Corporate Law Case Digest: Lee V. CA (1992)

G.R. No. 93695 February 4, 1992Lessons Applicable: Voting Trust Agreements (Corporate Law)

FACTS: November 15, 1985: a complaint for a sum of money was filed by the International Corporate Bank, Inc. (ICB) against the private respondents

March 17, 1986: private respondents, in turn, filed a 3rd-party complaint against ALFA and ICB

September 17, 1987: petitioners filed a motion to dismiss the third party complaint - denied

July 12, 1988: trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP

o consequence of the petitioner's letter that ALFA management was transferred to DBP 

July 22, 1988: DBP claimed that it was not authorized to receive summons on behalf of ALFA

August 4, 1988: trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA

September 12, 1988: petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e., through publication to effect proper service upon ALFA - denied

January 19, 1989: 2nd motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA

o attached a copy of the voting trust agreement between all the stockholders of ALFA and the DBP whereby the management and control of ALFA became vested upon the DBP

April 25, 1989: trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA

October 17, 1989: trial court (NOT notified of the petition for certiorari) declared final its decision on April 25, 1989

ISSUE: W/N the voting trust agreement is valid despite being contrary to the general principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority

HELD: voting trust 

o trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used (Ballentine's Law Dictionary) 

o Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining to the shares for a period not exceeding 5 years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding 5 years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the

transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement.

Tibajia Jr. v. Court of Appeals [G.R. No. 100290. June 4,  1993]

FACTS

Tibajia spouses delivered to Sheriff the total money judgment in cashier’s check and cash.Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted that the garnished funds deposited with the cashier of the Regional Trial Court of Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. Tibajias filed a motion to lift the writ of execution on the ground that the judgment debt had already been paid. The motion was denied.

ISSUEWhether or not payment by means of cashier’s check is considered payment in legal tender.

RULINGNO. A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. A check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager’s, cashier’s or personal check. The Supreme Court stressed that, “We are not, by this decision, sanctioning the use of a check for the payment of obligations over the objection of the creditor.”

PIO BARETTO vs CA

Negotiable Instruments Law – 360 SCRA 127 – Check Payments – Due Diligence in Presenting Checks for Payment Honor Mosrales and Pio Barreto Realty Development Corporation are disputing over the estate of Nicolai Drepin, represented by Atty. Tomas Trinidad. To settle the dispute, and while the case is in court, they entered into a Compromise Agreement upon which they agree to have the estate in dispute be sold; that in case Mosrales was able to buy the property first, he should pay P3,000,000.00 to Barreto Realty (representing the amount of investments by Barreto Realty on the estate); that should Barreto Realty buy the property first, it should pay P1,000,000.00 to Mosrales (representing interest). The compromise agreement was approved by the judge.Barreto Realty was able to buy the property first hence it delivered a manager’s check worth P1,000,000.00 to Mosrales but the latter refused to accept the same. Barreto Realty filed a petition before the trial court to direct Mosrales to comply with the Compromise Agreement. Barreto Realty also consigned the check payment with the court. The judge issued a writ of execution against Mosrales and the sheriff also

delivered the check to Mosrales which the latter accepted. However, three years later, Mosrales filed a motion for reconsideration alleging that the check payment did not amount to legal tender and that he never even encashed the check. The judge agreed with Mosrales.ISSUE: Whether or not the judge is correct.HELD: No. There was already a final and executory order issued by the same judge three years prior. The same may no longer be amended regardless of any claim or error or incorrectness (save for clerical errors only). It is true that a check is not a legal tender and while delivery of a check produces the effect of payment only when it is encashed, the rule is otherwise if the debtor (Barreto Realty) was prejudiced by the creditor’s (Mosrales’) unreasonable delay in presentment. Acceptance of a check implies an undertaking of due diligence in presenting it for payment. If no such presentment was made, the drawer cannot be held liable irrespective of loss or injury sustained by the payee. Payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged.Crystal vs. CAGR L-35767, 18 June 1976

Resolution of the Second Division, Barredo (J)

Facts: The Supreme Court, in its decision of 25 February 1975, affirmed the decision of the Court of Appeals,

Negotiable Instruments Law, 2004 ( 6 )Digests (Berne Guerrero)

holding that Raymundo Crystal’s redemption of the property acquired by Pelagia Ocang, Pacita, Teodulo,

Felicisimo, Pablo, Lydia, Dioscoro and Rodrigo, all surnamed de Garcia, was invalid as the check which

Crystal used in paying the redemption price has been either dishonored or had become stale (Ergo, the value

of the check was never realized). Crystal filed a motion for reconsideration.

Issue: Whether the conflicting circumstances of the check being dishonored and becoming stale affect the

validity of the redemption sale.

Held: For a check to be dishonored upon presentment and to be stale for not being presented at all in time are

incompatible developments that have variant legal consequences. If indeed the questioned check was

dishonored, the redemption was null and void. If it had only become state, it becomes imperative that the

circumstances that caused its non-presentment be determined, for if it was not due to the fault of the drawer, it

would be unfair to deprive him of the rights he had acquired as redemptioner. Herein, it appears that there is a

strong showing that the check was not dishonored, although it became stale, and that Pelagia Ocang had

actually been paid the full value thereof. The Supreme Court, thus, reconsidered its decision and remanded

the case to the trial court for further proceedings.

Vda. de Eduque vs. OcampoGR L-222, 26 April 1950Second Division, Moran (CJ)

Facts: On 16 February 1935, Dr. Jose Eduque secured two loans from Mariano Ocampo de Leon, Dona

Escolastica delos Reyes and Don Jose M. Ocampo, with amount s of P40,000 and P15,000, both payable

within 20 years with interest of 5% per annum. Payment of the loans was guaranteed by mortgage on real

property. On 6 December 1943, Salvacion F. Vda de Eduque, as administratrix of the estate of Dr. Jose

Eduque, tendered payment by means of a cashier’s check representing Japanese War notes to Jose M.

Ocampo, who refused payment. By reason of such refusal, an action was brought and the cashier’s check was

deposited in court. After trial, judgment was rendered against Ocampo compelling him to accept the amount,

to pay the expenses of consignation, etc. Ocampo accepted the judgment as to the second loan but appealed as

to the first loan.

Negotiable Instruments Law, 2004 ( 31 )Digests (Berne Guerrero)

Issue: Whether there is a tender of payment by means of a cashier’s check representing war notes.

Held: Japanese military notes were legal tender during the Japanese occupation; and Ocampo impliedly

accepted the consignation of the cashier’s check when he asked the court that he be paid the amount of the

second loan (P15,000). It is a rule that a cashier’s check may constitute a sufficient tender where no objection

is made on this ground.

Digest: New Pacific Timber & Supply Co., Inc vs. Seneris [No. L-41764. December19, 1980.]

FACTS: Herein petitioner was the defendant in a complaint for collection of a sum of money filed by the private respondent. On July 19, 1974, a compromise judgment was rendered by the respondent Judge in accordance with an amicable settlement entered into by the parties. For failure of the petitioner to comply with his judgment obligation, the respondent Judge, issued an order for the issuance of a writ of execution. Accordingly, writ of execution was issued for the amount of P63,130.00 pursuant to which, the Ex Officio Sheriff levied upon the following personal properties of the petitioner and set the auction sale thereof on January 15, 1975. Prior to January 15, 1975, petitioner deposited with the Clerk of CFI the sum of P63,130.00 for the payment of the judgment obligation, consisting of the following. (1) P50,000.00 in Cashier's Checks No. S314361 dated January 3, 1975 of the Equitable Banking Corporation; and (2) P13,130.00 in cash. The private respondent refused to accept the check as well as the cash deposit. The respondent judge upheld private respondent's claim that he has the right to refuse payment by means of a check, the respondent Judge citing Section 63 of the Central Bank Act, and Article 1249 of the New Civil Code.

ISSUE: Whether or not the private respondent can validly refuse acceptance of the payment of the judgment obligation made by the petitioner consisting of P50,000.00 in Cashier's Check and P13,130.00 in cash which it deposited with the Ex-Officio Sheriff before the date of the scheduled auction sale.

HELD: It is to be emphasized in this connection that the check deposited by the petitioner in the amount of P50.000.00 is not an ordinary check but a Cashier's Check of the Equitable Banking Corporation, a bank of good standing and reputation. Where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. The object of certifying a check, as regards both parties, is to enable the holder to use it as money. When the holder procures the check to be certified, "the check operates as an assignment of a part of the funds to the creditors". The exception to the

rule enunciated under Section 63 of the Central Bank Act to the effect "that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account" shall apply in this case. Petition was granted ordering the private respondent to accept the sum of P63,130.00 under deposit as payment of the judgment obligation in his favor. “Considering that the whole amount deposited by the petitioner consisting of Cashier's Check of P60;000.00 and P13,130.00 in cash covers the judgment obligation of P63,000.00 as mentioned in the writ of execution, then. We see no valid reason for the private respondent to have refused acceptance of the payment of the obligation in his favor”.

Negotiable Instruments Case Digest: Roman Catholic Bishop Of Malolos V. IAC (1990)

 G.R. No. 72110 November 16, 1990Lessons Applicable: Introduction to Negotiable Instruments (Negotiable Instruments Law)

FACTS:

July 7, 1971: A contract over the land was executed between the Roman Catholic Bishop of Malolos (bishop) as vendor and the through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930 and the balance of P100,000 plus 12% interest per annum to be paid within 4 years from execution of the contract. o The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the land in case of failure to pay within the period March 12, 1973: private respondent, through its new president, Atty. Adalia Francisco, addressed a letter 6 to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished with a copy of the subject contract and the supporting documents July 17, 1975: after the expiration of the stipulated period for payment, Atty. Francisco wrote the  formal request that her company be allowed to pay the principal amount of P100,000 in 3 equal installments of 6 months each with the 1st installment and the accrued interest of P24,000 to be paid immediately upon approval July 29, 1975: Bishop through its counsel, Atty. Carmelo Fernandez, formally denied the request but granted a grace period of 5 days from the receipt of the denial to pay the total balance of P124,000 August 4, 1975: private respondent, through its president, Atty. Francisco, wrote the counsel of the petitioner requesting an extension of 30 days from to fully settle its account. - denied RTC: favored Bishop declaring the down payment as forfeited

ISSUE: W/N there is tender of payment by issuance of a certified check

HELD: NO. RTC reinstated. Tender of payment involves a positive and unconditional act by the obligor of offering legal tendercurrency as payment to the obligee for the former’s obligation and demanding that the latter accept the same. o tender of payment cannot be presumed by a mere inference from surrounding circumstances sheer proof of sufficient available funds to meet more than the total obligation within the grace period - NOT sufficiento On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important findings of fact made by the trial court which are entitled to great weight on appeal and should be accorded full consideration and respect and should not be disturbed unless for strong and cogent reasons certified personal check which is not legal tender nor the currency stipulated, and therefore, can not constitute valid tender of payment Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment

Labels: 1990, Case Digest, G.R. No. 72110, Introduction to Negotiable Instruments, Juris Doctor,Negotiable Instruments Case Digest, Negotiable Instruments Law, November 16, Roman Catholic Bishop of Malolos v. IAC

Sesbreño v. Court of Appeals [G.R. No. 89252. May 24,  1993]

FACTSPetitioner Raul Sesbreño made a money market placement in the amount of P300,000.00 with the Philippine Underwriters Finance Corporation (“Philfinance”). The latter issued a Certificate of Confirmation of Sale “without recourse” from Delta Motors Corporation Promissory Note, a Certificate of securities indicating the sale to petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, andpost-dated checks payable with petitioner as payee, Philfinance as drawer. Petitioner approached private respondent Pilipinas Bank and handed her a demand letter informing the bank that his placement with Philfinance had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the underlying promissory note. Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to petitioner.

ISSUES(a) Whether or not Pilipinas Bank is liable for its action.

(b)Whether or not non-negotiable instruments are transferrable.

RULING

(1) YES. Private respondent Pilipinas bank is liable for damages plus legal interest thereon by arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for present purposes.In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it when petitioner first demanded physical delivery thereof. Instead of complying with the demand of the petitioner, Pilipinas purported to require and await the instructions of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of “written instructions” from petitioner Sesbreño.(2) YES. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. It is important to bear in mind that the negotiation of a negotiable instrument must be distinguished from theassignment or transfer of an instrument whether that be negotiable or non-negotiable. 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 where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different.

ABUBAKAR V. AUDITOR GENERAL  81 PHIL. 359

 

FACTS:

The  auditor  general  refuses  to  authorize  the  payment  of  the  treasury warrant  issued  in  the  name  of  Placido  Urbanes,  now  in  the  hands  of Benjamin  Abubakar.    The  auditor general  refuses  to  do  so  because,  first, the money available for redemption of treasury warrants was appropriated by law and the subject warrant doesn’t fall within the purview of the law; second, one of the requirements was not complied with, which is it must be sworn that the holders of the warrant covering payment or replenishment of  cash  advances  for  official  expenditures  received  them  in  payment  of definite government obligations.   

 

HELD:

Petitioner  holds  that  he  is  a  holder  in  good  faith  and  for  value  of  a negotiable instrument and is entitled to the rights and privileges of a holder in due course, free from defenses.  But this treasury warrant is within the scope  of  the  Negotiable Instruments

Law.    For  one  thing,  the  document  bearing  on  its  face  the words “payable from the appropriation for food administration”, is actually an order for payment out of a particular fund, and is not unconditional, and doesn’t fulfill one of the essential requirements of a negotiable instrument. PECO vs. SorianoPhilippine Education Co. vs. Soriano

L-22405          June 30, 1971Dizon, J.:

Facts:            Enrique Montinola sought to purchase from Manila Post Office ten money orders of 200php each payable to E. P. Montinola. Montinola offered to pay with the money orders with a private check. Private check were not generally accepted in payment of money orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola managed to leave the building without the knowledge of the teller. Upon the disappearance of the unpaid money order, a message was sent to instruct all banks that it must not pay for the money order stolen upon presentment. The Bank of America received a copy of said notice. However, The Bank of America received the money order and deposited it to the appellant’s account upon clearance. Mauricio Soriano, Chief of the Money Order Division notified the Bank of America that the money order deposited had been found to have been irregularly issued and that, the amount it represented had been deducted from the bank’s clearing account. The Bank of America debited appellant’s account with the same account and give notice by mean of debit memo.

Issue:            Whether or not the postal money order in question is a negotiable instrument           

Held:No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in force in United States. The Weight of authority in the United States is that postal money orders are not negotiable instruments, the reason being that in establishing and operating a postal money order system, the government is not engaged in commercial transactions but merely exercises a governmental power for the public benefit. Moreover, some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances.

Read full text here:  PECO vs. Soriano

TRADERS ROYAL BANK V. CA  269 SCRA 15

FACTS:

Filriters through a Detached Agreement   transferred   ownership to Philfinance a Central Bank Certificate of Indebtedness.  It was only through one of its  officers by

which the CBCI was conveyed without authorization from  the  company.    Petitioner  and  Philfinance  later  entered  into  a Repurchase   agreement,   on   which   petitioner   bought   the   CBCI   from Philfinance.  The latter agreed to repurchase the CBCI but failed to do so. When the petitioner tried to have it registered in its name in the CB, the latter didn't want to recognize the transfer.   

 

HELD:

The  CBCI  is  not  a  negotiable  instrument. The  instrument  provides  for  a promise to pay the registered owner Filriters.  Very clearly, the instrument was  only  payable  to  Filriters. It  lacked  the  words  of  negotiability  which should  have  served  as  an  expression  of  the  consent  that  the  instrument may be transferred by negotiation. 

 The  language  of  negotiability  which  characterize  a  negotiable  paper  as  a credit  instrument  is  its  freedom  to  circulate  as  a  substitute  for  money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for  the  protection,  which  the  law  throws  around  a  holder  in  due  course. This freedom in   negotiability is   totally   absent in a   certificate of indebtedness  as  it  merely  acknowledges  to  pay  a  sum  of  money  to  a specified person or entity for a period of time. 

 The  transfer  of  the  instrument  from  Philfinance  to  TRB  was  merely  an assignment, and is not governed by the negotiable instruments law.    The pertinent  question  then  is—was  the  transfer  of  the  CBCI  from  Filriters  to Philfinance  and  subsequently  from  Philfinance  to  TRB, in accord  with existing law, so as to entitle TRB to have the CBCI registered in its name with  the  Central  Bank?  Clearly  shown  in  the  record  is  the  fact  that Philfinance’s  title  over  CBCI  is  defective  since  it  acquired  the  instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer  was  for  ‘value  received‘,  there  was  really  no  consideration involved.  What  happened  was  Philfinance  merely  borrowed  CBCI  from Filriters,  a  sister  corporation.  Thus,  for  lack  of  any  consideration,  the assignment made is a complete nullity.  Furthermore, the transfer wasn't in conformity  with  the  regulations  set  by  the  CB. Giving  more  credence  to rule that there was no valid transfer or assignment to petitioner.   

Negotiable Instruments Case Digest: Philippine Bank Of Commerce V. Jose M. Aruego (1961)G.R. Nos. L-25836-37 January 31, 1981Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)FACTS:

December 1, 1959: Philippine Bank of Commerce (PBC) instituted against Jose M. Aruego for the recovery of the total sum of about P 35K with interest from November 17, 1959 and commission of 3/8% for every

thirty 30 days plus attorney's fees of 10% of the total amount due and costs

o represents the cost of the printing the periodical published by the Aruego "World Current Events" 

o To facilitate the payment of the printing, Aruego obtained a credit accommodation from the PBC

o the printer, Encal Press and Photo Engraving, collected the cost of every printing by drawing a draft against the PBC, which PBC later accepts 

As an added security for the payment of the amounts advanced to Encal Press and Photo-Engraving, PBC required Aruego to execute a trust receipt (PBC hold in trust for Aruego the periodicals and to sell the same with the promise to turn over to the Aruego the proceeds for the payment of all obligations arising from the draft)

trial court: Aruego to pay to the PBC

o Aruego: 

signed the supposed bills of exchange as an agent of the Philippine Education Foundation Company where he is president

Section 20 of the Negotiable Instruments Law

"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 filing a representative character, without disclosing his principal, does not exempt him from personal liability."

signed the drafts only as an accommodation party and as such, should be made liable only after a showing that the drawer is incapable of paying

not really bills of exchange but mere pieces of evidence of indebtedness because payments were made before acceptance

ISSUE: W/N Aruego should be personally liable

HELD: YES. CFI AFFIRMED.

nowhere has he disclosed that he was signing as a representative of the Philippine Education Foundation Company

o For failure to disclose his principal, Aruego is personally liable for the drafts he accepted

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodationparty

o he signed as a drawee/acceptor

Under the Negotiable Instrument Law, a drawee is primarily liable

As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange

o The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not

Jimenez vs. BucoyGR L-10221, 28 February 1958En Banc, Bengzon (J)Facts: In the proceedings in the intestate of Luther Young and Pacita Young who died in 1954 and 1952,respectively, Pacifica Jimenez presented for payment 4 promissory notes signed by Pacita for differentamounts totalling P21,000. Acknowledging receipt by Pacita during the Japanese occupation, in the currencyNegotiable Instruments Law, 2004 ( 9 )Digests (Berne Guerrero)then prevailing, the Administrator manifested willingness to pay provided adjustment of the sums be made inline with the Ballantyne schedule. The claimant objected to the adjustment insisting on full payment inaccordance with the notes. The court held that the notes should be paid in the currency prevailing after thewar, and thus entitling Jimemez to recover P21,000 plus P2,000 as attorney’s fees. Hence, the appeal.Issue: Whether the amounts should be paid, peso for peso; or whether a reduction should be made inaccordance with the Ballantyne schedule.

Held: If the loan was expressly agreed to be payable only after the war, or after liberation, or became payableafter those dates, no reduction could be effected, and peso-for-peso payment shall be ordered in Philippinecurrency. The Ballantyne Conversion Table does not apply where the monetary obligation, under the contract,was not payable during the Japanese occupation. Herein, the debtor undertook to pay “six months after thewar,” peso for peso payment is indicated.

BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

Negotiable Instruments in General – 257 SCRA 578 – Signature of Makers – Guaranty In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications (PBC) in the amount of P50k. For that he executed a promissory note in the same amount. Naybe was able to convince Baldomero Inciong and Gregorio Pantanosas to co-sign with him as co-makers. The promissory note went due and it was left unpaid. PBC demanded payment from the three but still no payment was made. PBC then sue the three but PBC later released Pantanosas from its obligations. Naybe left for Saudi Arabia hence can’t be issued summons and the complaint against him was subsequently dropped. Inciong was left to face the suit. He argued that that since the complaint against Naybe was dropped, and that Pantanosas was released from his obligations, he too should have been released.ISSUE: Whether or not Inciong should be held liable.HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was basing his argument based on Article 2080 of the Civil Code which provides that guarantors are released from their obligations if the creditors shall release their debtors. It is to be noted however that Inciong did not sign the promissory note as a guarantor. He signed it as a solidary co-maker.A guarantor who binds himself in solidum with the principal debtor does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him.Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be

proceeded against for the entire obligation.  The choice is left to the solidary creditor (PBC) to determine against whom he will enforce collection.  Consequently, the dismissal of the case against Pontanosas may not be deemed as having discharged Inciong from liability as well. As regards Naybe, suffice it to say that the court never acquired jurisdiction over him. Inciong, therefore, may only have recourse against his co-makers, as provided by law.Negotiable Instruments Law – Negotiable Instruments in General – 58 OG 5886 – Unconditional Promise To PayBiñan Transportation Company bought two motor vehicles.  They signed a promissory note and to secure payment, they mortgaged the motor vehicles.  The promissory notes were negotiated and were not paid.  So Elizalde who was holding the promissory note sued.  Biñan’s defense was that the promissory note was not negotiable because it was mentioned that it was subject to chattel mortgage.ISSUE: Whether the note was negotiable.HELD:  Yes.  For reference to mortgage to destroy negotiability, the promise to pay must be burdened with the terms and conditions of the chattel mortgage.  Since the reference to the chattel mortgage did not make the promise to pay burdened with the terms and conditions of the chattel mortgage, the promissory note was still negotiable.NOTE: Digest courtesy of Jimenez Transcripts (Negotiable Instruments Law). [Can’t find the full text of the case]

Ponce vs Court of AppealsNegotiable Instruments Law – Negotiable Instruments in General – 90 SCRA 533 – Sum Certain in Money – RA 529In 1969, Jesusa Afable and two others procured a loan from Nelia Ponce in the amount of $194,016.29. In June 1969, Afable and her co-debtors executed a promissory note in favor of Ponce in the peso equivalent of the loan amount which was P814,868.42. The promissory note went due and was left unpaid despite demands from Ponce. This prompted Ponce to sue Afable et al. The trial court ruled in favor of Ponce. The Court of Appeals initially affirmed the trial court but it later reversed its decisions as it ruled that the promissory note under consideration was payable in US dollars, and, therefore pursuant to Republic Act 529, the transaction was illegal with neither party entitled to recover under the in pari delicto rule.ISSUE: Whether or not Ponce may recover.HELD: Yes. RA 529 provides that an agreement to pay in dollars is null and void and of no effect however what the law specifically prohibits is payment in currency other than legal tender. It does not defeat a creditor’s claim for payment, as it specifically provides that “every other domestic obligation … whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts.” A contrary rule would allow a person to profit or enrich himself inequitably at another’s expense.On the face of the promissory note, it says that it is payable in Philippine currency – the equivalent of the dollar amount loaned to Afable et al. It may likewise be pointed out that the Promissory Note contains no provision “giving the obligee the right to require

payment in a particular kind of currency other than Philippine currency, ” which is what is specifically prohibited by RA No. 529.  If there is any agreement to pay an obligation in a currency other than Philippine legal tender, the same is null and void as contrary to public policy, pursuant to Republic Act No. 529, and the most that could be demanded is to pay said obligation in Philippine currency.Read full text of the case here.NOTE: RA 529 has already been repealed by Republic Act 8183 which provides that every monetary obligation must be paid in Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment. (The Philippine Negotiable Instruments Law, De Leon and De Leon Jr., p. 29)

Kalalo vs Luz

Octavio Kalalo is an engineer whose services were contracted by Alfredo Luz, an architect in 1961. Luz contracted Kalalo to work on ten projects across the country, one of which was an in the International Rice Research Institute (IRRI) Research Center in Los Baños, Laguna. Luz was to be paid $140,000.00 for the entire project. For Kalalo’s work, Luz agreed to pay him 20% of what IRRI is going to pay or equivalent to $28,000.00.ISSUE: Whether or not Kalalo should be paid in US currency.HELD: No. The agreement was forged in 1961, years before the passage of Republic Act 529 in 1950. The said law requires that payment in a particular kind of coin or currency other than the Philippine currency shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred. Nothing in the law however provides which rate of exchange shall be used hence it is but logical to use the rate of exchange at the time of payment.Read full text here.NOTE: RA 529 has already been repealed by Republic Act 8183 which provides that every monetary obligation must be paid in Philippinecurrency which is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment. (The Philippine Negotiable Instruments Law, De Leon and De Leon Jr., p. 29)

Negotiable Instruments Case Digest: Caltex (Phils.) Inc. V. CA And Security Bank And Trust Co. (1992)

G.R. No. 97753 August 10, 1992Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable Instrument Law)

FACTS:

Security Bank and Trust Company (Security Bank), a commercial banking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who deposited with Security Bank the total amount of P1,120,000

Angel delivered the CTDs to Caltex for his purchase of fuel products 

March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all CTDs, submitted the required Affidavit of Loss and received the replacement

March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the amount of P875,000 and executed a notarized Deed of Assignment of Time Deposit

November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verify the CTDs declared lost by Angel 

November 26, 1982: Security Bank received a letter from Caltex formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the same.

December 8, 1982: Caltex was requested by Security Bank to furnish:

o a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz

o the details of Mr. Angel's obligation against which Caltex proposed to apply the time deposits 

Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its agreement w/ Angel

April 1983, the loan of Angel dela Cruz with Security Bank matured 

August 5, 1983: CTD were set-off w/ the matured loan

Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest

CA affirmed RTC to dismiss complaint

ISSUE: 

1. W/N the CTDs are negotiable 

2. W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD: Petition is Denied and appealed decision is affirmed. 

1. YES.  Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;(b) Must contain an unconditional promise or order to pay a sum certain in money;(c) Must be payable on demand, or at a fixed or determinable future time;(d) Must be payable to order or to bearer; and  -check(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

The documents provide that the amounts deposited shall be repayable to the depositor

o depositor = bearer

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD

negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself

2. NO.  although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement

o CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products

o There was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. 

Where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the extent of his lien. 

o As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument.Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.

TRADERS INSURANCE V. DY ENG BIOK  104 PHIL 806

 

FACTS:

Dy Eng Giok was a provincial sales agent of distillery corporation, with the responsibility of remitting sales proceeds to the principal corporation.  He has  a  running  balance  and  to  satisfy payment,  a  surety bond  was  issued with petitioner as guarantor, whereby they bound themselves liable to the distillery corporation.   More  purchases  was  made  by  Dy  Eng  Giok  and  he  was  able  to  pay  for these additional purchases.  Nonetheless, the payment was first applied to his  prior  payables.    A  remaining  balance  still  is  unpaid.    Thus,  an  action was  filed  against  sales  agent  and  surety  company.    Judgment  was rendered in favor of the corporation.   

 

HELD:

The  remittances  of  Dy  Eng  Giok  should  first  be  applied  to  the  obligation first contracted by him and covered by the surety agreement.  First, in the absence   of   express   stipulation,   a   guaranty   or   suretyship   operates prospectively  and  not  retroactively.    It  only  secures  the  debts  contracted 

after  the guaranty  takes  effect.    To  apply  the payment  to the  obligations contracted  before  the  guaranty  would  make  the  surety  answer  for  debts outside the guaranty.  The surety agreement didn't guarantee the payment of any outstanding balance due from the principal debtor but only he would turn out the sales proceeds to the Distileria and this he has done, since his remittances  exceeded  the  value  of  the  sales  during  the  period  of  the guaranty.   

 Second, since the Dy Eng Biok’s obligations prior to the guaranty were not covered,  and  absent  any  express  stipulation,  any  prior  payment  made should be applied to the debts that were guaranteed since they are to be regarded as the more onerous debts.PNB vs Conception 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 pr

De La Victoria vs. Burgos. G.R. No. 111190. June 27, 1995Posted by footnotesofaterraveller under Negotiable Instruments Law | Tags: negotiable instruments | Leave a Comment De La Victoria vs. BurgosG.R. No. 111190. June 27, 1995Bellosillo, J.

 Assistant City Fiscal Bienvenido N. Mabanto was ordered to pay herein private respondent Raul Sesbreño P11,000.00 as damages. A notice of garnishment was served on herein petitioner Loreto D. de la Victoria as City Fiscal of Mandaue City where Mabanto was detailed. V was directed not to disburse, transfer, release or convey to any other person except to the deputy sheriff concerned the salary checks or other checks, monies, or cash due or belonging to

Mabanto, Jr., under penalty of law. Later, V was directed to submit his report showing the amount of the garnished salaries. V moved to quash the notice of garnishment claiming that he was not in possession of any money, funds, credit, property or anything of value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public funds which could not be subject to garnishment.

 ISSUE: W/N a check still in the hands of the maker or its duly authorized representative is owned by the payee before physical delivery to the latter.

 RULING:

 As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his compensation in the form of checks from the DOJ through V as City Fiscal of Mandaue City and head of office. Under Sec. 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof.

 Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had the character of public funds. The salary check of a government officer or employee does not belong to him before it is physically delivered to him. Until that time the check belongs to the government. Accordingly, before there is actual delivery of the check, the payee has no power over it; he cannot assign it without the consent of the Government. Being public fund, the checks may not be garnished to satisfy the judgment in consideration of public policy.

ASTRO ELECTRONICS CORP. & PETER ROXAS v. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE

CORPORATIONG.R. No. 136729 September 23, 2003

Austria-Martinez, J.

Doctrine:Persons who write their names on the face of promissory notes are makers. Thus, even without the phrase “personal capacity,” a person who signs on the instrument twice will still be primarily liable as a joint and several debtor.

Facts:Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to P3,000,000.00 with interest and secured by three promissory notes. In each of these promissory notes, it appears that petitioner Roxas signed twice, as President of Astro and in his personal capacity. Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety.

Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astro’s loan, subject to the condition that upon payment by Philguanrantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro. As a result of Astro’s failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of Makati.

Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the same in blank and the phrases “in his personal capacity” and “in his official capacity” were fraudulently inserted without his knowledge.

The trial court ruled in favor of Philguarantee, stating that if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then he should have signed only once in the promissory note. On appeal, the Court of Appeals affirmed the RTC decision.

Issue:Whether or not Roxas should be solidarily liable with Astro for the sum awarded by the RTC

Held:Yes. In signing his name aside from being the President of Astro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers. Thus, even without the phrase “personal capacity,” Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal.

Moreover, an instrument which begins with “I”, “We”, or “Either of us” promise to pay, when signed by two or more persons, makes them solidary liable (Republic Planters Bank vs. Court of Appeals, G.R. No. 93073, December 21, 1992). Having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro.

It devolves upon one to overcome the presumptions that private transactions are presumed to be fair and regular and that a person takes ordinary care of his concerns (Mendoza vs. Court of Appeals, G.R. No. 116710). Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not equivalent to proof under our Rules of Court (Coronel vs. Constantino, G.R. No. 121069, February 7, 2003). Since Roxas failed to prove the truth of his allegations that the phrases “in his personal capacity” and “in his official capacity” were inserted on the notes without his knowledge, said presumptions shall prevail over his claims.

Dev't Bank of Rizal vs Sima Wei

DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.G.R. No. 85419 March 9, 1993--complete undelivered

FACTS:Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to pay the petitioner Bank or order the amount of P1,820,000.00.  Sima Wei subsequently issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation in full settlement of the drawer's account evidenced by the promissory note. These two checks however were not delivered to the petitioner-payee or to any of its authorized representatives but instead came into the possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement to the account of respondent Plastic Corporation with Producers Bank.  Inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter, the Branch Manager of Producers Bank authorized the acceptance of the checks for deposit and credited them to the account of said Plastic Corporation.

ISSUE:Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks.

RULING:No.  A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding contract.  Section 16 of the NIL provides 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.  Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument.  Petitioner however has a right of action against Sima Wei for the balance due on the promissory note.Francisco vs CA

ADALIA FRANCISCO vs. COURT OF APPEALS, ET AL.G.R. No. 116320 November 29, 1999  --agents

FACTS:A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is the president, entered into a Land Development and Construction Contract with private respondent Herby Commercial & Construction Corporation (HCCC), represented by its President and General Manager private respondent Ong.  Under the contract, HCCC was to be paid on the basis of the completed houses and developed lands delivered to and accepted by AFRDC and the GSIS.  Sometime in 1979, Ong

discovered that Diaz and Francisco, the Vice-President of GSIS, had executed and signed seven checks of various dates and amounts payable to HCCC for completed and delivered work under the contract. Ong, however, claims that these checks were never delivered to HCCC.  It turned out that Francisco forged the indorsement of Ong on the checks and indorsed the checks for a second time by signing her name at the back of the checks, petitioner then deposited said checks in her savings account. A case was brought by private respondents against petitioner to recover the value of said checks.  Petitioner however claims that she was authorized to sign Ong's name on the checks by virtue of the Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the GSIS, including the questioned checks.

ISSUE:Whether petitioner cannot be held liable on the questioned checks by virtue of the Certification executed by Ong giving her the authority to collect such checks from the GSIS.

RULING:Petitioner is liable.  The Negotiable Instruments Law provides that where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability.  An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must disclose the name of his principal; otherwise he shall be held personally liable.  Even assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ong's name, Francisco should have signed her own name and expressly indicated that she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of forgery.Posted by Legal Matters 101 at 10:03 PM 

REPUBLIC PLANTERS BANK V. COURT OF APPEALS216 SCRA 738

  

FACTS:

Yamaguchi   and   Canlas   are   officers   of   the   Worldwide   Garment Manufacturing, which later changed its name to Pinch Manufacturing.  They were authorized to apply for credit facilities with the petitioner bank.  The two officers signed the promissory notes issued to secure the payment of the  obligations.    Later,  the  bank  instituted  an  action  for  collection  of money,  impleading  also  the  two  officers.    The  trial  court  held  the  two officers personally liable also.   

 

HELD:

Canlass  is  solidarily  liable  on  each  of  the  promissory  notes  to  which  his signature  appears.    The  promissory  notes  in  question  are  negotiable instruments and thus, governed by the Negotiable Instruments Law. 

 Under  the  Negotiable Instruments Law,  persons  who  write  their  names  in  the  instrument  are makers are liable as such.  By signing the note, the maker promises to pay to the order of the payee or any holder the tenor of the obligation.  Based on the above provisions of the law, there is no denying that Canlass is one of the co-makers of the promissory note.

BPI vs. Casa Montessori Internationale, G. R. No. 149454 & 149507, May 28, 2004Post under case digests, Civil Law at Tuesday, January 31, 2012 Posted by Schizophrenic MindFacts: CASA Montessori International opened an account with BPI, with CASA’s President as one of its authorized signatories. It discovered that 9 of its checks had been encashed by a certain Sonny D. Santos whose name turned out to be fictitious, and was used by a certain Yabut, CASA’s external auditor. He voluntarily admitted that he forged the signature and encashed the checks.

RTC granted the Complaint for Collection with Damages against BPI ordering to reinstate the amount in the account, with interest. CA took account of CASA’s contributory negligence and apportioned the loss between CASA and BPI, and ordred Yabut to reimburse both. 

BPI contends that the monthly statements it issues to its clientscontain a notice worded as follows: “If no error is reported in 10 days, account will be correct” and as such, it should be considered a waiver.

Issue:Whether or not waiver or estoppel results from failure to report the error in the bank statement

Held: Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it estopped from questioning the mistake after the lapse of the ten-day period.

This notice is a simple confirmation or "circularization" -- in accounting parlance -- that requests client-depositors to affirm the accuracy of items recorded by the banks. Its purpose is to obtain from the depositors a direct corroboration of the correctness of their account balances with their respective banks. 

Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement, the passive one is duty-bound to suffer such enforcement. On

the one hand, BPI could not have been an active subject, because it could not have demanded from CASA a response to its notice. CASA, on the other hand, could not have been a passive subject, either, because it had no obligation to respond. It could -- as it did -- choose not to respond.

Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to that established as the truth, in legal contemplation. Our rules on evidence even make a juris et de jure presumption that whenever one has, by one’s own act or omission, intentionally and deliberately led another to believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or omission -- be permitted to falsify that supposed truth. 

In the instant case, CASA never made any deed or representation that misled BPI. The former’s omission, if any, may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not arise. A personwho has no knowledge of or consent to a transaction may not be estopped by it. "Estoppel cannot be sustained by mere argument or doubtful inference x x x." CASA is not barred from questioning BPI’s error even after the lapse of the period given in the notice. Samsung Construction v. Far East Bank (August 15, 2004)Post under case digests, Commercial Law at Monday, February 20, 2012 Posted by Schizophrenic MindFacts: Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of Samsung, who was also present during the time the check was cashed. Later however it was discovered that no such check was ever approved by the Samsung’s head accountant, the president of the company also never signed any such check.

Issue: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check, which was drawn from the accountof Samsung

Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged signature makes the instrument “wholly inoperative”. If payment is made the drawee (Far East) cannot charge it to the drawer’s account (Samsung). The fact that the forgery is clever is immaterial. The forged signature may so closely resemble the genuine as to defy detection by the depositor himself. And yet, if the bank pays the check, it is paying out with its own money and not of the depositor’s. This rule of liability can be stated briefly in these words: “A bank is bound to know its depositor’s signature.” The accusation of negligence on the part of Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the ordinary course of business was followed.PCI bank vs CA

Negotiable Instruments Law – Rights of the Holder – 350 SCRA 446 – What Constitutes a Holder in Due Course – Negligence of the Collecting Bank and the Drawee Bank

There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).G.R. No. 121413/G.R. No. 121479In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR). The check represents Ford’s tax payment for the third quarter of 1977. On the face of the check was written “Payee’s account only” which means that the check cannot be encashed and can only be deposited with the CIR’s savings account (which is with Metrobank). The said check was however presented to PCIB and PCIB accepted the same. PCIB then indorsed the check for clearing to Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR later informed Ford that it never received the tax payment.An investigation ensued and it was discovered that Ford’s accountant Godofredo Rivera, when the check was deposited with PCIB, recalled the check since there was allegedly an error in the computation of the tax to be paid. PCIB, as instructed by Rivera, replaced the check with two of its manager’s checks.It was further discovered that Rivera was actually a member of a syndicate and the manager’s checks were subsequently deposited with the Pacific Banking Corporation by other members of the syndicate. Thereafter, Rivera and the other members became fugitives of justice.G.R. No. 128604In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for tax payments. Both checks are for “Payee’s account only” or for the CIR’s bank savings account only with Metrobank. Again, these checks never reached the CIR.In an investigation, it was found that these checks were embezzled by the same syndicate to which Rivera was a member. It was established that an employee of PCIB, also a member of the syndicate, created a PCIB account under a fictitious name upon which the two checks, through high end manipulation, were deposited. PCIB unwittingly endorsed the checks to Citibank which the latter cleared. Upon clearing, the amount was withdrawn from the fictitious account by syndicate members.ISSUE: What are the liabilities of each party?HELD: G.R. No. 121413/G.R. No. 121479PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been negligent in verifying the authority of Rivera to negotiate the check. It failed to ascertain whether or not Rivera can validly recall the check and have them be replaced with PCIB’s manager’s checks as in fact, Ford has no knowledge and did not authorize such. A bank (in this case PCIB) which cashes a check drawn upon another bank (in this case Citibank), without requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party. Hence, PCIB is liable for the amount of the embezzled check.G.R. No. 128604PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.

As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course and apparent scope of their employment or authority. Hence, PCIB is liable for the fraudulent act of its employee who set up the savings account under a fictitious name.Citibank is likewise liable because it was negligent in the performance of its obligations with respect to its agreement with Ford. The checks which were drawn against Ford’s account with Citibank clearly states that they are payable to the CIR only yet Citibank delivered said payments to PCIB. Citibank however argues that the checks were indorsed by PCIB to Citibank and that the latter has nothing to do but to pay it. The Supreme Court cited Section 62 of the Negotiable Instruments Law which mandates the Citibank, as an acceptor of the checks, to engage in paying the checks according to the tenor of the acceptance which is to deliver the payment to the “payee’s account only”.But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only negligent parties. Ford is also negligent for failing to examine its passbook in a timely manner which could have avoided further loss. But this negligence is not the proximate cause of the loss but is merely contributory. Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of interest, with which PCIB and Citibank is to pay Ford, is lowered from 12% to 6% per annum.

 Associated Bank vs. CA, January 31, 1996Post under case digests, Commercial Law at Tuesday, January 31, 2012 Posted by Schizophrenic MindFacts: Faustino Pangilinan, cashier of the Concepcion Emergency Hospital, forged the signature of Dr. Adena Canlas who was the Chief of the said hospital and endorsed 30 checks amounting to P203,300 to himself. The money was drawn from the account of the Province of Tarlac with PNB. Pangilinan deposited the checks to his personal savings account with Associated Bank which was cleared and paid for by PNB. The checks have a stamp of Associated Bankwhich reads “All prior endorsements guaranteed by Associated Bank”.

The Province of Tarlac, through the Provincial Treasurer, wrote PNB to restore the various amounts debited from the current account of the Province. PNB on its part demanded reimbursement fromAssociated Bank. Both banks resisted payment which led to the Province of Tarlac suing PNB. PNB in turn impleaded Associated Bank in the suit as a third-party defendant while Associated Bankimpleaded Canlas and Pangilinan as fourth-party defendants.

The trial court ruled that 1) PNB should pay the Province of Tarlac the P203,300 with legal interests, 2) Associated Bank should be pay the same amount to PNB and 3) dismissed the complaints against Canlas and Pangilinan. On appeal, the CA affirmed the ruling of thetrial court 

Issue: Who should bear the loss arising from the forgery, the Province of Tarlac, PNB, Associated Bank or Pangilinan?

Held: The SC held that the Province and Associated Bank should bear losses in the

proportion of 50-50.

The Province can only recover 50% of the P203,300 from PNB because of the negligence they exhibited in releasing the checks to the then already retired Pangilinan who is an unauthorized person to handle the said checks.

On the other hand, Associated Bank is liable to PNB only to 50% of the same amount because of its liability as indorser of the checks that were deposited by Pangilinan, and guaranteed the genuineness of the said checks. They failed to exercise due diligence in checking the veracity of indorsements.

WESTMONT BANK V. ONG

373 SCRA 212 

FACTS:

Ong  was  supposed  to  be  the  payee  of  the  checks  issued  by  Island Securities.  Ong has a current account with petitioner bank.  He opted to sell  his  shares  of  stock  through  Island  Securities.    The  company  in  turn issued checks in favor of Ong but unfortunately, the latter wasn't able to receive any.  His signatures were forged by Tamlinco and the checks were deposited  in  his  own  account  with  petitioner.    Ong  then  sought  to  collect the money from the family of Tamlinco first before filing a complaint with the Central Bank.  As his efforts were futile to recover his money, he filed an  action  against  the  petitioner.    The  trial  and  appellate  court  decided  in favor of Ong. 

 

HELD:

Since  the  signature  of  the  payee  was  forged,  such  signature  should  be deemed  inoperative  and  ineffectual.    Petitioner,  as  the  collecting  bank, grossly erred in making payment by virtue of said forged  signature.  The payee, herein respondent, should therefore be allowed to collect from the collecting bank. 

 It should be liable for the loss because it is its legal duty to ascertain that the  payee’s  endorsement  was  genuine  before  cashing  the  check.    As  a general rule, a bank or corporation who has obtained possession of a check with an unauthorized or forged indorsement of the payee’s signature and who collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee or the other owner, notwithstanding that the  amount  has  been  paid  to  the  person  from  whom  the  check  was obtained.   

 DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach, by  desirable  short  cut,  the  person  who  ought  to  be  ultimately  liable  as among the innocent persons involved in the transaction.  In other words, the payee ought to be

allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not. 

 On the issue of laches, Ong didn't sit on his rights.  He immediately sought the intervention of Tamlinco’s family to collect the sum of money, and later the  Central  Bank.    Only  after  exhausting  all  the  measures  to  settle  the issue amicably did he file the action. 

Republic Bank v. Ebrada [G.R. No. L-40796. July 31,  1975]

FACTSTreasury of the Philippines issued a check payable to MARTIN LORENZO who was already dead that time. Signature forged, the check was indorsed to RAMON LORENZO, then to DELIA DOMINGUEZ, then to appellant, where it was encashed with the plaintiff-appellee drawee bank.

 

ISSUEWhether or not the drawee bank can recover from the one who encashed a check with forged signature of payee.

 

RULINGYES. Defendant-appellant, upon receiving the check in question from Dominguez, was duty-bound to ascertain whether the check in question was genuine before presenting it to plaintiff Bank for payment. Her failure to do so makes her liable for the loss and the plaintiff Bank may recover from her the money she received for the check. As reasoned out above, had she performed the duty of ascertaining the genuineness of the check, in all probability the forgery would have been detected and the fraud defeated.

PNB V. NATIONAL CITY BANK OF NY

63 PHIL 711 

FACTS:

Unknown persons negotiated with Motor Services Company checks, which were part of the stipulation in payment of automobile tires purchased from the  latter’s  store.    It  purported  to  have  been  issued  by  Pangasinan Transportation  Company.    The  said  checks  were  indorsed  at  the  back  by said unknown persons, the Motor company believing at that time that the signatures  contained  therein  were  genuine.   

The  checks  were  later deposited  with  the  company’s  account  in  National  City  Bank  of  NY.    The said checks were consequently cleared and PNB credited National City Bank with  the  amounts.    Thereafter,  PNB  discovered  that  the  signatures  were forged  and  it  demanded  the  reimbursement  of  the  amounts  for  which  it credited the other bank.   

 

HELD:

A  check  is  a  bill  of  exchange  payable  on  demand  and  only  the  rules governing  bills  of  exchanges  payable  on  demand  are  applicable  to  it.    in view of the fact that acceptance is a step necessary insofar as negotiable instruments  are  concerned,  it  follows  that  the  provisions  relative  to acceptance   are   without   application   to   checks.      Acceptance   implies subsequent negotiation of the instrument, which is not true in the case of checks  because  from  the  moment  it  is  paid,  it  is  withdrawn  from circulation.  When the drawee banks cashes or pays a check, the cycle of negotiation  is  terminated  and  it  is  illogical  thereafter  to  speak  of subsequent holders who can invoke the warrant against the drawee.   

 Further, in determining the relative rights of a drawee who under a mistake of fact, has paid, a holder who has received such payment, upon a check to which the name of the drawer has been forged, it is only  fair to consider the question of diligence and negligence of the parties in respect thereto.  The  responsibility  of  the  drawee  who  pays  a  forged  check,  for  the genuineness of the drawer’s signature is absolute only in favor of one who has not, by his own fault or negligence, contributed to the success of the fraud or to mislead the drawee.   

 According  to  the  undisputed  facts,  National  City  Bank  in  purchasing  the papers in question from unknown persons without making any inquiry as to the identity and authority of said persons negotiating and indorsing them, acted negligently and contributed to the constructive loss of PNB in failing to detect the forgery.  Under the circumstances of the case, if the appellee bank  is  allowed  to  recover,  there  will  be  no  change  in  position  as  to  the injury or prejudice of the appellant. 

Negotiable Instruments Case Digest: San Carlos Milling Co. Ltd V. BPI (1993)G.R. No. L-37467      December 11, 1993Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:

San Carlos Milling Co. Ltd. (San Carlos) was in the hands of Alfred D. Cooper, its agent under general power of attorney with authority of substitution

The principal employee in the Manila office was Joseph L. Wilson, to whom had been given ageneral power of attorney but without power of substitution. 

1926: Cooper, desiring to go on vacation, gave a general power of attorney to Newland Baldwin and at the same time revoked the power of Wilson relative to the dealings with BPI

o Wilson, conspiring together with Alfredo Dolores, a messenger-clerk in San Carlos' Manila office, sent a cable gram in code to the company in Honolulu requesting a telegraphic transfer to the China Banking Corporation (China Bank) of Manila of $100,00. 

o The money was transferred by cable, and upon its receipt China Bank sent an exchange contract to San Carlos offering the sum of P201K, which was then the current rate of exchange. 

September 28, 1927: A manager's check on the China Banking Corporation for P201K payable to San Carlos Milling Company or order was receipted for by Dolores

o deposited with the BPI having a fake endorsement (Baldwin forged as drawer)

For deposit only with Bank of the Philippine Islands, to credit of account of San Carlos Milling Co., Ltd.By (Sgd.) NEWLAND BALDWINFor Agent

San Carlos had frequently withdrawn currency for shipment to its mill but never in so large an amount, and never under the sole supervision of Dolores

Before delivering the money, the bank asked Dolores for P1 to cover the cost of packing the money, and he left the bank and shortly afterwards returned with another check for P1, purporting to be signed by Newland Baldwin

the crime was discovered and San Carlos filed against the BPI and China Bank (after ammendment complaint)

o China Bank: as the prior endorsement had in law been guaranteed by the BPI, they are absolved even if the endorsement of Newland Baldwin on the check was a forgery

o BPI: guilty of no negligence, loss was due to the dishonesty of San Carlos employees and the negligence of San Carlos general agent

RTC: BPI in GF and San Carlos could not recover

ISSUE: W/N BPI was bound to inspect the checks and shall therefore be liable in case of forgery

HELD: YES.  judgment absolving the Bank of the Philippine Islands must therefore be reversed

duty was upon the BPI, and the China Banking Corporation was not bound to inspect and verify all endorsements of the check, even if some of them were also those of depositors in that bank

A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.

under section 23 of the Negotiable Instruments Law they are not a charge against San Carlos nor are the checks of any value to the BPI.

o proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged checks

Philippine National Bank v. Quimpo [G.R. No. L-53194. March 14,  1988]

FACTSA check from respondent Gozon was taken and forged by his trustee. It was drawn successfully against the drawee bank. Gozon demands back credit from debited amount. Petitioner bank argues that Gozon was negligent and precluded from setting up forgery.

 

ISSUEWhether or not Gozon may recover from drawee bank.

 

RULINGYES. Gozon’s act in leaving his checkbook in the car while he went out for a short while can not be considered negligence sufficient to excuse the defendant bank from its own negligence. His trustee, a long time classmate and friend, remained in the same. Gozon could not have been expected to know that the said trustee would remove a check from his checkbook. Gozon had trust in his classmate and friend. He is therefore not precluded from setting up forgery as a defense.

Associated Bank vs. CA, January 31, 1996Post under case digests, Commercial Law at Tuesday, January 31, 2012 Posted by Schizophrenic MindFacts: Faustino Pangilinan, cashier of the Concepcion Emergency Hospital, forged the signature of Dr. Adena Canlas who was the Chief of the said hospital and endorsed 30 checks amounting to P203,300 to himself. The money was drawn from the account of the Province of Tarlac with PNB. Pangilinan deposited the checks to his personal savings account with Associated Bank which was cleared and paid for by PNB. The checks have a stamp of Associated Bankwhich reads “All prior endorsements guaranteed by Associated Bank”.

The Province of Tarlac, through the Provincial Treasurer, wrote PNB to restore the various amounts debited from the current account of the Province. PNB on its part demanded reimbursement fromAssociated Bank. Both banks resisted payment which led to the Province of Tarlac suing PNB. PNB in turn impleaded Associated Bank in the suit as a third-party defendant while Associated Bankimpleaded Canlas and Pangilinan as fourth-party defendants.

The trial court ruled that 1) PNB should pay the Province of Tarlac the P203,300 with legal interests, 2) Associated Bank should be pay the same amount to PNB and 3) dismissed the complaints against Canlas and Pangilinan. On appeal, the CA affirmed the ruling of thetrial court 

Issue: Who should bear the loss arising from the forgery, the Province of Tarlac, PNB, Associated Bank or Pangilinan?

Held: The SC held that the Province and Associated Bank should bear losses in the proportion of 50-50.

The Province can only recover 50% of the P203,300 from PNB because of the negligence they exhibited in releasing the checks to the then already retired Pangilinan who is an unauthorized person to handle the said checks.

On the other hand, Associated Bank is liable to PNB only to 50% of the same amount because of its liability as indorser of the checks that were deposited by Pangilinan, and guaranteed the genuineness of the said checks. They failed to exercise due diligence in checking the veracity of indorsements.

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner, vs.COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE NATIONAL BANK,respondents.

Negotiable Instruments Law – Liabilities of Parties – 143 SCRA 20 – Forgery – Negligence of DrawerMetropolitan Waterworks and Sewerage System (MWSS) had an account with PNB. When it was still called NAWASA, MWSS made a special arrangement with PNB so that it may have personalized checks to be printed Mesina Enterprises. These personalized checks are the ones being used by MWSS in its business transactions.From March to May 1969, MWSS issued 23 checks to various payees in the aggregate amount of P320,636.26. During the same months, another set of 23 checks containing the same check numbers earlier issued were forged. The aggregate amount of the forged checks amounted to P3,457,903.00. This amount was distributed to the bank accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon.MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The trial court ruled in favor of MWSS but the Court of Appeals reversed the trial court’s decision.ISSUE: Whether or not PNB should restore the said amount.HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven that MWSS has been negligent in supervising the printing of its personalized checks. It failed to provide security measures and coordinate the same with PNB. Further, the signatures in the forged checks appear to be genuine as reported by the National Bureau of Investigation so much so that the MWSS itself cannot tell the difference between the forged signature and the genuine one. The records likewise show that MWSS failed to provide appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. Even if the twenty-three (23) checks in question are considered forgeries, considering the MWSS’s gross negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law.The Supreme Court further emphasized that forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. This was not done in the present case.

Republic Bank vs. CARepublic Bank vs. Court of AppealsGR No. 42725                        April 22, 1991Grino – Aquino, J.:

Facts:

            San Miguel Corporation drew a dividend check worth P240 on its account in First National City Bank in favor of J. Roberto Delgado, a stock holder. The amount on its face was fraudulently and without authority of the drawer, altered by increasing it from P240 to P9, 240. The check was indorsed and deposited by Delgado to his account with Republic bank. Republic endorsed the check to FNCB and presented I for payment through the Central Bank Clearing House.  FNCB paid P9, 240 to the Republic through the Central Bank Clearing House. SMC notified FNCB of trhe material alteration in the check in question. FNCB informed Republic with regard to the alteration nand forgery of the endorsement of Delgado. By the, Delgado had already withdrawn his account from the republic. FNCB demanded that Republic refund the P9, 240.  Trial court rendered judgment in favor of FNCB and it was affirmed by the Court of Appeals.

Issue:            Whether Republic, as the collecting bank, is protected, by 24-hour clearing house rule, found in CB circular No. 9, as amended, from liability to refund the amount paid by FNCB, as drawee of the SMC dividend check.

Held:            No. The 24-hour clearing house rule is valid rule applicable to commercial banks. It is true that when an indorsement is forged, the collecting bank or last endorser, as general rule, bears the loss. But the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on the clearing house operation. Thus, when the drawee bank fails to return a forged or altered check to the collecting bank is absolved from liability. Unless an alteration is attributable to the fault or negligence of the drawer himself, such as when he leaves spaces on the check which would allow the fraudulent insertion of additional numerals in the amount appearing thereon, the remedy of the drawee bank that negligently clears a forged and/or honor altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss. It may not charge the amount so paid to the account of the drawer, if the latter was free from blame, nor recover it from the collecting bank is the latter made payment after proper clearance from the drawee.Manila Lighter Transportation vs. CANegotiable Instruments Law, 2004 ( 14 )Digests (Berne Guerrero)GR L-50373, 15 February 1990First Division, Grino-Aquino (J)Facts: 49 checks were issued by Manila Lighter Transportation’s customers in payment of brokerage /lighterage services and were all delivered to its collector, Augusto Perez. Upon forged indorsements of thecompany’s General Manager, Luis Gaskell, the checks found their way to the accounts of third persons andwere later withdrawn. A complaint to recover the value of the checks were filed against China Bank. Bankdenied liability.Issue: Whether the bank is negligent as to bear the loss resulting from the checks with forged indorsements.

Held: Since Manila Lighter Transportation was not a client of the bank, the latter had no way of ascertainingthe authenticity of its indorsements on the checks which were deposited in the accounts of third persons (KoLit and Cao Pek) in said bank. The bank was not negligent because, in accordance with banking practice, itcaused the checks to pass through the clearing house before it allowed their proceeds to be withdrawn by thedepositors.

Negotiable Instruments Case Digest: PNB V. CA (1968)

G.R. No. L-26001           October 29, 1968Lessons Applicable: 

Forgery (Negotiable Instruments Law)

Liabilities of the parties (Negotiable Instruments Law)

FACTS: January 15, 1962: Augusto Lim deposited in his current account with the PCIB branch at Padre Faura, Manila a GSIS Check of P57,415.00 drawn against the PNB

o PCIB stamped the following on the back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila

Same date: following an established banking practice in the Philippines, the check was forwarded for clearing through the Central Bank to the PNB

o did not return said check the next day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited it against the account of the GSIS in the PNB

o PNB received a formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped

January 31, 1962: Upon demand from the GSIS, the P57,415.00 was re-credited to them bec. the signatures of its officers on the check were forged

o signatures of the General Manager and the Auditor of the GSIS on the check, as drawer, are forged

o payee Mariano D. Pulido indorsed it to Manuel Go and then indorsed by Manuel Go to Augusto Lim

February 2, 1962: PNB demanded from the PCIB the refund

PNB filed against the PCIB

CA affirmed CFI: dismissed

ISSUE: W/N PCIB as indorser is liable despite the fact that the check is forged when PNB is also negligent

HELD: NO. Affirmed PCIB stamped on the back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila

o indorsements falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the PCIB, for, as against the drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer, since the forgery of the indorsement is not the cause of the loss.

Guaranteed not the authenticity of the signatures of the officers of the GSIS who signed because the GSIS is not an indorser of the check, but its drawer

warranty is irrelevant to the PNB's alleged right to recover from the PCIB

 in general, "acceptance" is not required for checks since they are payable on demand

o acceptance

promise to perform an act

the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer

o payment

actual performance

compliance with obligation

PNB had been guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped

o PNB's negligence was the main or proximate cause for the corresponding loss

PNB did not return the check

when 1 of 2 innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong

where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the court will leave the parties where it finds them

o applies in the case of a drawee who pays a bill without having previously accepted it

Section 62 of Act No. 2031 provides

The acceptor by accepting the instrument engages that he will pay it according to the tenor of hisacceptance; and admits:(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority todraw the instrument; and(b) The existence of the payee and his then capacity to indorse.Gempesaw v. Court of Appeals [G.R. No. 92244. February 9,  1993]

FACTSPetitioner argues that respondent drawee Bank should not have honored the checks because they were “crossed checks”.

 ISSUEWhether or not the issuance of “crossed checks” is restrictive indorsement.

 

RULINGNO. They are not the same. In 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 ceases to be negotiable. Crossed checks, on the other hand, is done by drawing two parallel lines across the face of the check to mean that it cannot be presented for payment in cash, but can only be deposited in payee’s account. Crossing of checks do not ipso facto cause the cessation of its negotiable character.

Negotiable Instruments Case Digest: International Corp. Bank V. CA (2006)

 G.R. No. 129910            September 5, 2006Lessons Applicable: Alteration (Negotiable Instruments Law)

FACTS The Ministry of Education and Culture issued 15 checks drawn against PNB whichInternational Corp. Bank (Int'l) accepted for deposit on various dates.

After 24 hours from submission of the checks to Int'l for clearing, it paid the value of the checks and allowed the withdrawals of the deposits

October 14, 1981, PNB returned all the checks to Int'l without clearing them on the ground that they were materially altered. 

Int'l instituted an action for collection of sums of money against respondent to recover the value of the checks.

RTC: dismissed

CA: Reversed

o materially altered shall be returned within 24 hours after discovery of the alteration. 

C.B. Circular does not provide the drawee bank the license to be grossly negligent on the one hand nor does it preclude the collecting

bank from raising available defenses even if the check is properly returned within the 24-hour period after discovery of the materialalteration

ISSUES: W/N PNB should be liable for not returning the check with material alteration w/in the 24-hour period

HELD: NO. CA set aside

Alteration of Serial Number Not Material

The Court will not rule on the proper application of Central Bank Circular No. 580 in this case since there were no material alterations on the checks, PNB as drawee bank has no right to dishonor them and return them to petitioner, the collecting bank

PNB V. CA- Material Alteration256 SCRA 491FACTS:

DECS  issued  a  check  in  favor  of  Abante  Marketing  containing  a  specific serial number, drawn against PNB.  The check was deposited by Abante in its  account  with  Capitol  and  the  latter  consequently  deposited  the  same with  its  account  with  PBCOM  which  later  deposited  it  with  petitioner  forclearing.  The check was thereafter cleared.  However, on a relevant date, petitioner  PNB  returned  the  check  on  account  that  there  had  been  a material alteration on it.  Subsequent debits were made but Capitol cannot debit the account of Abante any longer for the latter had withdrawn all the money  already  from  the  account.    This  prompted  Capitol  to  seek reclarification  from  PBCOM  and  demanded  the  recrediting  of  its  account.  PBCOM followed suit by doing the same against PNB.  Demands unheeded,it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.   

HELD:

An alteration is said to be material if it alters the effect of the instrument.  It means an unauthorized change in the instrument that purports to modify in  any  respect  the  obligation  of  a  party  or  an  unauthorized  addition  of words or numbers or other change to an incomplete instrument relating to the  obligation  of  the  party.    In  other  words,  a  material  alteration  is  one which changes the items which are required to be stated under Section 1 of the NIL.   

In this case, the alleged material alteration was the alteration of the serial number  of  the  check  in  issue—which  is  not  an  essential  element  of  a negotiable instrument under Section 1.  PNB alleges that the alteration was material  since  it  is  an  accepted  concept  that  a  TCAA  check  by  its  verynature  is  the  medium  of  exchange  of  governments,  instrumentalities  and agencies.    As  a  safety  measure,  every  government  office  or  agency  is assigned checks bearing different serial numbers.   

But this contention has to fail.  The check’s serial number is not the sole indicia of its origin.  The name of the government agency issuing the check is clearly stated therein.  Thus, the check’s drawer is sufficiently identified, rendering redundant the referral to its serial number.  

Therefore, there being no material alteration in the check committed, PNB could not return the check to PBCOM.  It should pay the same.

YANG V. COURT OF APPEALS

409 SCRA 159

 

FACTS:

Yang and Chandimari entered into an agreement that the latter would issue to the former a manager’s check in exchange for two checks that Yang has payable  to  the  order  of  David.    The  difference  in  amount  would  be  the profit  of  the  two  of  them.    It  was  further  agreed  upon  that  Yang  would secure a dollar draft, which Chandimari would exchange with another dollar draft  to  be  secured  from  a  Hong  Kong  bank.    At  the  agreed  time  of rendezvous,  it  was  reported  by  Yang’s  messenger  that  Chandimari  didn't show up and the drafts and checks were allegedly stolen.  This wasn't true however.  Chandimari was able to get hold of the drafts and checks.  He was  even  able  to  deliver  to  David  the  two  checks  and  was  able  to  get money in return.  Consequently, Yang asked for the stoppage of payment of  the  checks  she  believe  to  be  lost,  relying  on  the  report  of  her messenger.  The stoppage order was eventually lifted by the banks and the drafts and checks were able to be encashed.  Yang then filed an action for injunction  and  damages  against  the  banks,  Chandimari  and  David.    The trial court and CA held in favor of David as a holder in due course.   

 

HELD:

Every holder of a negotiable instrument is presumed to be a holder in due course.  This is specially true if one is a holder because he is the payee or indorsee of the

instrument.  In the case at bar, it is evident that David was the  payee  of  the  checks.    The  prima  facie  presumption  of  him  being  a holder  in  due  course  is  in  his  favor.    Nonetheless,  this  presumption  is disputable.  On whether he took the check under the conditions set forth in Section  52  must  be  proven.    Petitioner  relies  on  two  arguments  on  why David  isn’t  a  holder  in  due  course—first,  because  he  took  the  checks without  valuable  consideration;  and  second,  he  failed  to  inquire  on Chandimari’s title to the checks given to him.  The law gives rise to the presumption of valuable consideration.  Petitioner has  the  burden  of  debunking  such  presumption,  which  it  failed  to  do  so.  Her  allegation  that  David  received  the  checks  without  consideration  is unsupported and devoid of any evidence. 

 Furthermore, petitioner wasn't able to show any circumstance which should have placed David in inquiry as to why and wherefore of the possession of the  checks  by  Chandimari.    David  wasn't  a  privy  to  the  transactions between  Yang  and  Chandimari.    Instead,  Chandimari  and  David  had  the agreement between themselves of the delivery of the checks.  David even inquired with the banks on the genuineness of the checks in issue.  At that time, he wasn't aware of any request for the stoppage of payment.  Under these circumstances, David had no obligation to ascertain from Chandimari what the nature of the latter’s title to the checks was, if any, or the nature of his possession.