EQUITABLE BANKING CORP V IAC

FACTS

-In 1975 Casals (who represented himself as general manager of Casville Enterprises, a businessengaged in processing and procurement of lumber products) went to Edward J. Nell Co. and told thecompany‘s sales engineer Claustro of his interest in purchasing a Garrett skidder, one of the many merchandise the company was selling.-

Casals was referred to Javier, Nell‘s EVP, who asked for cash payment for the skidders. Casalssaid that Casvile had a credit line with Equitable Bank. Javier then agreed to have two units ofskidders paid by way of domestic letter of credit instead of cash. Each unit was to cost P485,000.The domestic letter of credit was to be payable in 36 months and was to be opened within 90 daysafter date of shipment of the skidders. The first installement was to be due 180 days after shipmentand interest was pegged at 14% p.a.-Casals requested that one unit be delivered to Cagayan de Oro before April 24, 1976 together withall its accessories. The letter of credit was to be opened on or before June 30, 1976. The skidderwas shipped on May 3.-June 15, 1976

–

Casals handed Nell Co. a check amounting to P300,000 postdated August 4, 1976followed by another check with the same date. Nell Co. considered the checks as partial payment for the skidder or as reimbursement for the marginal deposit due from Casals.-Casals informed Nell Co. that its application for a letter of credit had been approved by Equitable but informed the company that a sum of P400,000 was needed to stand as collateral in favor of Equitable. The amount include P100,000 to clear the title of the Estrada property which was to act as security for the trust receipts issued by the bank. To facilitate the transaction, Nell Co. issued a check for the said amount in favor of Equitable even if the marginal deposit was supposed to be produced by Casville.-Casals wrote Equitable to apply for two letters of credit (an on sight letter of credit for P485,000, a36-month letter of credit for P606,000 and cash marginal deposit of P300,000) to cover its purchaseof the skidders. The skidders were to be mortgaged as security. The bank responded favorably,stipulating a required 30% cash margin deposit, a real estate collateral and chattel mortgage of the equipment.-Casville sent three postdated checks to Nell Co. attached to a letter informing the latter of the bank requirements. The cash margin deposit was to amount to P327,300 and adding the P100,000needed for the Estrada property, the total amount due to Equitable was P427,300. The postdated checks from Casville were intended to cover the checks issued by Nell Co. to Equitable. The postdated checks amounted to P427,300.-Nell Co. issued a check worth P427,300 payable to Equitable Bank. The check was made payable to the ―order of Equitable Banking Corp. A/C of Casville Enterprises.‖ The check was sent to Equitable through Casals. Casals deposited the check in Equitable Bank and the teller accepted it as deposit in Casals checking account. Casals then withdrew the amount deposited.-Upon presentation for encashment, Nell Co. discovered that the three checks amounting toP427,300 were all dishonored for having been drawn against a closed account. Nell Co. checked the status of the letter of credit and was informed by Equitable that no letter of credit had been opened and that the entire amount of P427,300 had been withdrawn.-Casals and Casville

recognized their liability towards Nell Co. so they assigned the Garrett skidder to the latter for the amount of P450,000 as partial satisfaction.-In determining the liability of Equitable Bank to Nell Co., the trial court held that Casals, Casville and Equitable Bank were solidarily liable to Nell Co. for the amount of P427,300 erroneously credited by Equitable to Casville‘s account.

ISSUE

WON Equitable is liable to Nell Co.

HELD: NO. The check was patently ambiguous. By making the check read ―Pay to Equitable Banking Corp.,order of A/C of Casville Enterprises,‖ the payee ceased to be indicated with reasonable certainty.

As worded it could be accepted as deposit to the account of the party named after the symbols A/Cor payable to the bank as trustee or as agent for Casville Enterprises with the latter being the ultimate beneficiary. The ambiguity was to be construed against Nell Co. who caused the ambiguity.-The check was also initially negotiable and neither was it crossed. The crossing of the check andthe stamping of the words ―non negotiable‖ were made by the bank and not by Nell. It simply meant that the same check would thereafter be no longer negotiated. Nell‘s own acts and omissions were the proximate causes of its own defraudation.

Petition granted

PNB VS CONCEPION MINING

Negotiable Instruments Law – Negotiable Instruments in General – 5 SCRA 745 – Rules of Construction

A promissory note dated march 12, 1954 was executed by Vicente Legarda, president of Concepcion Mining Company, and Jose Sarte. On the face of the promissory note partially reads:

NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank . . . .

The promissory note matured and without payment from the makers. PNB sued Concepcion Mining and Sarte.

ISSUE: Whether or not the estate of Legarda should be included in the suit.

HELD: No. There is no need for pursuant to Section 17 (g) of the Negotiable Instruments Law:

SEC. 17. Construction where instrument is ambiguous. — Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply:

x x x x x x x x x

(g) Where an instrument containing the word “I promise to pay” is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

Negotiable Instruments Case Digest: Republic Planters Bank V. CA (1992)

Lessons Applicable: Incomplete instruments to rules of construction (Negotiable Instrument Law)

FACTS: Shozo Yamaguchi (President/Chief Operating Officer) and Fermin Canlas (Treasurer) by virtue of Board Resolution of Worldwide Garment Manufacturing, Inc were authorized to apply for credit facilities with the Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. 9 promissory notes with Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the signatures of Yamaguchi and Canlas were issued to Republic Planters Bank . December 20, 1982: Worldwide Garment Manufacturing, Inc. changed its corporate name to Pinch Manufacturing Corporation. February 5, 1982: Republic Planters filed a complaint for the recovery of sums of money .Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Fermin Canlas denied having issued the promissory notes as an officer of Pinch Manufacturing Corporation and when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., it was in blank (typewritten entries not appearing when he signed)

ISSUE: W/N Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi on the 9 promissory notes because they are negotiable and ruled by the Negotiable Instruments Law

HELD: CA absolving Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all 9 promissory notes with the following sums and at 16% interest per annum

Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such.

Fermin Canlas

one of the co-makers of the promissory notes

cannot escape liability arising therefrom made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of Republic Planters Bank. Severally and jointly or solidarily liable "I promise to pay" is signed by 2 or more persons. "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons "and (in) his personal capacity" below the signatures of the makers - immaterial and will not affect to the liability of Fermin Canlas as a joint and several debtor of the notes.With or without it, he is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor.

A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities. The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or incurred.

GR: officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board.

EX: Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as follows:

Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability.

Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability.incomplete stereotype printed form of promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date. An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law:

Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material particular, the person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ...

In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time...

The notes were not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA vs. IFC LEASING

FACTS: With assurance and warranty, and relying on the seller-assignor’s skill and judgment, petitioner-corporation through petitioners Wee and Vergara, president and vice-president, respectively, agreed to purchase on installment said two (2) units of “Used” Allis Crawler Tractors. The seller-assignor issued the sales invoice for the two (2) units of tractors. At the same time, the deed of sale with chattel mortgage with promissory note was executed by Petitioner. Thereafter, the seller-assignor, by means of a deed of assignment assigned its rights and interest in the chattel mortgage in favor of the respondent. Because of the breaking down of the tractors, Wee asked the seller-assignor to pull out the units and have them reconditioned, and thereafter to offer them for sale. Petitioner-corporation advised the seller-assignor that the payments of the installments as listed in the promissory note would be delayed until the seller-assignor completely fulfills its obligation under its warranty. No response was received despite several follow-up calls.

Respondent now sues Petitioner and claims that the defense of breach of warranty, if there is any, as in this case, does not lie in favor of the Corporation and against IFC Leasing who is the assignee of the promissory note and a holder of the same in due course.

ISSUE: Whether or not the promissory note in question is a negotiable instrument so as to bar completely all the available defenses of the petitioner against the respondent-assignee.

HELD: NO. The pertinent portion of the note issued by the Corporation is as follows:

“FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of (P1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24 monthly installments. . .”

Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note “must be payable to order or bearer,” it cannot be denied that the promissory note in question is not a negotiable instrument.

“The instrument in order to be considered negotiable must contain the so called ‘words of negotiability’ — i.e., must be payable to ‘order’ or ‘bearer’. These words serve as an expression of consent that the instrument may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one.

“There are the only two ways by which an instrument may be made payable to order. There must always be a specified person named in the instrument. It means that the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words ‘or order’ or ‘to the order of,’ the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely ‘step into the shoes’ of the person designated in the instrument and will thus be open to all defenses available against the latter.”

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that the respondent can never be a holder in due course but remains a mere assignee of the note in question. Thus, the petitioner may raise against the respondent all defenses available to it as against the seller-assignor, Industrial Products Marketing.

SESBRENO VS CA

FACTS

On 9 February 1981, Raul Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note (2731), the Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on 13 March 1981. The checks were dishonored for having been drawn against insufficient funds.

Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security was issued 10 April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped “non-negotiable” on its face. As Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank.

ISSUE: Whether non-negotiability of a promissory note prevents its assignment.

HELD: Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in bearer form. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal consequences of negotiation and assignment of the instrument are different. A negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. herein, there was no prohibition stipulated.

LIM VS CA

F: Manuel and Rosita Lim, spouses, and president and treasurer respectively of Rigi Bilt Industries, Inc., allegedly issued 7 Solidbank checks as payment for goods purchased from and delivered by Linton Commercial Company, Inc. When deposited with Rizal Commercial Banking Corporation, said checks were dishonored for “insufficiency of funds” with the additional notation “payment stopped” stamped thereon. Despite demand, spouses Lim refused to make good the checks or pay the value of the deliveries. The RTC held spouses Lim guilty of estafa and violation of BP22. On appeal, the CA acquitted accused-appellants of estafa on the ground that the checks were not made in payment of an obligation contracted at the time of their issuance but affirmed the finding that they were guilty of having violated B.P. Blg. 22. In the present case, petitioners maintain that the prosecution failed to prove that any of the essential elements of the crime punishable under B.P. Blg. 22 was committed within the jurisdiction of RTC-Malabon claiming that what was proved was that all the elements of the offense were committed in Kalookan City.

RULING: Under Sec. 191 NIL, the term “issue” means the first delivery of the instrument complete in form to a person who takes it as a holder. On the other hand, the term “holder” refers to the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. Although LINTON sent a collector who received the checks from petitioners at their place of business in Kalookan City, they were actually issued and delivered to LINTON at its place of business in Balut, Navotas. The receipt of the checks by the collector of LINTON is not the issuance and delivery to the payee in contemplation of law. The collector was not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with the intent to transfer title thereto. Neither could the collector be deemed an agent of LINTON with respect to the checks because he was a mere employee.

Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of insufficient funds as follows

The making, drawing and issuance of a check payment of which is refused by the bank because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangement for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee.

The prima facie evidence has not been overcome by petitioners in the cases before us because they did not pay LINTON the amounts due on the checks; neither did they make arrangements for payment in full by the drawee bank within five (5) banking days after receiving notices that the checks had not been paid by the drawee bank. In People v. Grospe citing People v. Manzanilla we held that “. . . knowledge on the part of the maker or drawer of the check of the insufficiency of his funds is by itself a continuing eventuality, whether the accused be within one territory or another.” Consequently, venue or jurisdiction lies either in the RTC of Kalookan City or Malabon. Moreover, we ruled in the same Grospe and Manzanilla cases as reiterated in Lim v. Rodrigo that venue or jurisdiction is determined by the

allegations in the Information. The Informations in the cases under consideration allege that the offenses were committed in the Municipality of Navotas which is controlling and sufficient to vest jurisdiction upon the Regional Trial Court of Malabon. We therefore sustain likewise the conviction of petitioners by RTC-Malabon for violation of BP22.

Dela Victoria vs. BurgosGR 111190, 27 June 1995First Division, Bellosillo (J)

Facts: Raul Sesbreno filed a complaint for damages against Assistant City Fiscal Bienvenido Mabanto beforethe RTC of Cebu City. After trial, judgment was rendered ordering Mabanto to pay Sesbreno P11,000. Thedecision having become final and executory, the trial court ordered its execution upon Sesbreno’s motion. Thewrit of execution was issued despite Mabanto’s objection. A notice of garnishment was served upon Loreto dela Victoria as City Fiscal of Mandaue City where Mabanto was then detailed. De la Victoria moved to quashthe notice of garnishment claiming that he was not in possession of any money, funds, etc. belonging toMabanto until delivered to him, and as such are still public funds which could not be subject of garnishment..

Issue: Whether the checks subject of garnishment belong to Mabanto or whether they still belong to thegovernment.

Held:

Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable instrument isincomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Asordinarily understood, delivery means the transfer of the possession of the instrument by the maker or drawerwith the intent to transfer title to the payee and recognize him as the holder thereof. Herein, the salary checkof a government officer or employee does not belong to him before it is physically delivered to him. Inasmuchas said checks had not yet been delivered to Mabanto, they did not belong to him and still had the character ofpublic funds. As a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment

Development Bank of Rizal vs. Sima Wei [GR 85419, 9 March 1993]

Second Division, Campos Jr. (J): 4 concur

Facts: In consideration for a loan extended by the Development Bank of Rizal (DBR) to Sima Wei, the latter

executed and delivered to the former a promissory note, engaging to pay DBR or order the amount of

P1,820,000.00 on or before 24 June 1983 with interest at 32% per annum. Sima Wei made partial payments

on the note, leaving a balance of P1,032,450.02. On 18 November 1983, Sima Wei issued two crossed checks

payable to DBR drawn against China Banking Corporation, bearing respectively the serial numbers 384934,

for the amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly

issued in full settlement of the drawer's account evidenced by the promissory note. These two checks were not

delivered to DBR or to any of its authorized representatives. For reasons not shown, these checks came into

the possession of Lee Kian Huat, who deposited the checks without DBR's indorsement (forged or otherwise)

to the account of the Asian Industrial Plastic Corporation, at the Balintawak branch, Caloocan City, of the

Producers Bank. Cheng Uy, Branch Manager of the Balintawak Branch of Producers Bank, relying on the

assurance of Samson Tung, President of Plastic Corporation, that the transaction was legal and regular,

instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of

said Plastic Corporation, inspite of the fact that the checks were crossed and payable to DBR and bore no

indorsement of the latter. On 5 July 1986, DBR filed the complaint for a sum of money against Sima Wei

and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation and the Producers

Bank of the Philippines, on two causes of actionL (1) To enforce payment of the balance of P1,032,450.02 on

a promissory note executed by Sima Wei on 9 June 1983; and (2) To enforce payment of two checks executed

by Sima Wei, payable to DBR, and drawn against the China Banking Corporation, to pay the balance due on

the promissory note. Except for Lee Kian Huat, Sima Wei, et al. filed their separate Motions to Dismiss

alleging a common ground that the complaint states no cause of action. The trial court granted the Motions to

Dismiss. The Court of Appeals affirmed the decision, to which DBR, represented by its Legal Liquidator,

filed the Petition for Review by Certiorari.

Issue: Whether DBR, as the intended payee of the instrument, has a cause of action against any or all of the

defendants, in the alternative or otherwise.

Held: The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance,

the name of the payee, the amount payable and the drawer's signature. All the drawer has to do when he

wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact that he has done

these does not give rise to any liability on his part, until and unless the check is delivered to the payee or his

representative. A negotiable instrument, of which a check is, is not only a written evidence of a contract right

but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to

the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a

binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part that

"Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for

the purpose of giving effect thereto." Thus, the payee of a negotiable instrument acquires no interest with

respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or

constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the

payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to

the instrument. Herein, the two (2) China Bank checks, numbered 384934 and 384935, were not delivered to

the payee, DBR. Without the delivery of said checks to DBR, the former did not acquire any right or interest

therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer

Sima Wei or against the Producers Bank or any of the other respondents. Since DBR never received the

checks on which it based its action against said respondents, it never owned them (the checks) nor did it

acquire any interest therein. Thus, anything which the respondents may have done with respect to said checks

could not have prejudiced DBR. It had no right or interest in the checks which could have been violated by

said respondents. DBR has therefore no cause of action against said respondents, in the alternative or

otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against her co-respondents, if

the allegations in the complaint are found to be true.

-no digest for RCBC vs Hi Tri-

Dy V. People (2008)

G.R. No. 158312 November 14, 2008

Lessons Applicable: General Provisions (Negotiable Instruments Law)

FACTS:

Since 1990, John Dy under the business name Dyna MarketinG has been the distributor of W.L. Food Products (W.L. Foods)

Dy would pay W.L. Foods in either cash or check upon pick up of stocks of snack foods

At times, he would entrust the payment to one of his drivers.

June 24, 1992: Dy's driver went to the branch office of W.L. Foods to pick up stocks of snack foods.

He introduced himself to the checker, Mary Jane D. Maraca, who upon confirming Dy's credit with the main office, gave him merchandise worth P106,579.60

In return, the driver handed her a blank Far East Bank and Trust Company (FEBTC) Check postdated July 22, 1992 signed by Dy

July 1, 1992: the driver obtained snack foods worth P226,794.36 in exchange for a blank FEBTC Check postdated July 31, 1992

In both instances, the driver was issued an unsigned delivery receipt.

When presented for payment, FEBTC dishonored the checks for insufficiency of funds.

Later, Gonzales sent Atty. Jimeno another letter advising her that FEBTC Check for P106,579.60 was returned to the drawee bank for the reasons stop payment order and drawn against uncollected deposit (DAUD), and not because it was drawn against insufficient funds as stated in the first letter.

Dy's savings deposit account ledger reflected a balance of P160,659.39 as of July 22, 1992. This, however, included a regional clearing check for P55,000 which he deposited on July 20, 1992, and which took 5 banking days to clear.

When William Lim, owner of W.L. Foods, phoned Dy about the matter, the latter explained that he could not pay since he had no funds yet.

This prompted the former to send petitioner a demand letter, which the latter ignored.

July 16, 1993: Lim charged Dy with 2 counts of estafa under Article 315, paragraph 2(d) of RPC and 2 counts of violation of B.P. Blg. 22

RTC convicted Dy on two counts each of estafa and violation of B.P. Blg. 22.

CA: affirmed

Dy contends that the checks were ineffectively issued

W.L. Foods' accountant had no authority to fill the amounts

ISSUE: W/N Dy is liable for estafa and in violation of BP 22. Acquitted for the criminal cases in relation to the first check.

HELD: YES but only for the 2nd check.

estafa under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885 elements

postdating or issuance of a check in payment of an obligation contracted at the time the check was issued

insufficiency of funds to cover the check - including the uncollected deposit he had more than enough funds to cover the first check

damage to the payee

Section 191 of the Negotiable Instruments Law

"issue" - first delivery of an instrument, complete in form, to a person who takes it as a holder

Significantly, delivery is the final act essential to the negotiability of an instrument. Delivery denotes physical transfer of the instrument by the maker or drawer coupled with an intention to convey title to the payee and recognize him as a holder. It means more than handing over to another; it imports such transfer of the instrument to another as to enable the latter to hold it for himself

Even if the checks were given to W.L. Foods in blank, this alone did not make its issuance invalid.

When the checks were delivered to Lim, through his employee, he became a holder with prima facie authority to fill the blanks

SEC. 14. Blanks; when may be filled.-Where the instrument is wanting in any material particular,the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as aprima facie authority to fill it up as such for any amount.

law merely requires that the instrument be in the possession of a person other than the drawer or maker

From such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks

burden of proving want of authority or that the authority granted was exceeded, is placed on the person questioning such authority - Dy didn't fulfill this

estafa punished under Article 315, paragraph 2(d) of the Revised Penal Code is committed when a check is dishonored for being drawn against insufficient funds or closed account, and not against uncollected deposit. Corollarily, the issuer of the check is not liable for estafa if the remaining balance and the uncollected deposit, which was duly collected, could satisfy the amount of the check when presented for payment.

B.P. Blg. 22 elements = malum prohibitum

the making, drawing and issuance of any check to apply to account or for value

the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment

subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment - considered by the bank to retroactively have had P160,659.39 in his account on July 22, 1992 which was more than enough to cover the first check

Dy admitted that he issued the checks, and that the signatures appearing on them were his

Section 2 of B.P. Blg. 22, petitioner was prima facie presumed to know of the inadequacy of his funds with the bank when he did not pay the value of the goods or make arrangements for their payment in full within 5 banking days upon notice

-no digest for wettlaufer-

METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION vs. SAMBOK MOTORS COMPANY

Posted on March 26, 2013 by winnieclaire

Standard

FACTS: Sambok Motors Company negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation 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”

The maker, Dr. Villaruel defaulted in the payment. Plaintiff notified Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment. Sambok failed to pay. Trial court rendered its decision in favour of Plaintiff. Appellant Sambok argues that by adding the words “with recourse” in the indorsement of the note, it becomes a qualified indorser; that being a qualified indorser, it does not warrant that if said note is dishonored by the maker on presentment, it will pay the amount to the holder.

ISSUE: Whether or not Sambok is a qualified indorser.

HELD: Appellant, by indorsing the note “with recourse” does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that 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. Appellant 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. The words added by said appellant do not limit his liability, but rather confirm his obligations as a general indorser.

Gempesaw vs.Court of Appeals

G.R. No. 92244

February 9, 1993

Facts:

Natividad O. Gempesaw owns and operates four grocery stores in Caloocan City. She maintains a checking account with the Caloocan City Branch of the Philippine Bank of Communications (drawee Bank). To facilitate payment of debts to her suppliers, she draws checks against her checking account with the bank as drawee.

As part of her customary practice of issuing checks in payment of her suppliers, the checks were usually prepared and filled up as to all material particulars by her trusted bookkeeper, Alicia Galang, an employee for more than 8 years.

After the bookkeeper prepared the checks, the completed checks were submitted to Gempesaw for her signature, together with the corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers.

Gempesaw signed each and every check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper.

On 23 January 1985, Gempesaw filed a Complaint against the drawee Bank for recovery of the money value of 82 checks charged against her account with the drawee Bank on the ground that the payees' indorsements were forgeries.

About 30 of the payees whose names were specifically written on the checks testified that they did not receive nor even see the subject checks and that the indorsements appearing at the back of the checks were not theirs. It was learned that all the 82 checks with forged signatures of the payees were brought to Ernest L. Boon, Chief Accountant of drawee Bank at the Buendia branch, who, without authority therefor, accepted them all for deposit at the Buendia branch to the credit and/or in the accounts of Alfredo Y. Romero and Benito Lam.

The Court of Appeals in a decision rendered affirmed the decision of the RTC on two grounds, namely (1) that Gempesaw’s gross negligence in issuing the checks was the proximate cause of the loss and (2) assuming that the bank was also negligent, the loss must nevertheless be borne by the party whose negligence was the proximate cause of the loss.

On 5 March 1990, Gempesaw filed the petition for review under Rule 45 of the Rules of Court.

The Supreme Court order the case remanded to the trial court for the reception of evidence to determine the exact amount of loss suffered by Gempesaw, considering that she partly benefited from the issuance of the questioned checks since the obligation for which she issued them were apparently extinguished, such that only the excess amount over and above the total of these actual obligations must be considered as loss of which one half must be paid by drawee bank to Gempesaw.

Issues:

1. Generally the main issue is whether forgery of negotiable instrument is a real or absolute defense;

2. Whether Gempesaw’s gross negligence in issuing the checks was the proximate cause of the loss; and

3. Whether the drawee bank was also negligent, the loss must nevertheless be borne by the party whose negligence was the proximate cause of the loss.

Held:

1. Rules of the drawee Bank (PBCom) as to acceptance of second indorsement on a check for deposit.

Under the rules of the drawee Bank, only a Branch Manager, and no other official of the drawee Bank, may accept a second indorsement on a check for deposit. In the present case, all the deposit slips of the 82 checks in question were initialed and/or approved for deposit by Ernest L. Boon, Chief Accountant of the Buendia Branch of the drawee Bank. The Branch Managers of the Ongpin and Elcano branches

accepted the deposits made in the Buendia branch and credited the accounts of Alfredo Y. Romero and Benito Lam in their respective branches.

2. Present case not a suit by party whose signature was forged on a check drawn against the drawee bank, but by the drawer whose signature is genuine.

The present case is not a suit by the party whose signature was forged on a check drawn against the drawee bank. The payees are not parties to the case. Rather, it is the drawer, whose signature is genuine, who instituted the action to recover from the drawee bank the money value of 82 checks paid out by the drawee bank to holders of those checks where the indorsements of the payees were forged. How and by whom the forgeries were committed are not established on the record, but the respective payees admitted that they did not receive those checks and therefore never indorsed the same.

3. Section 23 of the Negotiable instruments Law.

The applicable law is the Negotiable Instruments Law (NIL). Section 23 of the NIL provides that "when a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority."

4. Forgery a real or absolute defense by the party whose signature is forged; Party includes maker or drawer, indorsee or payee.

Under Section 23 of the NIL, forgery is a real or absolute defense by the party whose signature is forged. A party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument. Since his signature does not appear in the instrument, he cannot be held liable thereon by anyone, not even by a holder in due course. Thus, if a person's signature is forged as a maker of a promissory note, he cannot be made to pay because he never made the promise to pay. Or where a person's signature as a drawer of a check is forged, the drawee bank cannot charge the amount thereof against the drawer's account because he never gave the bank the order to pay. And said section does not refer only to the forged signature of the maker of a promissory

note and of the drawer of a check. It covers also a forged indorsement, i.e., the forged signature of the payee or indorsee of a note or check.

5. Effects of forgery.

Since under said provision a forged signature is "wholly inoperative", no one can gain title to the instrument through such forged indorsement. Such an indorsement prevents any subsequent party from acquiring any right as against any party whose name appears prior to the forgery. Although rights may exist between and among parties subsequent to the forged indorsement, not one of them can acquire rights against parties prior to the forgery. Such forged indorsement cuts off the rights of all subsequent parties as against parties prior to the forgery. However, the law makes an exception to these rules where a party is precluded from setting up forgery as a defense.

6. Two types of cases of problems arising from forged indorsements of checks.

Problems arising from forged indorsements of checks may generally be broken into two types of cases: (1) where forgery was accomplished by a person not associated with the drawer [for example a mail robbery]; and (2) where the indorsement was forged by an agent of the drawer. This difference in situations would determine the effect of the drawer's negligence with respect to forged indorsements.

7. Duty of drawer; Effect of negligence.

While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by the depositor's own employees. And if the drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer is under duty promptly to report such fact to the drawee bank. For his negligence or failure either to discover or to report promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his account under the forged indorsement. In other words, he is precluded from using forgery as a basis for his claim for recrediting of his account.

8. Effect of signing of negotiable instrument.

Gempesaw admitted that the checks were filled up and completed by her trusted employee, Alicia Galang, and were later given to her for her signature. Her signing the checks made the negotiable instrument complete. Prior to signing the checks, there was no valid contract yet.

9. Negotiable instrument is incomplete and revocable until delivery of the instrument to the payee; Issuance of the instrument.

Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument to the payee for the purpose of giving effect thereto. The first delivery of the instrument, complete in form, to the payee who takes it as a holder, is called issuance of the instrument. Without the initial delivery of the instrument from the drawer of the check to the payee, there can be no valid and binding contract and no liability on the instrument.

10. Drawee bank cannot charge drawer’s bank where indorsement has been forged.

Exception, when drawer is guilty of negligence which causes bank to honor such checks

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks.

11. Drawer has duty to examine cancelled checks for forgery of his own signature, not as to forged indorsements.

If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the forged indorsement by mere examination of his cancelled check. This accounts for the rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own signature, he has no similar duty as to forged indorsements.

12. When indorsement forged by an employee or agent of drawer; Fraud discoverable.

A different situation arises where the indorsement was forged by an employee or agent of the drawer, or done with the active participation of the latter. Most of the cases involving forgery by an agent or employee deal with the payee's indorsement. The drawer and the payee oftentimes have business relations of long standing. The continued occurrence of business transactions of the same nature provides the opportunity for the agent/employee to commit the fraud after having developed familiarity with the signatures of the parties. However, sooner or later, some leak will show on the drawer's books. It will then be just a question of time until the fraud is discovered. This is specially true when the agent perpetrates a series of forgeries as in the present case.

13. Negligence of depositor that will prevent recovery of an unauthorized payment.

The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a prudent businessman would under the circumstances. In the present case, Gempesaw relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even verify the accuracy of the amounts of the checks she signed against the invoices attached thereto. Furthermore, although she regularly received her bank statements, she apparently did not carefully examine the same nor the check stubs and the returned checks, and did not compare them with the sales invoices. Otherwise, she could have easily discovered the discrepancies between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been accomplished. It was not until two years after the bookkeeper commenced her fraudulent scheme that Gempesaw discovered that 82 checks were wrongfully charged to her account, at which time she notified the drawee Bank.

14. Even if there is possibility that checks covered inexistent sales, Gempesaw did not exercise prudence.

Since there is no mention about any of Gempesaw’s suppliers complaining of non-payment, the possibility exists that the checks in question covered inexistent sales. But even in such a case, considering the length of a period of 2 years, it is hard to believe that Gempesaw did not know or realize that she was paying much more than she should for the supplies she was actually getting. A depositor may not sit idly by, after knowledge has come to her that her funds seem to be disappearing or that there may be a leak in her business, and refrain from taking the steps that a careful and prudent businessman would take in such circumstances and if taken, would result in stopping the continuance of the fraudulent scheme. If she fails to take such steps, the facts may establish her negligence, and in that event, she would be estopped from recovering from the bank.

15. Gempesaw precluded from using forgery as a defense; Gempesaw’s negligence was proximate cause of her loss.

Had Gempesaw examined her records more carefully, she would have noticed discrepancies. Had Gempesaw been more vigilant in going over her current account by taking careful note of the daily reports made by the drawee Bank on her issued checks, or at least made random scrutiny of her cancelled checks returned by drawee Bank at the close of each month, she could have easily discovered the fraud being perpetrated by Alicia Galang, and could have reported the matter to the drawee Bank. The drawee Bank then could have taken immediate steps to prevent further commission of such fraud. Thus, Gempesaw's negligence was the proximate cause of her loss. And since it was her negligence which caused the drawee Bank to honor the forged checks or prevented it from recovering the amount it had already paid on the checks, Gempesaw cannot now complain should the bank refuse to recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of her account.

16. Great Eastern Life Insurance case not applicable; Payee’s signature not forged by agent or employee of drawer.

The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Bank is not applicable to the case at bar because in said case, the check was fraudulently taken and the signature of the payee was forged not by an agent or employee of the drawer. The drawer was not found to be negligent in the handling of its business affairs and the theft of the check by a total stranger was not attributable to negligence of the drawer; neither was the forging of the payee's indorsement due to the drawer's negligence. Since the drawer was not negligent, the drawee was duty-bound to restore to the drawer's account the amount theretofore paid under the check with a forged payee's indorsement because the drawee did not pay as ordered by the drawer.

17. Crossed check imposes no legal obligation on the drawee not to honor such check.

Cross check merely a warning that check cannot be presented for payment in cash

Issuing a crossed check imposes no legal obligation on the drawee not to honor such a check. It is more of a warning to the holder that the check cannot be presented to the drawee bank for payment in cash. Instead, the check can only be deposited with the payee's bank which in turn must present it for payment against the drawee bank in the course of normal banking transactions between banks. The

crossed check cannot be presented for payment but it can only be deposited and the drawee bank may only pay to another bank in the payee's or indorser's account.

18. Banking rule banning acceptance of checks with more than one indorsement, unless cleared by bank officials, does not invalidate instrument, nor negotiation or transfer thereof.

The banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not invalidate the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof.

19. Restrictive indorsement.

Section 36 of the Negotiable Instruments Law (When indorsement restrictive) provides that “an indorsement is restrictive which either (a) Prohibits further negotiation of the instrument; or. xxx xxx xxx" In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that it ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so.

20. Liability of drawee on wrongful dishonor of bill or check.

Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between them, as far as the drawer-depositor is concerned, such bank may not legally refuse to honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds. The drawee cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee, he incurs no liability on the check unless he accepts it. But the drawee will make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or check.

21. Drawer cannot allege negligence of drawee bank on the selection and supervision of its employees, Drawee may be liable for damages under Article 1170 of the Civil Code, and not Article 2179.

Under Section 196 of the NIL, any case not provided for in the Act shall be governed by the provisions of existing legislation. Under the laws of quasi-delict, she cannot point to the negligence of the drawee Bank in the selection and supervision of its employees as being the cause of the loss because her negligence is the proximate cause thereof and under Article 2179 of the Civil Code, she may not be awarded damages. However, under Article 1170 of the same Code the drawee Bank may be held liable for damages. The article provides "Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages."

22. Violation of internal banking rules and regulations contravenes tenor of bank’s obligation.

There is a contractual relation between Gempesaw as depositor (obligee) and the drawee bank as the obligor. In the performance of its obligation, the drawee bank is bound by its internal banking rules and regulations which form part of any contract it enters into with any of its depositors. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence.

23. Non-discovery of irregularity as to acceptance of checks with second indorsement without approval of branch manager constitutes negligence on the part of the bank; Article 1173 of the Civil Code.

The fact that the drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors. Article 1173 provides "The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and correspondents with the circumstance of the persons, of the time and of the place. . . ."

24. Banking business impressed with public interest; Utmost diligence required.

The banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be a high degree of diligence, if not the utmost diligence. Surely, drawee Bank cannot claim it exercised such a degree of diligence that is required of it. There is no way that it be allowed to escape liability for such negligence. Its liability as obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment.

25. Bank liable to 50:50 ratio share for loss, in accordance with Article 1172 of the Civil Code.

The drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in accordance with Article 1172 which provides "Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances."

26. Liability of the bank thus is based on law and not mere equity.

With the foregoing provisions of the Civil Code being relied upon, it is being made clear that the decision to hold the drawee bank liable is based on law and substantial justice and not on mere equity.

27. Courts not precluded to apply circumstances of the case the laws pertinent thereto.

Gempesaw’s negligence does not preclude her from recovering damages

And although the case was brought before the court not on breach of contractual obligations, the courts are not precluded from applying to the circumstances of the case the laws pertinent thereto. Thus, the fact that petitioner's negligence was found to be the proximate cause of her loss does not preclude her from recovering damages. The reason why the decision dealt on a discussion on proximate cause is due to the error pointed out by petitioner as allegedly committed by the appellate court. And in breaches of contract under Article 1173, due diligence on the part of the bank is not a defense.

FAR EAST BANK & TRUST COMPANY,

Petitioner,

- versus -

GOLD PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie Yang-Go and Kho Soon Huat,

Respondent

FACTS: Samuel Tagoe, a foreigner, purchased from Gold Palace (SM North) jewelries worthPHP 258,000.00. As payment, he offered a foreign draft issued by the United Overseas Bankof Malaysia addressed to Land Bank, and payable to Gold Palace for PHP 380,000.00. Judy Yang, the assistant GM of Gold Palace inquired from Far East Bank (SM North) regarding thedraft’s nature. The teller told her that it was similar to a manager’s check but advised her tonot release the jewelry until the draft has been cleared. Following the advice, Yang Issued acash invoice to Tagoe & told him that the jewelries would be released when the draft hadbeen cleared. Julie Yang-Go, the manager of Gold Palace, deposited the draft in thecompany’s account with Far East Bank SM North. The latter presented it for clearing to LBP,the drawee bank, who cleared the same. United Overseas account with LBP was debitedand Gold Palace’s account with Far East was credited with the amount stated in the draft. The pieces of jewelry were then released to Tagoe and because the amount in the draft wasmore than the value of the goods, a check for PHP 122,000 was issued to him. It wasencashed by Tagoe.3 weeks after, LBP informed Far East that the amount in the foreign draft had beenmaterially-altered from PHP 300.00 to PHP 380,000.00 and that they will be returning it. FarEast thus refunded the amount paid by LBP. Thus, Far East had to seek reimbursement fromGold Palace but they were only able to debit PHP 168,053.37, which was done without aprior written notice to Gold Palace as they only informed them by phone. They thusdemanded the difference of PHP 211,946.64 from Gold Palace. As the latter did not respondfavorably, Far East instituted a civil case for sum of money and damages. Gold Palacedenies the allegations in the complaint and claims as their defense that the subject foreigndraft has been cleared and it was not they who caused the alteration. The RTC ruled in favorof Far East but this was reversed by the CA as Far East failed to undergo the proceedings onthe protest and thus, Far East could not charge Gold Palace on its secondary liability as anindorser. It further said that the drawee bank had cleared the check and its remedy shouldbe against the part responsible for the alteration.

ISSUE: WHETHER OR NOT FAR EAST BANK COULD PROCEED AGAINST GOLDPALACE.HELD: No.RATIO:

The acceptor, by accepting the instrument, engages that he will pay it

according tothe tenor of his acceptance

. This provision applies with equal force in case the drawee paysa bill without having previously accepted it. His actual payment of the amount in the checkimplies not only his assent to the order of the drawer and a recognition of his correspondingobligation to pay the aforementioned sum, but also, his clear compliance with thatobligation.

Actual payment by the drawee is greater than his acceptance

, which ismerely a promise in writing to pay. The payment of a check includes its acceptance. Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreigndraft and forwarded the amount thereof to the collecting bank. LBP was liable on itspayment of the check according to the tenor of the check at the time of payment, which wasthe raised amount. Thus, LBP could no longer repudiate the payment it erroneously made toa due course holder. Gold Palace was not a participant in the alteration of the draft, was notnegligent, and was a holder in due course—it received the draft complete and regular on itsface, before it became overdue and without notice of any dishonor, in good faith and forvalue, and absent any knowledge of any infirmity in the instrument or defect in the title of the person negotiating it.

TY VS PEOPLE

Facts: Ty’s mother was confined in Manila Doctor's Hospital to which a medical bill amounting to 600,000 pesos was made to be paid to TY, after signing a contract of responsibility with the hospital. Ty, issued 7 checks to cover the said expenses, all of which were dishonored for being drawn against a closed a account. Manila Doctors Hospital then instituted criminal actions against Ty for violation of BP22.

In her defense she alleged that she issued the checks involuntarily because her mother threatened to commit suicide due to the inhumane treatment she allegedly suffered while confined in the hospital. She further claimed that no consideration was obtained by her because all the checks were made as payment to the medical bills.

Issue: Whether or not valuable consideration exists.

Held: Under Section 24 of the Negotiable Instruments Law, it is presumed that valuable consideration exist upon the issuance of a check in the absence of evidence to the contrary.Valuable consideration is any benefit, interest or profit accruing to the party. The use of the hospital facilities and services may be deemed as such.

-no digest for ngo-

BPI V. COURT OF APPEALS

GR 136202, JANUARY 25, 2007

FACTS:

Templonuevo demanded payment from petitioner of a sum of money representing the aggregate value of three checks which were allegedly payable to him but which were deposited with the petitioner to Salazar’s account, without his knowledge and corresponding endorsement. Finding

merit in the demands of Templonuevo, the bank then froze the account of the engineering firm as the account of Salazar was already closed or had insufficient funds. Failure of any settlement between Templonuevo and Salazar, this prompted the bank to debit the account of Salazar and give back the money to Templonuevo through cashier’s check. The account of Salazar was also debited for whatever charges incurred for the issuance of the cashier’s check.

The trial court held in favor of Salazar.

ISSUE:

Does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from 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:

In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazar’s entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law.

Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. 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. Thus, 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 other facts from which the authority to receive payment may be inferred.

Even if the delay in the demand for reimbursement is taken in conjunction with Salazar’s possession of the checks, it cannot be said that the presumption of ownership in Templonuevo’s favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right.

The presumption that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term “given” does not pertain merely to a transfer of physical possession of the instrument. The phrase “given or indorsed” in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated.

It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the 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 circumstances despite the fact that Templonuevo may

not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioner’s liability to the designated payee cannot be denied.

Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account for the value of the checks it previously credited in her favor. However, the issue of whether it acted judiciously is an entirely different matter. As businesses affected with public interest, and because

of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor.

To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioner’s claim that it merely made a mistake in crediting the value of the checks to Salazar’s account and instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking

policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct. The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank.

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioner’s assurances to private respondent Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo. For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the bank’s negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation

CALTEX PHILS VS CA

FACTS

On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million. Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex’ claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983, de la Cruz’ loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed.

ISSUE [1]:

Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.

HELD [1]:

The CTDs in question meet the requirements of the law for negotiability. Contrary to the lower court’s findings, the CTDs are negotiable instruments (Section 1). Negotiability or non-negotiability of an instrument is determined from the writing, i.e. from the face of the instrument itself. The documents provided that the amounts deposited shall be repayable to the depositor. The amounts are to be repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment.

ISSUE [2]:

Whether the CTDs’ negotiation require delivery only.

HELD [2]:

Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz’ purchases of its fuel products, and not for payment. Herein, there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien. Accordingly, a

negotiation for such purpose cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for.