipt. A trust receipt is a security agreement, pursuant to which a bank acquired a “security interest” in the goods. It secures an indebtedness, and there can be no such thing as security interest that secures no obligation. It is intended to aid in financing importers and retain dealers who do not have

Whether Anacleto Chi is solidarily liable under the trust receipt--NO Whether Rayon is liable on the basis of the trust receipt--YES HELD: On the issue of acceptance, Rayon contends that acceptance is necessary in signifying the drawee’s assent to the order of the drawer. The court held that acceptance is not necessary. A different conclusion would violate the principle upon which commercial letters of credit are founded because in such a case, Prudential would be placed at the mercy of Rayon. P 45 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

The signature of Chi in the dorsal portion of the trust receipt does not bind him solidarily with Rayon. At most, Chi is merely a guarantor. 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 (in this case, violation of section 13 of PD 115 – failure of an entrustee to turn over the proceeds of the sale of goods). He may, however, be personally liable if he bound himself to pay the debt of the corporation under a separate contract of surety or guaranty. Furthermore, any doubt as to the true intent of the solidary guarantee clause should be resolved against Prudential. The trust receipt together with the questioned solidary guaranty clause is on a form drafted and prepared solely by Prudential. Chi’s participation therein is limited to the affixing of his signature thereon. It is, therefore a contract of adhesion, as such it must be strictly construed against the party responsible for its preparation. Chi’s responsibility is limited to the principal obligation in the trust receipt plus all the accessories thereof including judicial costs; with respect to the latter, he shall only be liable for those costs incurred after being judicially required to pay. The attorney’s fees to be paid by Chi cannot be the same as that to be paid by Rayon since it is only the trust receipt that is covered by the guaranty and not the full extent of the latter’s liability. SUMCAD V. PROVINCE OF SAMAR 100 PHIL 72 Sec. 132 FACTS: May 1942, while the province of Samar was still occupied by the Japanese military forces, a check was issued by said province to Paulino Santos (then the postmaster of Borongan) for the sum of P25,000, drawn against the Philippine National Bank (PNB), Cebu. The payee negotiated the check with James McGuire, an American citizen and resident of Borongan. After the liberation in 1946, McGuire presented the check to the municipal treasurer of Borongan for payment, but the latter (who merely noted it) was not able or did not choose to pay the same. McGuire wrote letter to the Bureau of Posts seeking payment, these letters were referred by the Director of the Bureau to the PNB. On April 25, 1950, PNB requested the Bureau to furnish it with photostatic copies of the check which were duly received by the bank on May 12. As of this date, the province of Samar still had a deposit of P84, 287.47 in the PNB. On May 14, PNB request McGuire to present the check to the provincial treasurer and the provincial auditor for the certification. On Aug 22, McGuire again requested the Buresau of Posts to expedite compliance with the requirement of the PNB so as to permit the encashment of the check. Before the check could be certified, the province of Samar on Sept 4, 1951 withdrew the amount of P83, 504.07 leaving a balance of P743.43. McGuire transferred his rights to the check to the present plaintiffs (Sumacad). Sumacad filed the present collection case. Trial Court held PNB

and province of Samar solidarily liable. Only PNB appealed contending that it could not pay the check because it was never presented to it with the necessary certification and that it is the province of Samar, as the drawee, that is primarily liable. ISSUES: Whether PNB is primarily liable—NO! PNB is only susidiarily liable; province of Samar is primarily liable Whether there was acceptance by PNB---YES! There was implied acceptance. HELD: An implied acceptance of the check by PNB was created in view of the fact that upon its own request, it was furnished with the photostatic copies of the check and it even required McGuire to present the check to the provincial treasurer and auditor for certification. PNB voluntarily assumed the obligation of holding so much of the deposit of the province of Samar as would be sufficient to cover the amount of the check, or before allowing the withdrawal that exhausted said deposit, of making the necessary inquiry on the matter. Its actions amounted to implied acceptance. ALLIED BANK V. CA 494 SCRA 467 Sec. 152 FACTS: Allied Bank purchased an export bill from GGS. The bill was drawn form a letter of credit covering men’s Valvoline training suits in transit to West Germany. The bill was issued by Chekiang First Bank, Hong Kong. In short, GGS discounted the bill to Allied Bank instead of directly claiming payment from Chekiang under the letter of credit. Allied Bank paid the peso equivalent of the bill amounting to P151,474.52. GGS acknowleged receipt of the amount in a letter. Nari Gidwani and Alarcon International represented by Hans-Joachim Schoeler executed Letters of Guaranty in favor of Allied Bank in case the bill should be dishonored or retired. The Spouses De Villa and Nari Gadwani executed a Continuing Gauaranty or Comprehensive Surety, guaranteeing payment of any credit accommodation that Allied may extend to GGS. Allied negotiated the bill to Chekiang, but payment was refused because of some discrepancies in the documents. Allied demanded payment from GGS and all the respondents based on the letters of guaranty and surety agreement. P 46 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

The respondents refused presenting different defenses. GGS and Gidwani admitted to the due excution of the bill but said that they signed the letters of guaranty and the surety in blank and that neither covered the subject bill. Spouses De Villa also said that the surety was not meant to secure the bill, while Alarcon said that its branch here in the Philippines had no authority to issue letter of guaranty.

SC: Decision is modified. Alarcon is subsidiarily liable as gurantor while Gidwani and Spouses De Villa are jointly and severally liable with GGS as sureties for the amount of P151,474.52

It is also argued that Allied did not protest the dishonor of the bill and because of this GGS is discharged from its liability. The trial court dismissed the petition of Allied but the CA reversed and ordered GGS to pay Allied. Allied filed for a motion for reconsideration in order to hold Gidwani, Alarcon and the Spouses De Villa liable for payment of the obligation. ISSUE: Can the respondents be held jointly and severally liable under the Letters of Guaranty and Surety in the absence of protest on the bill in accordance with Sec. 152 of the NIL? RULING: It is normal for a negotiating bank in a discounting arrangement, such as Allied, to ask for securities. It is clear in this case that the respondents undertook and bound themselves as guarantors and surety to pay the full amount of the bill in case of dishonor or non-payment as evidenced by the letters of guaranty and surety they executed. Obligations arising from contracts have the force of law between the parties. Also, it is immaterial that no protest was made by Allied in order to hold the respondents liable. 1. The surety itself contained a stipulation waiving the need for notice of dishonor and protest 2. Sec. 152 of the NIL is applicable only to indorsers and not to guarantors and sureties. The liability of a gurantor and a surety is broader than the liability of an indorser. Unless an instrument is promptly presented for payment at maturity and a due notice of dishonor is given to the indorser he is discharged from liability on the bill. However, it is not necessary that notice be given to gurarantors and sureties unless there is an express stipulation requiring it. It cannot also be argued that the contracts were contracts of adhesion since the respondents fixed their signatures at different times on different documents. Hence it is presumed that they had knowledge of the terms and conditions of the letters of guaranty and surety. Laches is also unavailing, inequity is not present in this case.

P 47 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

MORAN V. CA 230 SCRA 799 Sec. 185

Moran, 6 months after the incident, found out from Petrophil that Citytrust notifying them that the two checks of Moran were inadvertently dishonored due to operational error. This prompted Moran to write to Citytrust and ask for indemnity for the damage caused by the dishonoring of the check. Citytrust refused and Moran instituted a civil case for damages

FACTS: The Morans are the owners of the Wack-Wack Petron gast station. They purchase bulk fuel and other products form Pterophil Corp. on cash on delivery basis. Orders were made by telephone and payments were effected by personal checks upon delivery. They maintained 1 current account and 2 savings account with Citytrust. As special privilege the bank allowed the Morans to maintain a zero balance in their current account. Transfers from savings account 1 to the current account could only be made with the authority of the Morans, but prior written authorization was given to Citytrust to transfer funds from savings account 2 to the current account any time its funds are insufficient to meet the withdrawals. The authorization was in the form of a preauthorized transfer agreement (PAT) which was an accommodation mae by the bank in favor of the Morans. Dec. 12, 1983 and Dec. 13, 1983: Moran issued 2 checks as payment for the products they ordered from Petrophil. Check 1 – P50,576 and Check 2 – 56,090 Dec. 14, 1983: Petrophil deposited the checks with PNB Pandacan. Afterwards the checks were presented for clearing in the afternoon of the same day. The Morans had zero balance in their current account and only P26,104.30 in savings account 2 (the one with the PAT) while savings account 1 only had P43,268.39 Dec. 15, 1983 (10:00 am): Moran deposited in savings account 1: P17, 628.83 and in savings account 2: P41,030. He also transferred by debit memorandum P40,000 from savings account 1 to the current account and at the same time P60,000 was transferred from savings account 2 to the current account through the PAT Petrophil refused to deliver dishonoring of the checks delivery forged the Morans also cancelled their credit purchases in cash.

the products to the Moran because of the issued for insufficiency of funds. The nonto temporarily stop their business. Petrophil accommodation forcing them to pay their

Moran asked for an explanation from the bank, the bank replied that there was a grave error that was committed. Diaz, the bank manager, then went to Moran to get his signature for the manager’s check Moran applied for to serve as payment for the dishonored checks. Diaz then personally went to Petrophil to give the check.

ISSUES: W/N Citytrust is liable to pay damages W/N the Morans had sufficient funds to cover the checks when the bank dishonored the checks RULING: No. A check is a bill of exchange drawn on a bank payable on demand. It 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. Fixed savings and current deposits of money in banks and other similar institutions shall be governed by the provisions concerning simple loan. The relationship between the bank and the depositor is that of debtor and creditor. The bank is therefore bound to honor the checks of the depositor to the extent of the amount of the deposits. The failure of the bank to pay the check when the deposit is sufficient entitles the depositor to substantial damages without any proof of actual damages. Although the checks were processed in Dec. 15, 1983, the available balance of the Morans on Dec. 14, 1983 was what was used in determining whether or not there was sufficient cash deposited to fund the two checks. Dec. 14, 1983 was the date when the checks were by presented by PNB Pandacan to the clearing house. This is the standard clearing procedure. Hence, the subsequent deposits and transfers made by the Morans on Dec. 15, 1983, were too late to prevent the dishonor of the checks. A check as distinguished from an ordinary bill of exchange is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediate payment. Only the drawer is at fault here since he failed to keep track of his available balance. The PAT was merely an accommodation in favor of Moran and legally the bank could still refuse the payment of the checks since the Morans clearly did not have sufficient funds in their accounts when the checks were dishonored. The letter of Citytrust to Petrophil was merely to maintain goodwill and continued patronage of a client and could not be construed as an admission of liability

P 48 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

FIRESTONE TIRE V. INES CHAVES 18 SCRA 356 Sec. 185

Respondent contended that the petitioner’s redemption was invalid because the check tendered has been dishonored due to insufficiency of funds. There was a contention however that the check had merely become stale.

FACTS: ISSUES: Ines Chaves brought from Firestone several tires and paid using a check amounting to Php 1,437.50. When the check was presented to Security Bank, it was returned for insufficiency of funds. Despite repeated demands, Ines failed to pay thus firestone initiated an action against the former. The petitioner asked for payment of attorney’s fees which was granted by the court. It is now the contention of Ines that she is not guilty of bad faith and in consequence, attorney fees should not be granted.

ISSUES: W/N there was bad faith on the part of Ines. RULING: Ines knew that that there were no funds to back up the check she issued. This shows bad faith on her part. It would have been a different patter if Firestone agreed to accept the check, knowing that it was not covered by adequate funds in the bank in such a case, no finding of bad faith can be made against the appellant. There was nothing in the record to show that appellee knew that there were no funds in the bank when it accepted the check from the appellant. Thus, the order of the lower court that the appellants’ action was lacking of good faith was affirmed. PEOPLE V. REYES ET. AL. 454 SCRA 635 Sec. 185 (NO DIGEST) CRYSTAL V. CA 71 SCRA 443 Sec. 186 FACTS: The case revolved around Crystal’s redemption of the property acquired by respondent Ocang, Teodulo, etc. in an execution sale pursuant to a final judgment of the trial court. According to the facts of the case, after issuing a check for the redemption of the said land, the petitioner Crystal immediately regained possession of the four parcels of land in question, taking the same from Pelagia Ocang.

RULING: The Supreme Court remanded the case for further proceedings to determine whether the check was dishonored or become stale, in order to determine if there was a valid redemption. If the check has been dishonored, then there can be no doubt that Crystal’s redemption was null and void. If the check had become stale, then it becomes imperative that the circumstance that caused its non-presentment be determined, for if this was not due to the fault of Crystal, then it would be unfair to deprive him of the rights he acquired as redemptioner, particularly, it the value of the check was otherwise been received or realized by the party concerned. WONG V. CA 351 SCRA 100 Sec. 186 FACTS: Petitioner Wong was an agent of Limtong Press (LPI), a manufacturer of calendars. As an agent. Limtong would get purchase orders of customers and forward them to LPI. LPI would then ship the calendars directly to the customers. It was then the agents that would collect the payments. Wong however had a history of unremitted collections which he duly acknowledged in a confirmation receipt he cosigned with his wife. Thus, Wong’s customers were required to issue postdated checks before LPI would accept their purchase orders. In 1985, Wong issued 6 postdated checks totaling Php 18T+ which were initially intended to guarantee the calendar orders of customer who failed to issue postdated checks. However, it was company policy not to accept checks as guarantees, thus, Wong and LPI just agreed to apply the checks to the payment of the petitioner’s unremitted collections for 1984 also amounting to Php 18T+. Before the maturity of the checks, Wong asked LPI not to deposit the checks and promised to replace them within 30 days. But since petitioner did not fulfill his promise, LPI deposited the checks with RCBC. The checks were returned by reason “account closed”. Wong was charged with 3 counts of violation of BP22. It was the contention of Wong that the checks were mere guarantees for the calendar purchases of his customers, thus, there is no consideration behind the checks issued. Wong also contends that LPI was not a holder P 49 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

for value since the checks were deposited after the customers paid their orders. The checks should have been returned to him instead. Wong also contends that since complainant deposited the checks on June 5, 1986 or 157 days after maturity of the checks, the presumption of knowledge of lack of funds under BP 22 should not apply to him. He further claims that he should not be expected to keep his bank account active and funded beyond the 90-day period.

NAGRAMPA purchased a Yutani Porcelain Backhoe Excavator Equipment from FEDCOR and pain in cash the downpayment. To cover the balance of Php 150,000. the manager of Ngarama issued a check postdated 31 August 1989 and another check postdated 30 September 1989. The checks were drawn against Security Bank and Trust company. Upon assurance that the check was good, FEDCOR delivered the equipment to the petitioner. When the checks were presented for payment, they were dishonored for reason “Account Closed”. FEDCOR demanded payment but the same was not heeded.

ISSUES: W/N the elements of BP 22 are present RULING: The issue of whether the checks were issued as mere guarantees of payment for an obligation was already settled by the court. It was enough to note that LPI does not accept checks as guarantees and that the mere act of issuing worthless check is malum prohibitum, therefore, Wong should be liable for the said checks. There are two ways of violating BP 22,: 1) issuing worthless checks knowing at the time of issue that the check is not sufficiently funded and (2) by having sufficient funds in or credit with the draw bank at the time of the issue but failing to keep sufficient funds with the said bank to cover the full amount of the check when presented within a period of ninety days. That the check must be deposited within 90 days is simply a condition prima facie presumption of knowledge of lack of funds to arise. There are other conditions such as the dishonor of the check and failure of the maker to make arrangements for payment in full within 5 banking days after the notice. Under section 186, a check must be presented for payment within a reasonable time after its issue to the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. By current banking practice, a check becomes stale after more than 6 months. In this case, the checks issued were not yet stale, since they were deposited 157 days after the date of the check. Although LPI failed to avail of the prima facie presumption with the 90 day condition, it can still prove lack of knowledge through other means. NAGRAMPA V. PEOPLE 386 SCRA 412 Sec. 186

It was the contention of NGARAMPA that they issued the check with an agreement htat they will replace them with cash if the backhoe would be in good running condition. Unfortunately, the said Backhoe broke down several times despite frequent repairs. NGARAMPA said that it demanded FEDCOR to return the checks but instead of returning them, the latter deposited the checks. Petitioner further contends that they were not guilty of Estafa since there was no element of damage on the part of FEDCOR. ISSUES: W/N the petitioner is guilty of violation of BP 22 considering that the checks were presented more than 90 days after the maturity of the check. RULING: By current banking practice, a check becomes stale after more than 6 months or 180 days. These checks were presented before 6 months or 180 days. Thus, Nagrampa is guilty of 2 counts of BP 22. It was also found that the account of NANGARAMPA has been closed 4 years before he issued the check. There was knowledge on his part that there were no funds to back up the checks he issued. NGARAMPA’s contention that Administrative Circular No. 12-2000 removed the penalty of imprisonment for BP 22 violations cannot be given any merit for such circular merely laid dow3n a reule of preference in the application of the penalties provided in BP 22. AC12-2000 establishes a rule of preference in the application of the penal provisions of BP 22 such that where the circumstance of both the offense and the offender clearly indicate good faith, imposition of fine is the more appropriate penalty. But in this case, there clearly was bad faith, thus, fine as penalty is inappropriate. TY V. PEOPLE 439 SCRA 220 Sec. 186

FACTS: FACTS: P 50 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado

Vicky Ty issued checks in favor of Manila doctor’s hospital, all of which bounced. It was the contention of Ty that she was forced to issue said checks in payment for the hospitalization of her mother and sister. She further contends that if she did not issue said checks, her mother would have committed suicide because of the harsh treatment given by the hospital. She further contends that there is a great need for her to have her mother discharged since certain facilities were not being given to her mother thus, forcing her to issue said checks. ISSUES: W/N Ty should be held liable for the said checks given her circumstance. RULING: Yes. The mere act of issuing worthless checks is malum prohibitum. There is no compelling reason to reverse the finding of the CA. Ty was not able to prove uncontrollable fear or greater injury that would have exempted her since all her allegations were remote, baseless. She is therefore liable to the said checks and guilty of the offense charged.

P 51 of 51

Aquino, Bautista, Cangco, Concepcion, Enriquez, Go, Hosaka, Laurente, Lim

2D Negotiable Instruments – Atty. Mercado