COM. NIL. 7) Bank of America NT & SA v. Philippine Racing Club (PRCI), G.R. No. 150228, July 30, 2009

FACTS: PRCI maintains several accounts, one of which is with petitioner BA. The

authorized joint signatories with respect to said account were PRCIs President (Antonia Reyes) and VP for Finance (Gregorio Reyes). Both of them were scheduled to go out of the country sometime later in connection with the corporation‘s business.

In order not to disrupt operations in their absence, they pre-signed several checks relating to their account with BA. The intention was to insure continuity of PRCI‘s operations by making available cash/money especially to settle obligations that might become due. These checks were entrusted to the accountant with instruction to make use of the same as the need arose. The internal arrangement was, in the event there was need to make use of the checks, the accountant would prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks.

However, it turned out later that a John Doe (later found out to be Clarita Mesina, an employee of PRCI) presented to BA for encashment 2 checks of PRCI, each with an indicated value of P110,000. These checks were among those pre-signed by the authorized signatories of PRCI.

The 2 checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee should be indicated the following 2-line entries were instead typewritten: on the upper line was the word ―CASH while the lower line had the following typewritten words, viz: ―ONE HUNDRED TEN THOUSAND PESOS ONLY.

CASHPay To The Order Of: ONE HUNDRED TEN THOUSAND PESOS ONLY

Despite all these irregularities/infirmities and the substantial amount involved, BA never even verified or confirmed the legitimacy of the checks. Not even a verification process or a phone call was made. Neither was there a transaction by PRCI that calls for payment of P220,000. Hence PRCI demanded payment from BA which fell to deaf-ears. Hence PRCI filed the complaint.

ISSUES: whether the proximate cause of the wrongful encashment of the checks in question was due to (a) petitioners failure to make a verification regarding the said checks with the respondent in view of the misplacement of entries on the face of the checks or (b) the practice of the respondent of pre-signing blank checks and leaving the same with its employees.

HELD: Petition is dismissed with modifactions

Q: Is the bank liable for encashing a check with obvious discrepancies?

A: Yes. There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondents authorized joint signatories. However, the presence of the irregularities in each check should have alerted the petitioner to be cautious before proceeding to encash them which it did not do.

Although not in the strict sense material alterations, the misplacement of the typewritten entries for the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person who customarily accomplishes the checks of respondent, it should have occurred to petitioners employees that it would be unlikely such mistakes would be made. All these circumstances should have alerted the bank to the possibility that the holder or the person who is attempting to encash the checks did not have proper title to the checks or did not have authority to fill up and encash the same. As noted by the CA, petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to respondent due to the encashment of the stolen checks would have been prevented.

It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.

Q: In defense of its cashier/tellers questionable action, petitioner insists that pursuant to Sections 14 and 16 of the NIL, it could validly presume, upon presentation of the checks, that the party who filled up the blanks had authority and that a valid and intentional delivery to the party presenting the checks had taken place. Thus, in petitioners view, the sole blame for this debacle should be shifted to respondent for having its signatories pre-sign and deliver the subject checks. Petitioner argues that there was indeed delivery in this case because, following American jurisprudence, the gross negligence of respondents accountant in safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped from claiming non-delivery of the instrument. Is this contention correct?A: No. Petitioners contention would have been correct if the subject checks were correctly and properly filled out by the thief and presented to the bank in good order. In that instance, there would be nothing to give notice to the bank of any infirmity in the title of the holder of the checks and it could validly presume that there was proper delivery to the holder. The bank could not be faulted if it encashed the checks under those circumstances. However, the undisputed facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not properly delivered to the person who encashed the same.

In all, we see no reason to depart from the finding in the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus making Section 15 of the NIL applicable in this case.

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COM. NIL. Q: Petitioner insists that respondents are to take blame because of their careless acts of leaving with their accountant pre-signed blank checks. Correct?A: Not entirely. However, we do agree with petitioner that respondents officers practice of pre-signing of blank checks should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of businesses. It should have occurred to respondents officers and managers that the pre-signed blank checks could fall into the wrong hands as they did in this case where the said checks were stolen from the company accountant to whom the checks were entrusted.

Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner will still emerge as the party foremost liable in this case. In instances where both parties are at fault, this Court has consistently applied the doctrine of last clear chance in order to assign liability.

In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent because, even if we concur that the latter was indeed negligent in pre-signing blank checks, the former had the last clear chance to avoid the loss. To reiterate, petitioners own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. Verily, petitioner had the final opportunity to avert the injury that befell the respondent.

Q: In light of respondent’s contributory negligence, must they bear a certain percentage of the loss?A: Yes. 40% should be shouldered by the respondents

We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from respondents accountant turned out to be another employee, purportedly a clerk in respondents accounting department. As the employer of the thief, respondent supposedly had control and supervision over its own employee. This gives the Court more reason to allocate part of the loss to respondent.

Indeed, if not for the fortunate happenstance that the thief failed to properly fill up the subject checks, respondent would expectedly take the blame for the entire loss since the defense of forgery of a drawers signature(s) would be unavailable to it. Considering that respondent knowingly took the risk that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent shares in the responsibility for the loss.

8) Hi-Cement Corp. V. Insular Bank G.R. No. 132403 (2007)Facts:

Spouses Enrique and Lilia Tan were controlling stockholder of E.T. Henry & Co., Inc. (E.T. Henry) which was engaged in the business of processing and distributing bunker fuel. Among the company's customers were Hi-Cement Corporation (Hi-Cement), Riverside Mills Corporation (Riverside), and Kanebo Cosmetics Philippines, Inc. (Kanebo).

o For their purchases, these corporation issued postdated checks. Insular Bank of Asia and America (the Bank) granted E.T. Henry a credit facility

known as "Purchase of Short Term Receivables."

o In this arrangement, E.T. Henry and the bank were into "re-discounting" of checks. [aka: to encash, with pre-deducted interest, the postdated checks of its clients]

o For every transaction, the bank required E.T. Henry to execute a promissory note and a deed of assignment bearing the conformity of the client to the re-discounting.

o From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deed of assignment) with the bank.

However, ALL THE CHECKS were dishonoredo 20 checks of Hi-Cement (which were crossed and which bore the

restriction "deposit to payee's account only") were dishonored. o So were the checks of Riverside and Kanebo.

The bank filed a complaint for sum of money against E.T. Henry, the spouses Tank, Hi-Cement (including its general manager and treasurer), Riverside and Kanebo.

Hi-Cement filed an answer alleging that: a. its general manager and treasurer were not authorized to issue the

postdated crossed checks; b. that the deed of assignment bore only the signature of the treasurer; and c. that the bank was not a holder in due course as it should not have

discounted them for being "crosses checks." The lower court decided in favor of the bank and against E.T. Henry, Hi-Cement,

Riverside and Kanebo. Upon appeal, the Court of Appeals affirmed the decision of the lower court in toto.

ISSUE: Did CA err in affirming RTC?

HELD: WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is hereby AFFIRMED with MODIFICATION. Accordingly, petitioner Hi-Cement Corporation is discharged from any liability. Only petitioner E.T. Henry & Co. is ORDERED to pay.

Q: Does the general manager and treasurer of hi-cements have authority to issue the postdated crossed checks?A: Yes. Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks. They both held that Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous checks to E.T. Henry which the latter, in turn, was able to re-discount with respondent. We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the subjects checks. However, notwithstanding such fact, respondent could not be considered a holder in due course.

Q: Is the respondent bank a HDC? (with regard to the discounting arrangement)A: No.

Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at bar, the last two requirements were not met. To wit:

(c) he took it in good faith and for value

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COM. NIL. Since, the subject checks were crossed and bore restrictions

that they were for deposit to payee's account only; hence, they could not be further negotiated to it)

(d) at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it

Since respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment.

In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-Cements postdated crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks.

As a banking institution, it behooved respondent to act with extraordinary diligence in every transaction. Its business is impressed with public interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt with were crossed.

Q: How can a person who receives a cross-check be a HDC?A: Determine the purpose for which the cross-check was given.

Bataan Cigar Case (case where cross checks sold on discount as well): In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a bank [and]; (c) the act of crossing the checks 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.

o It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorsers 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 faithand as such, the consensus of authority is to the effect that the holder of the check is not a holder in due course.

Q: Was there a proper presentment to respondent bank to make Hi-Cement liable? (in other words, is the drawer of the postdated crossed checks liable to the holder who was deemed not a holder in due course?)A: No, the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course.

In State Investment House, Inc. (SIHI) v. Intermediate Appellate Court, SIHI re-discounted crossed checks and was declared not a holder in due course. As a result, when it presented the checks for deposit, we deemed that its presentment to the drawee bank was not proper, hence, the liability did not attach to the drawer of the checks. We ruled that: The three subject checks in the case at bar had been crossed 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. Thus, in the absence of due presentment, the drawer did not become liable.

Q: Does this mean that a person who is not a HDC cannot recover at all? In this case, who can the bank, the holder (although not a HDC) of the checks, go after?A: The NIL does not absolutely bar a holder who is not a holder in due course from recovering on the checks. Such party may recover from the party who indorsed/encashed the checks if the latter has no valid excuse for refusing payment.

Here, there was no doubt that it was E.T. Henry that re-discounted Hi-Cement's checks and received their value from respondent. Since E.T. Henry had no justification to refuse payment, it should pay respondent.

9) Stelco Marketing Coproration v. CA June 1992Facts:

STELCO sold quantities of steel bars and rolls of G.I. wire to RYL Construction, Inc. for P126,859.61

o but the latter failed to pay for these Later, however, the President of RYL (Lim) asked his friend (Limson) to

accommodate the former by issuing a check, which was made out in the amount the same as the obligation due to Stelco

The check was a company check (Steelweld Corporation of the Phil.) where Limson was the president.

Later, RYL gave the check to Armstrong Industries, which is described as the “sister coproration” and “manufacturing arm” of Stelco

Indorsed by Armstrong and RYL, Armstrong deposited the check at its bank but this was dishonored due to insufficiency of funds

The drawers were charged by Armstrong with a violation of BP 22 .o They 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. The judgment however conditioned the acquittal with the following pronouncement: This is not however to release Steelweld Corporation from its liability under Sec. 29 of the Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim.

Four years after the issuance of the check, one way or another, the check came to the hands of Stelco, w/c sought to enforce payment, claiming that it was a holder for value because it had possession of the check.

Stelco filed a complaint for recovery of a sum of money against RYL and Steelweld RYL could no longer be located so Steelweld was the only one that filed an Answer The RTC ruled in favor of Stelco but the CA reversed this

ISSUE: WON STELCO ever became a holder in due course

HELD: No. WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals affirmed

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COM. NIL. Q: Can a person be a HDC despite knowing that the party is only an accommodation party?A: Yes. As regards an accommodation party (such as STEELWELD), the fourth condition, i.e., lack of notice of any infirmity in the instruments or defect in title of the persons negotiating it, has no application. This is because Section 29 of the NIL preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder, at the time of taking the instrument, knew him to be only an accommodation party."

In this case, the defendant Steelweld thru its President Peter Rafael Limson admitted to have issued a check payable to cash in favor of his friend Romeo Lim who was the President of RYL Construction by way of accommodation. Under the NIL an accommodation party is liable.

Q: Is STELCO a HDC?A: No. STELCO cannot be deemed a holder of the check for value. It does not meet two of the essential requisites prescribed by the statute. It did not become "the holder of it before it was overdue, and without notice that it had been previously dishonored," and it did not take the check "in good faith and for value."

What the record shows is that: (1) the STEELWELD company check in question was given by its president to R.Y. Lim; (2) it was given only by way of accommodation, to be "used as collateral for another obligation;" (3) in breach of the agreement, however, R.Y. Lim indorsed the check to Armstrong in payment of obligation; (4) Armstrong deposited the check to its account, after indorsing it; (5) the check was dishonored. The record does not show any intervention or participation by STELCO in any manner of form whatsoever in these transactions, or any communication of any sort between STEELWELD and STELCO, or between either of them and Armstrong Industries, at any time before the dishonor of the check.

o The trouble is, there is no evidence whatever that STELCO's possession of Check No. 765380 ever dated back to any time before the instrument's presentment and dishonor.

o There is no evidence whatsoever that the check was ever given to it, or indorsed to it in any manner or form in payment of an obligation or as security for an obligation, or for any other purpose before it was presented for payment.

o Nowhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or depositor thereof

o The record does show that after the check had been deposited and dishonored, STELCO came into possession of it in some way, and was able, several years after the dishonor of the check.

In sum, Stelco never became a holder for value; the check’s intended indorsee was Armstrong. Stelco was never a party to the instrument. It is also neither a holder for value, nor a holder in due course because (1) the check was already overdue several years back, (2) they had notice that it had already been dishonored, and (3) they did not take the check in good faith and for value.

Q: What is the effect of possession of a negotiable instrument after presentment and dishonor?

A: Possession of a negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential or insignificant; it does not make the possessor a holder for value within the meaning of the law; it gives rise to no liability on the part of the maker or drawer and indorsers.

7) Bank of America NT & SA v. Philippine Racing Club (PRCI), G.R. No. 150228, July 30, 2009

FACTS: PRCI maintains several accounts, one of which is with petitioner BA. The

authorized joint signatories with respect to said account were PRCIs President (Antonia Reyes) and VP for Finance (Gregorio Reyes). Both of them were scheduled to go out of the country sometime later in connection with the corporation‘s business.

In order not to disrupt operations in their absence, they pre-signed several checks relating to their account with BA. The intention was to insure continuity of PRCI‘s operations by making available cash/money especially to settle obligations that might become due. These checks were entrusted to the accountant with instruction to make use of the same as the need arose. The internal arrangement was, in the event there was need to make use of the checks, the accountant would prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks.

However, it turned out later that a John Doe (later found out to be Clarita Mesina, an employee of PRCI) presented to BA for encashment 2 checks of PRCI, each with an indicated value of P110,000. These checks were among those pre-signed by the authorized signatories of PRCI.

The 2 checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee should be indicated the following 2-line entries were instead typewritten: on the upper line was the word ―CASH while the lower line had the following typewritten words, viz: ―ONE HUNDRED TEN THOUSAND PESOS ONLY.

CASHPay To The Order Of: ONE HUNDRED TEN THOUSAND PESOS ONLY

Despite all these irregularities/infirmities and the substantial amount involved, BA never even verified or confirmed the legitimacy of the checks. Not even a verification process or a phone call was made. Neither was there a transaction by PRCI that calls for payment of P220,000. Hence PRCI demanded payment from BA which fell to deaf-ears. Hence PRCI filed the complaint.

ISSUES: whether the proximate cause of the wrongful encashment of the checks in question was due to (a) petitioners failure to make a verification regarding the said checks with the respondent in view of the misplacement of entries on the face of the checks or (b)

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COM. NIL. the practice of the respondent of pre-signing blank checks and leaving the same with its employees.

HELD: Petition is dismissed with modifactions

Q: Is the bank liable for encashing a check with obvious discrepancies?A: Yes. There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondents authorized joint signatories. However, the presence of the irregularities in each check should have alerted the petitioner to be cautious before proceeding to encash them which it did not do.

Although not in the strict sense material alterations, the misplacement of the typewritten entries for the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person who customarily accomplishes the checks of respondent, it should have occurred to petitioners employees that it would be unlikely such mistakes would be made. All these circumstances should have alerted the bank to the possibility that the holder or the person who is attempting to encash the checks did not have proper title to the checks or did not have authority to fill up and encash the same. As noted by the CA, petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to respondent due to the encashment of the stolen checks would have been prevented.

It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.

Q: In defense of its cashier/tellers questionable action, petitioner insists that pursuant to Sections 14 and 16 of the NIL, it could validly presume, upon presentation of the checks, that the party who filled up the blanks had authority and that a valid and intentional delivery to the party presenting the checks had taken place. Thus, in petitioners view, the sole blame for this debacle should be shifted to respondent for having its signatories pre-sign and deliver the subject checks. Petitioner argues that there was indeed delivery in this case because, following American jurisprudence, the gross negligence of respondents accountant in safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped from claiming non-delivery of the instrument. Is this contention correct?A: No. Petitioners contention would have been correct if the subject checks were correctly and properly filled out by the thief and presented to the bank in good order. In that instance, there would be nothing to give notice to the bank of any infirmity in the title of the holder of the checks and it could validly presume that there was proper delivery to the holder. The bank could not be faulted if it encashed the checks under those circumstances. However, the undisputed facts plainly show that there were circumstances that should have alerted

the bank to the likelihood that the checks were not properly delivered to the person who encashed the same.

In all, we see no reason to depart from the finding in the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus making Section 15 of the NIL applicable in this case.

Q: Petitioner insists that respondents are to take blame because of their careless acts of leaving with their accountant pre-signed blank checks. Correct?A: Not entirely. However, we do agree with petitioner that respondents officers practice of pre-signing of blank checks should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of businesses. It should have occurred to respondents officers and managers that the pre-signed blank checks could fall into the wrong hands as they did in this case where the said checks were stolen from the company accountant to whom the checks were entrusted.

Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner will still emerge as the party foremost liable in this case. In instances where both parties are at fault, this Court has consistently applied the doctrine of last clear chance in order to assign liability.

In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent because, even if we concur that the latter was indeed negligent in pre-signing blank checks, the former had the last clear chance to avoid the loss. To reiterate, petitioners own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. Verily, petitioner had the final opportunity to avert the injury that befell the respondent.

Q: In light of respondent’s contributory negligence, must they bear a certain percentage of the loss?A: Yes. 40% should be shouldered by the respondents

We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from respondents accountant turned out to be another employee, purportedly a clerk in respondents accounting department. As the employer of the thief, respondent supposedly had control and supervision over its own employee. This gives the Court more reason to allocate part of the loss to respondent.

Indeed, if not for the fortunate happenstance that the thief failed to properly fill up the subject checks, respondent would expectedly take the blame for the entire loss since the defense of forgery of a drawers signature(s) would be unavailable to it. Considering that respondent knowingly took the risk that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent shares in the responsibility for the loss.

8) Hi-Cement Corp. V. Insular Bank G.R. No. 132403 (2007)Facts:

Spouses Enrique and Lilia Tan were controlling stockholder of E.T. Henry & Co., Inc. (E.T. Henry) which was engaged in the business of processing and distributing bunker fuel. Among the company's customers were Hi-Cement Corporation (Hi-

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COM. NIL. Cement), Riverside Mills Corporation (Riverside), and Kanebo Cosmetics Philippines, Inc. (Kanebo).

o For their purchases, these corporation issued postdated checks. Insular Bank of Asia and America (the Bank) granted E.T. Henry a credit facility

known as "Purchase of Short Term Receivables." o In this arrangement, E.T. Henry and the bank were into "re-discounting"

of checks. [aka: to encash, with pre-deducted interest, the postdated checks of its clients]

o For every transaction, the bank required E.T. Henry to execute a promissory note and a deed of assignment bearing the conformity of the client to the re-discounting.

o From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deed of assignment) with the bank.

However, ALL THE CHECKS were dishonoredo 20 checks of Hi-Cement (which were crossed and which bore the

restriction "deposit to payee's account only") were dishonored. o So were the checks of Riverside and Kanebo.

The bank filed a complaint for sum of money against E.T. Henry, the spouses Tank, Hi-Cement (including its general manager and treasurer), Riverside and Kanebo.

Hi-Cement filed an answer alleging that: d. its general manager and treasurer were not authorized to issue the

postdated crossed checks; e. that the deed of assignment bore only the signature of the treasurer; and f. that the bank was not a holder in due course as it should not have

discounted them for being "crosses checks." The lower court decided in favor of the bank and against E.T. Henry, Hi-Cement,

Riverside and Kanebo. Upon appeal, the Court of Appeals affirmed the decision of the lower court in toto.

ISSUE: Did CA err in affirming RTC?

HELD: WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is hereby AFFIRMED with MODIFICATION. Accordingly, petitioner Hi-Cement Corporation is discharged from any liability. Only petitioner E.T. Henry & Co. is ORDERED to pay.

Q: Does the general manager and treasurer of hi-cements have authority to issue the postdated crossed checks?A: Yes. Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks. They both held that Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous checks to E.T. Henry which the latter, in turn, was able to re-discount with respondent. We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the subjects checks. However, notwithstanding such fact, respondent could not be considered a holder in due course.

Q: Is the respondent bank a HDC? (with regard to the discounting arrangement)A: No.

Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at bar, the last two requirements were not met. To wit:

(c) he took it in good faith and for value Since, the subject checks were crossed and bore restrictions

that they were for deposit to payee's account only; hence, they could not be further negotiated to it)

(d) at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it

Since respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment.

In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-Cements postdated crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks.

As a banking institution, it behooved respondent to act with extraordinary diligence in every transaction. Its business is impressed with public interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt with were crossed.

Q: How can a person who receives a cross-check be a HDC?A: Determine the purpose for which the cross-check was given.

Bataan Cigar Case (case where cross checks sold on discount as well): In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a bank [and]; (c) the act of crossing the checks 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.

o It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorsers 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 faithand as such, the consensus of authority is to the effect that the holder of the check is not a holder in due course.

Q: Was there a proper presentment to respondent bank to make Hi-Cement liable? (in other words, is the drawer of the postdated crossed checks liable to the holder who was deemed not a holder in due course?)A: No, the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course.

In State Investment House, Inc. (SIHI) v. Intermediate Appellate Court, SIHI re-discounted crossed checks and was declared not a holder in due course. As a result, when it presented the checks for deposit, we deemed that its presentment to the drawee bank was not proper, hence, the liability did not attach to the drawer

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COM. NIL. of the checks. We ruled that: The three subject checks in the case at bar had been crossed 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. Thus, in the absence of due presentment, the drawer did not become liable.

Q: Does this mean that a person who is not a HDC cannot recover at all? In this case, who can the bank, the holder (although not a HDC) of the checks, go after?A: The NIL does not absolutely bar a holder who is not a holder in due course from recovering on the checks. Such party may recover from the party who indorsed/encashed the checks if the latter has no valid excuse for refusing payment.

Here, there was no doubt that it was E.T. Henry that re-discounted Hi-Cement's checks and received their value from respondent. Since E.T. Henry had no justification to refuse payment, it should pay respondent.

9) Stelco Marketing Coproration v. CA June 1992Facts:

STELCO sold quantities of steel bars and rolls of G.I. wire to RYL Construction, Inc. for P126,859.61

o but the latter failed to pay for these Later, however, the President of RYL (Lim) asked his friend (Limson) to

accommodate the former by issuing a check, which was made out in the amount the same as the obligation due to Stelco

The check was a company check (Steelweld Corporation of the Phil.) where Limson was the president.

Later, RYL gave the check to Armstrong Industries, which is described as the “sister coproration” and “manufacturing arm” of Stelco

Indorsed by Armstrong and RYL, Armstrong deposited the check at its bank but this was dishonored due to insufficiency of funds

The drawers were charged by Armstrong with a violation of BP 22 .o They 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. The judgment however conditioned the acquittal with the following pronouncement: This is not however to release Steelweld Corporation from its liability under Sec. 29 of the Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim.

Four years after the issuance of the check, one way or another, the check came to the hands of Stelco, w/c sought to enforce payment, claiming that it was a holder for value because it had possession of the check.

Stelco filed a complaint for recovery of a sum of money against RYL and Steelweld RYL could no longer be located so Steelweld was the only one that filed an Answer The RTC ruled in favor of Stelco but the CA reversed this

ISSUE: WON STELCO ever became a holder in due course

HELD: No. WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals affirmed

Q: Can a person be a HDC despite knowing that the party is only an accommodation party?A: Yes. As regards an accommodation party (such as STEELWELD), the fourth condition, i.e., lack of notice of any infirmity in the instruments or defect in title of the persons negotiating it, has no application. This is because Section 29 of the NIL preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder, at the time of taking the instrument, knew him to be only an accommodation party."

In this case, the defendant Steelweld thru its President Peter Rafael Limson admitted to have issued a check payable to cash in favor of his friend Romeo Lim who was the President of RYL Construction by way of accommodation. Under the NIL an accommodation party is liable.

Q: Is STELCO a HDC?A: No. STELCO cannot be deemed a holder of the check for value. It does not meet two of the essential requisites prescribed by the statute. It did not become "the holder of it before it was overdue, and without notice that it had been previously dishonored," and it did not take the check "in good faith and for value."

What the record shows is that: (1) the STEELWELD company check in question was given by its president to R.Y. Lim; (2) it was given only by way of accommodation, to be "used as collateral for another obligation;" (3) in breach of the agreement, however, R.Y. Lim indorsed the check to Armstrong in payment of obligation; (4) Armstrong deposited the check to its account, after indorsing it; (5) the check was dishonored. The record does not show any intervention or participation by STELCO in any manner of form whatsoever in these transactions, or any communication of any sort between STEELWELD and STELCO, or between either of them and Armstrong Industries, at any time before the dishonor of the check.

o The trouble is, there is no evidence whatever that STELCO's possession of Check No. 765380 ever dated back to any time before the instrument's presentment and dishonor.

o There is no evidence whatsoever that the check was ever given to it, or indorsed to it in any manner or form in payment of an obligation or as security for an obligation, or for any other purpose before it was presented for payment.

o Nowhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or depositor thereof

o The record does show that after the check had been deposited and dishonored, STELCO came into possession of it in some way, and was able, several years after the dishonor of the check.

In sum, Stelco never became a holder for value; the check’s intended indorsee was Armstrong. Stelco was never a party to the instrument. It is also neither a holder for value, nor a holder in due course because (1) the check was already

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COM. NIL. overdue several years back, (2) they had notice that it had already been dishonored, and (3) they did not take the check in good faith and for value.

Q: What is the effect of possession of a negotiable instrument after presentment and dishonor? A: Possession of a negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential or insignificant; it does not make the possessor a holder for value within the meaning of the law; it gives rise to no liability on the part of the maker or drawer and indorsers.

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