Case Digests 1d1c2t

EQUITABLE BANKING CORP V IAC G.R. No. L-74451, May 25, 1988, 161 SCRA 518 ~aida rose~ FACTS -In 1975 Casals (who represented himself as general manager of Casville Enterprises, a business engaged in processing and procurement of lumber products) went to Edward J. Nell Co. and told the company‘s sales engineer Claustro of his interest in purchasing a Garrett skidder, one of the many merchandise the company was selling. -Casals was referred to Javier, Nell‘s EVP, who asked for cash payment for the skidders. Casals said that Casvile had a credit line with Equitable Bank. Javier then agreed to have two units of skidders paid by way of domestic letter of credit instead of cash. Each unit was to cost P485,000. The domestic letter of credit was to be payable in 36 months and was to be opened within 90 days after date of shipment of the skidders. The first installement was to be due 180 days after shipment and interest was pegged at 14% p.a. -Casals requested that one unit be delivered to Cagayan de Oro before April 24, 1976 together with all its accessories. The letter of credit was to be opened on or before June 30, 1976. The skidder was shipped on May 3. -June 15, 1976 – Casals handed Nell Co. a check amounting to P300,000 postdated August 4, 1976 followed by another check with the same date. Nell Co. considered the checks as partial payment for the skidder or as reimbursement for the marginal deposit due from Casals. -Casals informed Nell Co. that its application for a letter of credit had been approved by Equitable but informed the company that a sum of P400,000 was needed to stand as collateral in favor of Equitable. The amount include P100,000 to clear the title of the Estrada property which was to act as security for the trust receipts issued by the bank. To facilitate the transaction, Nell Co. issued a check for the said amount in favor of Equitable even if the marginal deposit was supposed to be produced by Casville. -Casals wrote Equitable to apply for two letters of credit (an on sight letter of credit for P485,000, a 36-month letter of credit for P606,000 and cash marginal deposit of P300,000) to cover its purchase of the skidders. The skidders were to be mortgaged as security. The bank responded favorably, stipulating a required 30% cash margin deposit, a real estate collateral and chattel mortgage of the equipment. -Casville sent three postdated checks to Nell Co. attached to a letter informing the latter of the bank requirements. The cash margin deposit was to amount to P327,300 and adding the P100,000 needed for the Estrada property, the total amount due to Equitable was P427,300. The postdated checks from Casville were intended to cover the checks issued by Nell Co. to Equitable. The postdated checks amounted to P427,300. -Nell Co. issued a check worth P427,300 payable to Equitable Bank. The check was made payable to the ―order of Equitable Banking Corp. A/C of Casville Enterprises.‖ The check was sent to Equitable through Casals. Casals deposited the check in Equitable Bank and the teller accepted it as deposit in Casals checking . Casals then withdrew the amount deposited. -Upon presentation for encashment, Nell Co. discovered that the three checks amounting to P427,300 were all dishonored for having been drawn against a closed . Nell Co. checked the status of the letter of credit and was informed by Equitable that no letter of credit had been opened and that the entire amount of P427,300 had been withdrawn. -Casals and Casville recognized their liability towards Nell Co. so they assigned the Garrett skidder to the latter for the amount of P450,000 as partial satisfaction. -In determining the liability of Equitable Bank to Nell Co., the trial court held that Casals, Casville and Equitable Bank were solidarily liable to Nell Co. for the amount of P427,300 erroneously credited by Equitable to Casville‘s . ISSUE WON Equitable is liable to Nell Co. HELD: NO -The check was patently ambiguous. By making the check read ―Pay to Equitable Banking Corp., order of A/C of Casville Enterprises,‖ the payee ceased to be indicated with reasonable certainty. As worded it could be accepted as deposit to the of the party named after the symbols A/C or payable to the bank as trustee or as agent for Casville Enterprises with the latter being the ultimate beneficiary. The ambiguity was to be construed against Nell Co. who caused the ambiguity.

-The check was also initially negotiable and neither was it crossed. The crossing of the check and the stamping of the words ―non-negotiable‖ were made by the bank and not by Nell. It simply meant that the same check would thereafter be no longer negotiated. -Nell‘s own acts and omissions were the proximate causes of its own defraudation. Disposition Petition granted.

State Investment House vs. CA
[G.R. No. 101163. January 11, 1993.]
First Division, Bellosillo (J): 2 concurring, 1 took no part Facts: Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, 2 post-dated Equitable Banking Corporation checks in the amount of P50,000 each, one dated 30 August 1979 and the other, 30 September 1979. Thereafter, the payee negotiated the checks to the State Investment House Inc. (SIHI). Moulic failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The checks, however, could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates, Moulic withdrew her funds from the drawee bank.Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20 December 1979, SIHI allegedly notified Moulic of the dishonor of the checks and requested that it be paid in cash instead, although Moulic avers that no such notice was given her. On 6 October 1983, SIHI sued to recover the value of the checks plus attorney's fees and expenses of litigation. In her Answer, Moulic contends that she incurred no obligation on the checks because the jewelry was never sold and the checks were negotiated without her knowledge and consent. She also instituted a Third-Party Complaint against Corazon Victoriano, who later assumed full responsibility for the checks. On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and ordered SIHI to pay Moulic P3,000.00 for attorney's fees. SIHI elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground that the Notice of Dishonor to Moulic was made beyond the period prescribed by the Negotiable Instruments Law and that even if SIHI did serve such notice on Moulic within the reglementary period it would be of no consequence as the checks should never have been presented for payment. Hence, the petition for review. The Supreme Court granted the petition, reversed the decision appealed from, and entered a new one declaring private Moulic liable to SIHI for the value of EBC Checks 30089658 and 30089660 in the total amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any action for recompense she may pursue against the Victorianos as Third-Party Defendants; with costs against Moulic 1. Negotiability of checks not in dispute
The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the pre-trial, the parties agreed to limit the issue to whether or not SIHI was a holder of the checks in due course. 2. Section 52 NIL, Holder in due course; Burden of proving a holder not in due course
Section 52 of the Negotiable Instruments Law (What constitutes a holder in due course) provides ―A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it was previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it." Thus, a prima facie presumption exists that the holder of a negotiable instrument is a holder in due course. Consequently, the burden of proving that SIHI is not a holder in due course lies in the person who disputes the presumption. In this regard, Moulic failed. The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular; (b) SIHI bought these checks from the payee, Corazon Victoriano, before their due dates; 3 (c) SIHI took these checks in good faith and for value, albeit at a discounted price; and, (d) SIHI was never informed nor made aware that these checks were merely issued to payee as security and not for value. Consequently, SIHI is indeed a holder in due course.

As such, it holds the instruments free from any defect of title of prior parties, and from defenses available to prior parties among themselves; SIHI may, therefore, enforce full payment of the checks. 3. Personal defense of failure or absence of consideration not available
Moulic cannot set up against SIHI the defense that there was failure or absence of consideration. Moulic can only invoke this defense against SIHI if it was privy to the purpose for which they were issued and therefore is not a holder in due course.

9. Effects of drawing and negotiation of a check; Drawer liable to holder in due course
The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the present case, such withdrawal renders the drawer, Nora B. Moulic, liable to SIHI, a holder in due course of the checks.

4. Section 119 NIL, Instrument how discharged
That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in due course. For, the only grounds are those outlined in Section 119 of the Negotiable Instrument Law (Instrument; how discharged), i.e. ―A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right."

10. Right of mortgagee to claim deficiency in extrajudicial foreclosure of mortgage
The obligation of Corazon Victoriano and her husband at the time their property mortgaged to SIHI was extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was only P1 million. Thus, the value of the property foreclosed was not even enough to pay the debt in full. Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. The step thus taken by the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a proceeding for the sale of the property and its action cannot be taken to mean a waiver of its right to demand payment for the whole debt.

5. Section 119 (c) NIL; intentional cancellation contemplated in paragraph (c)
The intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up, burning it, or writing the word "cancelled" on the instrument. The act of destroying the instrument must also be made by the holder of the instrument intentionally. Since Moulic failed to get back possession of the post-dated checks, the intentional cancellation of the said checks is altogether impossible.

11. Legislative intent to foreclose right of a creditor to sue for deficiency usually expressed; Creditor does not lose right to recover in the absence of provision
While Act 3135, as amended, does not discuss the mortgagee's right to recover such deficiency, it does not contain any provision either, expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature intends to foreclose the right of a creditor to sue for any deficiency resulting from foreclosure of a security given to guarantee an obligation, it so expressly provides. For instance, with respect to pledges, Art. 2115 of the Civil Code does not allow the creditor to recover the deficiency from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold on installment basis, in the event of foreclosure, the vendor "shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary will be void". Thus, in the absence of a similar provision in Act 3135, as amended, it cannot be concluded that the creditor loses his right recognized by the Rules of Court to take action for the recovery of any unpaid balance on the principal obligation simply because he has chosen to extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given him by the mortgagor in the contract of mortgage.

6. Section 119 (d) NIL; Acts discharging a simple contract not specified in Section 119
The acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing legislations since Section 119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code which enumerates the modes of extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant case as Section 119 contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. In the present case, the payee, Corazon Victoriano, was no longer Moulic's creditor at the time the jewelry was returned. Correspondingly, Moulic may not unilaterally discharge herself from her liability by the mere expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her checks to a holder in due course. 7. Need for notice of dishonor not absolute
The fact that SIHI failed to give Notice of Dishonor to Moulic is of no moment. The need for such notice is not absolute; there are exceptions under Section 114 of the Negotiable Instruments Law (When notice need not be given to drawer), to wit: ―Notice of dishonor is not required to be given to the drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment; (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded payment." In the present case, Moulic did not retrieve the checks when she returned the jewelry; but simply withdrew her funds from her drawee bank and transferred them to another to protect herself. After withdrawing her funds, she could not have expected her checks to be honored; therefore, she was responsible for the dishonor of her checks, there was no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not been paid, and that the party notified is expected to pay it. 8. Purpose of the enactment of the Negotiable Instruments Law
The Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case.

12. Complaint and Third-party complaint another means of recovering unpaid balance
The filing of the Complaint and the Third-Party Complaint to enforce the checks against Moulic and the Victoriano spouses, respectively, is just another means of recovering the unpaid balance of the debt of the Victorianos. Moulic, as drawer, is liable for the value of the checks she issued to the holder in due course, SIHI, without prejudice to any action for recompense she may pursue against the Victorianos as Third-Party Defendants who had already been declared as in default. G.R. No. L-16968 PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. CONCEPCION MINING COMPANY, INC., ET AL., defendants-appellants. Ramon B. de los Reyes for plaintiff-appellee. Demetrio Miraflor for defendants-appellants. LABRADOR, J.: Appeal from a judgment or decision of the Court of First Instance of Manila, Hon. Gustavo Victoriano, presiding, sentencing defendants Concepcion Mining Company and Jose Sarte to pay tly and severally to the plaintiff the amount of P7,197.26 with interest up to September 29, 1959, plus a daily interest of P1.3698 thereafter up to the time the amount is fully paid, plus 10% of the amount as attorney's fees, and costs of this suit.

The present action was instituted by the plaintiff to recover from the defendants the face of a promissory note the pertinent part of which reads as follows:

ART. 1216. The creditor may proceed against any one of the solidary debtors or some of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others so long as the debt has not been fully collected.

Manila, March 12, 1954 NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank . . . . In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers shall pay ten percent (10%) of the amount due on the note as attorney's fees, which in no case shall be less than P100.00 exclusive of all costs and fees allowed by law as stipulated in the contract of real estate mortgage. Demand and Dishonor Waived. Holder may accept partial payment reserving his right of recourse again each and all indorsers. (Purpose — mining industry) CONCEPCION MINING COMPANY, INC., By: (Sgd.) VICENTE LEGARDA President (Sgd.) VICENTE LEGARDA (Sgd.) JOSE S SARTE "Please issue check to — Mr. Jose S. Sarte" Upon the filing of the complaint the defendants presented their answer in which they allege that the co-maker the promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate is in the process of judicial determination in Special Proceedings No. 29060 of the Court of First Instance of Manila. On the basis of this allegation it is prayed, as a special defense, that the estate of said deceased Vicente L. Legarda be included as party-defendant. The court in its decision ruled that the inclusion of said defendant is unnecessary and immaterial, in accordance with the provisions of Article 1216 of the Deny Civil Code and section 17 (g) of the Negotiable Instruments Law. A motion to reconsider this decision was denied and thereupon defendants presented a petition for relief, asking that the effects of the judgment be suspended for the reason that the deceased Vicente L. Legarda should have been included as a party-defendant and his liability should be determined in pursuance of the provisions of the promissory note. This motion for relief was also denied, hence defendant appealed to this Court. Section 17 (g) of the Negotiable Instruments Law provides as follows: 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: xxx

xxx

xxx

(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be tly and severally liable thereon. And Article 1216 of the Civil Code of the Philippines also provides as follows:

In view of the above quoted provisions, and as the promissory note was executed tly and severally by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the promissory note had the right to hold any one or any two of the signers of the promissory note responsible for the payment of the amount of the note. This judgment of the lower court should be affirmed. Our attention has been attracted to the discrepancies in the printed record on appeal. We note, first, that the names of the defendants, who are evidently the Concepcion Mining Co., Inc. and Jose S. Sarte, do not appear in the printed record on appeal. The title of the complaint set forth in the record on appeal does not contain the name of Jose Sarte, when it should, as two defendants are named in the complaint and the only defense of the defendants is the non-inclusion of the deceased Vicente L. Legarda as a defendant in the action. We also note that the copy of the promissory note which is set forth in the record on appeal does not contain the name of the third maker Jose S. Sarte. Fortunately, the brief of appellee on page 4 sets forth said name of Jose S. Sarte as one of the comaker of the promissory note. Evidently, there is an attempt to mislead the court into believing that Jose S. Sarte is no one of the co-makers. The attorney for the defendants Atty. Jose S. Sarte himself and he should be held primarily responsible for the correctness of the record on appeal. We, therefore, order the said Atty. Jose S. Sarte to explain why in his record on appeal his own name as one of the defendants does not appear and neither does his name appear as one of the co-signers of the promissory note in question. So ordered. Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Reyes, J.B.L., J., took no part.

FACTS: A case for collection of a sum of money was filed against defendants in connection with a promissory note they issued with others. The defendants move that since their co-makers have died, claim should be also against the estates of such. This was denied by the court. HELD: Where an instrument containing the words ―I promise to pay‖ is signed by two or more persons, they are deemed to be tly and severally liable thereon. By virtue of this provision found in Section 17, and as the promissory note was executed tly and severally by the parties, the payee of the promissory note had the right to hold any one of the them responsible for the payment of the amount of the note. [GR 93073, 21 December 1992] Republic Planters Bank vs. Court of Appeals Second Division, Campos Jr. (J): 4 concur Facts: Shozo Yamaguchi and Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution 1 dated 1 August 1979, Shozo Yamaguchi and Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic Planters Bank (RPB) in the forms of export advances and letters of credit/trust receipts accommodations. Republic Planters Bank issued nine promissory notes, each of which were uniformly worded in the following manner: "___________, after date, for value received,

I/we, tly and severaIly promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(....) Philippine Currency..." On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of the promissory notes appeared: "Please credit proceeds of this note to: "________ Savings ______XX Current", " No. 1372-00257-6", and "of WORLDWIDE GARMENT MFG. CORP." These entries were separated from the text of the notes with a bold line which ran horizontally across the pages. In three promissory notes, the name Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the signatures of Yamaguchi and Canlas. On 20 December 1982, Worldwide Garment Manufacturing, Inc. (WGMI) noted to change its corporate name to Pinch Manufacturing Corporation (PMC). On 5 February 1982, RPB filed a complaint for the recovery of sums of money covered among others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty charges. The complainant was originally brought against WGMI inter alia, but it was later amended to drop WGMI as defendant and substitute PMC it its place. PMC and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only Canlas filed an Amended Answer wherein he, denied having issued the promissory notes in question since according to him, he was not an officer of PMC, but instead of WGMI, and that when he issued said promissory notes in behalf of WGMI, the same were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature. On 20 June 1985, The Regional Trial Court rendered a decision in favor of RPB, ordering PMC (formerly WGMI),Yamaguchi and Canlas to pay, tly and severally, RPB the following sums with interest thereon at 16% per annum under 7 promissory notes, the sum of P300,000.00 with interest from 29 January 1981 until fully paid; P40,000.00 with interest from 27 November 1980; P166,466.00 which interest from 29 January 1981; P86,130.31 with interest from 29 January 1981; P12,703.70 with interest from 27 November 1980; P281,875.91 with interest from 29 January 1981; and P200,000.00 with interest from 29 January 1981. PMC and Yamaguchi were also ordered to pay tly and severally, RPB the sum of P367,000.00 with interest of 16% per annum from 29 January 1980 under another promissory note. PMC was ordered to pay PRB the sum of P140,000.00 with interest at 16% per annum from 27 November 1980 until fully paid, under another promissory note; to pay the sum of P231,120.81 with interest at 12% per annum from 1 July 1981, until fully paid and the sum of P331,870.97 with interest from 28 March 1981, until fully paid. The court also ordered PMC, Yamaguchi, and Canlas to pay, tly and severally, RPB the sum of P100,000.00 as and for reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective principal sums from the dates above stated as penalty charge until fully paid, plus 1% of the principal sums as service charge; with costs against PMC, et al. From the above decision only Canlas appealed to the then Intermediate Court (now the Court Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the defunct WGMI, he should not be held personally liable for such authorized corporate acts that he performed. The appellate court affirmed the decision of trial court except that it completely absolved Canlas from liability under the promissory notes and reduced the award for damages and attorney's fees. RPB appealed by a way of a petition for review on certiorari. It is the contention of RPB that having unconditionally signed the 9 promissory notes with Yamaguchi, tly and severally, Canlas is solidarity liable with Yamaguchi on each of the nine notes. Issue [1]: Whether Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature. Held [1]: Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature. The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. By g the notes, the maker promises to pay to the order of the payee or any holder according to the tenor thereof. Based on the above provisions of law, there is no denying that Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom. Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be tly and severally liable thereon. An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons, makes them solidarily liable. The fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to pay the notes in full. Herein, the solidary liability of Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase "t and several" as describing the unconditional promise to pay to the order of RPB. A t

and several note is one in which the makers bind themselves both tly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. A t and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share. By making a t and several promise to pay to the order of RPB, Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or tly with Yamaguchi and PMC as solidary debtors. As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the notes will affect the liability of the makers, it is immaterial and will not affect to the liability of Canlas as a t and several debtor of the notes. With or without the presence of said phrase, Canlas is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor. Issue [2]: Whether Canlas can avoid liability on the promissory notes by claiming to be a mere agent of the corporation. Held [2]: As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person g as an agent is specifically provided for in Section 20 thereof, which provides that "Liability of a person g as agent and so forth. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not issible to avoid the agent's personal liability." Issue [3]: Whether the promissory notes were delivered to Canlas in blank for his signature, or were incomplete instruments, to allow the application of Section 14 of the Negotiable Instruments Law. Held [3]: A careful examination of the notes in question shows that they are the stereotype printed form of promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are incomplete because there are blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date. The and conditions of the loan are printed on the note for the borrower-debtor's perusal. An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law. Proof that the notes were signed in blank was only the self-serving testimony of Canlas. The Court chose to believe the bank's testimony that the notes were filled up before they were given to Canlas and Yamaguchi for their signatures as t and several promissors. For g the notes above their typewritten names, they bound themselves as unconditional makers. The court took judicial notice of the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled up as per agreed of the loan, leaving the borrowers-debtors to do nothing but read the and conditions therein printed and to sign as makers or co-makers. When the notes were given to Canlas for his signature, the notes were complete in the sense that the spaces for the material particular had been filled up by the bank as per agreement. The notes were not incomplete instruments; neither were they given to Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable. G.R. 93397 Trader’s royal bank v CA Facts:

The records reveal that defendant Filriters is the ed owner of Central Bank Certificate of Indebtedness (CBCI) No. D891. Under a deed of assignment, Filriters Guaranty Assurance Corporation (Filriters) transferred CBCI No. D891 to Philippine Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still ed in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase agreement, granting Philfinance the right to repurchase the instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a deed of assignment, conveying to appellant TRB all its right and the title to CBCI No. D891. Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its name before the Security and Servicing Department of the Central Bank (CB). Central Bank, however, refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters.

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents. QUISUMBING, J.: This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CA-G.R. CV No. 29546, which affirmed the judgment 2 of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestone's complaint for damages. The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:

In short…** [FilriterPhilfinanceTRB (but still in the name of Filriters), (right to repurchase by Philfinance)philfinance failed to repurchase, therefore…it‘s with TRB.] then TRB wanted to name it after them because of the adverse claim of Filriters. Haha! 

Issue: Whether or not the CBCI is a negotiable instrument? (I really don‘t know how to get this issue from the facts. Whoooops.) Held: NO. The subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031). Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is properly understood as acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans. XXXThe Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if this Certificate of indebtedness be ed, to FILRITERS GUARANTY ASSURANCE CORPORATION, the ed owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.XXX As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the ed owner hereof." Very clearly, the instrument is payable only to Filriters, the ed owner, whose name is inscribed thereon. It lacks the words of negotiability which should have served as an expression of consent that the instrument may be transferred by negotiation. A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one else, The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time. The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law. G.R. No. 113236

March 5, 2001

. . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central Bank of the Philippines, and among its activities, accepts savings and time deposits. Said defendant had as one of its client-depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca maintaining a special savings with the defendant, the latter authorized and allowed withdrawals of funds therefrom through the medium of special withdrawal slips. These are supplied by the defendant to Fojas-Arca. In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement" (Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products. On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, FojasArca purchased on credit Firestone products from plaintiff with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal slips drawn upon the defendant. In turn, these were deposited by the plaintiff with its current with the Citibank. All of them were honored and paid by the defendant. This singular circumstance made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal slips drawn upon the defendant would be equally sufficiently funded. Relying on such confidence and belief and as a direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its products. On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to plaintiff the corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit: DATE

WITHDRAWAL SLIP NO.

AMOUNT

June 15, 1978

42127

P1,198,092.80

July 15, 1978

42128

940,190.00

Aug. 15, 1978

42129

880,000.00

Sep. 15, 1978

42130

981,500.00

These were likewise deposited by plaintiff in its current with Citibank and in turn the Citibank forwarded it [sic] to the defendant for payment and collection, as it had done in respect of the previous special withdrawal slips. Out of these four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by the defendant in October 1978. Because of the absence for a long period coupled with the fact that defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's belief was all the more strengthened that the

other withdrawal slips were likewise sufficiently funded, and that it had received full value and payment of Fojas-Arca's credit purchased then outstanding at the time. On this basis, plaintiff was induced to continue extending to Fojas-Arca further purchase on credit of its products as per agreement (Exh. "B"). However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited plaintiff's for the total sum of P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendant's gross negligence. On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction of the damages suffered by it. And due to defendant's refusal to pay plaintiff's claim, plaintiff has been constrained to file this complaint, thereby compelling plaintiff to incur litigation expenses and attorney's fees which amount are recoverable from the defendant. Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved; Vehemently, it was denied by defendant that the special withdrawal slips were honored and treated as if it were checks, the truth being that when the special withdrawal slips were received by defendant, it only verified whether or not the signatures therein were authentic, and whether or not the deposit level in the book concurred with the savings ledger, and whether or not the deposit is sufficient to cover the withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then plaintiff has to blame itself for being grossly negligent in treating the withdrawal slips as check when it is clearly stated therein that the withdrawal slips are non-negotiable; that defendant is not a privy to any of the transactions between FojasArca and plaintiff for which reason defendant is not duty bound to notify nor give notice of anything to plaintiff. If at first defendant had given notice to plaintiff it is merely an extension of usual bank courtesy to a prospective client; that defendant is only dealing with its depositor Fojas-Arca and not the plaintiff. In summation, defendant categorically stated that plaintiff has no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).3 Petitioner's complaint4 for a sum of money and damages with the Regional Trial Court of Pasay City, Branch 113, docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant. Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank was liable for damages under Article 21765 in relation to Articles 196 and 207 of the Civil Code. As noted by the CA, petitioner alleged the following tortious acts on the part of private respondent: 1) the acceptance and payment of the special withdrawal slips without the presentation of the depositor's book thereby giving the impression that the withdrawal slips are instruments payable upon presentment; 2) giving the special withdrawal slips the general appearance of checks; and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor two of the four special withdrawal slips. On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and affirmed the judgment of the trial court. According to the appellate court, respondent bank notified the depositor to present the book whenever it received a collection note from another bank, belying petitioner's claim that respondent bank was negligent in not requiring a book under the subject transaction. The appellate court also found that the special withdrawal slips in question were not purposely given the appearance of checks, contrary to petitioner's assertions, and thus should not have been mistaken for checks. Lastly, the appellate court ruled that

the respondent bank was under no obligation to inform petitioner of the dishonor of the special withdrawal slips, for to do so would have been a violation of the law on the secrecy of bank deposits. Hence, the instant petition, alleging the following assignment of error: 25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any fault or negligence regarding the dishonor, or in failing to give fair and timely advice of the dishonor, of the twointermediate LDB Slips and in failing to award damages to Firestone pursuant to Article 2176 of the New Civil Code.8 The issue for our consideration is whether or not respondent bank should be held liable for damages suffered by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips. The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires from the former with special withdrawal slips drawn upon Fojas-Arca's special savings with respondent bank. Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioner's current , then presented the slips for payment to respondent bank. It was at this point that the bone of contention arose. On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of Fojas-Arca's funds on deposit. That information came about six months from the time Fojas-Arca purchased tires from petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from petitioner's , causing the alleged pecuniary damage subject of petitioner's cause of action. At the outset, we note that petitioner its that the withdrawal slips in question were nonnegotiable.9 Hence, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case.10Petitioner itself concedes this point.11 Thus, respondent bank was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments. It could not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving checks. In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had honored and paid the previous withdrawal slips, automatically credited petitioner's current with the amount of the subject withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It presumed that the withdrawal slips were "good." It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money.12 The withdrawal slips in question lacked this character. A bank is under obligation to treat the s of its depositors with meticulous care, whether such consists only of a few hundred pesos or of millions of pesos.13 The fact that the other withdrawal slips were honored and paid by respondent bank was no license for Citibank to presume that subsequent slips would be honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the s of its clients with the highest degree of care.14 In the ordinary and usual course of banking operations, current deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or

representative, who indicates therein the current number to which the deposit is to be credited, the name of the depositor or current holder, the date of the deposit, and the amount of the deposit either in cash or in check.15 The withdrawal slips deposited with petitioner's current with Citibank were not checks, as petitioner its. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank — and petitioner as -holder — must bear the risks attendant to the acceptance of these instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their itted mistake. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner. SO ORDERED. G.R. 149420 SONNY LO vs KJS ECO-FORMWORK SYSTEM PHIL, INC.

  





Lo, doing business under the name San‘s Enterprises, ordered scaffolding equipments from KJS worth P540,425.80. Lo paid a downpayment of P150,000 and the balance was to be paid in 10 monthly installments. KJS delivered the scaffoldings to Lo, who paid the first two installments. However, his business encountered financial difficulties and he was unable to settle his obligation despite oral and written demands. Lo and KJS executed a Deed of Assignment, whereby Lo assigned to KJS his receivables in the amount of P335,462.14 from Jomero Realty Corporation. The agreement also stipulated: ―The ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, s, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents.‖ When KJS tried to collect the said credit from Jomero, it refused to honor the Deed of Assignment because it claimed that Lo was also indebted to it. KJS sent a letter to Lo demanding payment but he refused claiming that his obligation had been extinguished when they executed the Deed of Assignment. KJS filed an action for recovery of a sum of money against Lo with the RTC, which dismissed the complaint on the ground that the assignment of credit extinguished the obligation. However, the CA held that the Deed of Assignment did not extinguish the obligation of Lo.

Issue: W/N the Deed of Assignment extinguished Lo‘s obligation. NO, he failed to comply with his warranty.



In dacion en pago1, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking

really partakes in one sense of the nature of sale – the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor‘s debt.  The assignment of credit, which is in the nature of a sale of personal property, produced the effects of a dation in payment, which may extinguish the obligation. However, as in any other contract of sale, the vendor or assignor is bound by certain warranties. Paragraph 1 of Article 1628 of the Civil Code provides: The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge.  Lo, as assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to Lo since the latter also had an unpaid obligation to it, it essentially meant that its obligation to Lo has been extinguished by compensation. As a result, KJS alleged the non-existence of the credit and asserted its claim to Lo‘s warranty under the assignment. Lo was therefore required to make good its warranty and pay the obligation.  Furthermore, Lo breached his obligation under the Deed of Assignment as he did not ―execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents.‖ By warranting the existence of the credit, Lo should have ensured its performance in case it is found to be inexistent. He should be held liable to pay to KJS the amount of his indebtedness Judgment Affirmed. 11 Consolidated Plywood Industries Inc. vs. IFC Leasing and Acceptance Corp. [GR 72593, 30 April 1987] Second Division, Gutierrez Jr. (J): 5 concur Facts: Consolidated Plywood Industries Inc. (II) is a corporation engaged in the logging business. It had for its program of logging activities for the year 1978 the opening of additional roads, and simultaneous logging operations along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao Oriental. For this purpose, it needed 2 additional units of tractors. Cognizant of II's need and purpose, Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm,Industrial Products Marketing (IPM), a corporation dealing in tractors and other heavy equipment business,offered to sell to II 2 "Used" Allis Crawler Tractors, 1 an HD-21-B and the other an HD-16-B. In order toascertain the extent of work to which the tractors were to be exposed, and to determine the capability of the "Used" tractors being offered, II requested the seller-assignor to inspect the jobsite. After conducting said inspection, IPM assured II that the "Used" Allis Crawler Tractors which were being offered were fit for the job, and gave the corresponding warranty of 90 days performance of the machines and availability of parts. With said assurance and warranty, and relying on the IPM's skill and judgment, II through Henry Wee and Rodolfo T. Vergara, president and vice-president, respectively, agreed to purchase on installment said 2 units of "Used" Allis Crawler Tractors. It also paid the down payment of P210,000.00. On 5 April 1978, IPM issued the sales invoice for the 2 units of tractors. At the same time, the deed of sale with chattel mortgage with promissory note was executed. Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note, IPM, by means of a deed of assignment, assigned its rights and interest in the chattel mortgage in favor of IFC Leasing and Acceptance Corporation. Immediately thereafter, IPM delivered said 2 units of "Used" tractors to II's jobsite and as agreed, IPM stationed its own mechanics to supervise the operations of the machines. Barely 14 days had elapsed after their delivery when one of the tractors broke down and after another 9 days, the other tractor likewise broke down. On 25 April 1978, Vergara formally advised IPM of the fact that the tractors broke down and requested for IPM's usual prompt attention under the warranty. In response to the formal advice by Vergara, IPM sent to the jobsite its mechanics to conduct the necessary repairs, but the tractors did not come out to be what they should be after the repairs were undertaken because the units were no longer serviceable. Because of the breaking down of the tractors, the road building and simultaneous logging operations of II were delayed and Vergara advised IPM that the payments of the installments as listed in the promissory note would likewise be delayed until IPM completely fulfills its obligation under its warranty. Since the tractors were no longer serviceable, on 7 April 1979, Wee asked IPM to pull out the units and have them reconditioned, and thereafter to offer them for sale. The proceeds were to be given to IFC Leasing and the excess, if any, to be divided between IPM and II which offered to

bear 1/2 of the reconditioning cost. No response to this letter was received by II and despite several follow-up calls, IPM did nothing with regard to the request, until the complaint in the case was filed by IFC Leasing against II, Wee, and Vergara. The complaint was filed by IFC Leasing against II, et al. for the recovery of the principal sum of P1,093,789.71, accrued interest of P151,618.86 as of 15 August 1979, accruing interest there after at the rate of 12% per annum, attorney's fees of P249,081.71 and costs of suit. II, et al. filed their amended answer praying for the dismissal of the complaint and asking the trial court to order IFC leasing to pay them damages in an amount at the sound discretion of the court, P20,000.00 as and for attorney's fees, and P5,000.00 for expenses of litigation, among others. In a decision dated 20 April 1981, the trial court rendered judgment, ordering II, et al. to pay tly and severally in their official and personal capacities the principal sum of P1,093,798.71 with accrued interest of P151,618.86 as of 15 August 1979 and accruing interest thereafter at the rate of 12% per annum; and attorney's fees equivalent to 10% of the principal and to pay the costs of the suit. On 8 June 1981, the trial court issued an order denying the motion for reconsideration filed by II, et al. II, et al.appealed to the Intermediate Appellate Court. On 17 July 1985, the Intermediate Appellate Court issued the decision affirming in toto the decision of the trial court. II et al.'s motion for reconsideration was denied by the Intermediate Appellate Court in its resolution dated 17 October 1985, a copy of which was received by II, et al. on 21 October 1985. II, et al. filed the petition for certiorari under rule 45 of the Rules of Court. Issue: Whether the promissory note in question is a negotiable instrument. Held: The pertinent portion of the note provides that ""FOR VALUE RECEIVED, I/we tly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid." Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note "must be payable to order or bearer," it cannot be denied that the promissory note in question is not a negotiable instrument. The instrument in order to be considered negotiable must contain the so called "words of negotiability" — i.e., must be payable to "order" or "bearer." These words serve as an expression of consent that the instrument may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one. Without the words "or order" or "to the order of," the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter. Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that IFC Leasing can never be a holder in due course but remains a mere assignee of the note in question. Thus, II may raise against IFC Leasing all defenses available to it as against IPM. This being so, there was no need for II to implead IPM when it was sued by IFC Leasing because II's defenses apply to both or either of them. Sesbreno vs. Court of Appeals [GR 89252, 24 May 1993] Third Division, Feliciano (J): 4 concur See case entry 10 Facts: On 9 February 1981, Raul Sesbreño made a money market placement in the amount of P300,000.00 with the Philippine Underwriters Finance Corporation (Philfinance), Cebu Branch; the placement, with a term of 32 days, would mature on 13 March 1981. Philfinance, also on 9 February 1981, issued the following documents to Sesbreno: (a) the Certificate of Confirmation of Sale, "without recourse," 20496 of 1 Delta Motors Corporation Promissory Note (DMC PN) 2731 for a term of 32 days at 17.0 % per annum; (b) the Certificate of Securities Delivery Receipt 16587 indicating the sale of DMC PN 2731 to Sesbreno, with the notation that the said security was in custodianship of Pilipinas Bank, as per Denominated Custodian Receipt (DCR) 10805 dated 9 February 1981; and (c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of Sesbreno's investment), with Sesbreno as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount of P304,533.33. On 13 March 1981, Sesbreno sought to encash the post-dated checks issued by Philfinance. However, the checks were dishonored for having been drawn against insufficient funds. On 26 March 1981, Philfinance delivered to Sesbreno the DCR 10805 issued by Pilipinas Bank (Pilipinas). On 2 April 1981, Sesbreno approached Ms. Elizabeth de Villa of Pilipinas,

Makati Branch, and handed to her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the DCR 10805 had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the underlying promissory note. Sesbreno then examined the original of the DMC PN 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with Philfinance as "payee" and Delta Motors Corporation (Delta) as "maker;" and that on face of the promissory note was stamped "NON-NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to Sesbreno. Sesbreno later made similar demand letters, dated 3 July 1981 and 3 August 1981, again asking Pilipinas for physical delivery of the original of DMC PN 2731. Pilipinas allegedly referred all of Sesbreno's demand letters to Philfinance for written instructions, as had been supposedly agreed upon in a "Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance never did provide the appropriate instructions; Pilipinas never released DMC PN 2731, nor any other instrument in respect thereof, to petitioner. Sesbreno also made a written demand on 14 July 1981 upon Delta for the partial satisfaction of DMC PN 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to Sesbreno on the promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC PN 2731 (along with DMC PN 2730) against Philfinance PN 143-A issued in favor of Delta. In the meantime, Philfinance, on 18 June 1981, was placed under the t management of the Securities and Exchange Commission (SEC) and the Central Bank. Pilipinas delivered to the SEC DMC PN 2731, which to date apparently remains in the custody of the SEC. As Sesbreno had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for damages with the Regional Trial Court (RTC) of Cebu City, Branch 21, against Delta and Pilipinas. The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of merit and for lack of cause of action, with costs against Sesbreno. Sesbreno appealed to the Court of Appeals (CA GR CV 15195). In a Decision dated 21 March 1989, the Court of Appeals denied the appeal. Sesbreno moved for reconsideration of the above Decision, without success. Sesbreno filed the Petition for Review on Certiorari. Issue: Whether the marking ―non-negotiable‖ in DMC PN 2731 prohibited Philfinance from asg or transferring the same to Sesbreno. Held: The negotiation of a negotiable instrument must be distinguished from the assignment 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. 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: "The words 'not negotiable,' stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original parties." Herein, DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferrable" or "nonassignable." It contained no stipulation which prohibited Philfinance from asg or transferring, in whole or in part, that Note. Further, there is nothing in the letter of agreement dated 10 April 1980 between Delta and Philfinance which can be reasonably construed as a prohibition upon Philfinance asg or transferring all or part of DMC PN 2731, before the maturity thereof. It is scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not disputed that Sesbreno was such an assignee or transferee. Lim vs. CA GR 107898, 19 December 1995 First Division, Bellosillo (J) Facts: Spouses Manuel and Rosita Lim are the president and treasurer, respectively, of RIGI Built Industries Inc. RIGI had been transacting business with Linton Commercial Company for years, the latter supplying the former with steel plates, steel bars, flat bars and purlin sticks which the company uses in the fabrication, installation and building of steel structures. The Lims ordered steel plates

from Linton Commercial, delivering checks to the latter‘s collector as payment. The checks were dishonored for ―insufficiency of funds‖ with the additional notation ―payment stopped‖ (The Lims claimed that the supplies delivered by Linton Commercial were not in accordance with the specifications of purchase orders). Despite demands, the Lims refused to make good the checks or to pay value of the deliveries. Issue: Whether the receipt of the checks by the collector of Linton is the issuance and delivery to the payee within the contemplation of the law (as prelude to jurisdiction issue). Held: ―Issue‖ means the first delivery of the instrument complete in form to a person who takes it as a holder. ―Holder― refers to the payee or indorsee of a note or who is in possession of it or the bearer thereof. The issuance as well as the delivery of the check must be to a person who takes it as a holder. Delivery of the checks signifies transfer of possession (actual or constructive) from one person to another with intent to transfer title thereto; the delivery being the final act essential to its consummation as an obligation. The collector was not the person who could take the checks as a holder. Neither could the collector be deemed an agent of Linton Commercial with respect to the checks because he was a mere employee. De la Victoria vs. Burgos [GR 111190, 27 June 1995] First Division, Bellosillo (J): 2 concur, 1 concurs in separate opinion to which 1 ed Facts: Raul H. Sesbreno filed a complaint for damages against Assistant City Fiscal Bienvenido N. Mabanto, Jr., et al. before the Regional Trial Court of Cebu City. After trial Judgment was rendered ordering Mabanto, et al. to pay P11,000.00 to Sesbreno. The decision having become final and executory, on motion of the latter, the trial court ordered its execution. This order was questioned by Mabanto, et al. before the Court of Appeals. However, on 15 January 1992 a writ of execution was issued. On 4 February 1992 a notice of garnishment was served on Loreto D. de la Victoria as City Fiscal of Mandaue City where Mabanto, Jr., was then detailed. The Notice directed De la Victoria not to disburse, transfer, release or convey to any other person except to the deputy sheriff concerned the salary checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of law. On 10 March 1992 Sesbreno filed a motion before the trial court for examination of the garnishees. On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial court, finding no more legal obstacle to act on the motion for examination of the garnishees, directed De la Victoria on 4 November 1992 to submit his report showing the amount of the garnished salaries of Mabanto, Jr., within 15 days from receipt taking into consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court. On 24 November 1992 Sesbreno filed a motion to require De la Victoria to explain why he should not be cited in contempt of court for failing to comply with the order of 4 November 1992. On the other hand, on 19 January 1993 De la Victoria 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., until delivered to him. He further claimed that, as such, they were still public funds which could not be subject to garnishment. On 9 March 1993 the trial court denied both motions and ordered De la Victoria to immediately comply with its order of 4 November 1992. It opined that the checks of Mabanto, Jr., had already been released through De la Victoria by the Department of Justice duly signed by the officer concerned; that upon service of the writ of garnishment, De la Victoria as custodian of the checks was under obligation to hold them for the judgment creditor; that De la Victoria became a virtual party to, or a forced intervenor in, the case and the trial court hereby acquired jurisdiction to bind him to its orders and processes with a view to the complete satisfaction of the judgment; and that additionally there was no sufficient reason for De la Victoria to hold the checks because they were no longer government funds and presumably delivered to the payee, conformably with the last sentence of Section 16 of the Negotiable Instruments Law. With regard to the contempt charge, the trial court was not morally convinced of De la Victoria's guilt. On 20 April 1993 the motion for reconsideration was denied. De la Victoria filed the petition. Issue: Whether 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. Held: Garnishment is considered as a species of attachment for reaching credits belonging to the Judgment debtor owing to him from a stranger to the litigation. 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 Department of Justice through De la Victoria as City Fiscal of Mandaue City and head of office. Under Section 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 the 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. As held in Tiro v. Hontanosas, "the salary check of a government officer or employee such a s a teacher 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." As a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment. The rationale behind this doctrine is obvious consideration of public policy. The Court succinctly stated in Commissioner of Public Highways v. San Diego that "the functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated by law." The trial court exceeded its jurisdiction in issuing the notice of garnishment concerning the salary checks of Mabanto, Jr., in the possession of De la Victoria. Dela Victoria vs. Burgos GR 111190, 27 June 1995 First Division, Bellosillo (J) Facts: Raul Sesbreno filed a complaint for damages against Assistant City Fiscal Bienvenido Mabanto before the RTC of Cebu City. After trial, judgment was rendered ordering Mabanto to pay Sesbreno P11,000. The decision having become final and executory, the trial court ordered its execution upon Sesbreno‘s motion. The writ of execution was issued despite Mabanto‘s objection. A notice of garnishment was served upon Loreto de la Victoria as City Fiscal of Mandaue City where Mabanto was then detailed. De la Victoria moved to quash the notice of garnishment claiming that he was not in possession of any money, funds, etc. belonging to Mabanto until delivered to him, and as such are still public funds which could not be subject of garnishment.. Issue: Whether the checks subject of garnishment belong to Mabanto or whether they still belong to the government. Held: Under Section 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 the intent to transfer title to the payee and recognize him as the holder thereof. Herein, the salary check of a government officer or employee does not belong to him before it is physically delivered to him. Inasmuch as said checks had not yet been delivered to Mabanto, they did not belong to him and still had the character of public funds. As a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment. Development Bank of Rizal vs. Sima Wei [GR 85419, 9 March 1993] Second Division, Campos Jr. (J): 4 concur Facts: In consideration for a loan extended by the Development Bank of Rizal (DBR) to Sima Wei, the latter executed and delivered to the former a promissory note, engaging to pay DBR or order the amount of P1,820,000.00 on or before 24 June 1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On 18 November 1983, Sima Wei issued two crossed checks payable to DBR drawn against China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued in full settlement of the drawer's evidenced by the promissory note. These two checks were not delivered to DBR or to any of its authorized representatives. For reasons not shown, these checks came into the possession of Lee Kian Huat, who deposited the checks without DBR's indorsement (forged or otherwise) to the of the Asian Industrial Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak Branch of Producers Bank, relying on the assurance of Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to DBR and bore no indorsement of the latter. On 5 July 1986, DBR filed the complaint for a sum of money against Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation and the Producers Bank of the Philippines, on two causes of actionL

(1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed by Sima Wei on 9 June 1983; and (2) To enforce payment of two checks executed by Sima Wei, payable to DBR, and drawn against the China Banking Corporation, to pay the balance due on the promissory note. Except for Lee Kian Huat, Sima Wei, et al. filed their separate Motions to Dismiss alleging a common ground that the complaint states no cause of action. The trial court granted the Motions to Dismiss. The Court of Appeals affirmed the decision, to which DBR, represented by its Legal Liquidator, filed the Petition for Review by Certiorari. Issue: Whether DBR, as the intended payee of the instrument, has a cause of action against any or all of the defendants, in the alternative or otherwise. Held: The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give rise to any liability on his part, until and unless the check is delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part that "Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto." Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. Herein, the two (2) China Bank checks, numbered 384934 and 384935, were not delivered to the payee, DBR. Without the delivery of said checks to DBR, the former did not acquire any right or interest therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents. Since DBR never received the checks on which it based its action against said respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything which the respondents may have done with respect to said checks could not have prejudiced DBR. It had no right or interest in the checks which could have been violated by said respondents. DBR has therefore no cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against her co respondents, if the allegations in the complaint are found to be true. BPI V. COURT OF APPEALS GR 136202, JANUARY 25, 2007 FACTS: Templonuevo demanded payment from petitioner of a sum of money representing the aggregate value of three checks which were allegedly payable to him but which were deposited with the petitioner to Salazar‘s , without his knowledge and corresponding endorsement. Finding merit in the demands of Templonuevo, the bank then froze the of the engineering firm as the of Salazar was already closed or had insufficient funds. Failure of any settlement between Templonuevo and Salazar, this prompted the bank to debit the of Salazar and give back the money to Templonuevo through cashier‘s check. The of Salazar was also debited for whatever charges incurred for the issuance of the cashier‘s check. The trial court held in favor of Salazar. ISSUE: Does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositor‘s the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another that she later closed?

HELD: In the present case, the records do not the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazar‘s entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law. Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred. Even if the delay in the demand for reimbursement is taken in conjunction with Salazar‘s possession of the checks, it cannot be said that the presumption of ownership in Templonuevo‘s favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right. The presumption that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term ―given‖ does not pertain merely to a transfer of physical possession of the instrument. The phrase ―given or indorsed‖ in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder. Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioner‘s liability to the designated payee cannot be denied. Consequently, petitioner, as the collecting bank, had the right to debit Salazar‘s for the value of the checks it previously credited in her favor. However, the issue of whether it acted judiciously is an entirely different matter. As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the s of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor. To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioner‘s claim that it merely made a mistake in crediting the value of the checks to Salazar‘s and instead bolsters the conclusion of the CA that petitioner recognized

Salazar‘s claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct. The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank. More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioner‘s assurances to private respondent Salazar that the would remain untouched, pending the resolution of the controversy between her and Templonuevo. For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the bank‘s negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation

  

1. 2.



FACTS:

 





April-May, 1942: Ubaldo D. Laya was the Provincial Treasurer of Misamis Oriental. o As such Provincial Treasurer he was ex officio agent of the Philippine National Bank branch in the province. o Mariano V. Ramos worked under him as assistant agent in the bank branch o currency being used in Mindanao, particularly Misamis Oriental and Lanao which had not yet been occupied by the Japanese invading forces, was the emergency currency which had been issued since January, 1942 by the Mindanao Emergency Currency Board by authority of the late President Quezon. April 26, 1942: thru the recommendation of Provincial Treasurer Laya, his assistant agent M. V. Ramos was inducted into the United States Armed Forces in the Far East (USAFFE) as disbursing officer of an army division. April 30, 1942: M. V. Ramos,disbursing officer, went to Province Lanao to procure a cash advance in the amount of P800K for the use of the USAFFE o Pedro Encarnacion, Provincial Treasurer of Lanao did not have that amount in cash so he gave Ramos P300,000 in emergency notes and a check for P500,000 o Ramos had no opportunity to cash the check because in the evening, the Japanese forces entered the capital May 2, 1942: Ramos went to the office of Provincial Treasurer Laya at Misamis Oriental to encash the check for P500,000 which he had received from the Provincial Treasurer of Lanao. Laya did not have enough cash to cover the check so he gave Ramos P400,000 in emergency notes and a check No. 1382 for P100,000 drawn on the Philippine National Bank. According to Laya he had previously deposited P500,000 emergency notes in the Philippine National Bank branch in Cebu and he expected to have the check issued by him cashed in Cebu against said deposit. June 10, 1942: the USAFFE forces to which he was attached surrendered.

Ramos was made a prisoner of war until February 12, 1943

August, 1947: Enrique P. Montinola filed a complaint to collect the sum of P100,000, the amount of Check issued by the Provincial Treasurer of Misamis Oriental to Mariano V. Ramos and supposedly indorsed to Montinola court: dismissed

ISSUE:

G.R. No. L-2861 Montinola vs PNB February 26, 1951 Lessons Applicable: Alteration (Negotiable Instruments Law)



o

December, 1944: M. V. Ramos allegedly indorsed the check to Enrique P. Montinola.





 

W/N Montinola cannot hold PNB liable because there is "Agent, Phil. National Bank" is an alteration - YES W/N Montinola is a holder in due course - NO Montinola's Version o June, 1944: Ramos, needing money with which to buy foodstuffs and medicine, offered to sell him the check; to be sure that it was genuine and negotiable, Montinola, accompanied by his agents and by Ramos himself, went to see President Carmona of the Philippine National Bank in Manila about said check, agreed to the sale of the check for P850,000 Japanese military notes, payable in installments; that of this amount, P450,000 was paid to Ramos in Japanese military notes in 5 installments, and the balance of P400,000 was paid in kind, that upon payment of the full price, M. V. Ramos duly indorsed the check to him. o "Agent, Phil. National Bank" now appearing under the signature of the Provincial Treasurer on the face of the original check - converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument. (Section 124 of the Negotiable Instruments Law). - doesn't make sense so alteration Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. Neither can Montinola be considered as a holder in due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain conditions, one of which is that he became the holder before it was overdue. When Montinola received the check, it was long overdue. Neither could it be said that he took it in good faith. He has not paid the full amount of P90,000 for which Ramos sold him P30,000 of the value of the check. check was issued to M. V. Ramos not as a person but M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he had no right to indorse it personally to plaintiff

Metropol (Bacolod) Financing & Investment Corporation vs. Sambok Motors Co. [GR L-39641, 28 February 1983] Second Division, De Castro (J): 4 concur, 1 on leave, 1 concurs but articulating his observation that the appeal could have been treated as a petition for review under RA 5440 and dismissed by minute resolution. Facts: On 15 April 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., in the amount of P15,939.00 payable in 12 equal monthly installments, beginning 18 May 1969, with interest at the rate of 1% per month. It is further provided that in case on non-payment of any of the installments, the total principal sum then remaining unpaid shall become due and payable with an additional interest equal to 25% of the total amount due. On the same date, Sambok Motors Company, a sister company of Ng Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated and indorsed the note in favor of Metropol

Financing & Investment Corporation with the following indorsement: "Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived. SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO G. NONILLO, Asst. General Manager." The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on 30 October 1969, Metropol formally presented the promissory note for payment to the maker. Dr. Villaruel failed to pay the promissory note as demanded, hence Metropol notified Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment. Sambok failed to pay, so on 26 November 1969 Metropol filed a complaint for collection of a sum of money before the Court of First Instance of Iloilo, Branch I. Sambok did not deny its liability but contended that it could not be obliged to pay until after its co defendant Dr. Villaruel, has been declared insolvent. During the pendency of the case in the trial court, Dr. Villaruel died, hence, on 24 October 1972 the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section 21, Rule 3 of the Rules of Court. On Metropol's motion for summary judgment, the trial court rendered its decision dated 12 September 1973, ordering Sambok to pay to Metropol the sum of P15,939.00 plus the legal rate of interest from 30 October 1969; the sum equivalent to 25% of P15,939.00 plus interest thereon until fully paid; and to pay the cost of suit. Not satisfied with the decision, Samboc appealed. Sambok argue that by adding the words "with recourse" in the indorsement of the note, it becomes a qualified indorser; that being a qualified indorser, it does not warrant that if said note is dishonored by the maker on presentment, it will pay the amount to the holder; that it only warrants the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior parties had capacity to contract; (d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. Issue: Whether Sambok is a qualified indorser of the subject promissory note. Held: A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law. However, Sambok indorsed the note "with recourse" and even waived the notice of demand, dishonor, protest and presentment. "Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable. Sambok, by indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, Metropol can go after Sambok. The effect of such indorsement is that the note was indorsed without qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand, dishonor, protest and presentment were all waived. The words added by Sambok do not limit his liability, but rather confirm his obligation as a general indorser. Further, after an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and becomes a principal debtor. His liability becomes the same as that of the original obligor. Consequently, the holder need not even proceed against the maker before suing the indorser. Gempesaw vs. Court of Appeals [GR 92244. 9 February 1993] Second Division, Campos Jr. (J): 4 concur see case entry 32 Facts: Natividad O. Gempesaw owns and operates four grocery stores located at Rizal Avenue Extension and at Second Avenue, both in Caloocan City. Among these groceries are D.G. Shopper's Mart and D.G. Whole Sale Mart. Gempesaw maintains a checking numbered 1300038-1 with the Caloocan City Branch of PBCom. To facilitate payment of debts to her suppliers, Gempesaw draws checks against her checking with PBCom as drawee. Her customary practice of issuing checks in payment of her suppliers was as follows: The checks were prepared and filled up as to all material particulars by her trusted bookkeeper, Alicia Galang, an employee for more than 8 years. After the bookkeeper prepared the checks, the completed checks were submitted to Gempesaw for her signature, together with the corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers. Gempesaw signed each and every check without bothering to the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. The issuance and

delivery of the checks to the payees named therein were left to the bookkeeper. Gempesaw itted that she did not make any verification as to whether the checks were actually delivered to their respective payees. Although PBCom notified her of all checks presented to and paid by the bank, Gempesaw did not the correctness of the returned checks, much less check if the payees actually received the checks in payment for the supplies she received. In the course of her business operations covering a period of 2 years, Gempesaw issued, following her usual practice, a total of 82 checks in favor of several suppliers. These checks were all presented by the indorsees as holders thereof to, and honored by PBCom. PBCom correspondingly debited the amounts thereof against Gempesaw's checking numbered 30-00038-1. Most of the checks were for amounts in excess of her actual obligations to the various payees as shown in their corresponding invoices. Practically, all the checks issued and honored by PBCom were crossed checks. Aside from the daily notice given to Gempesaw by PBCom, the latter also furnished her with a monthly statement of her bank transactions, attaching thereto all the cancelled checks she had issued and which were debited against her current . It was only after the lapse of more than 2 years that Gempesaw found out about the fraudulent manipulations of her bookkeeper. All the 82 checks with forged signatures of the payees were brought to Ernest L. Boon, Chief ant of PBCom at the Buendia branch, who, without authority therefor, accepted them all for deposit at the Buendia branch to the credit and/or in the s of Alfredo Y. Romero and Benito Lam. Ernest L. Boon was a very close friend of Alfredo Y. Romero. 63 out of the 82 checks were deposited in Savings 00844-5 of Alfredo Y. Romero at PBCom's Buendia branch, and 4 checks in his Savings 32-81-9 at its Ongpin branch. The rest of the checks were deposited in 0443-4, under the name of Benito Lam at the Elcano branch of the respondent drawee Bank. About 30 of the payees whose names were specifically written on the checks did not receive nor even see the subject checks and that the indorsements appearing at the back of the checks were not theirs. The team of auditors from the main office of PBCom which conducted periodical inspection of the branches' operations failed to discover, check or stop the unauthorized acts of Ernest L. Boon. All the deposit slips of the 82 checks in question were initialed and/or approved for deposit by Ernest L. Boon, contrary to the rules of PBCom, where only a Branch Manager, and no other official of PBCom, may accept a second indorsement on a check for deposit. The Branch Managers of the Ongpin and Elcano branches accepted the deposits made in the Buendia branch and credited the s of Alfredo Y. Romero and Benito Lam in their respective branches. On 7 November 1984, Gempesaw made a written demand on PBCom to credit her with the money value of the 82 checks totalling P1,208,606.89 for having been wrongfully charged against her . PBCom refused to grant Gempesaw's demand. On 23 January 1985, Gempesaw filed a Complaint against the Philippine Bank of Communications (PBCom) for recovery of the money value of 82 checks charged against Gempesaw's with PBCom on the ground that the payees' indorsements were forgeries. The Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the case, rendered a decision on 17 November 1987 dismissing the complaint as well as PBCom's counterclaim. On appeal, the Court of Appeals in a decision rendered on 22 February 1990, affirmed the decision of the RTC on two grounds, namely (1) that Gempesaw's gross negligence in issuing the checks was the proximate cause of the loss and (2) assuming that the bank was also negligent, the loss must nevertheless be borne by the party whose negligence was the proximate cause of the loss. On 5 March 1990, Gempesaw filed the petition for review under Rule 45 of the Rules of Court. Issue [1]: Whether the drawer‘s may be charged for checks where the indorsements were forged. Held [1]: As a matter of practical significance, problems arising from forged indorsements of checks may generally be broken into two types of cases: (1) where forgery was accomplished by a person not associated with the drawer — for example a mail robbery; and (2) where the indorsement was forged by an agent of the drawer. This difference in situations would determine the effect of the drawer's negligence with respect to forged indorsements. While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an ing system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by the depositor's own employees. And if the drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer is under duty promptly to report such fact to the drawee bank. For his negligence or failure either to discover or to report promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his under the forged indorsement. As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's for

the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the forged indorsement by mere examination of his cancelled check. This s for the rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own signature, he has no similar duty as to forged indorsements. A different situation arises where the indorsement was forged by an employee or agent of the drawer, or done with the active participation of the latter. Most of the cases involving forgery by an agent or employee deal with the payee's indorsement. The drawer and the payee oftentimes have business relations of long standing. The continued occurrence of business transactions of the same nature provides the opportunity for the agent/employee to commit the fraud after having developed familiarity with the signatures of the parties. However, sooner or later, some leak will show on the drawer's books. It will then be just a question of time until the fraud is discovered. This is specially true when the agent perpetrates a series of forgeries as herein. The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a prudent businessman would under the circumstances. Herein, Gempesaw relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even the accuracy of the amounts of the checks she signed against the invoices attached thereto. Although she regularly received her bank statements, she apparently did not carefully examine the same nor the check stubs and the returned checks, and did not compare them with the sales invoices. Otherwise, she could have easily discovered the discrepancies between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been accomplished. It was not until 2 years after the bookkeeper commenced her fraudulent scheme that Gempesaw discovered that 82 checks were wrongfully charged to her , at which time she notified PBCom. Gempesaw's failure to make such adequate inquiry constituted negligence which resulted in the bank's honoring of the subsequent checks with forged indorsements. Gempesaw's negligence was the proximate cause of her loss. And since it was her negligence which caused PBCom to honor the forged checks or prevented it from recovering the amount it had already paid on the checks, Gempesaw cannot now complain should the bank refuse to recredit her with the amount of such checks. Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of her .

were forged, and the checks were brought to the chief ant of Philippine Bank of Commerce (the Drawee Bank, Buendia Branch) who deposited them in the s of Alfredo Romero and Benito Lam. Gempesaw made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence, the present action. Issue: Who shall bear the loss resulting from the forged indorsements. Held: As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer‘s for the amount of said check. An exception to the rule is where the drawer is guilty of such negligence which causes the bank to honor such checks. Gempesaw did not exercise prudence in taking steps that a careful and prudent businessman would take in circumstances to discover discrepancies in her . Her negligence was the proximate cause of her loss, and under Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a defense. On the other hand, the banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not invalidate the instrument; neither does it invalidate the negotiation or transfer of said checks. The only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law. In light of any case not provided for in the Act that is to be governed by the provisions of existing legislation, pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liable for damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its failure to discover the fraud committed by its employee and in contravention banking rules in allowing a chief ant to deposit the checks bearing second indorsements, was adjudged liable to share the loss with Gempesaw on a 50:50 ratio. G.R. No. 168274 August 20, 2008 Far East Bank & Trust Co. v. Gold Palace Jewelry Co. (2008) Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law) FACTS:

Issue [2]: Whether banking rules prohibiting the drawee bank from having checks with more than one indorsement invalidate the negotiation or transfer of the said check. Held [2]: The banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not invalidate the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Under the Negotiable Instruments Law, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof. In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that it ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so. Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between them, as far as the drawerdepositor is concerned, such bank may not legally refuse to honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds. The drawee cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee, he incurs no liability on the check unless he accepts it. But the drawee will make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or check.





  

Gempesaw vs. CA GR 92244, 9 February 1993 Second Division, Campos Jr. (J) Facts: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of several supplies. Most of the checks for amounts in excess of actual obligations as shown in their corresponding invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent manipulations of her bookkeeper. It was also learned that the indorsements of the payee



June 1998: Samuel Tagoe, a foreigner, purchased from Gold Palace Jewellery Co.'s (Gold Palace's) store at SM-North EDSA several pieces of jewelry valued at P258,000 o paid w/ Foreign Draft issued by the United Overseas Bank (Malaysia) to Land Bank of the Philippines, Manila (LBP) for P380,000 Teller of Far East Bank, next door tenant, informed Julie Yang-Go (manager of Gold Palace) that a foreign draft has similar nature to a manager's check, but advised her not to release the pieces of jewelry until the draft had been cleared o Yang issued Cash Invoice so the jewelries can be released o Yang deposited the draft in the company's with the Far East on June 2, 1998 When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, cleared the it and Gold Palace's with Far East was credited June 6, 1998: The foreigner eventually returned to claim the purchased goods. o After ascertaining that the draft had been cleared, Yang released the pieces of jewelry and his change, Far East Check of P122,000 paid by the bank June 26, 1998: LBP informed Far East that the Foreign Draft had been materially altered from P300 to P300,000and that it was returning the same o Far East refunded the amount to LBP and debit only P168,053.36 of the amount left in Gold Palace' without a prior written notice to the holder  Far East only notified by phone the representatives of the Gold Palace August 12, 1998: Far East demanded from Gold Palace the payment of balance and upon refusal filed in the RTC

 

the latter in returning the amount to the drawee bank was already acting on its own and should now be responsible for its own actions. Neither can petitioner be considered to have acted as the representative of the drawee bank when it debited respondent's , because, as already explained, the drawee bank had no right to recover what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of the instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's for the amount it refunded to the drawee bank.

RTC: in favor of Far East on the basis that Gold Palace was liable under the liabilities of a general indorser CA: reversed since Far East failed to undergo the proceedings on the protest of the foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far East could not charge Gold Palace on its secondary liability as an indorser

ISSUE: W/N Gold Palace should be liable for the altered Foreign Draft HELD: NO. AFFIRMED WITH THE MODIFICATION that the award of exemplary damages and attorney's fees is DELETED Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance.





 









This provision applies with equal force in case the drawee pays a bill without having previously accepted it. o Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to pay  The payment of a check includes its acceptance The tenor of the acceptance is determined by the of the bill as it is when the drawee accepts. o LBP was liable on its payment of the check according to the tenor of the check at the time of payment, which was the raised amount. Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due course LBP, having the most convenient means to correspond with UOB, did not first the amount of the draft before it cleared and paid the same o Gold Palace had no facility to ascertain with the drawer, UOB Malaysia, the true amount in the draft. It was left with no option but to rely on the representations of LBP that the draft was good Principle that the drawee bank, having paid to an innocent holder the amount of an uncertified, altered check in good faith and without negligence which contributed to the loss, could recover from the person to whom payment was made as for money paid by mistake - NOT applicable The Court is also aware that under the Uniform Commercial Code in the United States of America, if an unaccepted draft is presented to a drawee for payment or acceptance and the drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of presentment, and a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that the draft has not been altered - absent any similar provision in our law, cannot extend the same preferential treatment to the paying bank Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East, should not have debited the money paid by the drawee bank from respondent company's . When Gold Palace deposited the check with Far East, it, under the of the deposit and the provisions of the NIL, became an agent of the Gold Palace for the collection of the amount in the draft The subsequent payment by the drawee bank and the collection of the amount by the collecting bank closed the transaction insofar as the drawee and the holder of the check or his agent are concerned, converted the check into a mere voucher, and, as already discussed, foreclosed the recovery by the drawee of the amount paid. This closure of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will arise if a bank at some future time will call on the payee for the return of the money paid to him on the check o As the transaction in this case had been closed and the principal-agent relationship between the payee and the collecting bank had already ceased,

G.R 138074 YANG V COURT OF APPEALS [PCIB, FEBTC, Equitable Bank, Chandiramani, David] 409 SCRA 159; QUISUMBING; Aug 15, 2003 ~yella~ FACTS -Yang and Chandiramani entered into an agreement whereby the latter was to give Yang a PCIB manager‘s check in the amount of P4.2M in exchange for two of Yang‘s manager‘s checks each in the amount of P2.087M, both payable to the order of Fernando David. Yang and Chandiramani agreed that the difference of P26k in the exchange would be their profit to be divided equally between them. -Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar draft in the amount of US$200k payable to PCIB FCDU which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong. -Yang gave the checks and dollar drafts to her business associate Albert Liong to be delivered to Chandiramani by Liong‘s messenger Danilo Rodrigo. Chandiramani allegedly did not appear at the meeting place and Ranigo lost the checks and dollar drafts. -Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. However, the checks and drafts were not lost because Chandiramani was able to get hold of them and deliver them to Fernando David in exchange of US$360k. -FEBTC and Equitable stopped payment on the instruments. However upon representation of PCIB, FEBTC subsequently lifted the stop payment order on the dollar draft, TF enabling the holder to receive the amount of US$200k. -Yang lodged a Complaint for injunction and damages against Equitable, Chandiramani, and David, with prayer for a TRO, with the RTC. It was subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million with interest -Yang filed a separate case for injunction vs. FEBTC, PCIB, Chandiramani and David with the RTC. It was later amended to include a prayer that defendants therein return to Yang the amount of P2.087million with interest. -David moved for dismissal, it was denied. Cases were consolidated. -RTC rendered judgment in favor of David rationcinating thus: The evidence thus shows that defendant David was a holder in due course for the reason that the cashier’s checks were complete on their face when they were negotiated to him. They were not yet overdue when he became the holder thereof and he had no notice that the said checks were previously dishonored… -Yang‘s MR denied. On appeal, CA affirmed RTC. ISSUE WON respondent Fernando David was a holder in due course HELD: YES.

-Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who is the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. What is vital to the resolution of the issue is the concurrence of all requisites in Section 52 of the Negotiable Instruments Law. -What constitutes a holder in due course xxx 1. That it is complete and regular upon its face 2. That he became the holder of it before it was overdue, and without such notice that it has been previously dishonored, is such was a fact 3. That he took it in good faith and for value 4. That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect of the title of the person negotiating it -Petitioner‘s challenge to David‘s status as a holder in due course hinges on the allegation that the last two requisites in Section 52 are missing -Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration of for value. The law creates a presumption in favor of David. Also, factual findings of the lower court showed that David gave Chandiramani US$360,000 in exchange of the said instruments. Absent any proof from petitioner to the contrary, the presumption imposed the law is to be upheld. -Petitioner fails to point any circumstances which should have put David on inquiry as to the why and wherefore of the possession of the checks by Chandiramani. David was not privy to the transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a separate dealing in which it was precisely Chandiramani‘s duty to deliver the checks to David as payee. Court cannot hold David as guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Chandiramani‘s acquisition or possession of the checks. BPI V. COURT OF APPEALS GR 136202, JANUARY 25, 2007 FACTS: Templonuevo demanded payment from petitioner of a sum of money representing the aggregate value of three checks which were allegedly payable to him but which were deposited with the petitioner to Salazar‘s , without his knowledge and corresponding endorsement. Finding merit in the demands of Templonuevo, the bank then froze the of the engineering firm as the of Salazar was already closed or had insufficient funds. Failure of any settlement between Templonuevo and Salazar, this prompted the bank to debit the of Salazar and give back the money to Templonuevo through cashier‘s check. The of Salazar was also debited for whatever charges incurred for the issuance of the cashier‘s check. The trial court held in favor of Salazar. ISSUE: Does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositor‘s the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another that she later closed? HELD: In the present case, the records do not the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazar‘s entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law. Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability.

Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred. Even if the delay in the demand for reimbursement is taken in conjunction with Salazar‘s possession of the checks, it cannot be said that the presumption of ownership in Templonuevo‘s favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right. The presumption that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term ―given‖ does not pertain merely to a transfer of physical possession of the instrument. The phrase ―given or indorsed‖ in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder. Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioner‘s liability to the designated payee cannot be denied. Consequently, petitioner, as the collecting bank, had the right to debit Salazar‘s for the value of the checks it previously credited in her favor. However, the issue of whether it acted judiciously is an entirely different matter. As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the s of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor. To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioner‘s claim that it merely made a mistake in crediting the value of the checks to Salazar‘s and instead bolsters the conclusion of the CA that petitioner recognized Salazar‘s claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct. The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank. More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the held in the name of the sole

proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioner‘s assurances to private respondent Salazar that the would remain untouched, pending the resolution of the controversy between her and Templonuevo. For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the bank‘s negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation Vicky Ty vs. People (G.R. No. 149275) Posted by taxcasesdigest on Thursday, July 16, 2009 Labels: BP 22, consideration, Negotiable instruments Facts: Ty‘s mother was confined in Manila Doctor's Hospital to which a medical bill amounting to 600,000 pesos was made to be paid to TY, after g a contract of responsibility with the hospital. Ty, issued 7 checks to cover the said expenses, all of which were dishonored for being drawn against a closed a . Manila Doctors Hospital then instituted criminal actions against Ty for violation of BP22. In her defense she alleged that she issued the checks involuntarily because her mother threatened to commit suicide due to the inhumane treatment she allegedly suffered while confined in the hospital. She further claimed that no consideration was obtained by her because all the checks were made as payment to the medical bills.

"2) In Criminal Case No. 18202-89 - [petitioner] is hereby ACQUITTED on reasonable doubt. As regards the civil liability, the [petitioner] is ordered to pay complainant Paul Gotianse the amount of P75,000.00 with legal interest from the date of the filing of this case until fully paid."4 The assailed Resolution denied reconsideration. The Facts The antecedents are narrated by the CA as follows: "(1) Three separate Informations were filed before the Regional Trial Court, Branch 15, Davao City against the [petitioner] charging him with Violation of Batas Pambansa Blg. 22 [BP 22], which are identical in contents except as to their respective date[s] of issue and check number[s]. The identical allegations of the three (3) separate Informations read as follows: "That on or about October, 1988 in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the [petitioner], knowing fully well that he had no sufficient funds in the drawee bank, wil[l]fully, unlawfully and feloniously issued and/or made out EBC Check No. __________ postdated ______________ in the amount of P75,000.00 in favor of Paul Gotianse in payment of an obligation; but when said check was presented to the drawee bank for encashment, the same was dishonored for the reason ‗Drawn Against Insufficient Funds‘ and despite notice of dishonor and demands upon said accused to make good the check, the same refused and failed to make payment, to the damage and prejudice of the herein complainant in the aforesaid amount of P75,000.00. Case No.

Check No.

DATE

AMOUNT

18200-89

EBC-22976156

2/12/89

75,000.00

18201-89

EBC-22976157

3/12/89

75,000.00

18202-89

EBC-22976158

4/12/89

75,000.00

Issue: Whether or not valuable consideration exists. Held: Under Section 24 of the Negotiable Instruments Law, it is presumed that valuable consideration exist upon the issuance of a check in the absence of evidence to the contrary.Valuable consideration is any benefit, interest or profit accruing to the party. The use of the hospital facilities and services may be deemed as such.

G.R. No. 155815 July 14, 2004 KENNETH NGO, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION PANGANIBAN, J.: To convict the accused, it is necessary to prove beyond reasonable doubt all the elements of the crime charged. Matters that do not form part of those elements need not be proved. In denying this Petition, the Court finds petitioner‘s arguments immaterial and irrelevant to the charge of violation of Batas Pambansa Blg. 22. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the 2 March 18, 2002 Decision and the October 1, 2002 Resolution3 of the Court of Appeals (CA) in CAGR CR No. 11341. The assailed Decision disposed as follows: "WHEREFORE, judgment is hereby rendered as follows: "1. In Criminal Cases Nos. 18200-89 and 18201-89, the decision of the court a quo is AFFIRMED with the following MODIFICATIONS: "a) In Criminal Case No. 18200-89 - the penalty of imprisonment is DELETED, and in lieu thereof, the [petitioner] is directed to pay a fine in the sum of x x x P150,000.00 with subsidiary imprisonment in case of insolvency to pay fine and to pay the costs; "b) In Criminal Case No. 18201-89 - the penalty of imprisonment is DELETED, and in lieu thereof, the [petitioner] is directed to pay a fine in the sum of P150,000.00 with subsidiary imprisonment in case of insolvency to pay fine and to pay the costs;

"(2) Upon arraignment on September 29, 1989, [petitioner] entered a plea of not guilty to all the charges. "(3) t trial proceeded where the prosecution presented evidence to show that complainant Paul Gotianse is a businessman and an officer of Northern Hill Development Corporation. Sometime in October 1988, in Davao City, [Petitioner] Kenneth Ngo, in settlement of the indebtedness he had incurred with Northern Hill Development Corporation, issued eight postdated checks payable to complainant and all drawn against the Equitable Banking Corporation. The first five checks were honored by the drawee bank but the three postdated checks were dishonored for the reason ‗drawn against insufficient funds.‘ These checks were the following: CHECK NUMBER

AMOUNT

DATE

EBC Check No. 22976156

P75,000.00

[2/12/1989]

EBC Check No. 22976157

P75,000.00

[3/12/1989]

EBC Check No. 22976158

P75,000.00

[4/12/1989]

"Following the dishonor, notices of dishonor and demand were sent to [petitioner] by complainant [Paul Gotianse]. Despite this, however, no payment or arrangement with the drawee bank was made by the [petitioner]. "(4) On September 3, 1990, the [petitioner] filed a Motion to dismiss which is actually a demurrer to evidence without prior leave of Court. When it was denied, the [petitioner] was not allowed to present evidence and the cases were deemed submitted for decision. "(5) On January 24, 1991, the lower court rendered a decision convicting the [petitioner] on the three (3) criminal cases."5

The dispositive portion of the trial court‘s Decision reads: "WHEREFORE, the guilt of the [petitioner] having been proven beyond reasonable doubt, Kenneth Ngo is hereby sentenced as follows: "1. Crim. Case No. 18,200 - to be imprisoned for eight (8) months, to indemnify Paul Gotianse in behalf of Northern Hill Development Seventy-Five Thousand (P75,000.00) Pesos with legal interest to be computed from March 14, 1989 until fully paid, to pay a fine of Two Thousand (P2,000.00) Pesos and to pay Eighteen Thousand (P18,000.00) Pesos as attorney‘s fees. "2. Crim. Case No. 18,201 - to be imprisoned for eight (8) months, to indemnify Paul Gotianse in behalf of Northern Hill Development Seventy-Five Thousand (P75,000.00) Pesos with legal interest to be computed from March 14, 1989 until fully paid, to pay a fine of Two Thousand (P2,000.00) Pesos and to pay Eighteen Thousand (P18,000.00) Pesos as attorney‘s fees. "3. Crim. Case No. 18,202 - to be imprisoned for eight months, to indemnify Paul Gotianse in behalf of Northern Hill Development Seventy-Five Thousand (P75,000.00) Pesos with legal interest to be computed from April 14, 1989 until fully paid, to pay a fine of Two Thousand (P2,000.00) Pesos and to pay Eighteen Thousand (P18,000.00) Pesos as attorney‘s fees."6 Ruling of the Court of Appeals The CA noted the undisputed fact that three (3) checks issued by petitioner had been dishonored for payment.7According to the appellate court, instead of presenting evidence, he opted instead to file a Motion to Dismiss, which the trial court treated as a Demurrer to Evidence without prior leave of court.8 Thus, the CA decided the appeal based on the prosecution‘s evidence, which stood unrebutted.9 The CA ruled that all the elements of a violation of BP 22 with regard to Criminal Case Nos. 1820089 and 18201-89 had been proven beyond reasonable doubt. Pursuant to SC istrative Circular No. 12-2000,10 the penalty of imprisonment imposed by the lower court was deleted. For each criminal case, the appellate court imposed a fine of P150,000, with subsidiary imprisonment in case of insolvency. Finding that no written notice of dishonor or demand letter had been sent to petitioner regarding EBC Check No. 22976158, the CA acquitted him in Criminal Case No. 1820289.11 Hence, this Petition.12 The Issue In his Statement of the Issues, petitioner contends: "I. The accused can only be convicted of an offense based on evidence which conform to the allegation contained in the information. "II. The trial court erred in imposing penalties and civil liabilities in favor of a wrong party."13 The Court’s Ruling The Petition is devoid of merit. Main Issue: Conformity of the Evidence with the Information According to petitioner, the Information in Criminal Case Nos. 18200-89 and 18201-89 indicated that the checks had been issued in favor of Paul Gotianse, yet the prosecutor‘s evidence established that the actual obligation for which they had been issued was in favor of Northern Hill Development.14 On this basis, petitioner alleges that the prosecution failed to prove the elements of the offense, since the checks had not been issued for a valid consideration insofar as Complainant Gotianse was concerned.15 Elements of the Offense It is fundamental that every element of the offense must be alleged in the complaint or information and proved beyond reasonable doubt by the prosecution. Whatever facts and circumstances must be stated are determined by reference to the definitions and the essentials of the specific crimes. 16 Petitioner was charged with violation of BP 22 under the following provision: "Section 1. Checks without sufficient funds. -- Any person who makes or draws and issues any check to apply on or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the

check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and imprisonment at the discretion of the court. x x x"17 Under this provision, there are two ways of violating BP 22: 1) by making or drawing and issuing a check to apply "on or for value," knowing at the time of issue that the check was not sufficiently funded; and 2) by having sufficient funds in or credit with the drawee bank at the time of issue, but failing to keep sufficient funds or credit with the said bank to cover the full amount of the check when presented to the drawee bank within a period of ninety (90) days. 18 Pertinent to the present case, the elements of the offense under the first situation of BP 22 are the following: (1) the making, drawing and issuance of any check to apply on or for value; (2) the maker, drawer or issuer knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.19 In the instant case, we find no reason to depart from the CA‘s findings, which petitioner does not rebut. Present are all these elements constituting a violation of BP 22: "1) [Petitioner] issued EBC Check Nos. 22976156 and 22976157 in partial settlement of his obligation to Northern Hill Development; "2) The checks were deposited by the complainant but were subsequently dishonored by the drawee bank for insufficiency of funds; "3) [Petitioner] knew that at the time he issued the postdated checks, he had no sufficient funds in or credit with the drawee bank; x x x [and he failed] to redeem the checks within five (5) days from written demand by the complainant for payment."20 Cause for Issuance of Check Is Immaterial We agree with the submission of the Office of the Solicitor General (OSG) that petitioner‘s argument is immaterial and irrelevant.21 This Court has consistently declared that the cause or reason for the issuance of a check is inconsequential in determining criminal culpability under BP 22. 22 We explained the reason in Llamado v. Court of Appeals as follows:23 "[T]o determine the reason[s] for which checks are issued, or the and conditions for their issuance, will greatly erode the faith the public reposes in the stability and commercial value of checks as currency substitutes, and bring about havoc in trade and in banking communities."24 The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless check; that is, a check that is dishonored upon its presentation for payment. 25 The mere act of issuing a worthless check is malum prohibitum.26 Lozano v. Martinez,27 has declared that it is not the nonpayment of the obligation that is being punished, but the making of worthless checks. In People v. Nitafan,28 this Court has ruled that a check issued as an evidence of debt -- though not intended to be presented for payment -- has the same effect as an ordinary check and would fall within the ambit of BP 22. Que v. People29 has affirmed the application of BP 22 to cases in which dishonored checks have been issued in the form of deposit or guarantee. Indeed, the law does not make any distinction between checks issued in payment of an obligation and those made merely to guarantee that obligation.30 The claim that the prosecution failed to prove that the check had been issued to apply on or for value in favor of Paul Gotianse31 is irrelevant. The law does not require that the payee of a check be the same as the obligee of the obligation in consideration for which the check has been issued. Pertinent is a criminal law authority‘s explanation of the term to apply on or for value: "It should be noted that BP Blg. 22 punishes the making or drawing and issuing of any check that is subsequently dishonored, even in payment of pre-existing obligation, as indicated in Section 1 thereof by the phrase ‗to apply on .‘ Section 1 also punishes the making or drawing and issuing of a check that is subsequently dishonored, in payment of an obligation contracted at the time of the issuance of the check, as indicated by the words ‗for value.‘ x x x."32 When the checks were issued by petitioner to Paul Gotianse as payee, they were issued to apply "on ;" that is, to settle the former‘s obligation to the latter‘s principal -- Northern Hill Development. In this regard, the Court also notes that the trial court found that petitioner had agreed to settle his debt to the company by issuing the checks payable to its agent, Gotianse. 33 Clearly, the prosecution proved the first element of a violation of BP 22.

Propriety of the Award for Civil Liability and Attorney’s Fees Petitioner further argues that there was no legal basis to hold him civilly liable to Northern Hill Development, because it was not a party to the case.34 This allegation is erroneous. The challenged Decision required petitioner to indemnify the agent, not the company. Moreover, the liability to pay Gotianse "in behalf of Northern Hill Development" was merely in conformity with the evidence adduced at the trial. It should be noted that Gotianse, the payee of the bounced check, 35 is the injured party. One who is neither a payee nor a holder of a bad check has neither the personality to sue nor a cause of action against the drawer.36 The indemnity in favor of Gotianse was made pursuant to Section 1, Rule 111 of the Rules of Court: "When a criminal action is instituted, the civil action for the recovery of civil liability is impliedly instituted with the criminal action unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action."37 Under the present revised Rules, the criminal action for violation of BP 22 shall be deemed to include the corresponding civil action.38 The reservation to file a separate civil action is no longer needed.39 Petitioner also fails to his opposition to the award of attorney‘s fees. The recovery of such fees in the concept of actual or compensatory damages is allowed under the circumstances. Under Article 2208 of the Civil Code, attorney‘s fees and the expenses of litigation are awarded when the court deems them just and equitable.40Considering that the trial took almost two years to complete,41 and that the agreed attorney‘s fees of the private prosecutor engaged to represent complainant42 is twenty-five percent (25%) of the sum due in each case, the award of P18,000 as attorney‘s fees for each of the cases is just and reasonable. WHEREFORE, this Petition is DENIED and the assailed Decision and Resolution of the Court of Appeals AFFIRMED. Costs against petitioner. SO ORDERED.