NOTES FORWEEK#1
JUNE 12-16,
, 2007
INTRODUCTION TO NEGOTIABLE INSTRUMENTS
PURPOSE OF CODIFICATION
Chief purpose was to produce uniformity in the laws of the
different states upon this important subject, so that the citizens of
each state might know the rules which would be applied to their
notes, checks, and other negotiable paper in every other state in
which the law was enacted, since it is an absolute impossibility
for the commercial purchaser
Second purpose was to preserve the law as nearly as possible as
it then existed
LAW EMBRACES SUBTANTIVE AND ADJECTIVE LAW
MOST COMMON FORMS OF NEGOTIABLE INSTRUMENTS
1. Promissory notes
2. Bills of exchange
3. Checks, which are also bills of exchange, but of a special kind
PROMISSORY NOTE, SECTION 184
A negotiable promissory note, within the meaning of this act, is
an unconditional promise in writing by one person to another, signed
by the maker (1), engaging to pay on demand or at a fixed
or determinable future time (2), a sum certain in money (3) to order
or to bearer (4). Where a note is drawn to the makers own order,
it is not complete until indorsed by them.
Essentially a promise in writing to pay a sum certain in money
The promise is to pay on demand or on a fixed or determinable
future time
General characteristics: amount; place where contract to pay
is executed; due date; absolute promise to pay something; payable
to order/bearer; payee; maker of the note
BILL OF EXCHANGE, SECTION 126
CHECK
A bill of exchange drawn on a bank payable on demand
CHECK
BILL OF EXCHANGE
Always drawn upon a bank or May or may not be drawn upon a
banker
bank
Not necessary to present for Necessary
acceptance
Drawn on a deposit
Not drawn
Death of drawer revokes the Does not revoke
authority of banker to pay
Must be presented for payment May be presented for payment
within a reasonable time after its within a reasonable time after its
issue
last negotiation
TO
1.
2.
3.
1.
2.
3.
4.
2.
Where the instrument is payable to order, neither is delivery
equivalent to negotiation
3.
But where the instrument is payable to bearer, delivery is
equivalent to negotiation
PRESENTMENT FOR ACCEPTANCE
Exhibiting the bill to the drawee and demanding that he accept it,
that is, signify his assent to the order or command of the drawer
The general tenor of the liability of the drawer is that he will pay
bill if the drawee doesnt accept or pay the bill.
ACCEPTANCE
Signification of the drawee of his assent to the order of the drawer
DISHONOR BY ACCEPTANCE
Where the bill is presented for acceptance, and acceptance is
refused by the drawee, or cannot be obtained, or where
presentment for acceptance is excused, and the bill is not accepted
the
the
the
the
IN PROMISSORY NOTES
The maker is primarily liable
Agreement of the maker is that he will pay the instrument according
to the tenor
FUNCTION OF NEGOTIABLE INSTRUMENTS
1. Substitute for money
2. Increase the purchasing medium in circulation
PAYMENT BY NEGOTIABLE INSTRUMENTS
W/N the giving and taking of a promissory note or bill of exchange
is prima facie absolute payment as in the case of money or merely
a prima facie conditional payment?
The delivery of the promissory notes payable to order, or bills
of exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when, through the
fault of the creditor, they have been impaired
PRINCIPAL FEATURES OF NEGOTIABLE INSTRUMENTS
1. Negotiability
2. Accumulation of secondary contracts as they are transferred from one
person to another
NEGOTIABILITY
Attribute or property whereby a bill, note or check passes or may
pass from hand to hand similar to money, so as to give the holder
in due course the right to hold the instrument and collect the sums
payable for himself free from defense.
PRIMARY PURPOSE OF NEGOTIABILITY
To allow bills and notes the effect which money, in the form
of government bills or notes, supplies in the commercial world
ACCUMULATION OF SECONDARY CONTRACTS
Most important characteristic of negotiable instruments is
the accumulation of secondary contracts which they pick up and carry
with them as they are negotiated from one person to another
Advantage: they improve as they pass from hand to hand, as
more debtors are added
NEGOTIABILITY VS. ASSIGNABILITY
ASSIGNABILITY
More comprehensive term and
pertains to contracts in general
Subject to the defenses obtaining
among the original parties
It was necessary to allege and
prove consideration to maintain an
action on a common law instrument
NEGOTIABILITY
Pertains only to a special class of
contractsnegotiable instruments
Takes it free from personal defenses
available among the parties
Consideration is presumed and need
not be alleged and proved
Indorser is not liable on his
indorsement
unless
there
be
presentment
for
payment
at maturity and prompt notice
of dishonor in case of dishonor
General indorser is secondarily
liable for any cause for which the
party
primarily
liable
on
a
negotiable instrument doesnt or
cannot pay.
He warrants the solvency of the
person primarily liable.
The
qualified indorser and the person
negotiating by mere delivery have a
limited secondary liability
all
bills
of
exchange
and
they
are
CLASSES OF BONDS
1.
Mortgage bonds
2. Equipment bonds
3. Collateral trust bonds
4. Guaranteed bonds
5. Debentures
6. Income bonds
7. Convertible
8. Redeemable
9. Registered bonds
10. Coupon bonds
Section 1. Form of negotiable instruments.
An instrument to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
REQUISITES AS TO A NEGOTIABLE NOTE
1.
It must be in writing and signed by the maker
2.
It must contain an unconditional promise to pay a sum certain in
money
3.
It must be payable on demand, or at a fixed or determinable
future time
4.
It must be payable to order or to bearer
REQUISITES AS TO A NEGOTIABLE BILL
1.
It must be in writing and signed by the maker
2.
It must contain an unconditional order to pay a sum certain in
money
3.
It must be payable on demand, or at a fixed or determinable
future time
4.
It must be payable to order or to bearer
5.
The drawee must be named or otherwise indicated therein with
reasonable certainty
Any words which are equivalent to order or which show the drawers
will that the money should be paid, are sufficient to make the
instrument a bill of exchange
CEBU INTERNATIONAL V. CA
316 SCRA 488
FACTS:
Petitioner is a quasi-banking institution involved in money market
transactions. Alegre invested with petitioner P500,000. Petitioner issued
then a promissory note, which would mature approximately after a month.
The note covered for Alegres placement plus interest. On the maturity of
the note, petitioner issued a check payable to Alegre, covering the whole
amount due. It was drawn from petitioners current account in BPI. When
the wife of Alegre tried to deposit the check, the bank dishonored the
check. Petitioner was notified of this matter and Alegre demanded the
immediate payment in cash. In turn, petitioner promised to replace the
check on the impossible premise that the first issued be returned to them.
This prompted Alegre to file a complaint against petitioner and petitioner in
turn, filed a case against BPI for allegedly unlawfully deducting from its
account counterfeit checks. The trial court decided in favor of Alegre.
ISSUE: W/N NIL is applicable to the money market transaction held
between petitioner and Alegre?
HELD:
Considering the nature of the money market transaction, Article 1249 of
the CC is the applicable provision should be applied. A money market has
been defined to be a market dealing in standardized short-term credit
instruments where lenders and borrowers dont deal directly with each
other but through a middleman or dealer in the open market. In a money
market transaction, the investor is the lender who loans his money to a
borrower through a middleman or dealer.
In the case at bar, the transaction is in the nature of a loan. Petitioner
accepted the check but when he tried to encash it, it was dishonored. The
holder has an immediate recourse against the drawer, and consequently
could immediately file an action for the recovery of the value of the check.
Further, in a loan transaction, the obligation to pay a sum certain in money
may be paid in money, which is the legal tender or, by the use of a check.
A check is not legal tender, and therefore cannot constitute valid tender of
payment.
2
FACTS:
Petitioner was the owner of a parcel of land. It then entered into a
contract of lease agreement with Robes-Fransisco Realty for the parcel of
land.
The agreement was that there would be downpayment plus
installments with interest. Robes-Fransisco was then in default. Knowing
that it was in its payment of the installments, it requested for the
restructuring of the installment payments but was denied. It then asked
for grace period to pay the same and tendered a check thereafter. Such
was refused and the contract was cancelled.
HELD:
A check whether a managers check or ordinary check is not legal tender
and an offer of a check in payment of a debt is not valid tender of payment
and may be refused receipt by the obligee or creditor. As this is the case,
the subsequent consignation of the check didn't operate to discharge
Robes-Fransisco from its obligation to petitioner.
3
FACTS:
Marasigan was the holder of a BPI credit card. Due to his delinquency in
payment, immediate demand was given by BPI to pay account. Marasigan
issued a postdated check. The check was thereafter kept in custiody by
BPI and card was temporarily suspended.
And on a relevant date,
Marasigan after eating in Caf Adriatico tried to use his card to pay but it
was dishonored.
HELD:
The issuance of the postdated check was not effective payment on the
part of Marasigan and thus, the bank was justified in suspending
temporarily his use of the credit card. A check is only a substitute for
money and not money, and the delivery of such instrument doesn't
itself operate as payment.
4
FACTS:
Sima Wei executed a promissory note in consideration of a loan secured
from petitioner bank. She was able to pay partially for the loan but failed
to pay for the balance. She then issued two checks to pay the unpaid
balance but for some unexplainable reason, the checks were not received
by the bank but ended up in the hands of someone else. The bank
instituted actions against Sima Wei and other people. The trial court
dismissed the case and the CA affirmed this decision.
HELD:
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 provides that
every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. Thus,
the payee of the negotiable instrument acquires no interest with respect
thereto until its delivery to him. Delivery of an 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.
5
FACTS:
TIBAJIA V.
CA 223 SCRA 163
FACTS:
Tan filed a suit against spouses Tibaija. Decision was rendered in her
favor. She then filed a motion of execution for the amount deposited and
the cashier of RTC was garnished for the amount deposited therein by the
spouses. This prompted the spouses to deliver cash and check but Tan
refused to accept.
HELD:
A check is not valid legal tender and the creditor may validly refuse
payment by check.
7
CALTEX V. CA
12 SCRA 448
FACTS:
Security bank issued Certificates of Time Deposits to Angel dela Cruz. The
same were given by Dela Cruz to petitioner in connection to his purchase of
fuel products of the latter. On a later date, Dela Cruz approached the bank
manager, communicated the loss of the certificates and requested for a
reissuance.
Upon compliance with some formal requirements, he
was issued replacements. Thereafter, he secured a loan from the bank
where he assigned the certificates as security.
Here
comes
the
petitioner, averred that the certificates were not actually lost but
were given as security for payment for fuel purchases. The bank
demanded some proof of the agreement but the petitioner failed to
comply. The loan matured and the time deposits were terminated and
then applied to the payment of the loan.
Petitioner demands the
payment of the certificates but to no avail.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of
PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 &
00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days.
after date, upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
AUTHORIZED SIGNATURES
HELD:
CTDs are negotiable instruments. The documents provide that the
amounts deposited shall be repayable to the depositor. And who,
according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to
Angel de la Cruz only, it could have with facility so expressed that fact
in clear and categorical terms in the documents, instead of having the
word
"BEARER" stamped on the space provided for the name of the depositor in
each CTD. On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof. Thus,
petitioner's aforesaid witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but obviously other parties
not privy to the transaction between them would not be in a position to
know that the depositor is not the bearer stated in the CTDs. Hence, the
situation would require any party dealing with the CTDs to go behind the
plain import of what is written thereon to unravel the agreement of the
parties thereto through facts aliunde. This need for resort to extrinsic
evidence is what is sought to be avoided by the Negotiable Instruments
Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.
The next query is whether petitioner can rightfully recover on the CTDs.
This time, the answer is in the negative. The records reveal that Angel de
la Cruz, whom petitioner chose not to implead in this suit for reasons of its
own, delivered the CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately for
petitioner, although the CTDs are bearer instruments, a valid negotiation
thereof for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery and indorsement. For,
although petitioner seeks to deflect this fact, the CTDs were in reality
delivered to it as a security for De la Cruz' purchases of its fuel products.
Any doubt as to whether the CTDs were delivered as payment for the fuel
products or as a security has been dissipated and resolved in favor of the
latter by petitioner's own authorized and responsible representative
himself.
In a letter dated November 26, 1982 addressed to respondent Security
Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These
certificates of deposit were negotiated to us by Mr. Angel dela Cruz to
guarantee his purchases of fuel products." This admission is conclusive
upon petitioner, its protestations notwithstanding. Under the doctrine of
estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person
relying thereon
8
FACTS:
INCIONG V. CA
257 SCRA 578
FACTS:
FIRESTONE TIRE V.
CA 353 SCRA 601
FACTS:
Fojas Arca and Firestone Tire entered into a franchising agreement wherein
the former had the privilege to purchase on credit the latters products. In
paying for these products, the former could pay through special withdrawal
slips. In turn, Firestone would deposit these slips with Citibank. Citibank
would then honor and pay the slips. Citibank automatically credits the
account of Firestone then merely waited for the same to be honored and
paid by Luzon Development Bank.
As this was the circumstances,
Firestone believed in the sufficient funding of the slips until there was a
time that Citibank informed it that one of the slips was dishonored. It
wrote then a demand letter to Fojas Arca for the payment and damages
but the latter refused to pay, prompting Firestone to file an action against
it.
HELD:
The withdrawal slips, at the outset, are non-negotiable. Hence, the rule on
immediate notice of dishonor is non-applicable to the case at hand. Thus,
the bank was under no obligation to give immediate notice that it wouldn't
make payment on the subject withdrawal slips. Citibank should have
known that withdrawal slips are not negotiable instruments. It couldn't
expect then the slips be treated like checks by other entities. Payment or
notice of dishonor from respondent bank couldn't be expected immediately
in contrast to the situation involving checks.
In the case at bar, Citibank relied on the fact that LDB honored and paid
the withdrawal slips which made it automatically credit the account of
Firestone with the amount of the subject withdrawal slips then merely
waited for LDB to honor and pay the same. It bears stressing though that
Citibank couldn't have missed the non-negotiable character of the slips.
The essence of negotiability which characterizes a negotiable paper as a
The
The withdrawal slips deposited were not checks as Firestone admits and
Citibank generally was not bound to accept the withdrawal slips as a valid
mode of deposit. Nonetheless, Citibank erroneously accepted the same
as such and thus, must bear the risks attendant to the acceptance of
the instruments. Firestone and Citibank could not now shift the risk to
LDB for their committed mistake.
HELD:
Having been informed by the petitioner and the police that jewelry pawned
to it was either stolen or involved in an embezzlement of the proceeds
of the pledge, pawnbroker became duty bound to hold the things pledged
and to give notice to the petitioner and authorities of any effort to
redeem them. Such a duty was imposed by Article 21 of the CC. The
circumstance that the pawn ticket stated that the pawn was redeemable
by the bearer, didnt dissolve this duty. The pawn ticket wasnt a
negotiable instrument under the NIL, nor was it a negotiable document of
title under Article 1507 of the CC.
11
SESBRENO V. CA
222 SCRA 466
FACTS:
Petitioner made a placement with Philfinance. The latter delivered to him
documents, some of which was a promissory note from Delta Motors and
a post-dated check. The post-dated checks were dishonored. This
prompted petitioner to ask for the promissory note from DMC and it was
discovered that the note issued by DMC was marked as non-negotiable.
As Sesbreno failed to recover his money, he filed case against DMC and
Philfinance.
HELD:
The non-negotiability of the instrument doesnt mean that it is
non-assignable or transferable. It may still be assigned or transferred in
whole or in part, even without the consent of the promissory note, since
consent is not necessary for the validity of the assignment.
In assignment, the assignee is merely placed in the position of the
assignors and acquires the instrument subject to all the defenses that
might have been set up against the original payee.
12
SERRANO V. CA
196 SCRA 107
FACTS:
Serrano bought some jewelry from Ribaya. Due to need of finances, she
decided to have the jewelry pawned. She instructed her secretary to do
so for her, which the secretary did but absconded after receiving
the proceeds. It is to be noted that the pawnshop ticket indicated that
the jewelry was redeemable by presentation by the bearer.
Afterwards, there was a lead on where the jewelry was pawned. An
investigation was done to verify the suspicion. The jewelry was to be sold
in a public auction then. The petitioner and police authorities informed
the pawnshop owner not to sell the jewelry as she was the rightful
owner thereof. Despite of
MEDEL V. CA
299 SCRA 481
FACTS:
Four loans were involved in this case.
The first loan was secured by the spouses Medel from Gonzales in the
amount of P50,000 wherein P3,000 was withheld by the latter as advance
interest. This was secured by a P/N.
The second loan obtained was for P90,000.
P84,000.
The third loan was for P300,000 and this was secured by a real estate
mortgage.
The spouses failed to pay for the aforementioned three loans. This was
consolidated into one loan in the amount of P500,000. An additional
P60,000 was loaned to make the payable P500,000. This was covered with
a promissory note containing an accelaration clause. Again the spouses
failed to pay.
The appellate court modified the interest to be paid by saying that that the
interest should be 5.5% per month.
EXCHANGE
Difference in value of the same amount of money in different
countries Current rate or fixed rate
HELD:
The interest was exorbitant, iniquitous, and unconscionable and hence, it
contrary to morals, if not the law.
14
FACTS:
The petitioner entered into a Credit Facilities agreement with Interbank.
This is secured by a promissory note, trust receipts, security
arrangements, which included provisions on payment of attorneys fees and
costs of collection in case of default. The petitioner failed to pay. A
compromise agreement was entered into by the parties but this agreement
failed to include the attorneys fees and costs of collection. The trial court
reduced the percentage of attorneys fees in its decision.
HELD:
The courts may modify the attorneys fees previously agreed upon where
the amount appears to be unconscionable and unreasonable. For the law
recognizes the validity of stipulations included in documents such as
negotiable instruments and mortgages with respect. The fees in this case
are reasonable and fair.
APPLICATION OF SECTION
Whether or not the indication of a particular fund or particular
account, or the statement of the transaction which gives rise to the
instrument, would make the promise or order conditional
15
BACHRACH V. GOLINGCO
39 PHIL 139
FACTS:
Bachrach sold a truck to Golingco, which was secured by a promissory note
and a chattel mortgage on the truck. The promissory note provided that
there would be payment of 25% attorneys fees.
HELD:
It may lawfully be stipulated in favor of the creditor that in the event that it
becomes necessary, by reason of the delinquency of the debtor, to employ
counsel to enforce payment of the obligation, a reasonable attorneys fee
shall be paid by the debtor, in addition to amount due of principal and
interest. The legality of this stipulation, when annexed to the negotiable
instrument, is recognized by the NIL.
The courts have the power to limit the amount recoverable under a special
provision in a promissory note, whereby the debtor obligates himself to pay
a specified amount, or a certain per centum of the principal debt, in
satisfaction of attorneys fees for which the creditor would become liable in
suing upon the note.
*Normally, if there is absence of any agreement as to attorneys fees, then
the court would only grant nominal amounts.
CHATTEL NOTES
A promissory note given for a chattel and stipulating that the title
to the chattel shall remain in the vendor-payee until the note is
paid, is not conditional
REFERENCE TO MORTGAGES
Provisions in the mortgage doesnt affect the negotiability of
the instrument it secures
Where a note otherwise negotiable contains the words this note
is secured by a mortgage and the mortgage contains clauses
promising to do many acts other than the payment of money, it
was held that the note is not rendered non-negotiable
WHEN REFERENCE TO A MORTGAGE RENDERS INSTRUMENT NONNEGOTIABLE
When there is uncertainty in amount or when such provisions
become part of the note, even though they arent in the note
itself, the instrument is also rendered non-negotiable
SECTION 3: CASE DIGESTS
16
FACTS:
The auditor general refuses to authorize the payment of the treasury
warrant issued in the name of Placido Urbanes, now in the hands of
Benjamin Abubakar. The auditor general refuses to do so because, first,
the money available for redemption of treasury warrants was appropriated
by law and the subject warrant doesnt fall within the purview of the law;
second, one of the requirements was not complied with, which is it must be
sworn that the holders of the warrant covering payment or replenishment
of cash advances for official expenditures received them in payment of
definite government obligations.
HELD:
Petitioner holds that he is a holder in good faith and for value of a
negotiable instrument and is entitled to the rights and privileges of a holder
in due course, free from defenses. But this treasury warrant is within the
scope of the NIL. For one thing, the document bearing on its face the
words payable from the appropriation for food administration, is actually
an order for payment out of a particular fund, and is not unconditional, and
doesnt fulfill one of the essential requirements of a negotiable instrument.
17
METROPOLITAN BANK V.
CA 194 SCRA 169
FACTS:
b.
shall
validate
any
provision
or
FACTS:
Manila Oil has issued a promissory note in favor of National Bank which
included a provision on a confession of judgment in case of failure to pay
obligation. Indeed, Manila Oil has failed to pay on demand. This prompted
the bank to file a case in court, wherein an attorney associated with them
entered his appearance for the defendant. To this the defendant objected.
HELD:
Warrants of attorney to confess judgment arent authorized nor
contemplated by our law. Provisions in notes authorizing attorneys to
appear and confess judgments against makers should not be recognized in
our jurisdiction by implication and should only be considered as valid when
given express legislative sanction.
ATTY. MERCADOS QUESTIONS:
1. What are the arguments for the validity of a confession of judgment?
2. One of the arguments is that the NIL acknowledges the validity of a
stipulation for a confession of judgment. Is this sufficient? The
answer is no.
19
FACTS:
Dy Eng Giok was a provincial sales agent of distillery corporation, with the
responsibility of remitting sales proceeds to the principal corporation. He
has a running balance and to satisfy payment, a surety bond was issued
with petitioner as guarantor, whereby they bound themselves liable to the
distillery corporation.
More purchases was made by Dy Eng Giok and he was able to pay for
these additional purchases. Nonetheless, the payment was first applied to
his prior payables. A remaining balance still is unpaid. Thus, an action
was filed against sales agent and surety company.
Judgment was
rendered in favor of the corporation.
HELD:
The remittances of Dy Eng Giok should first be applied to the obligation
first contracted by him and covered by the surety agreement. First, in the
absence of express stipulation, a guaranty or suretyship operates
prospectively and not retroactively. It only secures the debts contracted
after the guaranty takes effect. To apply the payment to the obligations
contracted before the guaranty would make the surety answer for debts
outside the guaranty. The surety agreement didn't guarantee the payment
of any outstanding balance due from the principal debtor but only he would
turn out the sales proceeds to the Distileria and this he has done, since his
remittances exceeded the value of the sales during the period of the
guaranty.
Second, since the Dy Eng Bioks obligations prior to the guaranty were not
covered, and absent any express stipulation, any prior payment made
should be applied to the debts that were guaranteed since they are to be
regarded as the more onerous debts.
Sec. 6. Omissions; seal; particular money. - The validity
and negotiable character of an instrument are not affected by the
fact that:
(a) it is not dated; or
(b) does not specify the value given, or that any value had
been given therefor; or
(c) does not specify the place where it is drawn or the place
where it is payable; or
(d) bears a seal; or
(e) designates a particular kind of current money in which
payment is to be made.
But nothing in this section shall alter
statute requiring
in
certain
cases
the
consideration to be stated in the instrument.
or repeal
nature
of
any
the
Where
an
instrument
is
issued, accepted,
or
indorsed
when overdue, it is, as regards the person so issuing,
accepting, or indorsing it, payable on demand.
EXPRESSED TO BE PAYABLE ON DEMAND
An instrument is payable on demand where it is expressed to
be payable on demand, on sight, or on presentation
It is payable on demand also when no date of payment is specified
It is payable on demand when the time of payment is left blank
or unfilled
INSTRUMENT ON DEMAND ONLY AS BETWEEN THE PARTIES
That after the date of maturity, the instrument can no longer
be negotiated as to make the parties who acquire the instrument after
the date of maturity holders in due course because they become
holders thereof with notice that it is already overdue, as this
can be determined from the face of the instrument itself
Sec. 8. When payable to order. - The instrument is payable to
order where it is drawn payable to the order of a specified
person or to him or his order. It may be drawn payable to the
order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must
be named or otherwise indicated therein with reasonable certainty.
WORDS OF NEGOTIABILITY
Among others, for an instrument to be negotiable, it should
contain words of negotiability
There are only 2 ways by which an instrument and the bill or note is
to be paid to the person designated in the instrument or to any person
to whom he has indorsed or delivered the same
Without the words or order or to order of, the instrument
is payable only to the person designated therein and therefore, is
non-negotiable
MEANING OF THE PHRASE TO ORDER
Sgd. A
To: X
Pay to the order of the President of Ateneo de Manila University on
June 20, 2010.
Sgd. A
To: X Corporation
SALAS V. CA
181 SCRA 296
FACTS:
Petitioner bought a car from Viologo Motor Sales Company, which was
secured by a promissory note, which was later on indorsed to Filinvest
Finance, which financed the transaction. Petitioner later on defaulted in
her installment payments, allegedly due to the fraud imputed by VMS in
selling her a different vehicle from what was agreed upon. This default in
payment prompted Filinvest Finance to initiate a case against petitioner.
The trial court decided in favor of Filinvest, to which the appellate court
upheld by increasing the amount to be paid.
It is the contention of petitioner that since the agreement between her and
the motor company was inexistent, none had been assigned in favor of
private respondent.
HELD:
Petitioners liability on the promissory note, the due execution and
genuineness of which she never denied under oath, is under the foregoing
factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment
of credit as petitioner would have it appear, where the assignee
merely steps into the shoes of, is open to all defenses available against
and can enforce payment only to the same extent as, the assignor-vendor.
The instrument to be negotiable must contain the so-called words of
negotiability. There are only 2 ways for an instrument to be payable to
order. There must always be a specified person named in the instrument
and the bill or note is to be paid to the person designated in the instrument
or to any person to whom he has indorsed and delivered the same.
Without the words or order or to the order of, the instrument is payable
only to the person designated therein and is thus non-negotiable. Any
subsequent purchaser thereof will not enjoy the advantages of being a
holder in due course but will merely step into the shoes of the person
designated in the instrument and will thus be open to the defenses
available against the latter.
In the case at bar, the promissory notes is earmarked with negotiability
and Filinvest is a holder in due course.
21
FACTS:
Petitioner bought from Atlantic Gulf and Pacific Company, through its sister
company Industrial Products Marketing, two used tractors. Petitioner was
issued a sales invoice for the two used tractors. At the same time, the
deed of sale with chattel mortgage with promissory note was issued.
Simultaneously, the seller assigned the deed of sale with chattel mortgage
and promissory note to respondent. The used tractors were then delivered
but barely 14 days after, the tractors broke down. The seller sent
mechanics but the tractors were not repaired accordingly as they were no
longer serviceable. Petitioner would delay the payments on the promissory
notes until the seller completes its obligation under the warranty.
Thereafter, a collection suit was filed against petitioner for the payment of
the promissory note.
HELD:
It is patent that the seller is liable for the breach in warranty against the
petitioner. This liability as a general rule extends to the corporation to
whom it assigned its rights and interests unless the assignee is a holder in
due course of the promissory note in question, assuming the note is
negotiable, in which case, the latters rights are based on a negotiable
instrument and assuming further that the petitioners defense may not
prevail against it.
The promissory note in question is not a negotiable instrument. The
promissory note in question lacks the so-called words of negotiability. And
as such, it follows that the respondent can never be a holder in due course
but remains merely an assignee of the note in question. Thus, the
petitioner may raise against the respondents all defenses available to it
against the seller.
22
FACTS:
Two deeds of mortgages were issued by spouses Racho in favor of GSIS as
security for two loans obtained by them. They also executed a promissory
note. Due to the failure to comply with the terms of the mortgage, the
mortgages were extrajudicially foreclosed. The foreclosure was being
assailed by the spouses as they alleged that the mortgage contracts were
signed not as guarantees or sureties but merely gave their common
property for the sole benefit of the other spouses. Both sides of the case
used the provisions on accommodation parties in the NIL.
The trial court dismissed the action but this was reversed by the appellate
court.
HELD:
Both parties rely on the NIL but this is misplaced. The promissory note
and the deeds of mortgage are not negotiable instruments as they lack the
fourth requisite which is it must be payable to order or bearer.
23
FACTS:
GSIS V. CA
170 SCRA 533
PECO V. SORIANO
39 SCRA 587
FACTS:
Nell Company issued a check to help Casals and Casville Enterprises obtain
a letter of credit from Equitable Banking in connection with equipment, a
garrett skidder, which Casals and Casville were buying from Nell. Nell
indicated the payee as follows EQUITABLE BANKING CORPORATION A/C
CASVILLE ENTERPRISES INC.
Casals deposited the check with the bank and the bank teller accepted the
same and in accordance with customary bank practice, stamped in
the check the words non-negotiable. The amount was withdrawn after
the deposit.
This prompted Nell to file a case against the bank, Casals and Casville.
While the instant case was being tried, Casals and Casville assigned the
garrett skidder to plaintiff which credited in favor of defendants the amount
of P450,000, as partial satisfaction of its claim against them.
HELD:
Equitable is not liable to Nell. Nell should bear the loss as it was through
its own acts, which put it into the power of Casals and Casville Enterprises
to perpetuate the fraud against it.
The check wasnt initially non-negotiable. Neither was it cross-checked.
The rubber-stamping transversally on the face of the check was only made
the bank teller in accordance with customary bank practice, and not by Nell
as the drawer of the check, and simply meant that thereafter the same
check could no longer be negotiated.
The payee was not indicated with reasonable certainty in contravention of
Section 8. As worded, it could be accepted as deposit to the account of the
party named therein after the symbols of A/C, or payable to the bank as
trustee, or as an agent, for Casville with the latter being the ultimate
beneficiary.
Sec. 9. When payable to bearer. - The instrument is payable to
bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing
person, and such fact was known to the person making it so
payable; or
(d) When the name of the payee does not purport to be the
name of any person; or
(e) When the only or last indorsement is an indorsement in
blank.
PAYABLE TO THE ORDER OF A FICTITIOUS OR NON-EXISTENT PERSON
1. The payee named must be fictitious or non-existent
2. The one making the instrument so payable must know him to be
fictitious or non-existing
FICTITIOUS PERSON
Not limited to persons having no real existence
To be a person who has no right to the instrument because the
drawer or maker of it so intended, and therefore, it doesnt matter
whether the name of the payee used by the drawer or drawee be
that of the living or the dead, or one who never existed
EXISTING PAYEE INTENDED TO RECEIVE PROCEEDS; NOT PAYABLE TO
BEARER
FACTS:
Knowing he had insufficient funds, Ang Tek Lian issued a check for P4000,
payable to cash. This was given to Lee Hua Hong in exchange for cash.
Upon presentment of the check, it was dishonored for having insufficient
funds. It is argued that the check, being payable to cash, wasnt indorsed
by the defendant, and thus, isnt guilty of the crime charged.
HELD:
A check drawn to the order of cash is payable to bearer, and the bank
may pay it to the person presenting it for payment without the drawers
indorsement. Of course, if the bank is not sure of the bearers identity or
financial solvency, it has the right to demand for identification and/or
assurance against possible complicationsfor instance, forgery of the
drawers signature, loss of the check by the rightful owner, raising the
amount payable, etc. The bank therefore, requires for its protection that
the indorsement of the draweror some other persons known to itbe
obtained. A check payable to bearer is authority for payment to the
holder. Where a check is in the ordinary form and is payable to bearer so
that no indorsement is required, a bank to which it is presented for
payment need not have the holder identified, and is not negligent in failing
to do so.
Sec. 10. Terms, when sufficient. - The instrument need not
follow the language of this Act, but any terms are sufficient which
clearly indicate an intention to conform to the requirements hereof.
CASE DIGESTS: SECTION 10
26
JIMENEZ V. BUCOY
103 PHIL 40
FACTS:
In the intestate of the estate of spouses Young, Jimenez presents a
promissory note signed by Pacita Young for different amounts totaling
P21,000. The administrator is willing to pay the promissory note on the
premise that the amount be adjusted. Claimant assails the adjustment and
hence, she instituted a case for collection of sum of money.
*Note: 6 months after the war
HELD:
The administrator calls attention to the fact that the notes contained no
express promise to pay for a certain amount. This is without merit. An
acknowledge may become a promise to pay by the addition of words
by which a promise of payment is naturally implied, such as
payable, payable on a given date, payable on demand, paidwhen
called for.
To constitute a good promissory note, no precise words of contract are
necessary, provided they amount, in legal effect, a promise to pay.
(UNDATED)
I PROMISE TO PAY TO B OR ORDER P1000, 60 DAYS AFTER DATE.
SGD. A
PACHECO V. CA
319 SCRA 595
FACTS:
Due to dire financial needs of petitioner spouses who were engaged in the
construction business, they secured loans from Vicencio. At every loan
secured, the lender compelled the spouses to issue an undated check
despite the admission of spouses that their bank account has insufficient
funds or as on a later date, already closed. Lender assured them that the
FACTS:
Yamaguchi and Canlas are officers of the Worldwide Garment
Manufacturing, which later changed its name to Pinch Manufacturing. They
were authorized to apply for credit facilities with the petitioner bank. The
two officers signed the promissory notes issued to secure the payment of
NOT
APPLICABLE
TO
INCOMPLETE
29
FACTS:
Spouses Lim were charged with estafa and violations of BP22 for allegedly
purchasing goods from Linton Commercial Corporation and issuing checks
as payment thereof.
The checks when presented to the bank were
dishonored for insufficiency of funds or the payment for the checks has
been stopped.
HELD:
It is settled that venue in criminal cases is a vital ingredient of jurisdiction.
It shall be where the crime or offense was committed or any one of the
essential ingredients thereof took place. In determining the proper venue
for these cases, the following are material factsthe checks were issued at
the place of business of Linton; they were delivered to Linton at the same
place; they were dishonored in Kalookan City; petitioners had knowledge of
the insufficiency of funds in their account.
Under Section 191 of the NIL, issue means the first delivery of the
instrument complete in its form to a person who takes it as holder. The
term holder on the other hand refers t o the payee or indorsee of a bill or
note who is in possession of it or the bearer t hereof. The important place
to consider in the consummation of a negotiable instrument is the place of
delivery. Delivery is the final act essential to its consummation as an
obligation.
30
PEOPLE V. GROSPE
157 SCRA 154
FACTS:
Parolan was an authorized wholesale dealer of SMC. He was charged with
violations of BP22 and estafa for allegedly issuing checks in favor of SMC
but when the check was presented, it was dishonored for having
FACTS:
Sesbreno filed a case against Mabanto Jr. among other people wherein the
court decided in favor of the plaintiff, ordering the defendants to pay
former a definite amount of cash. The decision had become final and
executory and a writ of execution was issued. This was questioned in the
CA by the defendants. In the meanwhile, a notice of garnishment was
issued to petitioner who was then the City Fiscal. She was asked to
withhold any check or whatnot in favor of Mabanto Jr. The CA then
dismissed the defendants petition and the garnishment was commenced
only to find out that petitioner didn't follow instructions of sheriff. She is
now being held liable.
HELD:
Garnishment is considered as the species of attachment for reaching
credits belonging to the judgment debtor owing to him from a stranger in
litigation. Emphasis is laid on the phrase belonging to the judgment debtor
since it is the focal point of resolving the issues raised.
As Assistant City Fiscal, the source of Mabantos salary is public funds.
Under Section 16 of the NIL, every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose
of giving effect thereto. As ordinarily understood, delivery means the
transfer of the possession of the instrument by the maker or drawer with
intent to transfer title to the payee and recognize him as the holder
thereof.
The petitioner is the custodian of the checks. Inasmuch as said checks
were in the custody of the petitioner and not yet delivered to Mabanto,
they didn't belong to him and still had the character of public funds. The
salary check of a government officer or employee doesn't belong to him
before it has been 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.
*If public funds would be allowed to be garnished, then basic services of
the government may be hampered.
32
FACTS:
Sima Wei executed a promissory note in consideration of a loan secured
from petitioner bank. She was able to pay partially for the loan but failed
to pay for the balance. She then issued two checks to pay the unpaid
balance but for some unexplainable reason, the checks were not received
by the bank but ended up in the hands of someone else. The bank
instituted actions against Sima Wei and other people. The trial court
dismissed the case and the CA affirmed this decision.
HELD:
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 provides that
every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. Thus,
the payee of the negotiable instrument acquires no interest with respect
thereto until its delivery to him. Delivery of an 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.
*In this case, the sum payable is P12,345, following the rule that when the
words are ambiguous or uncertain, reference may be had to the figures to
fix the amount.
I promise to pay B or order the sum of one two three four five (P12,345)
on June 27, 2008 with interest.
Sgd. AA
*The interest should run on the date of instrument but if it is undated, then
it will reckon on the date of issue.
33
FACTS:
Complainant was a radio commentator who interviewed the two accused
regarding their marketing business, which solicits funds from the general
public, promising an 800% profit. The latter induced the complainant to
invest in the business, in the process thereof, issued a postdated check
wherein the amount in figures was P1,200,000 and the amount in words
was P1,000,200. The check when presented in the bank was dishonored
and the accused refused to redeem or pay the check. This prompted
the complainant to file a case of estafa against the accused to which they
were found guilty of.
PEOPLE V. ROMERO
306 SCRA 90
HELD:
Accused tried to contend that if the trial court followed the admission and
stipulation of facts submitted by them, it would prove that there was
sufficient funds. The check had a discrepancy between the amount in
figures and in words.
Following NIL, the check was issued for
P1,000,200meaning that this could be validly supported by their
business funds.
Nonetheless, this is misplaced since this rule of
interpretation finds no room in this case. The agreement was perfectly
clear that at the end of 21 days, the investment of complainant would
increase by 800% or P1,200,000.
34
FACTS:
FACTS:
Yamaguchi and Canlas are officers of the Worldwide Garment
Manufacturing, which later changed its name to Pinch Manufacturing. They
were authorized to apply for credit facilities with the petitioner bank. The
two officers signed the promissory notes issued to secure the payment of
the obligations. Later, the bank instituted an action for collection of
money, impleading also the two officers. The trial court held the two
officers personally liable also.
HELD:
Canlass is solidarily liable on each of the promissory notes to which his
signature appears.
The promissory notes in question are negotiable
instruments and thus, governed by the NIL.
Under the NIL, persons who write their names in the instrument are
makers are liable as such. By signing the note, the maker promises to pay
to the order of the payee or any holder the tenor of the obligation. Based
on the above provisions of the law, there is no denying that Canlass is one
of the co-makers of the promissory note.
Sec. 18. Liability of person signing in trade or assumed name. No person is liable on the instrument whose signature does not
appear thereon, except as herein otherwise expressly provided.
But one who signs in a trade or assumed name will be liable to
the same extent as if he had signed in his own name.
GENERAL RULE AS TO LIABILITY OF PERSON WHOSE SIGNATURE IS NOT
ON INSTRUMENT
36
FACTS:
The Board of Directors of Akron, which includes petitioner Remo,
authorized the purchase of 13 trucks to be used in the business through a
resolution. The president then of the corporation purchased from private
respondent the trucks evinced by a deed of absolute sale, with terms of
payment as followsdownpayment, balance payable within 60 days from
date of execution of agreement. It was also agreed upon that until said
balance, the downpayment shall constitute as rentals for the trucks. And if
there would be failure of payment, the balance shall constitute as chattel
mortgage lien. This is further secured by a promissory notethat the
balance would be paid from a loan to be obtained from a bank. After
several days, private respondent made several demands but the
corporation failed to pay. This prompted the private respondent to file a
complaint. Meanwhile, petitioner sold his shares to Coprada and the name
of the corporation was modified.
HELD:
If the private respondent is the victim of fraud in this transaction, it has
not been clearly shown that petitioner had any part or partcipation in the
perpetration of the same.
Fraud must be established by clear and
convincing evidenced. If at all, the principal character on whom fault
should be attributed is the president Coprada, whom private respondent
dealt with personally all through out.
37
FACTS:
Foerster was a collector for Insular Drugs. Upon collection of checks for
payment to the company, he deposited the checks in his own personal
account.
This came to the knowledge of the company and upon
investigation, the salesman committed suicide thereafter. Insular Drugs
filed an action against the bank, to credit to its account the amount
Foerster and his wife took from them. The indorsements took various
forms.
HELD:
When a bank accepts the indorsements on checks made out to the
company and the indorsements of the salesmans wife and clerk, and
credits to the personal account of the salesman and his wife, allowing them
to make withdrawals, the bank makes itself responsible to the drug
company for the amounts represented by the checks, unless it is pleaded
and proved that after the money was withdrawn from the bank, it passed
to the drug company which thus suffered no loss.
38
FACTS:
Checks were deposited by petitioner in its current account with the bank.
These checks were from a certain Ramirez, a consistent better in its
games, who was a sales agent from Inter-Island Gas. Inter-Island later
found out that of the forgeries committed in the checks and thus, it
informed all the parties concerned. Upon the demands on the bank as the
collecting bank, it debited the account of petitioner. Thereafter, petitioner
tried to issue a check for payment of shares of stock but such was
dishonored for insufficient funds. It filed a complaint against the bank.
HELD:
Respondent bank acted within legal bounds when it debited the account of
petitioner. When the petitioner deposited the checks to its account,
the relationship created was one of agency still and not of creditor-debtor.
The bank was to collect from the drawees of the checks with the
corresponding proceeds.
Bank may have the proceeds already when it debited the account of
petitioner. Nonetheless, there is still no creditor-debtor relationship.
Following Section 23, a forged signature is wholly inoperative and no right
to discharge it or enforce its payment can be acquired through or under the
forged signature except against a party who cannot invoke its forgery or
want of authority. It stands to reason that as a collecting bank which
indorsed the checks to the drawee-banks for clearing, should be liable to
the latter for reimbursement for the indorsements on the checks had been
forged prior to their delivery to the petitioner. The payments made by
the drawee banks to respondent were ineffectivethe creditordebtor relationship hadnt been validly effected.
39
PNB V. PICORNELL
46 PHIL 716
FACTS:
Picornell followed the instructions of Hyndman, Tavera and Venutra by
buying bales of tobacco. He was able to obtain in National Bank a sum of
money together with his commission. He drafted a bill of exchange against
the firm and in favor of the bank. It was received by National Bank and
was accepted thereafter by the firm. However, on alleged conditions of the
tobacco, the bill of exchange was not paid.
collect payments from the GSIS. Further, they opened an account with a
bank from which checks would be issued by Fransisco and the GSIS
president.
HELD:
This action for recovery is for the value of the bill of exchange. The firm
accepted the bill unconditionally but did not pay it at maturity, wherefore
its responsibility to pay the same is clear. The question whether or not the
tobacco was worth the value of the bill doesnt concern the bank. Such
partial want of consideration if it was, doesnt exist with respect to the
bank which paid Picornell the full value of the said bill of exchange. The
bank was a holder in due course, and was such for value full and complete.
The firm cannot escape liability.
HCCC later on filed a complaint for the unpaid balance in pursuance to its
agreement with AFRDC. However, an amicable settlement ensued, which
was embodied in a Memorandum of Agreement. It was embodied in said
agreement that GSIS recognizes its indebtedness to HCCC and that HCCC
would also pay its obligations to AFRDC.
40
FACTS:
Aruego, on behalf of World Current Events, entered into a Credit
Agreement with PBCom, for the publication of the companys periodicals.
At every printing endeavor by the printing press, a bill of exchange is
drawn against PBCom. The instruments are signed by Aruego, without any
indication that he is an agent of World Current Events. When he was being
held liable by PBCom, he averred that he only signed the instrument in the
capacity of agent of the company.
HELD:
An inspection of the drafts accepted by the defendant would show nowhere
that he has disclosed that he was signing in representation of the Philippine
Education Foundation Company. He merely signed his name. For failure to
disclose his principal, Aruego was personally liable for the drafts he
accepted.
41
FACTS:
A. Fransisco Realty and Development and Herby Commercial and
Construction Corporation entered into a Land Development and
Construction Contract. Fransisco was the president of AFRDC while Ong
was the president of HCCC.
It was agreed upon that HCCC would
undertake the construction of housing units and the development of a large
parcel of land. The payment would be on a turnkey basis. To facilitate the
payment, AFDRC executed a Deed of Assignment to enable the HCCC
to
A year later, it was found out that Diaz and Fransisco had drawn checks
payable to Ong. Ong denied accepting said checks and it was further found
out that Diaz entrusted the checks to Fransisco who later forged the
signature of Ong, showing that he indorsed the checks to her and then she
deposited the checks to her personal savings account. This incident
prompted Ong to file a complaint against Fransisco.
HELD:
Ongs signature was found to be forged by Fransisco.
Fransiscos contention that he was authorized to sign Ongs name in her
favor giving her authority to collect all the receivables of HCCC from GSIS.
This contention is bereft of any merit. The NIL provides that when a
person is under obligation to indorse in a representative capacity, he may
indorse in such terms as to negative personal liability. An agent, when so
signing, should indicate that he is merely signing as an agent in behalf of
the principal and must disclose the name of his principal. Otherwise, he
will be held liable personally. And assuming she was indeed authorized,
she didn't comply with the requirements of the law. Instead of signing
Ongs name, she should have signed in her own name as agent of HCCC.
Thus, her contentions cannot support or validate her acts of forgery.
42
FACTS:
Astro obtained loans from Philtrust Bank, secured by promissory notes that
were signed by Roxas, both as President of Astro Electronics and in his
personal capacity. Thereafter, PhilGuarantee bound itself as a guarantor.
At default of Astro, PhilGuarantee paid the obligation. It then filed an
action for collection of money from Astro and Roxas.
HELD:
Under the NIL, persons who write their names on the face of promissory
notes are makers, promising that they will pay to the order of the payee or
any holder according to its tenor.
At the study of the instrument, the allegations of Roxas are bereft of any
meritthat is, the words in his personal capacity were added after he
signed the instrument.
43
FACTS:
Mindanao Ferroalloy corporation is the fruit of a joint venture agreement
between a Filipino corporation and Korean Corporation. In its operations,
its liabilities ballooned over its assets that it had to secure loans from
petitioner Solidbank. The loans were later consolidated and restructured,
evinced by a promissory note. The promissory note was signed by Cu
and Hong, both officers of the corporation. The corporation, through the
same officers also executed a deed of assignment. Thereafter, the
corporation stopped its operations and the loan was left unpaid. The
bank was prompted to file a complaint against the corporation,
and with it, impleading the officers who signed the agreement and
promissory notes. The trial court held in favor of the bank but didn't
adjudge liability of the officers. Both the trial court and CA held that there
was no solidary liability on the part of the officers impleaded by the bank.
HELD:
Though Hong and Cu signed above the maker/borrower and the printed
name of the corporation, without the word by preceding their signatures,
the fact that they signed in their personal capacities is negated by the facts
that name and address of the corporation also appeared on the space
provided for in the maker/borrower and their signatures only appeared
once when it should be twice if indeed it was in their personal capacities.
Further, they didn't sign on the portion allocated for the co-maker, and
there was also indicia of it being signed as authorized representatives.
Sec. 21. Signature by procuration; effect of. - A signature
by "procuration" operates as notice that the agent has but a
limited authority to sign, and the principal is bound only in case
the agent in so signing acted within the actual limits of his
authority.
HOW SIGNATURE PER PROCURATION IS MADE
FRAUD IN INDUCEMENT
Doesnt amount to forgery
Personal defense
A sells to B what he represents as a
diamond ring, when it is actually
made of glass. B issues a check.
The fraud is in inducing B to issue
the check.
Promissory notemaker
indorser
Sgd. A
The first one is the controlling intent except where the name of
the payee was already known to the maker or drawer or was
particularly identified in some manner
Bill of Exchangedrawer
indorser
I promise to pay B or order P100,000
Sgd. A
*Suppose that B forged As signature. Is the instrument valid? It is totally
inoperative.
*If ABCDE, and Bs signature was forged, it is totally inoperative
and ineffectual against A and B. C and D are precluded to set up the
defense of forgery since as indorsers, they warrant the validity of the
instrument.
Pay to the order of B P100,000
In the absence of anything to show that the drawer had any doubt as
to the identity of the person to whom he delivered the paper as
payeethe drawee, in paying the paper, or the holder, in taking it
upon the indorsement of the impostor in the name of which the payee
was described, carries out the intention that the drawer entertained at
the time of delivery of the paper to the impostor, although that
intention was conceived in consequence of the fraud of the impostor as
to his identity and ownership of the property which represented the
consideration
As between two innocent persons, the one whose act was the cause of
the loss should bear the consequences
The loss falls on the drawee or purchaser, as the case may be, rather
than on the drawer where the impostor upon whose indorsement the
paper was purchased or paid, represented himself to be the agent of
the payee and not the payee himself
ADMISSION OF GENUINENESS AND DUE EXECUTION
2.
3.
Includes those cases where they are estoppels against the party
desiring to set up the forgery
ESTOPPEL AS TO FORGERY OF INSTRUMENTS
Requisites:
o
That the delay be unreasonable
o
That the one who ought to be apprised of the forgery has
been prejudiced
REASONABLY PROMPT NOTICE
Depends upon the circumstances of the case, and the situation of the
parties with reference to the remedies against any party is a proper
element to enter into the estimate of the reasonableness of the notice
WHEN PREJUDICED AND WHEN NOT PREJUDICED
May be held liable by a holder in due course but not by the one who is
not a holder in due course
Provided that the note was mechanically complete before the forgery
Forged instrument is not necessary to the title of a holder since
instruments payable by bearer can be negotiated by mere delivery
In an action by the drawee against the drawer for the amount charged
by the drawee against the account of the drawer where the drawee
paid a check on a forged indorsement, the drawee has no defense
against the drawer and the drawer may recover from the drawee for
an instrument paid on a forged indorsement
The checks didnt reach the hands of the payee. The bearing of such
absence of delivery is considered in some cases and held not to be
material
Where there is no delivery to the payee and no title vests upon him,
he ought not to be allowed to recover on the ground that he lost
nothing because he never became owner of the check and still retained
his claim against the drawer
Drawer has no right to recover the amount paid from the collecting
bank as the duty of the collecting to exercise care in collection is due
only to the payee, and as the drawer suffers no loss since it can
recover the amount paid from the drawee bank which has no right to
charge the drawers account
The drawee may recover from the recipient of payment, such as the
collecting bank, under a forged indorsement
Rule allowing the payee to recover from the recipient of the payment
under a forged indorsement
One who purchases a bill or check is bound to satisfy himself that the
paper is genuine; and that by indorsing or presenting it for payment or
putting it in circulation before presentation, he impliedly asserts that
he has performed his duty and the drawee who has without actual
negligence on his part, paid the forged demand, may recover the
money paid from such negligent purchaser
The fact that the paper wasnt cashed and indorsed with unrestricted
indorsement but was taken for collection and forwarded for that
purpose under an indrosement giving notice of that fact, may place a
greater burden upon the drawee than it would otherwise bear
FORGERY OF SIGNATURE IN INSTRUMENT IS FALSIFACTION OF PRIVATE
DOCUMENT
FORGER NEED NOT IMITATE GENUINE SIGNATURE
One who signs in the name of another without the latters authority, as
drawer in a check, and thereby makes it appear falsely that the
alleged drawer of the check was a real party thereto, when as a matter
of fact he didnt participate in the transaction, is guilty of falsification
COMMERCIAL DOCUMENTS
FACTS:
Wilson, a principal employee of petitioner, together with Wilson, a
messenger-clerk, conspired to withdraw cash from the petitioners account
through forgery of a check, in the name of the agent authorized to sign the
check.
While the authorized agent of petitioner was on vacation, Wilson and
Dolores sent a cablegram to China Banking for the transfer of $100,000.
On the contract, the name of Baldwin was forged and it was indicated
therein that a certified check be issued. Thereafter, this was received and
deposited with the BPI. Upon deposit, an indorsement in the name of
Baldwin was placed. The bank account was credited. Later, a letter was
sent to the bank, purporting to be signed by Baldwin asking that it be
withdrawn. This was done in supervision of Dolores. Dolores and Wilson
then was able to get the money. This eventually came to the knowledge of
plaintiff who filed an action against China Banking and BPI. The trial court
dismissed the case.
HELD:
A bank is bound to know the signatures of its customers and if it pays a
forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily charge the amount so paid to the account of
the depositor whose name was forged.
There is no act of the plaintiff that led the bank astray. If it was in fact
lulled into the false sense of security, it was by the effrontery of
Dolores, the messenger to whom it entrusted this large sum of meny.
The proximate cause of the loss must therefore be due to the negligence of
the bank in honoring and cashing the two forged checks.
45
PNB V. QUIMPO
158 SCRA 582
FACTS:
While Gozon was in the bank with Santos left in the car, the latter stole a
check and forged the signature of the former. He was able to encash the
check. He was later apprehended by the police authorities and he admitted
to stealing the check. The court decided in favor of Gozon. The bank now
posed the issue on whether Gozons act of leaving his checkbook in the car
the proximate cause of the loss.
HELD:
Where the private respondents check was removed and stolen without his
knowledge and consent, he cannot be considered negligent in this case.
46
PNB V. CA
25 SCRA 693
FACTS:
Lim deposited in his PCIB account a GSIS check drawn against PNB.
Following standard banking procedures, the check was sent to petitioner
for clearing. He didnt return said check but paid the amount to PCIB as
well as debited it against the account of GSIS. Thereafter, a demand was
received from GSIS asking for the credit of the amount since the
signatures found in the check were forged. This was done by PNB and it
now comes after PCIB but the latter wouldnt want to return the money.
HELD:
Acceptance is not required for checks, for the same are payable on
demand. Acceptance and payment are distinguished with each other. The
former pertains to a promise to perform an act while the latter is the actual
performance of the act.
PNB had also been negligent with the particularity that it had been guilty of
a greater degree of negligence because it had a previous and formal notice
from GSIS that the check had been lost, with the request that payment be
stopped. Just as important is that it is its acts, which are the proximate
cause of the loss.
47
MWSS V. CA
143 SCRA 20
FACTS:
MWSS had an account from PNB. Its treasurer, auditor, and General
Manager are the ones authorized to sign checks. During a period of time,
23 checks were drawn and debited against the account of petitioner.
Bearing the same check numbers, the amounts stated therein were again
debited from the account of petitioner. The amounts drawn were deposited
in the accounts of the payees in PCIB. It was found out though that the
names stated in the drawn checks were all fictitious. Petitioner demanded
the return of the amounts debited but the bank refused to do so. Thus, it
filed a complaint.
HELD:
There was no categorical finding that the 23 checks were signed by
persons other than those authorized to sign. On the contrary, the NBI
reports shows that the fraud was an inside job and that the delay in the
reconciliation of the bank statements and the laxity and loss of records
control in the printing of the personalized checks facilitated the fraud. It
further doesnt provide that the signatures were forgeries.
Forgery cannot be presumed. It should be proven by clear, convincing and
positive evidence. This wasnt done in the present case.
The petitioner cannot invoke Section 23 because it was guilty of negligence
not only before the questioned checks but even after the same had
already been negotiated.
48
FACTS:
The corporation had acquired 24 treasury warrants by accommodating its
former trusted employee who asked the corporation to cash the warrants,
alleging it was difficulty to do directly with the government and that his
wife expected a sort of commission for the encashment. The corporation
acceded to the request provided that it be first cleared and that the
corporation would receive the amount before paying for it. The warrants
were then cleared but later on, at different periods of time, the treasurer
returned 24 warrants to the CB on the ground that they have forged. The
bank refused to return the cash.
The clearing of the checks, it should be noted, was in accordance to the
24-hour clearing rule by the CB.
HELD:
The warrants were cleared and paid by the Treasurer, in view of which
Equitable and PI bank credited the corresponding amounts to the
respective depositors of the warrants and then honored the checks for said
amounts. Thus, the treasury had not been only negligent in clearing
its own warrants but had already thereby induced the banks to pay
the amounts thereof to said depositors. This gross negligence becomes
more apparent when each of the warrants were valued for more
than the authority of the treasurer to approve.
49
FACTS:
Unknown persons negotiated with Motor Services Company checks, which
were part of the stipulation in payment of automobile tires purchased from
the latters store.
It purported to have been issued by Pangasinan
Transportation Company. The said checks were indorsed at the back by
said unknown persons, the Motor company believing at that time that the
signatures contained therein were genuine.
The checks were later
deposited with the companys account in National City Bank of NY. The
said checks were consequently cleared and PNB credited National City Bank
with the amounts. Thereafter, PNB discovered that the signatures were
forged and it demanded the reimbursement of the amounts for which it
credited the other bank.
HELD:
A check is a bill of exchange payable on demand and only the rules
governing bills of exchanges payable on demand are applicable to it.
in view of the fact that acceptance is a step necessary insofar as
negotiable instruments are concerned, it follows that the provisions
relative
to acceptance
are
without
application
to
checks.
Acceptance impies
subsequent negotiation of the instrument, which is not true in the case of
METROPOLITAN BANK V. CA
194 SCRA 169
FACTS:
Gomez opened an account with Golden Savings bank and deposited 38
treasury warrants. All these warrants were indorsed by the cashier of
Golden Savings, and deposited it to the savings account in a Metrobank
branch. They were sent later on for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing. On persistent inquiries on whether the
warrants have been cleared, the branch manager allowed withdrawal of the
warrants, only to find out later on that the treasury warrants have been
dishonored.
HELD:
PCIB V. CA
350 SCRA 446
FACTS:
Ford Philippines filed actions to recover from the drawee bank Citibank and
collecting bank PCIB the value of several checks payable to the
Commissioner of Internal Revenue which were embezzled allegedly by an
organized syndicate. What prompted this action was the drawing of a
check by Ford, which it deposited to PCIB as payment and was debited
from their Citibank account. It later on found out that the payment wasnt
received by the Commissioner. Meanwhile, according to the NBI report,
one of the checks issued by petitioner was withdrawn from PCIB for alleged
mistake in the amount to be paid. This was replaced with managers check
by PCIB, which were allegedly stolen by the syndicate and deposited in
their own account.
The trial court decided in favor of Ford.
ISSUE:
Has Ford the right to recover the value of the checks intended as payment
to CIR?
HELD:
The checks were drawn against the drawee bank but the title of the person
negotiating the same was allegedly defective because the instrument was
obtained by fraud and unlawful means, and the proceeds of the checks
were not remitted to the payee. It was established that instead paying the
Commissioner, the checks were diverted and encashed for the envetual
distribution among members of the syndicate.
Pursuant to this, it is vital to show that the negotiation is made by the
perpetrator in breach of faith amounting to fraud. The person negotiating
the checks must have gone beyond the authority given by his principal. If
the principal could prove that there was no negligence in the performance
of his duties, he may set up the personal defense to escape liability and
recover from other parties who, through their own negligence, allowed the
commission of the crime.
It should be resolved if Ford is guilty of the imputed contributory
negligence that would defeat its claim for reimbursement, bearing in mind
that its employees were among the members of the syndicate. It appears
although the employees of Ford initiated the transactions attributable to
the organized syndicate, their actions were not the proximate cause of
encashing the checks payable to CIR. The degree of Fords negligence
couldnt be characterized as the proximate cause of the injury to
parties. The mere fact that the forgery was committed by a
drawer-payors confidential employee or agent, who by virtue of his
position had unusual facilities for perpetrating the fraud and imposing the
forged paper upon the bank, doesnt entitle the bank to shift the loss to
the drawer-payor, in the absence of some circumstance raising estoppel
against the drawer.
Note: not only PCIB but also Citibank is responsible for negligence.
Citibank was negligent in the performance of its duties as a drawee bank.
It failed to establish its payments of Fords checks were made in due
course and legally in order.
52
ILLUSORIO V. CA
393 SCRA 89
FACTS:
Petitioner was a prominent businessman who, because of different business
commitments, entrusted to his then secretary the handling of his credit
cards and checkbooks. For a material period of time, the secretary was
able to encash and deposit in her personal account money from the
account of petitioner.
Upon knowledge of her acts, she was fired
immediately and criminal actions were filed against her. Thereafter,
petitioner requested the bank to restore its money but the bank refused to
do so.
HELD:
FACTS:
CASA has a current account with BPI. It was discovered that for a material
period of time, several checks were encashed by a certain Sonny Santos,
who eventually was known to be a fictitious name used by the external
auditor of CASA. The external auditor admitted forging the signature of
CASAs president to be able to encash the checks. The trial court held the
bank liable but this was modified. The modified decision apportioned the
loss between BPI and CASA.
HELD:
A forged signature is a real and absolute defense, and a person whose
signature appears on a negotiable instrument is forged is deemed to never
have become a party thereto and to have never consented to the contract
that allegedly gave rise to it.
The counterfeiting of any writing, consisting in the signing of
anothers name with intent to defraud, is forgery.
First, there was really a finding of forgery. The forger admitted even in his
affidavit of his forgery.
Second, there was a finding by the police laboratory that indeed the
signatures were forged.
Furthermore, the negligence is attributable to BPI alone. Its negligence
consisted in the omission of the degree of diligence required of a bank.
FACTS:
Spouses Cabamongan opened a joint and/or foreign currency time deposit
in favor of their two children with Citibank. On a material date, a person
who claimed to be Carmelita sought the pretermination of the account.
She presented identification cards to ascertain her identity to the then
account officer. When she left with the money, she left an identification
card. The account officer then called up the address. The spouses and
their family knew of the incident. They were presently residing in the US
and there was a prior incident wherein they got robbed in their house with
the jewelry box and cards stolen. Spouses made several demands for the
return of the amount but Citibank refused to do so.
HELD:
Citibank was negligent. First, the depositor didnt present the Certificate
of Deposit. Second, from the internal memorandum issued by the Account
Officer, he admitted to the fact that the specimen signature was different
from the one who misrepresented herself as Carmelita. Third, the bank
kept in its records pictures of its depositors. It is inconceivable how the
bank was duped by an imposter.
CASE DIGESTS: SECTION 23
(FORGED INDORSEMENT)
55
FACTS:
The plaintiff is an insurance corporation, which drew a check in favor of
Melicor. This was stolen by Maasim, forged the signature of Melicor and
deposited the check to his account in PNB. Thereafter, PNB endorsed the
check to HSBC who later debited the account of plaintiff. Plaintiff believed
all along that Melicor received the payment. Upon knowledge of the debit
HSBC did on its account, it demanded that the same amount be credited.
HELD:
The banks are liable. The money was in deposit with the bank and it had
no legal right to pay it out to anyone except the plaintiff or its order.
The only remedy of the bank paying a check to a person who has forged
the name of the payee is against the forger.
56
GEMPESAW V. CA
218 SCRA 682
FACTS:
Gempensaw was the owner of many grocery stores. She paid her suppliers
through the issuance of checks drawn against her checking account with
respondent bank. The checks were prepared by her bookkeeper Galang.
In the signing of the checks prepared by Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the
issuances were necessary. She didn't even verify the returned checks of
the bank when the latter notifies her of the same. During her two years in
business, there were incidents shown that the amounts paid for were in
excess of what should have been paid. It was also shown that even if the
checks were crossed, the intended payees didn't receive the amount of the
checks. This prompted Gempensaw to demand the bank to credit her
account for the amount of the forged checks. The bank refused to do so
and this prompted her to file the case against the bank.
HELD:
Forgery is a real defense by the party whose signature was forged. A party
whose signature was forged was never a party and never gave his consent
to the instrument. Since his signature doesnt appear in the instrument,
the same cannot be enforced against him even by a holder in due course.
The drawee bank cannot charge the account of the drawer whose signature
was forged because he never gave the bank the order to pay.
In the case at bar the checks were filled up by petitioners employee
Galang and were later given to her for signature. Her signing the checks
made the negotiable instruments complete. Prior to signing of the checks,
there was no valid contract yet. Petitioner completed the checks by
signing them and thereafter authorized Galang to deliver the same to
their respective payees.
The checks were then indorsed, forged
indorsements thereon.
As a rule, a drawee bank who has paid a check on which an indorsement
has been forged cannot debit the account of a drawer for the amount of
said check. An exception to this rule is when the drawer is guilty of
negligence which causes the bank to honor such checks. Petitioner in this
case has relied solely on the honesty and loyalty of her bookkeeper and
never bothered to verify the accuracy of the amounts of the checks she
signed the invoices attached thereto. And though she received her bank
FACTS:
BDO drew checks payable to member establishments. Subsequently, the
checks were deposited in Trencios account with Equitable. The checks
were sent for clearing and was thereafter cleared. Afterwards, BDO
discovered that the indorsements in the back of the checks were forged. It
then demanded that Equitable credit its account but the latter refused to
do so. This prompted BDO to file a complaint against Equitable and PCHC.
The trial court and RTC held in favor of the Equitable and PCHC.
HELD:
First, PCHC has jurisdiction over the case in question. The articles of
incorporation of PHHC extended its operation to clearing checks and other
clearing items. No doubt transactions on non-negotiable checks are within
the ambit of its jurisdiction. Further, the participation of the two banks in
the clearing operations is submission to the jurisdiction of the PCHC.
Petitioner is likewise estopped from raising the non-negotiability of the
checks in issue. It stamped its guarantee at the back of the checks and
subsequently presented it for clearing and it was in the basis of these
endorsements by the petitioner that the proceeds were credited in its
clearing account. The petitioner cannot now deny its liability as it assumed
the liability of an indorser by stamping its guarantee at the back of the
checks.
Furthermore, the bank cannot escape liability of an indorser of a check and
which may turn out to be a forged indorsement. Whenever a bank treats
the signature at the back of the checks as indorsements and thus logically
guarantees the same as such there can be no doubt that said bank had
considered the checks as negotiable.
A long line of cases also held that in the matter of forgery in
endorsements, it is the collecting bank that generally suffers the loss
because it had the dutyh to ascertain the genuineness of all prior
indorsements considering that the act of presenting the check for payment
to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the indorsements.
58
BPI V. CA
216 SCRA 51
FACTS:
Someone who identified herself to be Fernando called up BPI, requesting
for the pre-termination of her money market placement with the bank.
The person who took the call didn't bother to verify with Fernandos office if
whether or not she really intended to preterminate her money market
placement. Instead, he relied on the verification stated by the caller. He
proceeded with the processing of the termination. Thereafter, the caller
gave delivery instructions that instead of delivering the checks to her
office, it would be picked up by her niece and it indeed happen as such. It
was found out later on that the person impersonated Fernando and her
alleged niece in getting the checks. The dispatcher also didn't bother to
get the promissory note evincing the placement when he gave the checks
to the impersonated niece. This was aggravated by the fact that this
impersonator opened an account with the bank and deposited the subject
checks. It then withdrew the amounts.
The day of the maturity of the money market placement happened and the
real Fernando surfaced herself. She denied preterminating the money
market placements and though she was the payee of the checks in issue,
she didn't receive any of its proceeds.
This prompted the bank to
surrender to CBC the checks and asking for reimbursement on alleged
forgery of payees indorsements.
HELD:
The general rule shall apply in this case. Since the payees indorsement
has been forged, the instrument is wholly inoperative.
However,
underlying circumstances of the case show that the general rule on forgery
isnt applicable. The issue as to who between the parties should bear the
loss in the payment of the forged checks necessitates the determination of
the rights and liabilities of the parties involved in the controversy in
relation to the forged checks.
The acts of the employees of BPI were tainted with more negligence if not
criminal than the acts of CBC. First, the act of disclosing information about
the money market placement over the phone is a violation of the General
Banking Law. Second, there was failure on the banks part to even
compare the signatures during the termination of the placement, opening
of a new account with the specimen signature in file of Fernando. And
third, there was failure to ask the surrender of the promissory note
evidencing the placement.
The acts of BPI employees was the proximate cause to the loss.
Nevertheless, the negligence of the employees of CBC should be taken also
into consideration. They closed their eyes to the suspicious large amount
withdrawals made over the counter as well as the opening of the account.
59
FACTS:
Checks were deposited by petitioner in its current account with the bank.
These checks were from a certain Ramirez, a consistent better in its
games, who was a sales agent from Inter-Island Gas. Inter-Island later
found out that of the forgeries committed in the checks and thus, it
informed all the parties concerned. Upon the demands on the bank as the
collecting bank, it debited the account of petitioner. Thereafter, petitioner
tried to issue a check for payment of shares of stock but such was
dishonored for insufficient funds. It filed a complaint against the bank.
HELD:
Respondent bank acted within legal bounds when it debited the account of
petitioner. When the petitioner deposited the checks to its account, the
relationship created was one of agency still and not of creditor-debtor. The
bank was to collect from the drawees of the checks with the corresponding
proceeds.
Bank may have the proceeds already when it debited the account of
petitioner. Nonetheless, there is still no creditor-debtor relationship.
Following Section 23, a forged signature is wholly inoperative and no right
to discharge it or enforce its payment can be acquired through or under the
forged signature except against a party who cannot invoke its forgery or
want of authority. It stands to reason that as a collecting bank which
indorsed the checks to the drawee-banks for clearing, should be liable to
the latter for reimbursement for the indorsements on the checks had been
forged prior to their delivery to the petitioner. The payments made by
the drawee banks to respondent were ineffectivethe creditordebtor relationship hadnt been validly effected.
60
REPUBLIC V.
EBRADA 65 SCRA 680
FACTS:
The deceased
person,
payee,
where
forgery happened
original
the
Defendant-appelant
Ebrada refuses to return the proceeds of the check claiming that she
already gave it to Delia Dominguez. She also claims that she is a HDC
(holder in due course) and that the bank is already estopped.
HELD:
Ebrada should return the proceeds of the check to Republic Bank. As an
indorser of the check, she was supposed to have warranted that she has
good title to said check. See Section 65.
Section 23: When the signature is forged or made without the authority of
the person whose signature it purports to be, it is wholly inoperative, and
no right to retain the instruments, or to give a discharge thereof against
any party thereto, can be acquired through or under such signature unless
the party against whom it is sought to enforce such right is PRECLUDED
from setting up the forgery or want of authority.
It is only the negotiation based on the forged or unauthorized signature
which is inoperative. Therefore:
Martin Lorenzo
Ramon Lorenzo
Delia Dominguez
Mauricia Ebrada
Signature inoperative
To Dominguez: operative
To Ebrada: operative
Drawee bank can collect from the one who encashed the check. If Ebrada
performed the duty of ascertaining the genuiness of the check, in all
probability, the forgery wouyld have been detected and the fraud defeated.
FACTS:
Perez was able to collect the checks payable to petitioner. The petitioner
wasn't able however to receive the checks. Instead, the payees signatures
therein were forged and was able to land in the hands of third persons who
deposited the same to their account in China bank. Petitioner sued
Chinabank for the sum of money. The trial court held that there was equal
negligence on the part of petitioner and bank but the appellate court held
that the bank had no liability whatsoever.
HELD:
Since the petitioner had no account with the bank and wasn't a client
thereof, the latter had no way of ascertaining the authenticities of its
indorsements on the checks which were deposited in the accounts of the
third party defendants in said bank. Respondent bank wasn't negligent
because, in accordance with banking practice, it caused the checks to pass
through the clearing house before it allowed their proceeds to be
withdrawn by the depositors.
62
ASSOCIATED BANK V. CA
208 SCRA 465
FACTS:
Reyes was engaged in the RTW business and held transactions with
different department stores. She was about to collect payments from the
department stores when she was informed that the payments had
already been made, through crossed checks issued in her business name
and the same were deposited with the bank. The bank consequently
allowed its transfer to Sayson who later encashed the checks. This
prompted Reyes to sue the bank and its manager for the return of the
money. The trial and appellate court ruled in her favor.
HELD:
There is no doubt that the checks were crossed checks and for payees
account only. Reyes was able to show that she has never authorized
Sayson to deposit the checks nor to encash the same; that the bank had
allowed all checks to be deposited, cleared and paid to one Sayson in
violation of the instructions in the said crossed checks that the same were
for payees account only; and that Reyes maintained a savings account
with the bank which never cleared the said checks.
Under accepted banking practice, crossing a check is done by writing
two parallel lines diagonally on the top left portion of the checks. The
crossing is special where the name of a bank or a business institution
is written between the two parallel lines, which means that the drawee
should pay only with the intervention of the company. The crossing is
general where the words written in between are And Co. and for payees
account only, as in the case at bar. This means that the drawee bank
should not encash the check but merely accept it for deposit.
The effects of crossing a check are as follows:
1. That the check may not be encashed but only deposited in the
bank
2. That the check may be negotiated only onceto one who has an
account with a bank
3. That the act of crossing the check serves as a warning to the
holder that the check has been issued for a definite purpose so
that he must inquire if he has received the check pursuant to the
purpose
The subject checks were accepted for deposit by the bank for the account
of Sayson although they were crossed checks and the payee wasn't
Sayson but Reyes.
The
bank stamped thereon its guarantee that all prior endorsements
and/or lack of endorsements guaranteed.
By such
deliberate and positive act, the bank had for all legal intents and purposes
treated the said checks as negotiable instruments and accordingly assumed
the warranty of the endorser.
When the bank paid the checks so endorsed notwithstanding that title has
not passed to the endorser, it did so at its peril and became liable to
the payee for the value of the checks.
63
ASSOCIATED BANK V. CA
252 SCRA 620
FACTS:
The province of Tarlac maintains an account with PNB-Tarlac. Part of its
funds is appropriated for the benefit of Concepcion Emergency Hospital.
During a post-audit done by the province, it was found out that 30 of its
checks werent received by the hospital. Upon further investigation, it was
found out that the checks were encashed by Pangilinan who was a former
cashier and administrative officer of the hospital through forged
indorsements.
This prompted the provincial treasurer to ask for
reimbursement from PNB and thereafter, PNB from Associated Bank. As
the two banks didn't want to reimburse, an action was filed against them.
HELD:
There is a distinction on forged indorsements with
instruments and instruments payable to order.
regard bearer
FACTS:
RPN, IBC and BBC were all assessed for tax by the BIR. To pay the
assessed taxes, they bought managers checks from petitioner bank. None
of these checks were paid to the BIR. They were found to have been
deposited in the account of a third person in Security Bank. As the taxes
remained unpaid, the BIR issued a levy, distraint and garnishment against
the three networks. An action was filed wherein it was decided that the
networks should be reimbursed for the amounts of the checks by petitioner
bank and the latter in turn, must be reimbursed by Security Bank. In the
appellate court, it was held that Traders Bank should be the only bank
liable.
HELD:
Petitioner ought to have known that where a check is drawn payable to the
order of one person and is presented for payment by another and purports
upon its face to have been duly indorsed by the payee of the check, it is
the primary duty of the petitioner to know that the check was duly
indorsed by the original payee, and it pays the amount of the check to the
third person, who has forged the signature of the payee, the loss falls upon
the petitioner who cashed the check. Its only remedy is against the person
to whom it paid the money.
It should be further noted that one of the checks was a crossed check. The
crossing of the check should have put petitioner on guard; it was dutybound to ascertain the indorsers title to the check or the nature of his
possession.
Sec. 124. Alteration of instrument; effect of. - Where a
negotiable instrument is materially altered without the assent of
all parties liable thereon, it is avoided, except as against a
party who has himself made, authorized, or assented to the
alteration and subsequent indorsers.
But when an instrument has been materially altered and is in
the hands of a holder in due course not a party to the
alteration, he may enforce payment thereof according to its
original tenor.
RIGHTS OF ONE NOT HOLDER IN DUE COURSE
3.
4.
He could recover the altered tenor to any party who has made,
authorized or assented the alteration, or any subsequent indorser
of the instrument
NO DISTINCTION BETWEEN FRAUDULENT AND INNOCENT ALTERATION
RIGHT TO COLLECT ORIGINAL CONSIDERATION
When the alteration wasn't fraudulently done, the holder may recover
the original consideration
WHERE DRAWEE BANK PAYS ALTERED AMOUNT, DRAWER HAS THE RIGHT
TO HAVE HIS ACCOUNT DEBITED WITH CORRECT AMOUNT ONLY
BANKS ARE BOUND BY THE 24-HOUR CLEARING HOUSE RULE AND MUST
NOTIFY THE COLLECTING BANKS WITHIN 24 HOURS OF ALTERATION
OF CHECKS
SECTION 23
Forgery with regard the signature of
the drawer or indorser
Real defense
FACTS:
Peoples Bank is sought to be liable for the amount involved in checks
subject of this case. This arose from the following facts:
PLDT drew a check on HSBC with the latter being the payee. The check
landed in the hands of a third person who successfully substituted his
name as payee and deposited the check with the Peoples Bank. Upon
knowledge of this, reimbursement was being sought from the Peoples
Bank and it refused to do so. This prompted to an action against it.
HELD:
The entire case of HSBC relied on the indorsement that has been
heretofore copiednamely, a guarantee of all prior indorsements made by
Peoples Bank and since such an indorsement carries with it a concomitant
guarantee of genuineness, the Peoples Bank is liable to HSBC for alteration
of the name of the payee. On the other hand, the Peoples Bank relied on
the 24-hour regulation of the Central Bank that required after a clearing,
that all cleared items must be returned not later than 24 hours. It should
be noted that the checks were returned by HSBC 27 days later. Dismissal
of its complaint was therefore called for.
67
REPUBLIC BANK V.
CA 196 SCRA 100
FACTS:
SMC issued a dividend check in favor of Delgado and the check was drawn
against FBTC. Delgado was able to alter the check, increased the amount
of the same and deposited it with his account in Republic Bank. RB
indorsed it with FBTC. The SMC notified FBTC of the alterations made and
demanded for reimbursement.
Republic Bank then didn't want to
reimburse. The trial court held it liable.
HELD:
68
FACTS:
DECS issued a check in favor of Abante Marketing containing a specific
serial number, drawn against PNB. The check was deposited by Abante in
its account with Capitol and the latter consequently deposited the same
with its account with PBCOM which later deposited it with petitioner for
clearing. The check was thereafter cleared. However, on a relevant date,
petitioner PNB returned the check on account that there had been a
material alteration on it. Subsequent debits were made but Capitol cannot
debit the account of Abante any longer for the latter had withdrawn all the
money already from the account.
This prompted Capitol to seek
reclarification from PBCOM and demanded the recrediting of its account.
PBCOM followed suit by doing the same against PNB. Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint
against petitioner.
FACTS:
Boncan was the Finance Officer of the Philippine Embassy in Madrid who on
many occasions negotiated with Banco Atlantico checks, allegedly endorsed
to her by the embassy. On these occasions, the bank allowed the payment
of the checks, notwithstanding the fact that the drawee bank has not yet
cleared the checks for collection. This was premised on the finding
that Boncan had special relations with the employees of the bank. And
that upon presentment to the drawee bank, the checks were dishonored
due to non-acceptance allegedly on the ground that the drawer has
ordered the stoppage of payment. This prompted Banco Atlantico to
collect from the Philippine Embassy for the funds released to Boncan but
the latter refused. This eventually led to filing of money claim of the
bank with the Auditor General.
HELD:
On whether or not Banco Atlantico was a holder in due course, it is not.
Following the decision of the Auditor General in denying the claim of the
bank, the checks were demand notes. It should have been put on guard
when Boncan negotiated the checks with them and subsequently deposited
the same to her account. Even though it were demand notes, she
instructed the bank that the same be not presented for collection till a later
date. The fact that the amount was quite big and it was the payee
herself who made the request that the same be not presented for
collection until a fixed date in the future was proof of a glaring infirmity
or defect in the instrument.
It loudly proclaims Take me at your
own risk. It was obvious by then that the bank had knowledge of the
infirmity or defect of the checks. Furthermore, what it did when it
allowed payment before clearing is beyond the normal and ordinary
banking practice especially when the bank involved is a foreign bank
and the amounts involved were large. Boncan wasn't even a client of the
bank but was someone who had special relations with its officers.
69
PNB V. CA
256 SCRA 491
HELD:
An alteration is said to be material if it alters the effect of the instrument.
It means an unauthorized change in the instrument that purports to modify
in any respect the obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete instrument relating to
the obligation of the party. In other words, a material alteration is one
which changes the items which are required to be stated under Section 1 of
the NIL.
In this case, the alleged material alteration was the alteration of the serial
number of the check in issuewhich is not an essential element of a
negotiable instrument under Section 1. PNB alleges that the alteration was
material since it is an accepted concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and
agencies. As a safety measure, every government office or agency is
assigned checks bearing different serial numbers.
But this contention has to fail. The checks serial number is not the sole
indicia of its origin. The name of the government agency issuing the check
is clearly stated therein. Thus, the checks drawer is sufficiently identified,
rendering redundant the referral to its serial number.
FACTS:
MANILA, P. I., August 12, 1902.
$300.00
At sight pay to my order three hundred dollars, value received, and charge
to my account.
V. S. WOLFF.
To F. H. TAYLOR & Co.,
Louisville, Kentucky.
No ................................
[Indorsements.]
V. S. Wolff. The signature is O. K. payment guaranteed. Protest, demand,
and notice of nonpayment waived. Macondray & Company.
Pay to First National Bank of San Francisco, or order. American Bank,
Manila, P. I. H. B. Mulford, cashier.
Pay to 3rd National Bank or order. The First National Bank of San
Francisco. James K. Lynch, cashier.
American Bank claims the right to recover from Wolff the amount of the bill
of exchange upon the theory that Macondray guaranteed the payment of
the instrument. This was refuted by Macondray by saying that it didn't
guarantee the payment of the instrument. Instead, it only certified the
signature of Wolff and that the statement payment guaranteed xxx was
not written on said indorsement at the time it signed the firm name.
HELD:
An examination of the alleged indorsement of Macondray & Co. which
appeared upon the said bill of exchange at the time of the trial, and the
indorsement of said company at the time of the protest of said bill of
exchange, shows beyond peradventure of doubt that the contention of the
defendant is true, and that part of the indorsement which says "Payment
guaranteed. Protest, demand, and notice of nonpayment waived" was
added by some person after the signature of the defendant, Macondray &
Co., and after the protest of said bill. The indorsement made by Macondray
& Co. was changed, after said indorsement by said company, by adding
thereto the statement "Payment guaranteed. Protest, demand, and notice
of nonpayment waived," and that the indorsement actually made by
Macondray & Co. was in the following form:
V. S. Wolff. The signature is O. K. Macondray & Co.
The liability of an indorser of a bill of exchange, after due protest and
notice of nonpayment and dishonor, is the same as that of the original
obligors on such a contract, and any material alteration in the terms of this
contract by the holder of the same, without the consent of the obligor, will
relieve such obligor from all liability thereon.
The original indrosement then of the company was for the purpose only of
assuring the American Bank that the signature of Wolff was genuinethat
is to say, that the person whom he represented himself to be. It was an
indorsement for identification of the person only and not for the purpose of
incurring liability to the payment of such bill of exchange.
71
MONTINOLA V.
PNB 88 PHIL 178
FACTS:
Ramos, as a disbursing officer of an army division of the USAFE, made cash
advancements w/ the Provincial Treasurer of Lanao. In exchange, the
Provl Treasurer of Lanao gave him a P500,000 check. Thereafter, Ramos
presented the check to Laya for encashment. Laya in his capacity as
Provincial Treasurer of Misamis Oriental as drawer, issued a check to
Ramos in the sum of P100000, on the Philippines National Bank as drawee;
the P400000 value of the check was paid in military notes.
Ramos was unable to encash the said check for he was captured by the
Japanese. But after his release, he sold P30000 of the check to Montinola
for P90000 Japanese Military notes, of which only P45000 was paid by the
latter. The writing made by Ramos at the back of the check was to the
effect that he was assigning only P30000 of the value of the document with
an instruction to the bank to pay P30000 to Montinola and to deposit the
balance to Ramos's credit. This writing was, however, mysteriously
obliterated and in its place, a supposed indorsement appearing on the back
of the check was made for the whole amount of the check. At the time of
the transfer of this check to Montinola, the check was long overdue by
about 2-1/2 years.
Montinola instituted an action against the PNB and the Provincial Treasurer
of Misamis Oriental to collect the sum of P100,000, the amount of the
aforesaid check. There now appears on the face of said check the words
in parenthesis "Agent, Phil. National Bank" under the signature of
Laya purportedly showing that Laya issued the check as agent of the
Philippine National Bank.
HELD:
The words "Agent, Phil. National Bank" now appearing on the face of the
check were added or placed in the instrument after it was issued by the
Provincial Treasurer Laya to Ramos. The check was issued by only
as Provincial Treasurer and as an official of the Government, which was
under obligation to provide the USAFE with advance funds, and not as
agent of the bank, which had no such obligation. The addition of those
words was made after the check had been transferred by Ramos to
Montinola. The insertion of the words "Agent, Phil. National Bank,"
which 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
72
FACTS:
Here comes again the Ministry of Education issuing checks drawn against
PNB. It was deposited with petitioner bank and the latter consequently
submitted the checks to PNB for clearing. After the 24-hour clearing period
without any reply from the latter, the petitioner bank credited the account
with the values of the checks. Thereafter, PNB returned the checks without
clearing them for allegedly being materially altered.
HELD:
The alterations in the checks were made on its serial numbers. This has
been long decided in a previous case involving PNB, the same bank in this
case. An alteration on the serial number is not to be considered as a
material alteration. A material alteration is one which changes the items
relating to any of the essential requisites mentioned in Section 1.
There is no need to rule on the 24-hour clearing period since there was no
material alteration to speak of. PNB had no right to dishonor the checks
and return them to petitioner. Thus, PNB is liable for the value of the
checks.
**Modification of the 24-hour clearing rule. Now, its notice after 24 hours
of discovering the fraud or material alteration.
73
METROBANK V. CABLIZO
510 SCRA 259
FACTS:
Cablizo maintained an account with petitioner. It drew a check payable to
cash payable to a certain Marquez, for the latters sales commission. The
check was subsequently deposited in Westmont bank and the latter
submitted it with Metrobank for clearing. The check was cleared.
Thereafter, the banks representative asked Cablizo if he issued a check for
P91,000. The answer was in the negative. This prompted Cablizo to
call Metrobank and ask for the recrediting of P90,000 but petitioner
failed to recredit the amount prompting Cablizo to file an action against it.
HELD:
An alteration is said to be material if it alters the effect of the instrument.
It means an unauthorized change in the instrument that purports to modify
in any respect the obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete instrument relating to
the obligation of the party. In other words, a material alteration is one
which changes the items which are required to be stated under Section 1 of
the NIL.
The check in issue was materially altered when its amount was increased
from P1000 to P91000. Cablizo was not the one who authorized or made
such increase. There is no showing that he was negligent in exercising
what was due in a prudent man which could have otherwise prevented the
loss. Cablizo was never remiss in the preparation and issuance of the
check.
The same is without legal effect and the payment for the note is not
demandable
CASE DIGESTS: SECTION 24
74
48 PHIL 5
FACTS:
Laguna Coconut Oil Company executed the following promissory note in
favor of the Philippine Vegetable Oil Company:
P50,000.00.
One month after date we promise to pay to the Philippine Vegetable Oil
Company, Inc., or order at City of Manila, Philippine Islands, the sum of
fifty thousand pesos (P50,000), Philippine currency; value received.
In case of non-payment of this note at maturity, we are to pay interest at
the rate of nine per cent (9%) per annum on the said amount and the
further sum of P5,000 in full, without any deduction as and for costs,
expenses and attorney's fees for collection whether actually incurred or
not.
Manila, Philippine Islands, April 26, 1920.
LAGUNA COCONUT OIL CO.
By BALDOMERO COSME
President
After a month, Fidelity & Surety Company of the Philippine Islands made
the following notation on the note:
For value received, we hereby obligate ourselves to hold the Laguna
Cocoanut Oil Co. harmless against loss for having discounted the foregoing
note at the value stated therein.
Philippine Vegetable Oil Company indorsed the note to BPI, which at
maturity date demanded payment from both Laguna Oil and Fidelity
Surety. Both having failed to pay, BPI instituted actions against them. PNB
pleaded the note with its indorsements by copy and alleged that the
Fidelity & Surety Company by having undertaken to hold the Laguna Oil
harmless for having discounted the note, contracted the obligation to pay
said note on behalf of the Laguna Oil and to be surety for the latter. The
trial court held against Fidelity and Surety and demanded it to pay the
note. The trial court also held that the words BPI should have been
placed in the indorsement rather than Laguna Oil.
HELD:
TRAVEL ON V. CA
210 SCRA 351
FACTS:
Petitioner was a travel agency involved in ticket sales on a commission
basis for and on behalf of different airline companies. Miranda has a
revolving credit line with the company. He procured tickets on behalf of
others and derived commissions from it.
Petitioner filed a collection suit against Miranda for the unpaid amount of
six checks. Petitioner alleged that Miranda procured tickets from them
which he paid with cash and checks but the checks were dishonored upon
presentment to the bank. This was being refuted by Miranda by saying
that he actually paid for his obligations, even in the excess. He argued
that the checks were for accommodation purposes only. The company
needed to show to its Board of Directors that its accounts receivable was in
good standing. The RTC and CA held Miranda not to be liable.
HELD:
Reliance by the lower and appellate court on the companys financial
statements were wrong, to see if Miranda was liable or not. This financial
statements were actually not updated to show that there was indebtedness
on the part of Miranda. The best evidence that the courts should have
looked at were the checks itself. There is a prima facie presumption that a
check was issued for valuable consideration and the provision puts the
burden upon the drawer to disprove this presumption. Miranda was unable
to relieve himself of this burden.
Only clear and convincing evidence and not mere self-serving evidence of
drawer can rebut this presumption. The company was entitled to the
benefit conferred by the statutory provision. Miranda failed to show that
the checks werent issued for any valuable consideration. The checks were
clear by stating that the company was the payee and not a mere
accommodated party. And also, notice was given to the fact that the
checks were issued after a written demand by the company regarding
Mirandas unpaid liabilities.
76
PINEDA V. DELA
RAMA 121 SCRA 671
FACTS:
Pineda was caught in a case against the NARIC for his alleged
misappropriation of many cavans of palay. He hired Atty. Dela Rama to
delay the filing of the complaint against him, on alleged representation of
the lawyer that he is a friend of the NARIC administrator.
Pineda then issued a promissory note in favor of dela Rama to pay for the
advances that the lawyer made to the administrator to delay the filing of
the complaint.
Dela Rama on the other hand contended that the
promissory note was for the loan advanced to Pineda by him. Dela Rama
filed an action against Pineda for the collection of the amount of the note.
HELD:
The presumption that a negotiable instrument was issued for valuable
consideration is a rebuttable presumption. It can be rebutted by proof to
the contrary.
In the case at bar, the claims of dela Rama that the promissory note was
for a loan advanced to Pineda is unbelievable. The grant of a loan by a
lawyer to a moneyed client and whom he has known for only 3 months can
not be relied on. Pineda had actually just purchased numerous properties.
It is highly illogical that he would loan from dela Rama P9500 for 5 days
apart.
Furthermore, the note was void ab initio because the consideration given
was to influence the administrator to delay charges against Pineda. The
consideration was void for being against law and public policy.
Sec.
25.
Value,
what
constitutes.
Value
is
any
consideration sufficient to support a simple contract. An
antecedent or pre-existing debt constitutes value; and is
deemed such whether the instrument is payable on demand or at
a future time.
VALUABLE CONSIDERATION, IN GENERAL
Suppose that A makes a note in the sum of P1000 payable to the order
of B. B owes C P600. C is said to have a lien on the note to the
extent of P600 only, and to that extent, he is a holder for value.
Reason for the rule: C is actually a holder in due course for P600 only.
He is a holder in due course for such as he is a holder for value for
only P600. For the balance of P400 he is not a holder for value, and
since being a holder for value is one of the requisites of a holder in due
course, he cannot be a holder in due course as far as the P400 is
concerned.
FAILURE OF CONSIDERATION
Matter of defense against persons who are not holders in due course
Requisites:
1. He must be a party to the instrument, signing as maker, acceptor,
indorser, or drawer
2. He must not receive any value therefore
3. He must sign for the purpose of lending his name or credit
RIGHTS AND LEGAL POSITION OF AN ACCOMODATION PARTY
OF
CLARK V. SELINER
42 PHIL 384
FACTS:
Sellner with two other persons, signed a promissory note solidarily binding
themselves to pay to the order of R.N Clark. The note matured but the
amount wasn't paid. The defendant alleges that he didn't receive any
amount of the debt; that the instrument wasn't presented to him for
payment and being an accommodation party, he is not liable unless the
note is negotiated, which wasn't done.
HELD:
On the first issue, the liability of Sellner as one of the signers of the note,
is not dependent on whether he has or has not, received any part of the
debt. The defendant is really and expressly one of the joint and
several debtors of the note and as such he is liable under the provisions of
Section 60 of the NIL.
As to the presentment for payment, such action is not necessary in order
to charge the person primarily liable, as is the defendant Sellner.
As to whether or not Sellner is an accommodation party, it should be taken
into account that by putting his signature to the note, he lent his name, not
to the creditor, but to those who signed with him placing him in the same
position and with the same liability as the said signers. It should be noted
that the phrasewithout receiving value therefore as used in section 29
means without receiving value by virtue of the instrument and not, as it
apparently is supposed to mean, without receiving payment for lending his
name. It is immaterial as far as the creditor is concerned, whether one of
the signers has or has not received anything in payment for the use of his
name. In this case, the legal situation of Sellner is that of a joint surety
who upon the maturity of the note, pay the debt, demand the collateral
security and dispose of it to his benefit. As to the plaintiff, he is a holder
for value.
78
CANEDA V.
CA 181 SCRA 762
FACTS:
Gueson for value received, executed a promissory note in favor of Caneda,
promising to pay monthly installments with interest per annum. That to
secure the obligation, he executed a chattel mortgage and used a Toyota
Jiffy jeep as collateral; that it is expressly provided for in the promissory
note that in case of default in any installment would deem that whole
obligation demandable. This promissory note was later assigned to
FNCB. Gueson then defaulted in his obligation and had an outstanding
balance. Despite demands on Gueson, he failed and refused to pay. This
prompted FNCB to file an action for replevin and sum of money,
and in the alternative, prayed for the payment of the outstanding
balance plus interest.
FACTS:
Spouses Hipolito applied for and was granted a loan by the bank,
which was secured by a promissory note.
For failure to pay
their monthly payments, they were declared in default.
The spouses denied having any liability. They stated that the real party-ininterest is the sister of the husband, Pilarita Reyes. The spouses, not
having received part of the loan, were mere guarantors of Reyes. As such,
they protested against being dragged into the litigation.
The trial court held that they were liable as accommodation parties to the
promissory note. This was reversed by the Court of Appeals.
HELD:
An accommodation party is one who has signed the instrument as maker,
drawer, indorser, without receiving value therefore and for the purpose of
lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time
of the taking of the instrument knew him to be an accommodation party.
In lending his name to the accommodated party, the accommodation party
is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no
part of the consideration for the instrument but assumes liability to the
other parties thereto because he wants to accommodate another.
In the case at bar, it is indisputable that the spouses signed the promissory
note to enable Reyes to secure a loan from the bank. She was the actual
beneficiary of the loan and the spouses accommodated her by signing the
note.
80
MAULINI V. SERRANO
28 PHIL 640
FACTS:
This is an appeal from a judgment of the Court of First Instance of the city
of Manila in favor of the plaintiff for the sum of P3,000, with interest
thereon at the rate of 112 per cent month from September 5, 1912,
together with the costs.
The action was brought by the plaintiff upon the contract of indorsement
alleged to have been made in his favor by the defendant upon the following
promissory note:
3,000.
Due 5th of September, 1912.
We jointly and severally agree to pay to the order of Don Antonio G.
Serrano on or before the 5th day of September, 1912, the sum of three
thousand pesos (P3,000) for value received for commercial operations.
Notice and protest renounced. If the sum herein mentioned is not
completely paid on the 5th day of September, 1912, this instrument will
draw interest at the rate of 112 per cent per month from the date when
due until the date of its complete payment. The makers hereof agree to
pay the additional sum of P500 as attorney's fees in case of failure to pay
the note.
Manila, June 5, 1912.
(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For
Jose Padern, by F. Moreno. Angel Gimenez.
The note was indorsed on the back as follows:
Pay note to the order of Don Fernando Maulini, value received. Manila,
June 5, 1912. (Sgd.) A.G. Serrano.
HELD:
1.
2.
81
FACTS:
At the time of execution of the note, Xavier was the agent of Veloso in the
management of the latters real property in Manila. Though lacking in
capital, Xavier was engaged in real estate trading, so far as his credit
permitted, upon his own account. His attention was then attracted to a
piece of property, which was then on the market. Xavier communicated to
his principal his desire to acquire the property and at the same time
requested that Veloso assist him in the matter. Veloso was later convinced
to help out Xavier. Thereafter, Gonzales lent a helping hand by advancing
the money needed by Xavier, on the condition that a note should be
issued jointly and severally by Xavier and Veloso; and that Xavier should
agree to purchase interest from Gonzales which the latter
possessed in a mortgage credit.
MANILA, .................................................
On or before six months after date we will jointly and severally pay in
Manila to the order of ........................... the sum of twenty-five thousand
pesos (P25,000), Philippine currency, for value received of the same in
cash, for commercial operations, and with interest at 10 per cent per
annum, payable monthly.
Protest waived.
(Sgd.) N XAVIER
M. G. VELOSO.
Witness:
Sgd.) MODESTO ALBERTO
The sale of the property ensued. It was found out that the property has
already been encumbered by a mortgage with Shanghai Life. And as the
value of the property was more than the property mortgaged by Xavier,
Gonzales demanded another second mortgage.
A foreclosure proceeding took place and while the result of such was
pending, the note was transferred to the hands of Acuna who filed an
action against Veloso and Xavier, both of which denied liability. Xavier
posed the special defense that he had executed a second mortgage to
secure the note and that he already sold the mortgaged property and
another has assumed the indebtedness.
The trial court decided that Veloso and Xavier were solidarily liable to
Acuna/Gonzales. Nonetheless, Veloso was held to be an accommodation
party, who has a right to reimbursement from Xavier for whatever he may
pay for the note.
HELD:
The case being cited by defendants is not applicable to the case at bar.
The case of Rylee v. Wilkinson contemplates a situation wherein an
accommodation maker executes a note in favor of an accommodated party.
In the case at bar, the accommodation party and accommodated party
execute a note jointly and severally to a person who advances the face
value of the note to one of its makers at the very time of its creation. The
consideration for the note is the money advanced to Xavier. Value was
given for the note and that is enough. In equity as between Veloso and
Xavier, Veloso is entitled to the rights as a surety and Xavier is the real
debtor; but as to the creditor who gave value for the note at the time of its
creation, both of Veloso and Xavier are mere joint and several makers.
82
FACTS:
Maza and Macenas executed a total of five promissory notes. These were
not paid at maturity. And to recover the amounts stated on the face of the
promissory notes, PNB initiated an action against the two. The special
defense posed by the two is that the promissory notes were delivered to
them in blank by a certain Enchaus and were made to sign the notes so
that the latter could secure a loan from the bank. They also alleged that
they never negotiated the notes with the bank nor have they received any
value thereof.
They also prayed that Enchaus be impleaded in the
complaint but such was denied. The trial court then held in favor of the
bank.
HELD:
The defendants attested to the genuineness of the instruments sued on.
Neither did they point out any mistake in regard to the amount and
interest that the lower court sentenced them to pay. Given such, the
defendants are liable. They appear as the makers of the promissory
notes and as such, they must keep their engagement and pay as promised.
And assuming that they are accommodation parties, the defendants having
signed the instruments without receiving value thereof, for the purpose of
lending their names to some other person, are still liable for the promissory
notes. The law now is such that an accommodation party cannot claim no
benefit as such, but he is liable according to the face of his
undertaking, the same as he himself financially interest in the transaction.
It is also no defense to say that they didn't receive the value of the
notes. To fasten liability however to an accommodation maker, it is not
necessary that any consideration should move to him.
The
accommodation which supports the promise of the accommodation maker
is that parted with by the person taking the note and received by the
person accommodated.
83
PRUDENCIO V. CA
143 SCRA 7
FACTS:
Appellants are the owners of a property, which they mortgaged to help
secure a loan of a certain Domingo Prudencio. On a later date, they were
approached by their relative who was the attorney-in-fact of a construction
company, which was in dire need of funds for the completion of a municipal
building. After some persuasion, the appellants amended the mortgage
wherein the terms and conditions of the original mortgage was made an
integral part of the new mortgage. The promissory note covering the
second loan was signed by their relative. It was also signed by them,
indicating the request that the check be released by the bank.
After the amendment of the mortgage was executed, a deed of assignment
was made by Toribio, assigning all the payments to the Bureau to the
STELCO MARKETING V. CA
210 SCRA 51
FACTS:
Petitioner was engaged in the distribution and sale of structiural steel bars.
RYL bought on several occasion large quantities of steel bars but the
same were never paid for despite several demands by petitioner.
On a relevant date, RYL gave to Armstrong Industries a check in payment
of its obligations.
The check was drawn by Steelweld Corporation
allegedly the owner of RYL persuaded the president of Steelweld to
accommodate the former in its obligation. The check, when deposited was
thereafter dishonored due to insufficient funds.
A case ensued for
violations of BP22 but the case was dismissed as the check was held to be
for accommodation purposes only.
Thereafter a complaint was filed by petitioner against RYL and Steelweld
for the recovery of sum of money in payment of the steel bars
ordered. RYL was nowhere to be found that is why the proceedings
commenced as against Steelweld only. The trial court decided in favor
of petitioner but this was reversed by the CA.
HELD:
Petitioner contends that the acquittal of Lim and Tianson didn't operate to
release Steelweld from its liability as an accommodation party. Noteworthy
is that neither said pronouncement nor any other part of the judgment of
acquittal declared it liable to petitioner. To be sure, as regards an
accommodation party, the condition of lack of notice of any infirmity or
defect in title of the persons negotiating it is of no application since the law
preserves the right of recourse of a holder for value against an
accommodation party notwithstanding knowledge that at the time of
taking the instrument, knew him only as an accommodation party.
Further, there is no evidence to show that petitioner possessed the
check before the instruments presentment and dishonor.
In what
transpired during the transactions involving the check, evidence and facts
show that there was any participation or intervention on the part of
petitioner. What
the record shows is that only after the check was deposited and
dishonored, petitioner came into possession of it in some way and was able
to give it in evidence at the trial of the civil case it has instituted against
the drawers of the check.
85
FACTS:
Ting issued a PBCom check payable to cash or bearer. This was indorsed
by Ang at the back and it was received by plaintiff. Upon encashment of
the check, the same was dishonored. Plaintiff moved that the two make
good the value of the check but despite demands, he was unheeded,
prompting him to file a complaint. The trial court decided in his favor.
HELD:
Even on the assumption that the appellant was an accommodation
indorser, as he professes to be, he is nevertheless by the clear mandate of
section 29, liable on the instrument to a holder for value, notwithstanding
that such holder at the time of taking the instrument knew him to be an
accommodation party. And assuming that he was an accommodation
party, he may obtain security from the maker to protect himself against
the danger of insolvency of the latter but this doesn't affect his liability to
the appellee, as the said remedy is a matter of recourse between him and
the maker.
86
SADAYA V. SEVILLA
19 SCRA 924
FACTS:
Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of
the bank. Varona was the only one who received the proceeds of the
note. Sadaya and Sevilla both signed as co-makers to accommodate
Varona. Thereafter, the bank collected from Sadaya. Varona failed to
reimburse.
Consequently, Sevilla died and intestate estate proceedings were
established. Sadaya filed a creditors claim on his estate for the payment
he made on the note. The administrator resisted the claim on the ground
that Sevilla didn't receive any proceeds of the loan. The trial court
admitted the claim of Sadaya though tis was reversed by the CA.
HELD:
Sadaya could have sought reimbursement from Varona, which is right and
just as the latter was the only one who received value for the note
FACTS:
Petitioner sold to Wonderland Food Industries two parcels of land. They
stipulated under a Memorandum of Agreement that the terms of payment
would be P1,000,000 in cash, P2,000,000 in shares of stock, and the
balance would be payable in monthly installments.
Thereafter, an
addendum was executed between them, qualifying the cash payment.
Instead of cash payment, the vendee authorized the vendor to obtain
a loan from the financier on which the vendee bound itself to pay for.
This loan was to cover for the payment of P1,000,000. This addendum
was not notarized.
CRISOLOGO JOSE V. CA
177 SCRA 594
FACTS:
The president of Movers Enterprises, to accommodate its clients Spouses
Ong, issued a check in favor of petitioner Crisologo-Jose. This was in
consideration of a quitclaim by petitioner over a parcel of land, which the
GSIS agreed to sell to spouses Ong, with the understanding that upon
approval of the compromise agreement, the check will be encahsed
accordingly. As the compromise agreement wasn't approved during the
expected period of time, the aforesaid check was replaced with another one
for the same value. Upon deposit though of the checks by petitioner, it
was dishonored. This prompted the petitioner to file a case against Atty.
Bernares and Santos for violation of BP22.
Meanwhile, during the
preliminary investigation, Santos tried to tender a cashiers check for the
value of the dishonored check but petitioner refused to accept such. This
was consigned by Santos with the clerk of court and he instituted charges
against petitioner. The trial court held that consignation wasn't applicable
to the case at bar but was reversed by the CA.
HELD:
Petitioner averred that it is not Santos who is the accommodation party to
the instrument but the corporation itself. But assuming arguendo that the
corporation is the accommodation party, it cannot be held liable to the
check issued in favor of petitioner. The rule on accommodation party
doesn't include or apply to corporations which are accommodation parties.
This is because the issue or indorsement of another is ultra vires. Hence,
one who has taken the instrument with knowledge of the accommodation
nature thereof cannot recover against a corporation where it is only an
accommodation party. If the form of the instrument, or the nature of the
transaction, is such as to charge the indorsee with the knowledge that the
issue or indorsement of the instrument by the corporation is for the
accommodation of another, he cannot recover against the corporation
thereon.
By way of exception, an officer or agent of a corporation shall have the
power to execute or indorse a negotiable paper in the name of the
corporation for the accommodation of a third party only is specifically
authorized to do so. Corollarily, corporate officers have no power to
execute for mere accommodation a negotiable instrument of the
corporation for their individual debts and transactions arising frm or in
relation to matters in which the corporation has no legitimate concern.
Since such accommodation paper cannot be enforced against the
corporation, the signatories thereof shall be personally liable therefore, as
well as the consequences arising from their acts in connection therewith.
III. NEGOTIATION
Sec. 30. What constitutes negotiation. - An instrument
is negotiated when it is transferred from one person to another
in such manner as to constitute the transferee the holder
thereof. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the
holder and completed by delivery.
METHOD OF TRANSFER
1. By assignment
2. By operation of law
3. By negotiation, which may be completed by indorsement completed by
delivery or by mere delivery
ASSIGNMENT
The effect of the assignment is that the party holding the right drops
out of the contract and another takes his place
Each assignee takes his chance as to the exact position in which any
party making an assignment of it stands
personal
assignee
case the
payee or
NEGOTIATION
CALTEX V. CA
212 SCRA 448
FACTS:
Security bank issued Certificates of Time Deposits to Angel dela Cruz. The
same were given by Dela Cruz to petitioner in connection to his purchase of
fuel products of the latter. On a later date, Dela Cruz approached the bank
manager, communicated the loss of the certificates and requested for a
reissuance.
Upon compliance with some formal requirements, he
was issued replacements. Thereafter, he secured a loan from the bank
where he assigned the certificates as security.
Here
comes
the
petitioner, averred that the certificates were not actually lost but
were given as security for payment for fuel purchases. The bank
demanded some proof of the agreement but the petitioner failed to
comply. The loan matured and the time deposits were terminated and
then applied to the payment of the loan.
Petitioner demands the
payment of the certificates but to no avail.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
AUTHORIZED SIGNATURES
HELD:
CTDs are negotiable instruments. The documents provide that the
amounts deposited shall be repayable to the depositor. And who,
according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to
Angel de la Cruz only, it could have with facility so expressed that fact in
clear and categorical terms in the documents, instead of having the word
"BEARER" stamped on the space provided for the name of the depositor in
each CTD. On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof. Thus,
petitioner's aforesaid witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but obviously other parties
not privy to the transaction between them would not be in a position to
know that the depositor is not the bearer stated in the CTDs. Hence, the
situation would require any party dealing with the CTDs to go behind the
plain import of what is written thereon to unravel the agreement of the
parties thereto through facts aliunde. This need for resort to extrinsic
evidence is what is sought to be avoided by the Negotiable Instruments
Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.
The next query is whether petitioner can rightfully recover on the CTDs.
This time, the answer is in the negative. The records reveal that Angel de
la Cruz, whom petitioner chose not to implead in this suit for reasons of its
MANUEL LIM V. CA
251 SCRA 408
FACTS:
Spouses Lim were charged with estafa and violations of BP22 for allegedly
purchasing goods from Linton Commercial Corporation and issuing checks
as payment thereof.
The checks when presented to the bank were
dishonored for insufficiency of funds or the payment for the checks has
been stopped.
HELD:
It is settled that venue in criminal cases is a vital ingredient of jurisdiction.
It shall be where the crime or offense was committed or any one of the
essential ingredients thereof took place. In determining the proper venue
for these cases, the following are material factsthe checks were issued at
the place of business of Linton; they were delivered to Linton at the same
place; they were dishonored in Kalookan City; petitioners had knowledge of
the insufficiency of funds in their account.
Under Section 191 of the NIL, issue mean s the first delivery of the
instrumen t complete in it s form to a person who takes it as holder. The
term holder on the other hand refers t o the payee or indorsee of a bill or
note who is in possession of it or the bearer thereof. The important place
It is also a contract
Every indorser is a new drawer and the terms are found on the face of
the bill or note
It has been held that the use of an allonge is allowable only when
there is a physical impossibility of writing the indorsement on the
instrument itself, and an indorsement on a separate piece of paper
where there is sufficient space on the instrument for indorsement will
be considered as a mere assignment and not a negotiation
Sec. 32. Indorsement must be of entire instrument. The indorsement must be an indorsement of the entire
instrument. An indorsement which purports to transfer to the
indorsee a part only of
the
amount
payable,
or
which
purports to transfer the instrument to two or more indorsees
severally, does not operate as a negotiation of the instrument. But
where the instrument has been paid in part, it may be indorsed as
to the residue.
INDORSEMENT MUST BE OF THE WHOLE INSTRUMENT
But where the instrument has been paid in part, it may be indorsed as
to the residue
TRANSFER TO TWO OR MORE INDORSEES SEVERALLY
MONTINOLA V.
PNB 88 PHIL 178
FACTS:
*Remember the case with the Japanese occupation and the mutilated
check.
HELD:
Where the indorsement of the check was only for a part of the amount
payable, it is not legally negotiated within the meaning of Section 32,
3.
Holder must not write any contract not consistent with the
indorsement, that is, the contract so written must not change the
contract of the blank indorser
indorsement
That the indorsement itself discloses the extent of the limitation in the
particular case
LIMITATION ON TRANSFER OF RIGHT: ILLUSTRATION
But all subsequent indorsees acquire only title of the first indorsee
under the restrictive indorsement
Sec.
38.
Qualified
indorsement.
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 does not impair the
negotiable character of the instrument.
HOW QUALIFIED INDORSEMENT IS MADE
One who indorses without recourse states that all parties to the paper
are genuine; I am the lawful owner of the paper and I have title to it
and know of no reason why you could not recover on it as a valid
instrument, but on thing I don't guarantee; I don't guarantee the
financial responsibility on that paper but I do say that I hold the title
the same as any other personal property
QUALIFIED INDORSER HAS LIMITED SECONDARY LIABILITY
IMPAIR
THE
NEGOTIABLE
It is upon the fulfillment of the condition that such ownership over the
proceeds of the note is absolutely acquired by the conditional indorsee
Y
A CONDITIONAL INDORSEMENT DOESN'T RENDER AN INSTRUMENT NONNEGOTIABLE
Sec. 40. Indorsement of instrument payable to bearer. - Where
an instrument, payable to bearer, is indorsed specially, it
may nevertheless be further negotiated by delivery; but the
person
Cannot apply where the paper is originally made payable to order and
indorsed in blank; for by Section 9, a note or bill which is payable to
order becomes payable only when the last indorsement is in blank;
and hence, when a blank indorsement is followed by a special
indorsement, the instrument is not within the terms of Section 9.
NEGOTIATION OF INSTRUMENT PAYABLE TO BEARER BUT SPECIALLY
INDORSED
APPLICATION OF SECTION 42
(Sgd.) A
(Sgd.) A
DISPUTABLE PRESUMPTION
Sec. 43. Indorsement where name is misspelled, and so forth.
-Where the name of a payee or indorsee is wrongly designated
or misspelled, he may indorse the instrument as therein
described adding, if he thinks fit, his proper signature.
APPLICATION OF SECTION 43
Under the provision, in order that one may become a holder in due
course, the instrument must be negotiated to him before it
becomes overdue
Sec.
47.
Continuation
of
negotiable
character.
An
instrument negotiable in its origin continues to be negotiable until
it has been restrictively indorsed or discharged by payment or
otherwise.
further
he strike out such name and convert such special indorsement into a
blank indorsement
The holder who acquires title subsequent to the succeeding special
indorsement must trace his title not only through the blank
indorsement but through the special indorsement as well
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 Salazars
account, without his knowledge and corresponding endorsement. Finding
merit in the demands of Templonuevo, the bank then froze the account of
the engineering firm as the account of Salazar was already closed or had
insufficient funds. Failure of any settlement between Templonuevo and
Salazar, this prompted the bank to debit the account of Salazar and give
back the money to Templonuevo through cashiers check. The account of
Salazar was also debited for whatever charges incurred for the issuance of
the cashiers 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 depositors account the
amount it had previously paid upon certain unendorsed order instruments
deposited by the depositor to another account that she later closed?
HELD:
In the present case, the records do not support the finding made by the CA
and the trial court that a prior arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of the checks. This fact is
crucial as Salazars 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 Salazars possession of the checks, it cannot be said that the
presumption of ownership in Templonuevos 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
Can Jose Soriano negotiate the note? Under this section, he may do
so.
EFFECT OF NEGOTIATION TO PRIOR PARTIES
Such possessor may sue in his own name if his transferor could have
done so
Any one, therefore, who claims otherwise must prove that the holder
in question acquired the instrument with one or more of the conditions
lacking
The holder of the instrument must have become the holder before the
instrument has become overude
Illustrations
o
One who has purchased 2 promissory notes without the
necessary indorsement on the part of the holder after
payment thereof had already been one year overdue and
without having made inquiries about the solvency of the
makers cannot be considered as a holder in due course
o
One taking past due paper is chargeable with notice of all
equities between the original parties but nbt with equities
between intermediate indorsers
o
If the instrument is overdue, it is also a notice that it has
been dishonored
WHEN INSTRUMENT IS OVERDUE
But where by the terms of the instrument, the principal was to become
due upon default of the payment of instrument, then one who takes
the instrument upon which the interest is overdue is not a holder in
due course
WHAT IS AN ACQUISITION IN GOOD FAITH?
Good faith refers to the indorsee or transferee and not to the seller of
the paper
Taking in good faith means that he doesn't have any knowledge of fact
which would render it dishonest for him to take a particular piece of
negotiable paper
o
o
o
o
o
o
DEFENSES
INFIRMITIES
Where the holder gave no valuable consideration for the transfer of the
instrument to him, he cannot be a holder in due course
Examples?
A holder refers to one who has taken the instrument as it passes along
in the course of negotiation towards the drawee and not the drawee,
who, on the acceptance and payment of the instrument, thereby strips
the instrument of all negotiability and reduces it to a mere voucher or
proof of payment
Sec. 53. When person not deemed holder in due course. - Where
an instrument payable on demand is negotiated on an
unreasonable length of time after its issue, the holder is not
deemed a holder in due course.
Attach to the instrument itself and can be set up against the whole
world, including a holder in due course
But this could be raised in the instance that the holder has notice of
the want in consideration
BETWEEN WHOM DEFENSE MAY BE RAISED IN BILLS
It should refer to the substance of the thing which is the object of the
contract, or those conditions which have principally moved one or both
parties to enter into the contract
FRAUD IN FACTUM OR FRAUD IN ESSE CONTRACTUS IS A LEGAL DEFENSE
This fraud exists in those cases which a person without negligence has
signed an instrument which was in fact a negotiable instrument but
was deceived as to the character of the instrument and without
knowledge of it
Essential element is that the maker or indorser, as the case may be,
must have exercised ordinary diligence and in no manner contributed
negligently to the imposition
MINORITY IS A LEGAL DEFENSE ONLY AVAILABLE TO THE MINOR
PROHIBITED FROM
PAPER CANNOT BE
It is presumed that the holder acquired the note under all the
circumstances required under Section 52
When it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he
or some under whom he claims, acquired the title as holder in due
course
THE PRESUMPTION IS NOT APPLICABLE WHEN THE HOLDERS TITLE
WAS DEFECTIVE OR SUSPICIOUS
NOTES FOR WEEK #8
JULY 30- AUGUST ,4,
2007
CASE DIGESTS: SECTIONS 51 TO 59
94
FACTS:
Tam Kim issued 11 checks payable to cash or bearer. Chan Wan presented
these for payment but were dishonored for insufficiency of funds. This
prompted Chan Wan to institute an action against Tam Kim. She didn't
take the witness stand and merely presented the checks for payment. Tan
Kim on the other hand alleged that the checks were for mere receipts only.
The trial court dismissed the complaint as Chan Wan failed to show that
she wa a holder in due course.
HELD:
Eight of the checks were crossed checks specially to Chinabank and should
have been presented for payment by Chinabank and not by Chan Wan.
Inasmuch as Chan Wan didn't present them for payment himself, there
was no proper presentment, and the liability didn't attach to the drawer.
The facts show that the checks were indeed deposited with Chinabank and
were by the latter presented for collection to the drawee bank. But as the
account had no sufficient funds, they were unpaid and returned, some of
them stamped account closed. How it reached the hands of Chan Wan,
she didn't indicate. Most probably, as the trial court surmised, she
acquired them after they have been dishonored.
Chan Wan is then not a holder in due course. Nonetheless, it doesn't mean
that she couldn't collect on the checks. He can still collect against Tan Kim
if the latter has no valid excuse for refusing payment.
The only
disadvantage for Chan Kim is that she is susceptible to defenses of Tan
Kim but what are the defenses of latter? This has to be further deliberated
by the trial court.
95
STELCO MARKETING V. CA
210 SCRA 51
FACTS:
Petitioner was engaged in the distribution and sale of structiural steel bars.
RYL bought on several occasion large quantities of steel bars but the same
were never paid for despite several demands by petitioner.
On a relevant date, RYL gave to Armstrong Industries a check in payment
of its obligations.
The check was drawn by Steelweld Corporation
allegedly the owner of RYL persuaded the president of Steelweld to
accommodate the former in its obligation. The check, when deposited was
thereafter dishonored due to insufficient funds.
A case ensued for
violations of BP22 but the case was dismissed as the check was held to be
for accommodation purposes only.
Thereafter a complaint was filed by petitioner against RYL and Steelweld
for the recovery of sum of money in payment of the steel bars ordered.
RYL was nowhere to be found that is why the proceedings commenced as
against Steelweld only. The trial court decided in favor of petitioner but
this was reversed by the CA.
HELD:
Petitioner contends that the acquittal of Lim and Tianson didn't operate to
release Steelweld from its liability as an accommodation party. Noteworthy
is that neither said pronouncement nor any other part of the judgment of
acquittal declared it liable to petitioner. To be sure, as regards an
accommodation party, the condition of lack of notice of any infirmity or
defect in title of the persons negotiating it is of no application since the law
preserves the right of recourse of a holder for value against an
accommodation party notwithstanding knowledge that at the time of
taking the instrument, knew him only as an accommodation party.
BATAAN CIGAR V. CA
230 SCRA 642
FACTS:
Bataan Cigar has engaged one of its suppliers, George King, to deliver
bales of tobacco leaves. Petititoner then issued postdated crossed checks
in favor of King. This was continued despite the failure to deliver the bales.
Simultaneous to these transactions was the discounting of King of the
checks to State Investment House. Bataan then stopped payment and
SIHI tried to collect.
HELD:
The negotiability of the check isnt affected by it being crossed,
whether specially or generally. It may be legally negotiated from one
person to another as long as the one who encashes the check with the
drawee bank or if its specially crossed, by the bank mentioned
between the parallel lines.
Jurisprudence provides the following effects of crossing a check:
1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only onceto one who has an
account with a bank
3. The act of crossing the check serves the warning to the holder
that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
The check should placed the holder in inquiry and upon him devolves
the duty to ascertain the indorsers title to the check or the nature of
his possession. Failing in this respect, the holder is declared guilty of
gross negligence amount to legal absence of good faith.
In the present case, petitioners defense in stopping payment is as good to
SIHI as it is to King because really the consideration for the checks were
the delivery of the bales of tobacco leaves which King failed to do. There
being failure of consideration, SIHI is not a holder in due course.
97
FACTS:
New Sikatuna requested for a loan from Spouses Chua. Latter issued postdated crossed checks in favor of former. Thereafter, Sikatuna sold checks
to SIHI which upon deposit, checks were dishonored. The trial court
decided the case in favor of SIHI.
HELD:
Jurisprudence provides the following effects of crossing a check:
1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only onceto one who has an
account with a bank
3. The act of crossing the check serves the warning to the holder
that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
The checks in issue were crossed generally and issued payable to New
Sikatuna Wood which could only mean that the drawer has intended the
same for deposit only by the rightful person. Apparently, it was not the
payee who presented the same for payment and therefore, there was no
proper presentment and the liability didn't attach to the drawer. Thus, in
the absence of due presentment, the drawer didn't become liable.
Consequently, no right of recourse is available to petitioner against the
drawer of the subject checks considering that the petitioner is the proper
party authorized to make presentment of the checks in question.
Nonetheless, the holder could still collect from New Sikatuna if the latter
doesn't have a valid excuse from refusing payment.
98
FACTS:
Moulic issued checks as security to Victoriano, for pieces of jewelry to be
sold on commission. Moulic failed to sell the pieces of jewelry, so she
returned them to Victoriano. The checks however could not be recovered
by Moulic as these have been discounted already in favor of
petitioner. Consequently, before the maturity dates, Moulic withdrew her
funds from
her account. Thereafter, petitioner presented the checks for payment but
these were dishonored. This prompted the petitioner to initiate an
action against Moulic.
HELD:
A prima facie presumption exists that a holder of a negotiable instrument is
a holder in due course. The burden of proving that State is not a holder in
due course is upon Moulic. In this regard, she failed to do so.
The evidence shows that the dated checks were complete and regular;
petitioner bought the checks from Victoriano before their due dates; it took
the checks in good faith and for value; and it was never informed nor made
aware that these checks were merely issued to payee as security.
Consequently, State is a holder in due course. Moulic cannot set up the
defense that there was failure or want of consideration. It can only invoke
the defense if State was a privy to the purpose for which they were issued
and therefore is not a holder in due course.
Furthermore, the mere fact that the checks were issued as security is not
sufficient ground to discharge the instrument as against a holder in due
course.
And also, Moulic was responsible for the dishonor of her checks. She
withdrew her funds from her account and could not have expected her
checks to be honored by then.
99
FACTS:
Boncan was the Finance Officer of the Philippine Embassy in Madrid who on
many occasions negotiated with Banco Atlantico checks, allegedly endorsed
to her by the embassy. On these occasions, the bank allowed the payment
of the checks, notwithstanding the fact that the drawee bank has not yet
cleared the checks for collection. This was premised on the finding
that Boncan had special relations with the employees of the bank. And
that upon presentment to the drawee bank, the checks were dishonored
due to non-acceptance allegedly on the ground that the drawer has
ordered the stoppage of payment. This prompted Banco Atlantico to
collect from the Philippine Embassy for the funds released to Boncan but
the latter refused. This eventually led to filing of money claim of the
bank with the Auditor General.
HELD:
On whether or not Banco Atlantico was a holder in due course, it is not.
Following the decision of the Auditor General in denying the claim of the
bank, the checks were demand notes. It should have been put on guard
when Boncan negotiated the checks with them and subsequently deposited
the same to her account. Even though it were demand notes, she
instructed the bank that the same be not presented for collection till a later
date. The fact that the amount was quite big and it was the payee
herself who made the request that the same be not presented for
collection until a fixed date in the future was proof of a glaring infirmity
or defect in the instrument.
It loudly proclaims Take me at your
own risk. It was obvious by then that the bank had knowledge of the
infirmity or defect of the checks. Furthermore, what it did when it
allowed payment before clearing is beyond the normal and ordinary
banking practice especially when the bank involved is a foreign bank
and the amounts involved were large. Boncan wasn't even a client of the
bank but was someone who had special relations with its officers.
In view of the foregoing, the embassy as the drawer of the 3 checks in
question cannot be held liable. It is apparent that the said 3 checks were
(fraudulently altered) by Boncan as to their accounts and therefore wholly
inoperative (note: should be avoided).
100
SALAS V. CA
181 SCRA
FACTS:
Petitioner bought a car from Viologo Motor Sales Company, which was
secured by a promissory note, which was later on indorsed to Filinvest
Finance, which financed the transaction. Petitioner later on defaulted in
her installment payments, allegedly due to the fraud imputed by VMS in
selling her a different vehicle from what was agreed upon. This default in
payment prompted Filinvest Finance to initiate a case against petitioner.
The trial court decided in favor of Filinvest, to which the appellate court
upheld by increasing the amount to be paid.
It is the contention of petitioner that since the agreement between her and
the motor company was inexistent, none had been assigned in favor of
private respondent.
HELD:
Petitioners liability on the promissory note, the due execution and
genuineness of which she never denied under oath, is under the foregoing
factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment
of credit as petitioner would have it appear, where the assignee
merely steps into the shoes of, is open to all defenses available against
and can enforce payment only to the same extent as, the assignor-vendor.
The instrument to be negotiable must contain the so-called words of
negotiability. There are only 2 ways for an instrument to be payable to
order. There must always be a specified person named in the instrument
and the bill or note is to be paid to the person designated in the instrument
or to any person to whom he has indorsed and delivered the same.
Without the words or order or to the order of, the instrument is payable
only to the person designated therein and is thus non-negotiable. Any
subsequent purchaser thereof will not enjoy the advantages of being a
holder in due course but will merely step into the shoes of the person
designated in the instrument and will thus be open to the defenses
available against the latter.
In the case at bar, the promissory notes is earmarked with negotiability
and Filinvest is a holder in due course.
101
FACTS:
Petitioner bought from Atlantic Gulf and Pacific Company, through its sister
company Industrial Products Marketing, two used tractors. Petitioner was
issued a sales invoice for the two used tractors. At the same time, the
deed of sale with chattel mortgage with promissory note was issued.
Simultaneously, the seller assigned the deed of sale with chattel mortgage
and promissory note to respondent. The used tractors were then delivered
but barely 14 days after, the tractors broke down. The seller sent
mechanics but the tractors were not repaired accordingly as they were no
longer serviceable. Petitioner would delay the payments on the promissory
notes until the seller completes its obligation under the warranty.
Thereafter, a collection suit was filed against petitioner for the payment of
the promissory note.
HELD:
It is patent that the seller is liable for the breach in warranty against the
petitioner. This liability as a general rule extends to the corporation to
whom it assigned its rights and interests unless the assignee is a holder in
due course of the promissory note in question, assuming the note is
DE OCAMPO V. GATCHALIAN
3 SCRA 596
FACTS:
Gatchalian was interested in buying a car and for this reason, Gonzales
offered and shown to her the same. He represented himself to be
authorized by the owner of the car to sell the same. After negotiation,
Gatchalian agreed to buy the car and wanted Gonzales to bring the
certificate of registration so that her husband could verify it. Gonzales
excused himself from bringing said certificate as allegedly the owner
wanted to be secure that the buyer would be in good faith. This led to him
asking Gatchalian to issue a check as evidence of good faith. He promised
that said check wouldn't be deposited but merely shown to the owner.
Relying on this promise, she issued the check but Gonzales failed to show
up the next day. She ordered the stoppage of payment of the check,
which the plaintiff didn't knew about. The plaintiff accepted the check from
Gonzales as payment for hospitalization later on.
HELD:
The stipulation of facts would show that De Ocampo wasn't aware of the
circumstances that led to the issuance of the check. Nonetheless, he
should have been placed into inquiry, with the showing that the check was
crossedthat the check could only be deposited and not encashed. He
should have made an inquiry as to why Gonzales had with him the check
and not deposited in account. He had the duty to ascertain that Gonzales
had legal title to the instrument. Having failed in this accord, he was
grossly negligent in not finding out the nature of the title and possession
of Gonzales, amounting to legal absence of good faith.
In taking an instrument with a defect or infirmity, it could not be said that
the holder took it as a holder in due course.
103
MONTINOLA V. PNB
88 PHIL 178
FACTS:
*Remember the case with the Japanese occupation and the mutilated
check.
HELD:
Montinola could not be considered as a holder in due course. Why? For
one to be a holder in due course, one should take the instrument before it
has become overdue. Remember that in this case, Montinola took the
check which has long become overdue. He cannot even be in the slightest
be considered as a holder because the NIL defines a holder as being the
payee or the indorsee of the negotiable instrument. In this case, he wasn't
the payee nor was he the indorsee of the check in issue.
104
PEOPLE V. MANIEGO
148 SCRA 30
FACTS:
The accused were charged and later on found guilty of committing
malversation. Ubay was the disbursing officer in the Office of the Chief of
Finance in a military camp and together with his co-accused, were able to
take personal checks drawn against the PNB and BPI, of which Pamintuan
was the drawer and Maniego was the indorser. The checks were encashed
and used, to the prejudice of the government.
Maniego averred that the trial court erred in adjudging her as liable as an
indorser to the government.
HELD:
The contention of Maniego that as a mere indorser, she may not be liable
on account of the dishonor of the checks indorsed by her is untenable. The
holder or last indorsee of a negotiable instrument has the right to enforce
payment of the instrument for the full amount thereof and against all
parties liable thereon. Among the parties liable thereon is the indorser
unless he clearly indicates that his intention to be bound in some other
capacity. Maniego may also be considered as an accommodation party and
as such, is liable to a holder for value notwithstanding if the holder knew
that she was only an accommodation party.
105
UCPB V. IAC
183 SCRA 38
FACTS:
FACTS:
Yang and Chandimari entered into an agreement that the latter would issue
to the former a managers check in exchange for two checks that Yang has
payable to the order of David. The difference in amount would be the
profit of the two of them. It was further agreed upon that Yang would
secure a dollar draft, which Chandimari would exchange with another dollar
draft to be secured from a Hong Kong bank. At the agreed time of
rendezvous, it was reported by Yangs messenger that Chandimari didn't
show up and the drafts and checks were allegedly stolen. This wasn't true
however. Chandimari was able to get hold of the drafts and checks. He
was even able to deliver to David the two checks and was able to get
money in return. Consequently, Yang asked for the stoppage of payment
MESINA V. IAC
145 SCRA 497
FACTS:
Jose Go purchased from Associate Bank a Cashiers Check, which he left on
top of the managers desk when left the bank. The bank manager then
had it kept for safekeeping by one of its employees. The employee was
then in conference with one Alexander Lim. He left the check in his desk
and upon his return, Lim and the check were gone. When Go inquired
about his check, the same couldn't be found and Go was advised to request
FACTS:
Ten Sen Guan ordered from Snows Ltd. ten cases of mercerized bastite to
be shipped from New York to Manila. Upon the arrival of the merchandise,
a draft drawn by Snows Ltd. against Ten Sen Guan was presented to them
for acceptance. The delivery of the bill of lading and other documents were
being put on hold pending acceptance of the draft that is why Ten Sen
Guan accepted the same. When the cases were opened however, it was
found out that the merchandise wasn't bastite but instead were burlap.
Ten Sen Guan then was prompted to return the bill of lading and other
documents and requested Asia Banking Corporation, the agent of Snow
Ltd. to cancel its acceptance, which the corporation promised to do so.
However it didn't do good its promise since it sued Ten Sen Guan for
the amount of the draft. The trial court however ruled in favor of Ten
Sen Guan.
HELD:
It is undisputed that the defendants placed the order with Snow Ltd. for 10
cases of mercerized bastite and that the draft was drawn from the
corresponding value of 10 cases of mercerized bastite including
incidental expenses. That when the cases were examined it was found
out that it wasn't bastite but instead were burlap, of which the
corporation was notified and that Ten Sen Guan refused to refused
the goods.
The
corporation alleges that it is a holder for value but it failed to prove such
allegation. If indeed it was a holder for value, it could have easily proven
such fact by competent evidence but it failed to do so. It wasn't able to
give an authentic account of the transactions. It being a fact that it is not
a holder for value, it is susceptible to any defenses available to Ten Sen
Guan.
According to the findings, the acceptance was conditional. The draft was
for collection and also, the evidence established that the corporation has
released Ten Sen Guan from liability from the draft.
109
FOSSUM V. FERNANDEZ
44 PHIL 675
FACTS:
Fernandez Hermanos placed an order with the products company for the
manufacturing of a chain given a set of specifications. The chain was duly
prepared and delivered. A draft was drawn by the company and was
accepted by Fernandez Hermanos. Thereafter, the draft was negotiated
with Fossum who demanded payment on the instrument but was
refused by Fernandez on alleged failure of the chain delivered to
satisfy the specifications given.
HELD:
It devolved around Fernandez Hermanos to allege and prove its claim that
which was delivered and received didn't comply with the specifications
and didn't answer the purposes for which it was intended. It alleged
that the chain didn't meet the specifications given by the contract.
Nonetheless, there was failure to identify the so-called defects of the
chain. It was upon
Fernandez Hermanos to show that indeed the chain was defective. But as
the trial court found out, there was a failure of proof.
**WEEK 9: MIDTERMS WEEK
NOTES FOR WEEK
10 AUGUST 20-25,
,
2007
V. LIABILITIES OF PARTIES
Sec. 60. Liability of maker. - The maker of a negotiable
instrument, by making it, engages that he will pay it according to
its tenor, and admits the existence of the payee and his then
capacity to indorse.
MAKER PRIMARILY LIABLE
The maker also admits of the existence of the payee and his then
capacity to indrose
FACTS:
Maza and Macenas executed a total of five promissory notes. These were
not paid at maturity. And to recover the amounts stated on the face of the
promissory notes, PNB initiated an action against the two. The special
defense posed by the two is that the promissory notes were delivered to
them in blank by a certain Enchaus and were made to sign the notes so
that the latter could secure a loan from the bank. They also alleged that
they never negotiated the notes with the bank nor have they received any
value thereof.
They also prayed that Enchaus be impleaded in the
complaint but such was denied. The trial court then held in favor of the
bank.
HELD:
The defendants attested to the genuineness of the instruments sued on.
Neither did they point out any mistake in regard to the amount and
interest that the lower court sentenced them to pay. Given such, the
defendants are liable. They appear as the makers of the promissory
notes and as such, they must keep their engagement and pay as promised.
And assuming that they are accommodation parties, the defendants having
signed the instruments without receiving value thereof, for the purpose of
lending their names to some other person, are still liable for the promissory
notes. The law now is such that an accommodation party cannot claim no
benefit as such, but he is liable according to the face of his
undertaking, the same as he himself financially interest in the transaction.
It is also no defense to say that they didn't receive the value of the
notes. To fasten liability however to an accommodation maker, it is not
necessary that any consideration should move to him.
The
accommodation which supports the promise of the accommodation maker
is that parted with by the person taking the note and received by the
person accommodated.
111
ARANETA V. PEREZ
14 SCRA 498
FACTS:
FACTS:
Plaintiff were the heirs of Sontuan while the defendant is the partnership to
which he belonged. After his death, there was dispute over the share of
the heirs correlative the share of the deceased partner in the partnership.
An agreement was made between the surviving partners and heirs. There
was liquidation of the deceaseds share. The share was then retained in
the hands of the partnership in the nature of a loan, which was secured by
a promissory note.
The partnership defaulted in payment and this
prompted the heirs to file a case against them. Judgment was rendered
against the partnership and the other solidary maker. The solidary maker
appealed and averred that he signed the note by mistake only.
HELD:
Inasmuch as the appellant is a businessman and is of age, he is presumed
to have acted with due care, and to have signed the document in question
with full knowledge of its contents. And this presumption of law is not
overcome by the evidence adduced by the appellant, consisting in his own
testimony. There being no evidence of fraud, and the appellant having
admitted to the genuineness of his signature, the same must be given legal
effects.
The liability of the drawer is subject to the two conditions and attaches
only upon their fulfillment
The drawer, by merely drawing the bill and signing his name in the bill
as such drawer, without more, impliedly engages to be so secondarily
liable, as if he has incorporated the provisions of Section 61 in the bill
If the bill is not paid, accordingly, if a bill is not paid, the drawer
becomes liable for the payment of its value to the holder provided
that notice of dishonor is given
TO WHOM DRAWER IS SECONDARILY LIABLE
1. The holder
2. Or if any of the indorsers intervening between the holder and the
drawer is compelled to pay by the holder, the drawer, will be liable
to that indorser so compelled to pay
IS DRAWER OF UNACCEPTED BILL PRIMARILY LIABLE?
Yes
It was held that until the bill has been accepted, the drawer is the
principal debtor and after acceptance, the drawee or acceptor is the
principal debtor and the drawer becomes secondarily liable
PAYEES EXISTENCE
Like the maker, the drawer admits to the existence of the payee and
his capacity to indorse
NEGATIVES HIS LIABILITY
The law allows the drawer to negative or limit his liability by express
stipulation
PNB V. PICORNELL
46 PHIL 706
FACTS:
Picornell followed the instructions of Hyndman, Tavera and Venutra by
buying bales of tobacco. He was able to obtain in National Bank a sum of
money together with his commission. He drafted a bill of exchange against
the firm and in favor of the bank. It was received by National Bank and
was accepted thereafter by the firm. However, on alleged conditions of the
tobacco, the bill of exchange was not paid.
HELD:
This action for recovery is for the value of the bill of exchange. The firm
accepted the bill unconditionally but did not pay it at maturity, wherefore
its responsibility to pay the same is clear. The question whether or not the
tobacco was worth the value of the bill doesnt concern the bank. Such
partial want of consideration if it was, doesnt exist with respect to the
bank which paid Picornell the full value of the said bill of exchange. The
bank was a holder in due course, and was such for value full and complete.
The firm cannot escape liability.
114
FACTS:
Boncan was the Finance Officer of the Philippine Embassy in Madrid who on
many occasions negotiated with Banco Atlantico checks, allegedly endorsed
to her by the embassy. On these occasions, the bank allowed the payment
of the checks, notwithstanding the fact that the drawee bank has not yet
cleared the checks for collection. This was premised on the finding that
Boncan had special relations with the employees of the bank. And that
upon presentment to the drawee bank, the checks were dishonored due to
non-acceptance allegedly on the ground that the drawer has ordered the
stoppage of payment. This prompted Banco Atlantico to collect from the
Philippine Embassy for the funds released to Boncan but the latter refused.
This eventually led to filing of money claim of the bank with the Auditor
General.
HELD:
Where being unable to pay certain bills of exchange which the drawee
has accepted, the latter makes a mortgage in favor of the holder of
said bills upon certain merchandise the value of which is sought to be
collected through said bills, in order to secure the payment of said
amount if the merchandise is sold and the integrity thereof while the
sale is not effected, the execution of said mortgage doesnt constitute
a Novation of the obligation represented by said accepted bills unless it
is expressly stated in the mortgage
While the maker of a note engages to pay according to the tenor of the
note, an acceptor engages to pay according to the tenor of his
acceptance, not of the bill he accepts
Tenor of his acceptance may be different from the tenor of the bill, as
the acceptor may accept the bill with qualifications
If his acceptance is general, the tenor of then bill is the same tenor as
the tenor of his acceptance
WHERE ORIGINAL TENOR IS ALTERED BEFORE ACCEPTANCE
Suppose the bill is originally for P1000. Before the drawee X accepts
it, it is altered by the payee B to P4000. Then X accepts it. How much
is X liable to a holder in due course?
According to one view, X is liable for P4000 and not P1000. The
reason is that the tenor of Xs acceptance is for P4000.
EFFECT OF SECTION 124
Under the first view, what is the effect of Section 124 which provides
that a holder in due course can recover only the original tenor of the
instrument?
It seems that this refers to the original tenor of instrument taken from
the standpoint of the person primarily liable, in Xs standpoint. In
other words, the original tenor of the instrument is P4000, which is the
tenor of Xs acceptance.
Drawers existence
1.
2.
3.
FOSSUM V. FERNANDEZ
64 PHIL 675
FACTS:
Fernandez Hermanos placed an order with the products company for the
manufacturing of a chain given a set of specifications. The chain was duly
prepared and delivered. A draft was drawn by the company and was
accepted by Fernandez Hermanos. Thereafter, the draft was negotiated
with Fossum who demanded payment on the instrument but was
refused by Fernandez on alleged failure of the chain delivered to
satisfy the specifications given.
HELD:
It devolved around Fernandez Hermanos to allege and prove its claim that
which was delivered and received didn't comply with the specifications
and didn't answer the purposes for which it was intended. It alleged
that the chain didn't meet the specifications given by the contract.
Nonetheless, there was failure to identify the so-called defects of the
chain. It was upon Fernandez Hermanos to show that indeed the chain
was defective. But as the trial court found out, there was a failure of
proof.
**Fernandez Hermanos accepted the instrument and thus, made certain
warranties regarding the same. These warranties have many effects and
one of it is being precluded from raising the defense of want of
consideration. In case he raises the said defense, he should be able to
present evidence to support such allegation. Failure to do so would make
the presumption still subsisting.
116
PNB V. CA
25 SCRA 693
FACTS:
Lim deposited in his PCIB account a GSIS check drawn against PNB.
Following standard banking procedures, the check was sent to petitioner
for clearing. He didnt return said check but paid the amount to PCIB as
well as debited it against the account of GSIS. Thereafter, a demand was
received from GSIS asking for the credit of the amount since the
signatures found in the check were forged. This was done by PNB and it
now comes after PCIB but the latter wouldnt want to return the money.
HELD:
Acceptance is not required for checks, for the same are payable on
demand. Acceptance and payment are distinguished with each other. The
former pertains to a promise to perform an act while the latter is the actual
performance of the act.
PNB had also been negligent with the particularity that it had been guilty of
a greater degree of negligence because it had a previous and formal notice
from GSIS that the check had been lost, with the request that payment be
stopped. Just as important is that it is its acts, which are the proximate
cause of the loss.
117
FACTS:
Unknown persons negotiated with Motor Services Company checks, which
were part of the stipulation in payment of automobile tires purchased from
the latters store.
It purported to have been issued by Pangasinan
Transportation Company. The said checks were indorsed at the back by
said unknown persons, the Motor company believing at that time that the
signatures contained therein were genuine.
The checks were later
deposited with the companys account in National City Bank of NY. The
said checks were consequently cleared and PNB credited National City Bank
with the amounts. Thereafter, PNB discovered that the signatures were
forged and it demanded the reimbursement of the amounts for which it
credited the other bank.
HELD:
A check is a bill of exchange payable on demand and only the rules
governing bills of exchanges payable on demand are applicable to it. in
view of the fact that acceptance is a step necessary insofar as negotiable
instruments are concerned, it follows that the provisions relative to
acceptance are without application to checks.
Acceptance impies
subsequent negotiation of the instrument, which is not true in the case of
checks because from the moment it is paid, it is withdrawn from
circulation. When the drawee banks cashes or pays a check, the cycle
of negotiation is terminated and it is illogical thereafter to speak
of subsequent holders who can invoke the warrant against the drawee.
Further, in determining the relative rights of a drawee who under a mistake
of fact, has paid, a holder who has received such payment, upon a check to
which the name of the drawer has been forged, it is only fair to consider
the question of diligence and negligence of the parties in respect
thereto. The responsibility of the drawee who pays a forged check,
for the genuineness of the drawers signature is absolute only in favor of
one who has not, by his own fault or negligence, contributed to the
success of the fraud or to mislead the drawee.
According to the undisputed facts, National City Bank in purchasing the
papers in question from unknown persons without making any inquiry as to
the identity and authority of said persons negotiating and indorsing them,
acted negligently and contributed to the constructive loss of PNB in failing
to detect the forgery. Under the circumstances of the case, if the appellee
bank is allowed to recover, there will be no change in position as to
the injury or prejudice of the appellant.
DRAWER: PANGASINAN
PAYEE: IASMOTOR SERVICE
DRAWEE: PNB
COLLECTING BANK: NATIONAL CITY BANK OF NEW YORK
Sec. 63. When a person deemed indorser. his signature upon an instrument otherwise
drawer, or acceptor, is deemed to be indorser
indicates by appropriate words his intention
some other capacity.
A person placing
than as maker,
unless he clearly
to be bound in
Ting issued a PBCom check payable to cash or bearer. This was indorsed
by Ang at the back and it was received by plaintiff. Upon encashment of
the check, the same was dishonored. Plaintiff moved that the two make
good the value of the check but despite demands, he was unheeded,
prompting him to file a complaint. The trial court decided in his favor.
HELD:
There is nothing in the check in question indicates that the appellant is not
a general indorser.
When a person placing his signature upon an instrument otherwise than a
maker, drawer, or acceptor, he is deemed to be a general indorser, unless
he clearly indicates by appropriate words his intention to be bound in some
other capacity, which he did not do so.
Even on the assumption that the appellant was an accommodation
indorser, as he professes to be, he is nevertheless by the clear mandate of
section 29, liable on the instrument to a holder for value, notwithstanding
that such holder at the time of taking the instrument knew him to be an
accommodation party. And assuming that he was an accommodation
party, he may obtain security from the maker to protect himself against
the danger of insolvency of the latter but this doesn't affect his liability to
the appellee, as the said remedy is a matter of recourse between him and
the maker.
119
FACTS:
Respondents alleged that on a relevant date, spouses Tuazon purchased
from their predecessor-in-interest cavans of rice. That on the total number
of cavans, only a certain portion has been paid for. In payment thereof,
checks have been issued but on presentment, the checks were dishonored.
Respondents alleged that since spouses anticipated the forthcoming suit
against them, they made fictitious sales over their properties. As defense,
the spouses averred that it was the wife of Bartolome who effected the sale
and that Maria was merely her agent in selling the rice. The true buyer of
the cavans was Santos. The spouses further averred that when Ramos got
the check from Santos, she took it in good faith and didn't knew that the
same were unfunded.
HELD:
First, there is no contract of agency.
If it was truly the intention of the parties to have a contract of agency,
then when the spouses sued Santos on a separate civil action, they should
have instituted the same on behalf and for the respondents. They didn't do
so.
The filing in their own names negate their claim that they acted as
mere agents in selling the rice.
Second, the spouses are liable on the check.
As indorser, Tuazon warranted that upon due presentment, according to
their tenor, and that in case they were dishonored, she would pay the
corresponding amount.
After the instrument is dishonored by nonpayment, indorsers cease to be merely secondarily liable. They became
principal debtors whose liability becomes identical to that of the original
obligor. The holder of a negotiable instrument need not even proceed
against the maker before suing the indorser.
Santos is not an
indispensable party to the suit against the spouses.
Sec. 64. Liability of irregular indorser. - Where a person,
not otherwise a party to an instrument, places thereon his
signature in blank before delivery, he is liable as indorser, in
accordance with the following rules:
(a) If the instrument is payable to the order of a third
person, he is liable to the payee and to all subsequent parties.
(b) If the instrument is payable to the order of the maker
or drawer, or is payable to bearer, he is liable to all
parties subsequent to the maker or drawer.
(c) If he signs for the accommodation of the payee, he is
liable to all parties subsequent to the payee.
IRREGULAR INDORSEMENT
FACTS:
Dr. Villareal issued a promissory note in favor of Sambok, which was
payable in monthly installments. The promissory note was then indorsed
to Metropol. Villareal defaulted payment and this prompted Metropol to
run after Sampol. Sampol alleged that it is not liable since it was a
qualified indorser through the wordings it inserted in its indorsementwith
recourse.
HELD:
He is liable if for any reason, the person primarily liable cannot pay, as
distinguished from the limited secondary liability of the qualified
indorser or of the person negotiating by mere delivery
The reason for dishonor need not be established. As long as there was
dishonor, this is sufficient.
SUMMARY OF
NEGOTIATING
DISTINCTIONS
BETWEEN
GENERAL
INDORSER
EXTENSION
WARRANTY
OF
FOURTH
WARRANTY
WHEN DOES HE
PAY?
All
subsequent
parties
Warrants
that
the instrument
is
valid
and subsisting
Engages to pay
the holder or
any intervening
party who may
be compelled to
pay
if
the
instrument
is
dishonored
either by nonacceptance
or
non-payment
LIABILITIES
QUALIFIED
INDORSER
OF
PERSONS
NEGOTIATING
BY MERE
DELIVERY
Immediate
transferee
All
subsequent
partieswho
acquire
title
through
their
indorsement
Warrants that the instrument is
valid and subsisting
Doesnt
engage
to
pay
the
instrument if it is dishonored by
non-acceptance or non-payment
except when such dishonor arises
from his four warranties
LIABILITY OF ASSIGNOR
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
PEOPLE V. MANIEGO
148 SCRA 30
FACTS:
The accused were charged and later on found guilty of committing
malversation. Ubay was the disbursing officer in the Office of the Chief of
Finance in a military camp and together with his co-accused, were able to
take personal checks drawn against the PNB and BPI, of which Pamintuan
was the drawer and Maniego was the indorser. The checks were encashed
and used, to the prejudice of the government.
Maniego averred that the trial court erred in adjudging her as liable as an
indorser to the government.
HELD:
The contention of Maniego that as a mere indorser, she may not be liable
on account of the dishonor of the checks indorsed by her is untenable. The
holder or last indorsee of a negotiable instrument has the right to enforce
payment of the instrument for the full amount thereof and against all
parties liable thereon. Among the parties liable thereon is the indorser
unless he clearly indicates that his intention to be bound in some other
capacity. Maniego may also be considered as an accommodation party and
as such, is liable to a holder for value notwithstanding if the holder knew
that she was only an accommodation party.
122
METROPOLITAN BANK V. CA
194 SCRA 169
FACTS:
Gomez opened an account with Golden Savings bank and deposited 38
treasury warrants. All these warrants were indorsed by the cashier of
Golden Savings, and deposited it to the savings account in a Metrobank
branch. They were sent later on for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing. On persistent inquiries on whether the
warrants have been cleared, the branch manager allowed withdrawal of the
warrants, only to find out later on that the treasury warrants have been
dishonored.
HELD:
The treasury warrants were not negotiable instruments.
Clearly, it
is indicated that it was non-negotiable and of equal significance is
the
indication that they are payable from a particular fund, Fund 501. This
indication as the source of payment to be made on the treasury warrant
makes the promise to pay conditional and the warrants themselves nonnegotiable.
Metrobank then cannot contend that by indorsing the warrants in general,
GS assumed that they were genuine and in all respects what they purport
it to be, in accordance to Section 66 of the NIL. The simple reason is that
the law isnt applicable to the non-negotiable treasury warrants. The
indorsement was made for the purpose of merely depositing them with
Metrobank for clearing. It was in fact Metrobank which stamped on the
back of the warrants: All prior indorsements and/or lack of endorsements
guaranteed
123
PRUDENCIO V. CA
143 SCRA 7
FACTS:
Appellants are the owners of a property, which they mortgaged to help
secure a loan of a certain Domingo Prudencio. On a later date, they were
approached by their relative who was the attorney-in-fact of a construction
company, which was in dire need of funds for the completion of a municipal
building. After some persuasion, the appellants amended the mortgage
wherein the terms and conditions of the original mortgage was made an
integral part of the new mortgage. The promissory note covering the
second loan was signed by their relative. It was also signed by them,
indicating the request that the check be released by the bank.
After the amendment of the mortgage was executed, a deed of assignment
was made by Toribio, assigning all the payments to the Bureau to the
construction company. This notwithstanding, the Bureau with approval of
the bank, conditioned however that they should be for labor and materials,
made three payments to the company. The last request was denied by the
bank, averring that the account was long overdue, the remaining balance
of the contract price should be applied to the loan.
The company abandoned the work and as consequence, the Bureau
rescinded the contract and assumed the work. Later on, the appellants
wrote to the PNB that since the latter has authorized payments to the
company instead of on account of the loan guaranteed by the mortgage,
there was a change in the conditions of the contract without the knowledge
of appellants, which entitled the latter to cancel the mortgage contract.
The trial court held them still liable together with their co-makers. It has
also been held that if the judgment is not satisfied within a period of time,
the mortgaged properties would be foreclosed and sold in public auction.
In their appeal, petitioners contend that as accommodation makers, the
nature of their liability is only that of mere sureties instead of solidary codebtors such that a material alteration in the principal contract, effected by
the creditor without the knowledge and consent of the sureties, completely
discharges the sureties from all liabilities on the contract of suretyship.
HELD:
There is no question that as accommodation makers, petitioners would be
primarily and unconditionally liable on the promissory note to a holder for
value, regardless of whether they stand as sureties or solidary co-debtors
since such distinction would be entirely immaterial and inconsequential as
far as a holder for value is concerned. Consequently, the petitioners
cannot claim to have been released from their obligation simply because at
the time of payment of such obligation was temporarily deferred by the
PNB without their knowledge and consent. There has to be another basis
for their claim of having been freed from their obligation. It has to be
determined if PNB was a holder for value.
A holder for value is one who meets the requirement of being a holder in
due course except the notice for want of consideration. In the case at bar,
PNB may not be considered as a holder for value. Not only was PNB an
immediate party or privy to the promissory note, knowing fully well that
petitioners only signed as accommodation parties, but more importantly it
was the Deed of Assignment which moved the petitioners to sign the
promissory note. Petitioners also relied on the belief that there will be
no alterations to the terms of the agreement. The deed provided that
there will no further conditions which could possibly alter the agreement
without the consent of the petitioner such as the grant of greater
priority to obligations other than the payment of the loan. This
notwithstanding, the bank approved the release of payments to the
Company instead of the same to the bank. This was in violation of the
deed of assignment and prejudiced the rights of petitioners. The bank
was not in good faitha requisite for a holder to be one in due course.
124
FACTS:
MANILA, P. I., August 12, 1902.
$300.00
At sight pay to my order three hundred dollars, value received, and charge
to my account.
V. S. WOLFF.
To F. H. TAYLOR & Co.,
Louisville, Kentucky.
No ................................
[Indorsements.]
V. S. Wolff. The signature is O. K. payment guaranteed. Protest, demand,
and notice of nonpayment waived. Macondray & Company.
Pay to First National Bank of San Francisco, or order. American Bank,
Manila, P. I. H. B. Mulford, cashier.
Pay to 3rd National Bank or order. The First National Bank of San
Francisco. James K. Lynch, cashier.
American Bank claims the right to recover from Wolff the amount of the bill
of exchange upon the theory that Macondray guaranteed the payment of
the instrument. This was refuted by Macondray by saying that it didn't
guarantee the payment of the instrument. Instead, it only certified the
signature of Wolff and that the statement payment guaranteed xxx was
not written on said indorsement at the time it signed the firm name.
HELD:
An examination of the alleged indorsement of Macondray & Co. which
appeared upon the said bill of exchange at the time of the trial, and the
indorsement of said company at the time of the protest of said bill of
exchange, shows beyond peradventure of doubt that the contention of the
defendant is true, and that part of the indorsement which says "Payment
guaranteed. Protest, demand, and notice of nonpayment waived" was
added by some person after the signature of the defendant, Macondray &
Co., and after the protest of said bill. The indorsement made by Macondray
& Co. was changed, after said indorsement by said company, by adding
thereto the statement "Payment guaranteed. Protest, demand, and notice
of nonpayment waived," and that the indorsement actually made by
Macondray & Co. was in the following form:
FACTS:
Defendant issued to Soo 4 promissory notes. Later, Soo drew a bill of
exchange in favor of PNB. The latter refused at first to encash the bill,
which made Velasco indorse it so that it would be encashed. When it was
encashed, Velasco didn't receive a single penny and it was claimed that the
proceeds was received instead by Tan Liuan. In the ordinary course of
business, the draft was dishonored when presented, and later Velasco was
required to make a promissory note in favor of PNB.
HELD:
126
ASSOCIATED BANK V. CA
208 SCRA 465
FACTS:
Reyes was engaged in the RTW business and held transactions with
different department stores. She was about to collect payments from the
department stores when she was informed that the payments had
already been made, through crossed checks issued in her business name
and the same were deposited with the bank. The bank consequently
allowed its transfer to Sayson who later encashed the checks. This
prompted Reyes to sue the bank and its manager for the return of the
money. The trial and appellate court ruled in her favor.
HELD:
There is no doubt that the checks were crossed checks and for payees
account only. Reyes was able to show that she has never authorized
Sayson to deposit the checks nor to encash the same; that the bank had
allowed all checks to be deposited, cleared and paid to one Sayson in
violation of the instructions in the said crossed checks that the same were
for payees account only; and that Reyes maintained a savings account
with the bank which never cleared the said checks.
Under accepted banking practice, crossing a check is done by writing two
parallel lines diagonally on the top left portion of the checks. The crossing
is special where the name of a bank or a business institution is written
between the two parallel lines, which means that the drawee should pay
only with the intervention of the company. The crossing is general where
the words written in between are And Co. and for payees account only,
as in the case at bar. This means that the drawee bank should not encash
the check but merely accept it for deposit.
The effects of crossing a check are as follows:
1. That the check may not be encashed but only deposited in the
bank
2. That the check may be negotiated only onceto one who has an
account with a bank
3. That the act of crossing the check serves as a warning to the
holder that the check has been issued for a definite purpose so
that he must inquire if he has received the check pursuant to the
purpose
The subject checks were accepted for deposit by the bank for the account
of Sayson although they were crossed checks and the payee wasn't Sayson
but Reyes.
The bank stamped thereon its guarantee that all prior
endorsements and/or lack of endorsements guaranteed.
By such
deliberate and positive act, the bank had for all legal intents and purposes
treated the said checks as negotiable instruments and accordingly assumed
the warranty of the endorser.
When the bank paid the checks so endorsed notwithstanding that title has
not passed to the endorser, it did so at its peril and became liable to
the payee for the value of the checks.
127
FACTS:
GULLAS V. PNB
62 PHIL 519
FACTS:
Tan deposited with the bank a check issued to him by Cheng. The check
was reflected in the bank record and consequently, after being informed
that the check has been cleared, Tan withdrew an amount from his
account. He then deposited money again to his account to make good the
value of the checks he issued to his suppliers. To his surprise, his suppliers
went back to him and told him that the checks he issued all bounced due to
insufficient funds. He demanded the bank to take positive steps about the
incident but the bank didnt do anything.
HELD:
As a general rule, a bank has the right of setoff of the deposits in its hands
for payment of any indebtedness on the part of a depositor but this should
GONZALES V. RCBC
508 SCRA 459
FACTS:
Gonzales mother received a foreign check from the US, drawn by a certain
doctor on behalf of a medical group. Since the bank gives special
accommodations to its employees to receive the full value of a check
without awaiting the clearing period, Gonzales presented the foreign check
to Gomez, the head of Retail Banking. After examining the same, Gonzales
was asked to indorse it and so she did. Gomez then acquiesced to the
early encashment of the check, signed the check but indicated therein her
authority of up to P17500 only. Afterwards, Gonzales was asked to
procure from another employee his signature and she was good to go. She
did what she was asked to do and she received the value of the check.
Thereafter, the check was dishonored due to having an irregular
indorsement. Gonzales was informed about this. The first arrangement
was that the value of the check would be deducted from her salary.
Thereafter, she was asked to pay the check but she didnt.
HELD:
The warranties for which Alviar and Gonzales are liable as general
indorsers in favor of subsequent indorsers extend only to the state of the
instrument at the time of their indorsements, specifically that the
instrument is genuine and in all respects what it purports to be; that they
have good title thereto; that all prior parties had capacity to contract; and
that the instrument, at the time of their endorsements, is valid and
subsisting. This however cannot be used by someone which introduced the
defect in the instrument, such as the bank in this case, which qualifiedly
indorsed the same, to hold prior parties liable on the instrument because it
results to an absurd situation whereby a subsequent party may render an
instrument useless and inutile and let innocent parties bear the loss while
he himself gets away scot-free. It cannot be overstressed that had it not
been for the qualified indorsement of Gomez, there would have been no
reason for the dishonor of the check.
Sec. 67. Liability of indorser where paper negotiable by delivery.
Where
a
person
places
his
indorsement
on
an
instrument negotiable by delivery, he incurs all the liability of an
indorser.
CASE DIGESTS: SECTION 67
130
FACTS:
Checks were deposited by petitioner in its current account with the bank.
These checks were from a certain Ramirez, a consistent better in its
games, who was a sales agent from Inter-Island Gas. Inter-Island later
found out that of the forgeries committed in the checks and thus, it
informed all the parties concerned. Upon the demands on the bank as the
collecting bank, it debited the account of petitioner. Thereafter, petitioner
tried to issue a check for payment of shares of stock but such was
dishonored for insufficient funds. It filed a complaint against the bank.
HELD:
Considering that the petitioner indorsed the said checks when it deposited
them with the respondent, the petitioner as an indorser guaranteed the
genuineness of all prior indorsements thereon. The respondent which
relied upon the petitioners warranty should not be held liable for the
resulting loss.
One of the joint indorsers cannot escape liability because proper notice
of dishonor wasnt given to his joint indorser
Sec. 69. Liability of an agent or broker. - Where a broker or
other agent negotiates an instrument without indorsement, he
incurs all the liabilities prescribed by Section Sixty-five of this Act,
unless he discloses the name of his principal and the fact that
he is acting only as agent.
APPLICATION OF SECTION 69
CLARK V. SELLNER
42 SCRA 384
FACTS:
Sellner with two other persons, signed a promissory note solidarily binding
themselves to pay to the order of R.N Clark. The note matured but the
amount wasn't paid. The defendant alleges that he didn't receive any
amount of the debt; that the instrument wasn't presented to him for
payment and being an accommodation party, he is not liable unless the
note is negotiated, which wasn't done.
HELD:
On the first issue, the liability of Sellner as one of the signers of the note,
is not dependent on whether he has or has not, received any part of the
debt. The defendant is really and expressly one of the joint and
several debtors of the note and as such he is liable under the provisions of
Section 60 of the NIL.
FACTS:
Private respondents approached petitioner and asked the latter to
extend to them an accommodation loan. They proposed to pay with
interest. They even gave a check, signed by Tat, drawn against
Chinabank, and signed at the back by the private respondents. They
said that they will change the check with cash after one month and if not,
the check could be presented for payment and it would be paid. The
loan was actually extended but when the check was presented for
payment, it was dishonoredthe account on which it is drawn has long
been closed. The trial courts held in favor of petitioner but this was
reversed by the appellate court by ruling that the check has passed
through other hands before reaching the petitioner and the said
check wasnt presented within reasonable time and after its issuance.
HELD:
Where the instrument is not payable on demand, presentment must be
made on the day it falls due. Where it is payable on demand, presentment
must be made within a reasonable time after issue, except that in case of a
bill of exchange, presentment for payment is sufficient if made within
reasonable time after the last negotiation thereof.
REPUBLIC V. PNB
3 SCRA 851
FACTS:
The government filed a complaint for escheat of certain unclaimed bank
deposits balances pursuant to a law, which provides that unclaimed
balancescredits, money, bullion, security or other evidence of
indebtedness of any kind, and interest with banksshall be deposited with
the government if it remains to be unclaimed within a period of 10 years of
more.
One of the banks against the complaint has been filed is First National City
Bank. Although it concedes that the government had the right to claim
the unclaimed deposit balances, it seeks to exclude some which,
according to it, are not within the purview of credits and deposits as
defined in law. the trial court held in favor of the bank, excluding
from the claim the managers checks and other demand drafts.
HELD:
Credit is a sum credited on the books of a company to a person who
appears to be entitled to it. it presupposes a creditor-debtor relationship
and may be said to imply ability, by reason of property or estates, to make
a promised payment. It is correlative to indebtedness, and that which is
due to any person, as distinguished to that which he owes.
Do demand drafts and telegraphic orders come within the purview of
credits or deposits employed in the law?
Since the demand drafts herein involved have not been presented either
for acceptance or payment, the inevitable consequence is that the bank
never had the chance of accepting or receiving them. Verily, the bank
never became a debtor of the payee concerned and as such the aforesaid
THE INTERNATIONAL
SPOUSES GUECO
351 SCRA 516
CORPORATE
BANK
V.
FACTS:
Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a
car. In consideration thereof, the debtors executed PNs, and a chattel
mortgage was made over the car. As the usual story goes, the spouses
defaulted in payment of their obligations and despite the lowering of the
amount to be paid, they still failed to pay. Thereafter, they tendered a
managers check in favor of the bank. Nonetheless, the car was still
detained for the spouses refused to sign the joint motion to dismiss. The
bank averred that the joint motion to dismiss is part of standard office
procedure to preclude the filing of other claims. Because of this, the
spouses filed an action for damages against the bank. And by the time the
case was instituted, the check had become stale in the hands of the bank.
HELD:
The main issue though unrelated to NIL in this case was whether or not the
signing of the joint motion to dismiss a part of the compromise agreement
between the spouses and the bank. The answer is no, it is not a part of
the compromise agreement entered by the parties. And thus, the signing
is dispensible in releasing the car to the spouses.
And on the ancillary issue of the case, which is the relevant issue for the
subject, whether or not the spouses should replace the check they paid to
the bank after it became stale, the answer is yes. It appeared that the
check has not been encashed. The delivery of the managers check did not
constitute payment. The original obligation to pay still exists. Indeed, the
circumstances that caused the non-presentment of the check should be
considered to determine who should bear the loss. In this case, ICB held
on the check and refused to encash the same because of the controversy
surrounding the signing of the joint motion to dismiss. There is no bad faith
or negligence on the part of ICB.
A stale check is one which has not been presented for payment within a
reasonable time after its issue. It is valueless and, therefore, should not be
paid. A check should be presented for payment within a reasonable time
after its issue. Here, what is involved is a managers check, which is
essentially a banks own check and may be treated as a PN with the bank
as a maker. Even assuming that presentment is needed, failure to present
for payment within a reasonable time will result to the discharge of the
drawer only to the extent of the loss caused by the delaybut here there is
no loss sustained. Still, such failure to present on time does not wipe out
liability.
Sec. 72. What constitutes a sufficient presentment. - Presentment
for payment, to be sufficient, must be made:
(a) By the holder, or by some person authorized to receive
payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he
is absent or inaccessible, to any person found at the place where
the presentment is made.
APPLICATION OF SECTION
FACTS:
New Sikatuna requested for a loan from Spouses Chua. Latter issued postdated crossed checks in favor of former. Thereafter, Sikatuna sold checks
to SIHI which upon deposit, checks were dishonored. The trial court
decided the case in favor of SIHI.
HELD:
Jurisprudence provides the following effects of crossing a check:
1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only onceto one who has an
account with a bank
3. The act of crossing the check serves the warning to the holder
that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
The checks in issue were crossed generally and issued payable to New
Sikatuna Wood which could only mean that the drawer has intended the
same for deposit only by the rightful person. Apparently, it was not the
payee who presented the same for payment and therefore, there was no
proper presentment and the liability didn't attach to the drawer. Thus, in
the absence of due presentment, the drawer didn't become liable.
Consequently, no right of recourse is available to petitioner against the
drawer of the subject checks considering that the petitioner is the proper
party authorized to make presentment of the checks in question.
Nonetheless, the holder could still collect from New Sikatuna if the latter
doesn't have a valid excuse from refusing payment.
Sec. 73. Place of presentment. - Presentment for payment is
made at the proper place:
(a) Where a place of payment is specified in the instrument
and it is there presented;
Presentment includes not only demand for payment but also the
exhibition of the instrument
ANSALDO V. CA
177 SCRA 8
FACTS:
TFC issued promissory notes in favor of PCIB. At about the same time,
TFC extended loans to Ansaldo and Reyes. These loans were evidenced by
promissory notes, each waiving demand, presentment, protest, and notice
of protest and non-payment. TFC then paid part of its obligation with
PCIB. To pay for its outstanding balance, it endorsed the notes issued by
Ansaldo and Reyes.
Claiming that the notes have matured without
payment by Ansaldo and Reyes, the bank instituted actions against them.
HELD:
The contention of Ansaldo that the instrument should have been first
presented to him is bereft of merit.
First, it couldnt be first raised on appeal.
Second, it is a petty issue for if according to him, such an exhibition was
needed to give him opportunity to determine the genuineness of the
instrument, this was rendered unnecessary not only by his omission to
contest it, but also by his admission of the authenticity of the note implicit
from his averment that he made substantial payments thereon and second,
he made a waiver of demand, presentment, etc.
Sec. 75. Presentment where instrument payable at bank. Where the instrument is payable at a bank, presentment for
payment must be made during banking hours, unless the person to
make payment has no funds there to meet it at any time during
the day, in which case presentment at any hour before the bank is
closed on that day is sufficient.
SGD. A
This gives rise to the presumption that A has an account with RCBC
Rockwell and the bank would pay on account of A.
indorser.
indorser
for his
that the
Where A withdraws his funds from X, drawee bank, so that they are
not sufficient to pay the bill, he has no right to expect or require that
the drawee or acceptor would pay the instrument
Sgd. A
BC
CD
DE
EF
diligence,
IMPLIED WAIVER
Instrument is overdue
It is unpaid
Sec.
84.
Liability
of
person
secondarily
liable,
when
instrument dishonored. - Subject to the provisions of this
Act, when the instrument is dishonored by non-payment, an
immediate right of recourse to all parties secondarily liable
thereon accrues to the holder.
AFTER DISHONOR, INDORSERS, ETC. ARE PRIMARILY LIABLE
They become principal debtors and their liability becomes the same
as that of the principal obligorsprovided a notice of dishonor has
been given to them
If they are charged by dishonor and notice, while it is true that they
become principal debtors as to the holder, yet as among themselves,
persons secondarily liable are presumed liable in the order that they
become parties to the instrument
CASE DIGEST: SECTION 84
137
PNB V. SEETO
91 SCRA 757
FACTS:
Seeto called at a branch of bank and presented a check payable to cash or
bearer, and drawn by Kiao against PBC. After consultation with the
employees, Seeto made a general and qualified indorsement of the check.
He was then paid the amount of the check by bank. The check was
consequently dishonored, a letter was sent to Seeto and was asked to
refund the money given to him. A second letter was sent to him and he
averred that case against him be deferred while he inquired about why the
check was dishonored. Thereafter, he refused to pay, alleging that the
account against the check was drawn had sufficient funds when the check
was drawn and if the bank didnt delay in clearing the check, there would
have been sufficient funds.
The appellate court reversed the lower court in its decision. It ruled that
the bank was guilty of unreasonably retaining and withholding the check,
and that the delay in the presentment was inexcusable, so that respondent
thereby was discharged from liability.
HELD:
Section 84 is applicable, nonetheless, it should be read in correlation with
Section 186, which says that presentment should be within reasonable
time.
Sec. 85. Time of maturity. - Every negotiable instrument is
payable at the time fixed therein without grace. When the day of
maturity falls upon Sunday or a holiday, the instruments
falling due or becoming payable on Saturday are to be presented
for payment on the next succeeding business day except that
instruments payable on demand may, at the option of the
holder, be presented for payment before twelve o'clock noon on
Saturday when that entire day is not a holiday.
Sec. 86. Time; how computed. - When the instrument is payable
at a fixed period after date, after sight, or after that happening
of a specified event, the time of payment is determined by
excluding the day from which the time is to begin to run, and by
including the date of payment.
Sec. 87. Rule where instrument payable at bank. - Where
the instrument is made payable at a bank, it is equivalent to an
order to the bank to pay the same for the account of the principal
debtor thereon.
EFFECT OF FAILURE TO MAKE PRESENTMENT FOR PAYMENTBUT
SUPPOSE THAT B OR ANY SUBSEQUENT HOLDER FAILS TO MAKE A
PRESENTMENT FOR PAYMENT AT THE PNB, IS A DRAWER DISCHARGED?
3.
When an instrument is dishonored by NON-ACCEPTANCE or NONPAYMENT, notice of such dishonor must be given to persons
secondarily liable, as the case may be. Otherwise, such parties are
discharged
Where these facts are not proven, the plaintiff doesnt sufficiently
establish the defendants liability
MEANING OF NOTICE
FACTS:
Chaves drew 2 checks on different occasions against PNB in favor La
Insular. These checks were indorsed by the limited partners of La
Insular and subsequently deposited by Chaves in his account with
Asia Bank. These were then presented for payment by Asia Bank but was
dishonored by PNB on reason that there was insufficient funds. This
prompted Asia Bank to file a case against one of the partners of La Insular
for payment.
HELD:
When a negotiable instrument is dishonored by non-payment or nonacceptance, notice thereof must be given to the drawer and each of the
inodrsers, and those who are not notified shall be discharged from liability,
except where this act provides otherwise. According to this, the indorsers
are not liable unless they are notified that the instrument is dishonored.
Then, under the general principle of law on procedure, it will be incumbent
upon plaintiff, who seeks to enforce the defendants liability upon these
checks as indorser, to establish said liability by proving that notice was
given within the time and in the manner required by law. if these facts
are not proven, the plaintiff has not sufficiently established the
defendants liability. There is no proof in record to show that plaintiff has
indeed gave any notice to defendant that the checks had been
dishonored. Therefore there is no cause of action established.
140
FIRESTONE V. CA
353 SCRA 601
FACTS:
Fojas Arca and Firestone Tire entered into a franchising agreement wherein
the former had the privilege to purchase on credit the latters products. In
paying for these products, the former could pay through special withdrawal
slips. In turn, Firestone would deposit these slips with Citibank. Citibank
would then honor and pay the slips. Citibank automatically credits the
account of Firestone then merely waited for the same to be honored and
paid by Luzon Development Bank.
As this was the circumstances,
Firestone believed in the sufficient funding of the slips until there was a
time that Citibank informed it that one of the slips was dishonored. It
wrote then a demand letter to Fojas Arca for the payment and damages
but the latter refused to pay, prompting Firestone to file an action against
it.
HELD:
The withdrawal slips, at the outset, are non-negotiable. Hence, the rule on
immediate notice of dishonor is non-applicable to the case at hand. Thus,
the bank was under no obligation to give immediate notice that it wouldn't
make payment on the subject withdrawal slips. Citibank should have
known that withdrawal slips are not negotiable instruments. It couldn't
expect then the slips be treated like checks by other entities. Payment or
notice of dishonor from respondent bank couldn't be expected immediately
in contrast to the situation involving checks.
In the case at bar, Citibank relied on the fact that LDB honored and paid
the withdrawal slips which made it automatically credit the account of
Firestone with the amount of the subject withdrawal slips then merely
waited for LDB to honor and pay the same. It bears stressing though that
Citibank couldn't have missed the non-negotiable character of the slips.
The essence of negotiability which characterizes a negotiable paper as a
credit instrument lies in its freedom to be a substitute for money. The
withdrawal slips in question lacked this character.
The withdrawal slips deposited were not checks as Firestone admits and
Citibank generally was not bound to accept the withdrawal slips as a valid
mode of deposit. Nonetheless, Citibank erroneously accepted the same as
such and thus, must bear the risks attendant to the acceptance of the
instruments. Firestone and Citibank could not now shift the risk to LDB for
their committed mistake.
WHAT IF THE SLIPS WERE NEGOTIABLE?
Citibank would be the holder, LDB the drawee, Fojas Arca the drawer
and Firestone would be indorser
Applying the rules on notice of dishonor, Citibank as the
holder should have sent the notices of dishonor to Fojas Arca and
Firestone,
GULLAS V. PNB
62 PHIL 519
FACTS:
The US government issued a warrant payable to the order of Bacos. Gullas
and Lopez appeared as indorsers of the warrant. It was then encashed by
the PNB.
Subsequently, the warrant was dishonored by the Insular
Treasurer. Upon learning of the dishonor, notices were sent to Gullas by
the bank but it wasnt receive by Gullas as he was currently not within the
vicinity. In the said notices served to Gullas and Lopez, it was indicated
therein that since there was dishonor of the warrant, their corresponding
accounts have been charged. It was only after the return of Gullas in Cebu
when he received the notices. This caused prior inconvenience to Gullas.
First, he wasnt able to pay for his insurance due to the lack of credit in his
bank account and second, the incident was given prominence in Cebu to
the great mortification of Gullas.
HELD:
The general indorser of a negotiable instrument engages that if it be
dishonored and the necessary proceedings of dishonor be duly taken, he
will pay the amount thereof to the holder. In this connection, it has been
held by a long line of authorities that notice of dishonor is necessary in
order to charge an indorser and that the right of action against him doesnt
accrue until the notice is given.
As a general rule, a bank has a right of setoff of the deposits in its hands
for payment of any indebtedness on the part of a depositor but this should
be enforced properly. It is undeniable in this case that PNB didnt enforce
its right properly. It made used of the money in the account of Gullas prior
to its sending of notice of dishonor.
Sec. 90. By whom given. - The notice may be given by or on
behalf of the holder, or by or on behalf of any party to the
instrument who might be compelled to pay it to the holder, and
who, upon taking it up, would have a right to reimbursement
from the party to whom the notice is given.
NOTICE MAY BE GIVEN BY
1. The holder
2. Another in behalf of the holder
3.
4.
Notice may be given by the agent and it is not necessary that the
agent be authorized by the principal
He may give the notice in his name or in the name of his principal
A collecting bank may give notice, and where it has done so, no notice
from the owner is necessary
And where the cashier of the drawee bank which had refused to pay a
check gave the check to a notary to protest, which was done, it was
held that the possession of the check by the cashier was evidence of
his agency of the holder to present it for protest
Sec. 92. Effect of notice on behalf of holder. - Where notice is
given by or on behalf of the holder, it inures to the benefit
of all subsequent holders and all prior parties who have a
right of recourse against the party to whom it is given.
MEANING OF BENEFIT
Benefit refers to the right to charge the person secondarily liable who
received notice
The party to whom this benefit inures can charge the party receiving
notice of dishonor, even if himself didnt give the notice
INURES TO THE BENEFIT OF THE FOLLOWING
1. All parties prior to the holder, who have a right of recourse
against the party to whom the notice is given
2. All holders subsequent to the holder giving notice
I PROMISE TO PAY B OR ORDER P1000.
SGD.A
*BCDEF
*F notifies B, C, D, E
1. The notice of F to B inures to the benefit of C, D and E, as they
are parties prior to F, who have a right of recourse against B
2.
3.
4.
Follows the same principle as the preceding section but this time, the
person giving notice is not the holder but a party to the instrument
who might be compelled to pay it to the holder, and who, upon taking
it up, would have a right of reimbursement from the party to whom
notice is given
Sec. 94. When agent may give notice. - Where the instrument
has been dishonored in the hands of an agent, he may either
himself give notice to the parties liable thereon, or he may give
notice to his principal. If he gives notice to his principal, he
must do so within the same time as if he were the holder, and
the principal, upon the receipt of such notice, has himself the
same time for giving notice as if the agent had been an
independent holder.
WHEN AGENTS NOTICE MUST BE GIVEN
If the agent decides to give notice to the principal, he must give notice
within the time allowed by law as if he were a holder
The principal has also the same time to give notice to the
persons secondarily liable
Sec. 95. When notice sufficient. - A written notice need not
be signed and an insufficient written notice may be supplemented
and validated by verbal communication. A misdescription of
the instrument does not vitiate the notice unless the party to
whom the notice is given is in fact misled thereby.
Sec. 98. Notice where party is dead. - When any party is dead
and his death is known to the party giving notice, the notice
must be given to a personal representative, if there be one,
and if with reasonable diligence, he can be found. If there be
no personal representative, notice may be sent to the last
residence or last place of business of the deceased.
REQUISITES FOR NOTICE TO REPRESENTATIVE
1. Death is known to the party giving notice
2. There is a personal representative
3. If with reasonable diligence he could be found
WHEN NOTICE MAY BE SENT TO THE LAST RESIDENCE OR PLACE OF
BUSINESS
1. If his death is not known to the party giving notice
2. Or although his death is known to the party giving notice but
there is no personal representative
3. If there be one but he cannot be found with reasonable diligence
Sec. 102. Time within which notice must be given. - Notice may
be given as soon as the instrument is dishonored and, unless
delay is excused as hereinafter provided, must be given within
the time fixed by this Act.
MAY NOTICE OF DISHONOR BE GIVEN BEFORE THE DATE OF MATURITY
Notice of dishonor can be given only after the instrument has been
actually dishonored, and notice given before the paper due is
premature and insufficient, regardless of the indorsers knowledge that
the maker was in default
Yes, provided that the instrument has been presented for payment and
is has been dishonored
142
APPLICATION OF SECTION
1. Where the party secondarily liable has been declared a bankrupt
or an insolvent
2. Where he has made an assignment of his properties for the
benefits of creditors
FACTS:
Private respondents approached petitioner and asked the latter to
extend to them an accommodation loan. They proposed to pay with
interest. They even gave a check, signed by Tat, drawn against
Chinabank, and signed at the back by the private respondents. They
said that they will change the check with cash after one month and if not,
the check could be
presented for payment and it would be paid. The loan was actually
extended but when the check was presented for payment, it was
dishonoredthe account on which it is drawn has long been closed. The
trial courts held in favor of petitioner but this was reversed by the appellate
court by ruling that the check has passed through other hands before
reaching the petitioner and the said check wasnt presented within
reasonable time and after its issuance.
HELD:
Where the instrument is not payable on demand, presentment must be
made on the day it falls due. Where it is payable on demand, presentment
must be made within a reasonable time after issue, except that in case of a
bill of exchange, presentment for payment is sufficient if made within
reasonable time after the last negotiation thereof.
Notice may be given as soon as instrument has been dishonored and
unless delay is excused must be given within the time fixed by law.
In this case, presentment and notice of dishonor were not made within
reasonable time.
September 1960date when the check was drawn
March 1964presented to drawee bank
April 1968notice of dishonor
143
FACTS:
Lao was a junior officer of Premier Investment House. She was authorized
to sign checks in behalf of the corporation. On a relevant date, she met Fr.
Palijo, the provincial treasurer for the Society of the Divine World. Palijo
was authorized to invest donations with Premiere and had been investing
the Societys money with Premiere. Thereafter, he was issued checks by
Premiere, signed by its authorized officers, one of them being Lao.
Upon presentment however for encashment, said checks were
dishonored as they were drawn on insufficient funds. Palijo immediately
made demands to Premiere but to no avail. Premiere was then placed
under receivership. This prompted Palijo to file cases against Lao and
Asprec who was the then head of operations.
HELD:
The following are the elements of the first paragraph of BP22:
1. That a person makes or draws or issues any check
2.
3.
4.
In the present case, the fact alone that petitioner was a signatory to the
checks subsequently dishonored merely engenders the prima facie
presumption that she knew of the insufficiency of funds, but it doesnt
render her automatically guilty of violating BP22. The prosecution has the
burden of proof to prove all the elements of the crime. If such knowledge
of insufficiency of funds is proven to be actually absent or non-existent, the
accused shouldnt be held liable for the offense defined under the first
paragraph of BP22.
Although the offense is mala prohibitum, the
prosecution thereby is not excused from its responsibility of proving
beyond reasonable doubt all the elements of the crime, one of which is
knowledge of insufficiency of funds.
Lao didnt have actual knowledge of the insufficiency of funds from the
time she drew the checks up to the time that the checks were subsequently
dishonored by the bank.
Further, the scope of Laos duties didnt
encompass the funding of the corporations checks, her duties were limited
to the marketing department of the Binondo branch. It was further found
out in the trial court that when Lao drew the checks, she signed the check
blank as to the name of the payee and the amount to be drawn, and
without knowledge of the transaction for which they were issued.
Furthermore, there was no notice of dishonor sent to Lao. The notice of
dishonor may be sent by the offended party or the drawee bank. The trial
court itself found that there was absence of any personal notice of dishonor
served upon Lao by the drawee bank. The notice, if any consolation, was
given to the main office of Premiere and not on its branch office. Nor was
there any notice sent to Lao by the offended party.
Because no notice was sent, the prima facie presumption of knowledge
cannot be applied in this case.
144
FACTS:
On several occasions, King discounted with Fernando several checks
amounting to P1,070,000 for the amount of P1,000,000.
Upon
presentment for encashment however, these checks were dishonored for
being drawn on insufficient funds. Despite demands, King wasnt able to
make good the checks. This prompted Fernando to file a case against
King for violation of BP22.
HELD:
The elements of the crime are as follows:
1. The accused makes, draws, issues any check to apply for account
or for value
2. The check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit, or it would have been dishonored
for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment
3. The accused knows at the time of the issuance that he doesnt
have sufficient funds or credit with the drawee bank for the
payment of the check in full upon presentment
Among the elements, to show that there is prima facie presumption of
knowledge of insufficiency of funds, it should be shown that he received a
notice of dishonor and within 5 banking days thereafter, failed to satisfy
the amount of the check or make arrangement for its payment.
To prove the knowledge of King, it was shown that a letter was sent by
Fernando. Nonetheless, it wasnt proven that indeed King received the
demand letter. The letter was even shown to have been returned to
sender.
Sec. 103. Where parties reside in same place. - Where the
person giving and the person to receive notice reside in the
same place, notice must be given within the following times:
(a) If given at the place of business of the person to
receive notice, it must be given before the close of business
hours on the day following.
(b) If given at his residence, it must be given before the
usual hours of rest on the day following.
(c) If sent by mail, it must be deposited in the post office
in time to reach him in usual course on the day following.
The law provides for a different period for giving notice of dishonor
depending on whetherthe party giving notice and the party to
receive notice reside in the same place; or the party giving notice and
the party to receive reside in different places
MEANING OF THE SAME PLACE
A party giving notice is deemed to have given due notice where the
notice of dishonor is duly addressed and deposited in the post office,
even when there is miscarriage of mail
CONCLUSIVE PRESUMPTION
The letter box must be under the control of the post office department
2.
IMPLIED WAIVER
Sec. 108. Where notice must be sent. - Where a party has added
an address to his signature, notice of dishonor must be sent to
that address; but if he has not given such address, then the notice
must be sent as follows:
FACTS:
Moulic issued checks as security to Victoriano, for pieces of jewelry to be
sold on commission. Moulic failed to sell the pieces of jewelry, so she
returned them to Victoriano. The checks however could not be recovered
by Moulic as these have been discounted already in favor of
petitioner. Consequently, before the maturity dates, Moulic withdrew her
funds from her account. Thereafter, petitioner presented the checks for
payment but these were dishonored. This prompted the petitioner to
initiate an action against Moulic.
HELD:
A prima facie presumption exists that a holder of a negotiable instrument is
a holder in due course. The burden of proving that State is not a holder in
due course is upon Moulic. In this regard, she failed to do so.
The evidence shows that the dated checks were complete and regular;
petitioner bought the checks from Victoriano before their due dates; it took
the checks in good faith and for value; and it was never informed nor made
aware that these checks were merely issued to payee as security.
Consequently, State is a holder in due course. Moulic cannot set up the
defense that there was failure or want of consideration. It can only invoke
the defense if State was a privy to the purpose for which they were issued
and therefore is not a holder in due course.
Furthermore, the mere fact that the checks were issued as security is not
sufficient ground to discharge the instrument as against a holder in due
course.
And also, Moulic was responsible for the dishonor of her checks. She
withdrew her funds from her account and could not have expected her
checks to be honored by then.
146
FACTS:
Great Asian Sales was a business engaged in the selling and buying of
merchandise. In 2 of its board resolutions, it first authorized Arsenio, its
treasurer, to secure a loan from Bancasia as well as to sign any pertinent
documents related to such. Second, it authorized Arsenio to obtain from
Bancasia a discounting line. Pursuant to these, deeds of assignments were
issued by Great Asian in favor of Bancasia for receivablesspecifically
checks. Almost all the checks assigned by Great Asian were dishonored.
Notice of dishonor was sent by the bank and its lawyer to Tan Chong Lin.
Later, Great Asian filed for insolvency and in its petition, Bancasia was one
of those listed as its creditors. In the meanwhile, a complaint was filed
against Great Asian and Tan Chong Lin because of the surety agreement it
signed in favor of Bancasia.
HELD:
First, under the 2 board resolutions, indeed Arsenio was authorized to
obtain a loan and sign any document related to the securing of the loan.
The question is whether the deeds of assignment signed by Arsenio was
within the ambits of his authority.
The deeds of assignment enabled Great Asian to generate instant cash,
with checks which were not due and demandable then.
A drawer tells drawee B not to pay the bill. F holder need not give
notice to A drawer. An allegation that payment of a check had been
countermanded is sufficiently set out where the check was set forth
with the indorsement across the face Payment stopped
The indorser must be aware of the fact that the drawee is fictitious or
not having capacity to contract. Otherwise, notice of dishonor must be
given to such indorser to charge him. But the fact that that the
indorser knew the maker to be insolvent or that the instrument was
dishonored doesnt dispense with the necessity of notice
ILLUSTRATION
f.
Sec. 118. When protest need not be made; when must be made.
-Where any negotiable instrument has been dishonored, it may
be protested for non-acceptance or non-payment, as the case may
be; but protest is not required except in the case of foreign
bills of exchange.
Sec. 117. Effect of omission to give notice of non-acceptance. An omission to give notice of dishonor by non-acceptance does
not prejudice the rights of a holder in due course subsequent to
the omission.
ILLUSTRATION
Not any one who desires may pay the instrument and then recover of
the maker. He must be a person who has in some way made himself
liable for the payment of the instrument.
PRINCIPAL DEBTOR
147
FACTS:
Moulic issued checks as security to Victoriano, for pieces of jewelry to be
sold on commission. Moulic failed to sell the pieces of jewelry, so she
returned them to Victoriano. The checks however could not be recovered
by Moulic as these have been discounted already in favor of
petitioner. Consequently, before the maturity dates, Moulic withdrew her
funds from her account. Thereafter, petitioner presented the checks for
payment but these were dishonored. This prompted the petitioner to
initiate an action against Moulic.
HELD:
A prima facie presumption exists that a holder of a negotiable instrument is
a holder in due course. The burden of proving that State is not a holder in
due course is upon Moulic. In this regard, she failed to do so.
The evidence shows that the dated checks were complete and regular;
petitioner bought the checks from Victoriano before their due dates; it took
the checks in good faith and for value; and it was never informed nor made
aware that these checks were merely issued to payee as security.
The note covered for Alegres placement plus interest. On the maturity of
the note, petitioner issued a check payable to Alegre, covering the whole
amount due. It was drawn from petitioners current account in BPI. When
the wife of Alegre tried to deposit the check, the bank dishonored the
check. Petitioner was notified of this matter and Alegre demanded the
immediate payment in cash. In turn, petitioner promised to replace the
check on the impossible premise that the first issued be returned to them.
This prompted Alegre to file a complaint against petitioner and petitioner in
turn, filed a case against BPI for allegedly unlawfully deducting from its
account counterfeit checks. The trial court decided in favor of Alegre.
ISSUE: W/N NIL is applicable to the money market transaction held
between petitioner and Alegre?
HELD:
Considering the nature of the money market transaction, Article 1249 of
the CC is the applicable provision should be applied. A money market has
been defined to be a market dealing in standardized short-term credit
instruments where lenders and borrowers dont deal directly with each
other but through a middleman or dealer in the open market. In a money
market transaction, the investor is the lender who loans his money to a
borrower through a middleman or dealer.
Furthermore, the mere fact that the checks were issued as security is not
sufficient ground to discharge the instrument as against a holder in due
course.
And also, Moulic was responsible for the dishonor of her checks. She
withdrew her funds from her account and could not have expected her
checks to be honored by then.
CEBU INTERNATIONAL V. CA
316 SCRA 488
FACTS:
Petitioner is a quasi-banking institution involved in money market
transactions. Alegre invested with petitioner P500,000. Petitioner issued
then a promissory note, which would mature approximately after a
month.
Any of the acts that will discharge an instrument under Section 119
will discharge a party secondarily liable thereon, such as payment in
due course by the maker. This will discharge the indorsers in the note.
INTENTIONAL CANCELLATION
A, maker B, payee
BCDEF
If the holder agrees to extend the time of payment, the indorsers are
discharged
rights as regard all prior parties, and he may strike out his own
and all subsequent indorsements and against negotiate the
instrument, except:
(a) Where it is payable to the order of a third person and
has been paid by the drawer; and
(b) Where it was made or accepted for accommodation and
has been paid by the party accommodated.
ILLUSTRATION OF SECTION 121
BCDEF
2.
3.
all
bills
of
exchange
and
they
are
TRUST RECEIPT
The written or printed document signed by the entrustee in favor
of the entruster containing terms and conditions substantially
complying with the provisions of this decree
The legal title to the matter entrusted remains in the entruster but
the entruster gives to the trustee a form of title which is good and
legal against everybody except the entruster
Entrusteethe
person
having
or
taking
possession
of
goods, documents or instruments under a trust receipt transaction,
and any successor in interest of such person for the purpose or
purposes specified in the trust receipt agreement
Entrusterperson holding title over the goods, documents,
or instruments subject of a TRA and any successor-in-interest of
such person
TREASURY WARRANTS
Bearing on its face the words payable from the appropriation for
food administration is actually an order for payment out of a particular
fund and is not unconditional and doesnt fulfill one of the
essential requirements of a negotiable instrument
FACTS:
Samara purchased from Cititrust a bank draft, the payee being Thai
Airways and the corresponding bank in the US is Marine Midland. Later
on, Samara executed a stop payment order of the bank draft,
instructing Citytrust to inform Marine Midland about the order through
telex. Cititrust informed Marine Midland the next day and followed it up
by cable, which the latter bank acknowledged to have received the
order and stopped payment of the bank draft.
Thereafter,
the
account of Samara was credited but was debited again after knowing
that Midland had debited its account. This is despite that it admitted to
not have paid the bank draft.
MONEY ORDER
Species of draft drawn by the post office upon another for the
amount of money deposited at the first office by the person
purchasing the money order and payable at the second office to a
payee named in the order
Being under the restrictions and limitation which postal laws
and regulations place on them and which are inconsistent with
the character of negotiable instruments, postal money orders are
not negotiable
CLEAN AND DOCUMENTARY BILLS OF EXCHANGE
Clean bill of exchange is one to which are not attached documents
of title to be delivered to the person against whom the bill is drawn
when he either accepts or pays the bill
Documentary bill of exchange is one to which are attached
documents of title to be delivered and surrendered to the drawee
when he accepts or pays the bill
D/A AND D/P BILLS OF EXCHANGE
Documents against payment bill: is a sight or time bill to which
are attached documents to be delivered and surrendered to the
drawee when he has paid the corresponding bill
On the first appeal on a different issue, it was held that petitioner and
Midland were solidarily liable to Samara but it was Midland which was
ultimately liable to pay for damagesit had to reimburse petitioner
for whatever amount it would pay Samara.
HELD:
The defenses of petitioner and Marine Midland are distinct with each other.
They were not in privity with each other in a transaction involving payment
of a bank draft. A bank draft is a bill of exchange drawn by a bank upon
its corresponding bank issued at the solicitation of a stranger who
purchases and pays therefor. It is also defined as an order for payment of
money.
In the case at bar, petitioner from which Samara purchased the bank draft,
was the drawer of the draft through which it ordered Marine Midland, the
drawee bank to pay the amount of $40,000 in favor of Thai Airways. The
drawee bank acting as a payor bank is solely liable for acts not done in
accordance with the instructions of the drawer bank or of the purchaser of
the draft. The drawee bank has the burden of proving that it didnt violate.
Meanwhile, the drawer, if sued by the purchaser of the draft is liable for
the act of debiting the customers account despite an instruction to stop
payment. The drawer has the duty to prove that he complied with the
order to inform the drawee.
Meanwhile, if the drawer is sued by the purchaser of the draft, he is liable
for the act of debiting the customers account despite an instruction to stop
payment. The drawer has the burden of proving that he complied with the
order to inform the drawee to stop payment. So, we see that the
liabilities and obligations of the two parties are different, and their
defenses are also different.
Since their rights are not so interwoven, the appeal by Marine Midland of
the decision cannot generally affect the case as regards Citytrust, which
failed to appeal. As a matter of strict procedure, therefore, the decision on
the appeal by Marine Midland should not apply to Citytrust.
However, the SC made an exception in this case and allowed the Marine
Midland decision to apply to Citytrust as a matter of justice and equity,
since it would lead to an absurd situation wherein Samara can claim an
even bigger amount if it chooses to collect from Citytrust who was not even
the proximate cause of the loss.
150
FACTS:
Aruego, on behalf of World Current Events, entered into a Credit
Agreement with PBCom, for the publication of the companys periodicals.
At every printing endeavor by the printing press, a bill of exchange is
drawn against PBCom. The instruments are signed by Aruego, without any
indication that he is an agent of World Current Events. When he was being
held liable by PBCom, he averred that he only signed the instrument in the
capacity of agent of the company.
HELD:
An inspection of the drafts accepted by the defendant would show nowhere
that he has disclosed that he was signing in representation of the Philippine
Education Foundation Company. He merely signed his name. For failure to
disclose his principal, Aruego was personally liable for the drafts he
accepted
NOTES: WEEK #12
SEPTEMBER 10-14,
, 2007
LETTERS OF CREDIT
NATURE AND IMPORTANCE
A letter of credit is a financial device developed by merchants as
a convenient and relatively safe mode of dealing with sales of goods
to satisfy the seemingly irreconcilable interests of the seller, who
refuses to part with his goods before he is paid, and a buyer, who
wants to have control of the goods before paying
To break the impasse, the buyer may be required to contract a bank
to issue a letter of credit, the issuing bank can authorize the seller
to draw
drafts
and
engage
to
pay
them
upon
their
presentment simultaneously with the tender of documents required
by the letter of credit.
The buyer and seller agree on what
documents are to be presented for payment, but ordinarily they
are documents of title evidencing or attesting to the shipment of the
goods to the buyer
Once the letter of credit is established, the seller ships the goods
to the buyer and in the process secures the required shipping
documents and documents of title. To get paid, the seller executes
a draft and presents it together with the required documents to the
issuing bank
The issuing bank redeems the draft and pays cash to the seller if
it finds that the documents submitted by the seller conform with
what the letter of credit requires. The bank then obtains possession
of the documents upon paying the seller. The transaction is
completed when the buyer reimburses the issuing bank and
acquires the documents entitling him to the goods. The seller gets
paid only if he delivers the documents of title over the goods while
the buyer acquires the said documents and control over the goods
only after reimbursing the bank.
INDEPENDENCE PRINCIPLE
What characterizes letters of credit, as distinguished from
other accessory contract, is the ENGAGEMENT OF THE ISSUING
BANK TO PAY THE SELLER ONCE THE DRAFT AND THE REQUIRED
SHIPPING DOCUMENTS ARE PRESENTED TO IT.
In turn, this
arrangement ASSURES THE SELLER OF PROMPT PAYMENT,
INDEPENDENT OF ANY BREACH OF THE MAIN SALES CONTRACT.
LAWS GOVERNING A LETTER OF CREDIT TRANSACTION
Uniform Customs and Practice for Documentary Credits (UCP)
issued by the International Chamber of Commerce
PARTIES TO A LETTER OF CREDIT TRANSACTION
1.
2.
3.
4.
jointly, thus giving the beneficiary or a holder for value of drafts drawn
under the credit, the right to proceed against either or both banks, the
moment the credit instrument has been breached.
The paying bank on which the drafts are to be drawn it may be
the issuing bank or the advising bank. If the beneficiary is to draw
and receive payment in his own currency, the advising bank
may be indicated as the paying bank also. When the draft is to be
paid in this manner, the paying bank assumes no responsibility but
merely pays the beneficiary and debits the payment immediately to
the account which the issuing bank has with it. IF THE ISSUING
BANK HAS NO ACCOUNT WITH THE PAYING BANK, the paying bank
reimburses itself by drawing a bill of exchange on the issuing bank,
in dollars, for the equivalent of the local currency paid to the
beneficiary, at the buyeing rate for dollar exchange.
The
beneficiary is entirely out of the transaction because his draft is
completely discharged by the payment, and the credit arrangement
between the paying bank and issuing bank doesnt concern him.
If the draft contemplated by the credit instrument, is to be drawn
on the issuing bank or on other designated banks not in the city of
the seller, any bank in the city of the seller which buys or discounts
the draft of the beneficiary becomes a negotiating bank.
As
a rule, whenever, the facilities of an advising or notifying bank are
used, the beneficiary is apt to offer his drafts to the advising
bank for negotiation, thus giving
the advising bank the
character of a negotiating bank becomes an endorser and bona
fide holder of the drafts and within the protection of the credit
instrument. It is also protected by the drawers signature, as
the
drawers
contingent liability, as drawer, continues until
discharged by the actual payment of the bills of exchange.
LIABILITY IN COMMERCIAL CREDIT TRANSACTIONS
A commercial bank which departs from what has been stipulated
under the letter of credit, as when it accepts a faulty tender, acts on
its own risk, and it may not thereafter be able to recover from the
buyer or issuing bank, as the case may be, the money thus
paid to the beneficiary
In the case of a discounting arrangement, wherein a negotiating
bank pays the draft of a beneficiary of a letter of credit in order to save
such beneficiary from the hardship of presenting the documents
directly to the issuing bank, the negotiating bank can seek
reimbursement of what has been paid to the beneficiary who as
drawer of the draft continues to assume a contingent liability
thereon.
Thus, the
negotiating bank has the ordinary right of recourse against the seller
or beneficiary in the event of dishonor by the issuing bank.
5.
6.
7.
i. revocable,
ii. reimburse another bank with which a revocable Credit has been made
available for deferred payment, if such a bank has, prior to receipt by it of
notice of amendment or cancellation, taken up documents which appear on
their face to be in compliance with the terms and conditions of the Credit.
or
ii. irrevocable.
iii. The terms of the original Credit (or a Credit incorporating previously
accepted amendment(s)) will remain in force for the Beneficiary until the
Beneficiary communicates his acceptance of the amendment to the bank
that advised such amendment. The Beneficiary should give notification of
acceptance or rejection of amendment(s). If the Beneficiary fails to give
such notification, the tender of documents to the Nominated Bank or
Issuing Bank, that conform to the Credit and to not yet accepted
amendment(s), will be deemed to be notification of acceptance by the
Beneficiary of such amendment(s) and as of that moment the Credit will be
amended.
iv. Partial acceptance of amendments contained in one and the same
advice of amendment is not allowed and consequently will not be given any
effect.
ARTICLE 10: Types of Credit
A. All Credits must clearly indicate whether they are available by sight
payment, by deferred payment, by acceptance or by negotiation.
B. i. Unless the Credit stipulates that it is available only with the Issuing
Bank, all Credits must nominate the bank (the "Nominated Bank") which is
authorized to pay, to incur a deferred payment undertaking, to accept
Draft(s) or to negotiate. In a freely negotiable Credit, any bank is a
Nominated Bank.
Presentation of documents must be made to the Issuing Bank or the
Confirming Bank, if any, or any other Nominated Bank.
ii. Negotiation means the giving of value for Draft(s) and/or document(s)
by the bank authorized to negotiate. Mere examination of the documents
without giving of value does not constitute a negotiation.
F. If the remitting bank draws the attention of the Issuing Bank and/or
Confirming Bank, if any, to any discrepancy(ies) in the document(s) or
advises such banks that it has paid, incurred a deferred payment
undertaking, accepted Draft(s) or negotiated under reserve or against an
indemnity in respect of such discrepancy(ies), the Issuing Bank and/or
Confirming Bank, if any, shall not be thereby relieved from any of
their obligations under any provision of this Article. Such reserve or
indemnity concerns only the relations between the remitting bank and
the party towards whom the reserve was made, or from whom, or on
whose behalf, the indemnity was obtained.
A. Banks utilizing the services of another bank or other banks for the
purpose of giving effect to the instructions of the Applicant do so for the
account and at the risk of such Applicant.
(3) "Beneficiary" means a person who under the terms of a letter of credit
is entitled to have its complying presentation honored. The term includes a
person to whom drawing rights have been transferred under a transferable
letter of credit.
(11)
"Nominated person" means a person whom the issuer (i)
designates or authorizes to pay, accept, negotiate, or otherwise give
value under a letter of credit and (ii) undertakes by agreement or custom
and practice to reimburse.
(12)
"Presentation" means delivery of a document to an issuer or
nominated person for honor or giving of value under a letter of credit.
Section 3-409
(1) to honor,
(2) if the letter of credit provides for honor to be completed more than
seven business days after presentation, to accept a draft or incur a
deferred obligation, or
(5) is discharged to the extent of its performance under the letter of credit
unless the issuer honored a presentation in which a required signature of a
beneficiary was forged.
FACTS:
Dameron ordered t-shirts from National Marketing, which was based in
Amman, Jordan.
To facilitate the transaction, Dameron sought the
issuance of 2 letters of Credit from First American Bank of Virginia.
Dameron executed an application and agreement for international
commercial letter of credit, as well as signed two commercial notes, to
secure the letters of credit. Consequently, Dameron executed continuing
guaranties to further secure any debts it owed to First American. First
American issued then its irrevocable letters of credit. These letters stated
that they were in favor of National Marketing and for the account of
Dameron. These letters authorized drafts to be drawn on First American
within 30 days of submission to First American of specific, listed
documents. At the request of National Marketing and Petra bank, the
letters were amended to provide that the drafts under the letters could be
drawn directly on Petra International in Washington DC, Petras American
affiliate. In this transaction, PIBC became the confirming bank, First
American is the issuing bank, Dameron is the account customer, and
National was the beneficiary.
152
CORP.
V.
FIRST
(e) If the issuing bank fails to act in accordance with the provisions of
paragraphs (c) and (d) of this article and/or fails to hold the documents at
the disposal of, or to return them to, the presentor, the issuing bank shall
be precluded from claiming that the documents are not in accordance with
the terms and conditions of the credit.
The abovementioned Article 16 of the UCP reflects commercial practices
and the rules developed in the preceding common law of letters of credit.
Article 16, when interpreted according to the plain meaning of its terms,
adequately provides for the insertion of one or more confirming banks
between the issuing bank and the beneficiary. As each bank, including the
issuer, receives a documentary draft, it must reject it expeditiously if it
finds inconsistencies. It must then hold the documents at the disposal of
the prior holder in the chain, or be bound to pay the draft and keep the
documents. If the documentary draft is dishonored by one party, the
preceding party, who has already bound itself to pay the draft by not itself
rejecting the draft in timely fashion, is still bound to honor the draft. The
preceding party nevertheless receives the documents, and hence has a
claim on the goods underlying the transaction, which it can use to
compensate itself for having paid for the goods.
On the obligation of Dameron to First American
Having found that PIBC has a legal right to payment from First American,
but not from Dameron, the Court turns next to First American's claim that
Dameron must reimburse it for any amount it must pay PIBC under the
Letters. First American relies on the Agreements executed by Dameron to
obtain the Letters. In the Agreements, Dameron pledged to indemnify First
American for the latter's acts with respect to the Letters as long as such
acts were taken in good faith. And, First American correctly notes that
Dameron has not shown any bad faith on the part of First American with
respect to accepting the documents. Dameron argues, however, that the
good faith standard in the Agreements violates Virginia law and hence is
void. Therefore, Dameron continues, First American's failure to note the
missing Statement of the Beneficiary, though not a breach of good faith,
nevertheless relieves Dameron of any obligation to reimburse First
American.
A review of the few existing, apposite cases indicates that under the
common law of letters of credit an account customer, by accepting
documents from the issuing bank and subsequently surrendering
the documents [to shippers or customs officials] and accepting a
substantial portion of the goods ... waive [s] its right to seek strict
enforcement of the
FACTS:
The facts in this case are undisputed. Sometime prior to August 26, 1986,
Union, a Nashville based company, agreed to purchase 1500 metric tons of
calcium chloride, a chemical used in snow removal, from N.I.B., a Swedish
exporter. In order to guarantee payment, Union had First American issue
N.I.B. an irrevocable letter of credit in the amount of $345,000. The letter
of credit required the presentment of a draft payable 150 days after sight
along with certain other documents.
On December 1, 1986, First American received from Skanska Banken
(Skanska) a $345,000 time draft, drawn and endorsed in blank by N.I.B.,
together with other documents, all of which complied with the letter of
credit. First American accepted the draft on December 1, 1986 by affixing
its signature thereto, and on the next day, December 2, sent notice of its
acceptance by Telex to Skanska. The acceptance had a maturity date of
April 30, 1987.
Upon receiving notice of the acceptance, Skanska made two loans to N.I.B.
totaling $345,000, taking as security N.I.B.'s claim under the letter of
credit.
The issuing bank accepted two drafts drawn under a letter of credit. The
drafts were payable after sight in 60 days. After acceptance, but
before payment, the customer discovered fraud in the transaction, and
the trial court enjoined the issuer from payment. The intermediate
appellate court reversed and vacated the injunction, and the Court of
Appeals affirmed, both acting under 4-303.
In addition to holding that 4-303 prevailed by its own terms, the Court
noted the following policy reason supporting the result:
Important policy considerations suggest the result also. Letters of credit
provide a quick, economic and predictable means of financing transactions
for parties not willing to deal on open accounts by permitting the seller to
rely not only on the credit of the buyer but also on that of the issuing bank.
By its terms, the credit often reflects a conscious negotiation of risk
allocation between customer and beneficiary and its utility rests heavily on
strict adherence to the agreed terms and the doctrine of independent
contract ( see, J. White & R. Summers, Handbook on Uniform Commercial
Code 18-1, at 704-08 [2d ed.] ). It is this predictability of credit
arrangements which permits not only the financing of sale of goods
transactions between widely separated parties in different jurisdictions but
also has permitted the development of a market in trade or bankers'
acceptances of time drafts. Once a draft payable in the future is accepted
by a bank, it becomes known as a bankers' *632 acceptance, and such
acceptances can be, and regularly are, sold in conjunction with letter of
credit transactions to obtain financing prior to the date of maturity in a
market sanctioned by the Federal Reserve Board ( see, 12 U.S.C. 372;
PLI, Letters of Credit and Bankers' Acceptances 231-34, 236). If the courts
intervene to enjoin issuing banks from paying drafts they have previously
accepted they seriously undermine this market and limit the use of
acceptances as a financing tool.
The same policy considerations apply in Tennessee. We therefore hold that,
under Tenn.Code Ann. 47-4-303(1), Union's injunction against payment
of the time draft drawn pursuant to the letter of credit was untimely
because it was issued after First American had already accepted the draft.
We therefore reverse the decision of the Court of Appeals, and we order
the injunction vacated.
154
FACTS:
Plaintiff Andina Coffee, Inc., a New York corporation, was engaged in the
importation of coffee from defendant Gonchecol, Ltda., at one time a major
Columbian exporter of coffee. To pay for its purchases, Andina delivered to
Gonchecol letters of credit which it obtained from a number of commercial
banks in New York, including defendants National Westminster Bank USA
(NatWest) and Cooperatieve Centrale Raiffeisenboerenleenbank B.A.
(Rabobank). As the beneficiary of *106 the letters of credit, Gonchecol
apparently used all or some of the funds to borrow money from defendant
Banco Credito y Commercio de Columbia (BCCC) and other Colombian
banks in order to finance its business operations. In June 1986, BCCC
advanced $2,100,000 to Gonchecol in exchange for which it was to be
reimbursed through a $2,100,000 check drawn on a Panamanian bank.
However, Gonchecol's check bounced, and BCCC was left with an unpaid
$2,100,000 loan. According to NatWest and Rabobank, this event could
only have served to confirm what BCCC had already learned from its own
sources; that is, that Gonchecol had already lost millions of dollars and was
experiencing severe financial difficulties. As was the situation with most of
the moneys made available by BCCC to Gonchecol, the source of
repayment would have to be proceeds from the letters of credit provided to
Gonchecol from the issuing banks.
Beginning in May of 1986, coffee financed under the various letters of
credit, which were to be paid on the presentation of interior truck bills of
lading, failed to materialize. Consequently, representatives of the New York
banks were dispatched to Colombia in August of 1986 when it was
discovered that Gonchecol had caused fraudulent truck bills of lading to be
furnished for large quantities of coffee which were, in fact, never shipped,
thereby resulting in substantial financial losses to New York banks. The
four letters of credit involved here are the last outstanding instruments
which were not drawn against prior to the disclosure of the exporter's
dishonest practices. In that regard, NatWest and Rabobank had each
supplied two of the letters of credit, one for $2,104,000 and the other
three in the amount of $1,000,000, pursuant to which they agreed to make
payment upon the presentation within a specified period of time of drafts
and certain documents, among which were to be the "original railroad
and/or truck bill of lading". The bill of lading was supposed to show that
the coffee was actually in existence, that it had left the control of the
growers and that it was in the hands of the shipper and en route from the
interior of Colombia to a seaport.
On July 9, 1986, 15 days after BCCC had already advanced $2,100,000 to
Gonchecol against the latter's bad check, it received from NatWest a letter
of credit in the amount of $2,104,000. The following day, almost six weeks
before the earliest possible date for presentment under that instrument,
comply with the terms of the letter of credit. Further than that, a customer
may also enjoin an issuer from honoring such a draft if the issuer fails to
do so on its own .... Notwithstanding this exception, if the person
presenting a draft drawn on a letter of credit is a holder in due course ...
the issuer must pay the draft, whether it has notice of forgery or fraud or
not".
in due course has the burden of establishing that he or some person under
whom he claims is in all respects a holder in due course" (Uniform
Commercial Code 3-307 [3]). Since NatWest and Rabobank have
demonstrated a viable defense with respect to the letters of credit, BCCC
must now prove that it is a holder in due course, and, consequently,
summary judgment in its favor is not warranted.
It is settled that New York law mandates strict compliance with the terms
of a letter of credit (United Commodities-Greece v Fidelity Intl. Bank, 64
NY2d 449, 455; Eximetals Corp. v Pinheiro Guimaraes, 73 AD2d 526, affd
51 NY2d 865). The postdating of bills of lading is not only a departure from
the requirements of the letters of credit but also constitutes a form of
fraudulent practice. Contrary to the Supreme Court's characterization that
the objections to the accompanying documents raised by NatWest and
Rabobank were frivolous and highly technical, the discrepancies were, in
reality, material. At the very least, they would have had the effect of
concealing the actual shipment dates (even assuming that they had
represented genuine, and not fictitious, transactions) and, in fact, did not,
as required by the letters of credit, "evidence shipment" of the coffee.
Further, while there is authority that by its previous acceptance of
nonconforming documents, as admittedly occurred herein, the issuing bank
does not waive the right to reject future defects (Courtaulds N. Am. v
North Carolina Natl. Bank, 528 F2d 802; Texpor Traders v Trust Co. Bank,
720 F Supp 1100; Far E. Textile v City Natl. Bank & Trust Co., 430 F Supp
193), and the preclusion rule contained in the UCP (Uniform Customs and
Practice for Documentary Credits) is by no means absolute, at most the
failure to assert an objection on a previous occasion presents a question of
fact as to whether there was a waiver (see, Eximetals Corp. v Pinheiro
Guimaraes, supra).
A South American bank which accepted drafts drawn upon letters of credit
is not a holder in due course of the letters as a matter of law and, thus,
may not compel the issuing banks to make payment under the letters
where the accompanying documents, whose presentation was necessary to
trigger payment, consisted of postdated bills of lading, since New York law
mandates strict compliance with the terms of a letter of credit and the
*105 postdating of bills of lading is not only a departure from the
requirements of the letters of credit, but also constitutes a form of fraud.
The discrepancies in the bills of lading were material, having the effect of
concealing actual shipment dates, and did not, as required by the letters,
evidence shipment of the goods for which payment was intended under the
letters. Failure of the issuing banks to assert an objection on a previous
occasion merely presents a question of fact as to whether there was a
waiver of the right to reject future defects. Moreover, in light of the fact
that the South American bank played an active role in revising the bills of
lading, particularly after it had proof of the financial instability of the
beneficiary of the letters in the form of a bad check issued by the
beneficiary, raises questions of fact as to whether it was acting in good
faith and without actual knowledge of the beneficiary--exporter's fraud, the
intended goods having never been shipped.
Unless the postdating was expressly allowed under the letters of credit,
and there is no indication that this is the situation, or the parties' prior
course of conduct conclusively demonstrates otherwise, the documents
provided under the letters of credit did not comply with the terms thereof,
and BCCC may not compel payment. Equally significant is the
BCCC's apparently active role in obtaining the revisions of the
documents, particularly after it was confirmed with definite proof of
Gonchecol's financial instability in the form of a bad check, raises questions
of fact as to whether it was acting in good faith and without actual
knowledge of the exporter's *111 fraud. The record of the present
matter clearly presents sufficient unresolved matters precluding summary
judgment as to whether BCCC participated in a scheme whereby the
bills of lading were altered simply to render them in conformity with the
letters of credit. Once it has been "shown that a defense exists a person
claiming the rights of a holder
155
BANK OF AMERICA V. CA
228 SCRA 357
FACTS:
Petitioner Bank of America received by mail an Irrevocable Letter of Credit
purportedly issued by Bank of Ayudhya for the account of General
Chemicals of Thailand in the amount of $2.7M to cover the sale of plastic
ropes and "agricultural files," with the petitioner as advising bank and
private respondent Inter-Resin Industrial Corporation as beneficiary. Bank
of America then wrote Inter-Resin informing the latter of the foregoing and
transmitting, along with the bank's communication, the letter of credit.
Upon receipt of the letter-advice with the letter of credit, Inter-Resin sent
Atty. Tanay to Bank of America to have the letter of credit confirmed. The
bank did not; the bank employee in charge of letters of credit explained to
Atty. Tanay that there was no need for confirmation because the letter of
credit would not have been transmitted if it were not genuine. Inter-Resin
sought to partially avail under the letter of credit by submitting to Bank of
America invoices, the corresponding packing list, export declaration and bill
of lading. After being satisfied that Inter-Resin's documents conformed
with the conditions expressed in the letter of credit, Bank of America issued
in favor of Inter-Resin a Cashier's Check for P10M, the Peso equivalent of
the draft drawn by Inter-Resin. This check was picked up by Inter-Resin's
Executive Vice-President Barcelina Tio. Thereafter, the Bank of America
wrote Bank of Ayudhya advising the latter of the availment under the letter
of credit and sought the corresponding reimbursement therefor.
Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the
documents for the second availment under the same letter of credit
consisting of a packing list, bill of lading, invoices, export declaration and
bills in set, evidencing the second shipment of goods. Upon receipt of a
telex from Bank of Ayudhya declaring the letter of credit fraudulent, Bank
of America stopped the processing of Inter-Resin's documents and sent a
telex to its branch office in Bangkok, Thailand, requesting assistance in
determining the authenticity of the letter of credit. Bank of America kept
Inter-resin informed of the developments. Sensing a fraud, Bank of
America sought the assistance of the NBI. The latter discovered that the
vans exported by Inter-Resin did not contain ropes but plastic strips,
wrappers, rags and waste materials. NBI also investigated Inter-Resin's
President and Executive Vice President Barcelina who, thereafter, were
criminally charged for estafa through falsification of commercial
documents. Bank of America sued Inter-Resin for the recovery of P10M,
the peso equivalent of the draft on the partial availment of the now
disowned letter of credit. Inter-Resin claimed that not only was it entitled
to retain P10M on its first shipment but also to the balance covering the
second shipment.
HELD:
Bank of America cannot be held liable.
Bank of America has only been an advising bank, not confirming, as
reflected by the provisions of the letter of credit itself, the petitioner bank's
letter of advice, its request for payment of advising fee, and the admission
of Inter-Resin that it has paid the same. It was the one that asked InterResin to submit documents required by the letter of credit and eventually
has paid the proceeds thereof, did not obviously make it a confirming bank.
The fact, too, that the draft required by the letter of credit is to be drawn
under the account of General Chemicals (buyer) only means that the same
had to be presented to Bank of Ayudhya (issuing bank) for payment.
The letter of credit is an engagement of the issuing bank, not the advising
bank, to pay the draft. As an advising or notifying bank, Bank of America
did not incur any obligation more than just notifying Inter-Resin of the
letter of credit issued in its favor, let alone to confirm the letter of credit
The bare statement of the bank employee in responding to the inquiry
made by Atty. Tanay, Inter-Resin's representative, on the authenticity of
the letter of credit certainly did not have the effect of novating the letter of
credit and Bank of America's letter of advise, nor can it justify the
conclusion that the bank must now assume total liability on the letter of
credit. Bringing the letter of credit to the attention of the seller is the
primordial obligation of an advising bank. The view that Bank of America
should have first checked the authenticity of the letter of credit with Bank
of Ayudhya, by using advanced mode of business communications, before
dispatching the same to Inter-Resin is not supported in U.C.P w/c states
that: "Banks assume no liability or responsibility for the consequences
arising out of the delay and/or loss in transit of any messages, letters or
documents, or for delay, mutilation or other errors arising in the
transmission of any telecommunication . . ."
As advising bank, Bank of America is bound only to check the apparent
authenticity of the letter of credit, which it did.
As to the issue on whether or not Bank of America can recover on the
letter of credit, the answer is yes.
The transaction in issue is a discounting arrangement. Bank of America,
has acted independently as a negotiating bank, thus saving Inter-Resin
from the hardship of presenting the documents directly to Bank of Ayudhya
to recover payment. As a negotiating bank, Bank of America has a right of
recourse against the issuer bank and until reimbursement is obtained,
Inter-Resin, as the drawer of the draft, continues to assume a contingent
liability thereon. While Bank of America failed to allege material facts in its
complaint that might have likewise warranted the application of the
Negotiable Instruments Law and possibly then allowed it to even go after
the indorsers of the draft, this failure does not preclude petitioner bank's
right (as a negotiating bank) of recovery from Inter-Resin itself. InterResin admits having received P10M from Bank of America on the letter of
credit transaction and in having executed the corresponding draft. That
payment to Inter-Resin has given Bank of America the right of
reimbursement from the issuing bank, Bank of Ayudhya which, in turn,
could then seek indemnification from the buyer (the General Chemicals of
Thailand). Since Bank of Ayudhya disowned the letter of credit, however,
Bank of America may now turn to Inter-Resin for restitution.
156
FACTS:
Villaluz sold lauan logs to Christiansen. After inspecting the logs, buyer
issued a purchase order. Christiansen later on made arrangements with
Hanmi Trade. Hanmi caused Security Pacific National Bank to issue an
Irrevocable Letter of Credit available at sight in favor of Villaluz for the
logs. The LOC was mailed to FEATI with the instruction that the enclosed
letter of credit be forwarded to the beneficiary. The LOC further provided
that the draft to be drawn should be accompanied with certain documents
(i.e. Signed Commercial Invoice, Tally sheets. Ocean Bills of Lading;
Certification by Christiansen). The logs, as loaded on the shipping vessel
were inspected and found to be in good condition. But Christiansen refused
to issue a certification despite the requests of Villaluz. And because of the
absence of this certification, FEATI refused to advance the payment on the
LOC. The logs arrived in Korea and were received by Hanmi. It later sold
the logs to Taisung Lumber. Meanwhile, Villaluz instituted an action for
mandamus and specific performance against Christiansen and FEATI.
While the case is pending, Christiansen left the country so Villaluz sought
to have FEATI be solidarily liable.
HELD:
FEATI cannot be held liable on the LOC due to the non-compliance with the
terms by the beneficiary.
157
FACTS:
Sea land Service is a shipping company. On a relevant date, it received in
its Hong Kong terminal a sealed container with 76 bales of unsorted waste
paper. A bill of lading was issued for this. On the next month, this
shipment was discharged in Manila. Notices of arrival were transmitted to
Keng Hua but the shipment remained in Sea land's container. After 481
days, the shipment was unloaded from the container. Keng Hua refuses to
settle its obligation because the shipment was 10 metric tons more than it
asked from Ho Kee (seller).
Keng Hua contends that first, it did not consent to the shipment
as evidenced by the "Notice of Refused or On Hand Frieght" which it
received from Sea land. Second, acceptance of the shipment would
amount to smuggling. And third the amount of the demurrage ballooned
from 37K to 67K.
HELD:
Keng Hua received the bill of lading immediately after the arrival of the
shipment. It had every opportunity to show its dissent, however, it was
only after six months that it sent a letter to Sea land informing the
latter that it could not accept the shipment. Such inaction conveys the
clear inference that it accepted the terms of the bill of lading.
Moreover, the letter merely proves the petitioner's refusal to pick up the
cargo and not its rejection to the bill of lading. First, the notice of refused
or on hand freight has no value because it was not made by Keng Hua. It
was sent by Sea Land to the former. Its significance is to highlight the fact
that Keng Hua failed to object to the bill of lading.
Second, mere
apprehension of violating said laws without a clear demonstration that
taking delivery of the shipment has become impossible cannot defeat
petitioner's contractual oblifation under the bill of lading. Third, the
discrepancy was a result of the variance in the dates when such claims
were made. Of course, the longer the cargo remained unclaimed, the
higher the demurrage.
Any discrepancy between the amount of the goods in the commercial
invoice and the amount allowed in the letter of credit will not affect the
validity of the contract of carriage. The carrier is not expected to go
beyond the representations of the shipper in the bill of lading. The contract
was under the arrangement of Shippers Load and Count. Hence, Ho Kee is
responsible for the loading and Sea land was oblivios to the contents of the
shipment. Keng Hua's remedy is against Ho Kee.
STANDBY LETTERS OF CREDIT OR GUARANTEES
HISTORY AND PURPOSE
Sometime ago, it is common in international dealings to require
the furnishing of a cash deposit as security, but with the
expansion of international
trade
this
became
prohibitively
expensive for the counterparty and in due course gave way to
a more convenient safeguard, the provision of a written undertaking
by a bank in favor of the buyer or employer payable on demand
Demand guarantees as substitute for cash are designed to provide
the beneficiary with a speedy monetary remedy against the
counterparty to the underlying contract and to that end are primary
in form and documentary in character.
The demand guarantee is expressed to be payable solely
on presentation of a written demand and any other specified
documents. Accordingly, any demand within the maximum amount
stated must in principle be paid by the guarantor, regardless whether
the underlying
contract has in fact been broken and regardless of the loss actually
suffered by the beneficiary
A CONCISE DEFINITION: DEMAND GUARANTEES
Undertaking given for payment of a stated or maximum sum of
money on presentation to the party giving the undertaking of a
demand or payment and such other documents as may be
specified in the guarantee within the period and in conformity
with the other conditions of the guarantee
Procured by the seller in favor of the buyer for the latter to be paid
in case the seller doesnt comply with contract provisions. The
economic burder is upon the party who breaches the contract
TYPICAL USES OF DEMAND GUARANTEES
Employed typically in construction contracts and contracts
for international sale of goods
Demand guarantees are intended to safeguard the other party
against non-performance or late or defective performance by the
supplier or contractor
RD
1.
G bank may decide to have the guarantee advised and transmitted
to B by LB, a local bank in buyers location. LBs function in this
case is limited to the checking that the signatures on the guarantee
appear to be genuine and advising and transmitting the guarantee
issued by G bank. It incurs no liability under the guarantee itself
unless it is requested and agrees to confirm it.
There are three distinct contracts
1. Underlying contract between P and B
2. The counter-indemnity or reimbursement contract between P
and G bank
3. Contract established by the guarantee issued by G
INDIRECT OR 4-PARTY GUARANTEES
Where the beneficiary requires the guarantee to be issued by a bank
in his own country and the principal doesnt bank with such a bank,
the principal asks his bank to arrange for the issue of the guarantee by
the local bank
Instructions are then given by the principals bank/instructing party
to a bank in the beneficiarys country to issue a guarantee
against a counter-guarantee by the instructing party, who in turn is
entitled to an indemnity from its customer, the principal.
Its an indirect guarantee because instead of Ps bank issuing it
directly to B as in the direct guarantee structure, that bank as
instructing party arranges for its issue by C bank against a counterguarantee
In this structure, there are 4 distinct contracts
1. The underlying contract between P and B
2. Counter-indemnity or reimbursement contract between P and
IP bank
3. Counter-guarantee issued by IP bank to C bank
4. Guarantee issued by C bank to B
2.
3.
4.
G BANK (GUARANTEE)
5.
5.
6.
7.
8.
9.
(a)
At the request or on the instruction
("principal/applicant") of the guarantor/issuer;
of
the
customer
(b)
On the instruction of another bank, institution or person
("instructing party") that acts at the request of the customer
("principal/applicant") of that instructing party; or
(c)
(a)
(b)
(c)
(d)
Article 3
Independence of undertaking
(d)
"Counter-guarantor"
guarantee;
means
the person
issuing
a counter-
(f)
"Confirmer" means the person adding a confirmation to an
undertaking;
(g) "Document" means a communication made in a form that provides
a complete record thereof.
CHAPTER III. FORM AND CONTENT OF UNDERTAKING
Article 7: Issuance, form and irrevocability of undertaking
1.
Issuance of an undertaking occurs when and where the undertaking
leaves the sphere of control of the guarantor/issuer concerned.
2. An undertaking may be issued in any form which preserves a complete
record of the text of the undertaking and provides authentication of its
source by generally accepted means or by a procedure agreed upon by the
guarantor/issuer and the beneficiary.
3. From the time of issuance of an undertaking, a demand for payment
may be made in accordance with the terms and conditions of the
undertaking, unless the undertaking stipulates a different time.
4. An undertaking is irrevocable upon issuance, unless it stipulates that it
is revocable.
1.
Y CREDIT
(GUARANTEE)
BARCLAYS
(GUARANTEE)
UNCONFIRMED LETTER OF CREDIT) UMMA BANK
GUARANTEE
*LC expressly provided that payment only to be made when the Libyan
customers authorized it.
The English suppliers made every effort to get the Libyan customers to
amend the LC but to no avail. Then it consulted with its bank, Barclays. it
wrote a letter to the Libyan customers stating that the LC was
unacceptable to them because among other things, it was agreed that the
LC should be confirmed but it is not. And more importantly, it said in its
letter that since the LC was inoperative, the guarantee is also inoperative.
Nonetheless, the Libyan customers demanded from the guarantee.
Consequently, Umma bank claimed from Barclays bank.
The English
suppliers were able to obtain a writ of injunction to restrain the bank from
paying. Later on, Barclays was able to get the discharge of the injunction.
In granting its motion, the court held that the relations of the banks with
each other were independent of the underlying contract and Barclays
should have paid Umma bank.
HELD:
A performance bond is similar to a letter of credit. It has been long
established that when a LC is issued and confirmed by the bank, the bank
must pay it if the documents are in order and the terms of the credit are
satisfied. Any dispute between the buyer and seller must be settled
between themselves. The bank must honor the credit. The only exception
to this is when there is established or obvious fraud to the knowledge of
the bank.
Such is the principle with letters of credit.
performance guarantees?
FACTS:
WESTATES AIRLINESCHARTER AIR SERVICECHARTER ONE
STANDBY LETTER OF CREDIT
MICHIGAN BANK
Each alleged breach of contract of the other party. This led Westates to
call the standby letter of credit. Charter One was able to obtain an
injunction and this prompted Westates to appeal the same.
HELD:
The courts may not normally issue an injunction because of an important
exception to the general no injunction rule.
The exception concerns
fraud so serious as to make it obviously pointless and unjust to permit
the beneficiary to obtain the money. Where the circumstances plainly
show that the underlying contract forbids the beneficiary to call a letter of
credit, where they show that the contract deprives the beneficiary of even
a colorable right to do so, where the contract and circumstances reveal
that the beneficiary's demand for payment has absolutely no basis in
fact,; where the beneficiary's conduct has so vitiated the entire
transaction that the legitimate purposes of the independence of the issuer's
obligation would no longer be served,; then a court may enjoin payment.
The Uniform Commercial Code, as adopted in most states, says:
Unless otherwise agreed when documents appear on their face to comply
with the terms of a credit but a required document ... is forged or
fraudulent or there is fraud in the transaction:
....
(b) [except in certain circumstances listed in subsection (a) not here
applicable] an issuer acting in good faith may honor the draft or demand
FACTS:
SPOUSES MENDOZA
FACTS:
the underlying contract. Since the banks customer cannot draw on the
letter, it does not function as an assignment by the customer to the
beneficiary.
Nor, if properly used, is it a contract of suretyship or
guarantee, because it entails a primary liability following a default. Finally,
it is not in itself a negotiable instrument, because it is not payable to order
or bearer and is generally conditional, yet the draft presented under it is
often negotiable.
In commercial transactions, a letter of credit is a financial device developed
by merchants as a convenient and relatively safe mode of dealing with
sales of goods to satisfy the seemingly irreconcilable interests of a seller,
who refuses to part with his goods before he is paid, and a buyer, who
wants to have control of the goods before paying. The use of credits in
commercial transactions serves to reduce the risk of nonpayment of the
purchase price under the contract for the sale of goods. However, credits
are also used in non-sale settings where they serve to reduce the risk of
nonperformance. Generally, credits in the non-sale settings have come to
be known as standby credits.
There are three significant differences between commercial and standby
credits. First, commercial credits involve the payment of money under a
contract of sale. Such credits become payable upon the presentation by the
seller-beneficiary of documents that show he has taken affirmative steps to
comply with the sales agreement. In the standby type, the credit is
payable upon certification of a party's nonperformance of the
agreement. The documents that accompany the beneficiary's draft ten d
to show that the applicant has not performed. The beneficiary of a
commercial credit must demonstrate by documents that he has
performed his contract. The beneficiary of the standby credit must
certify that his obligor has not performed the contract.
By definition, a letter of credit is a written instrument whereby the writer
requests or authorizes the addressee to pay money or deliver goods to a
third person and assumes responsibility for payment of debt therefor to the
addressee. A letter of credit, however, changes its nature as different
transactions occur and if carried through to completion ends up as a
binding contract between the issuing and honoring banks without any
regard or relation to the underlying contract or disputes between the
parties thereto.
Since letters of credit have gained general acceptability in international
trade transactions, the ICC has published from time to time updates on the
Uniform Customs and Practice (UCP) for Documentary Credits to
standardize practices in the letter of credit area. The vast majority of
letters of credit incorporate the UCP. First published in 1933, the UCP for
Documentary Credits has undergone several revisions, the latest of which
was in 1993.
The engagement of the issuing bank is to pay the seller or beneficiary of
the credit once the draft and the required documents are presented to it.
The so-called independence principle assures the seller or the beneficiary
of prompt payment independent of any breach of the main contract and
precludes the issuing bank from determining whether the main contract is
actually accomplished or not.
The independent nature of the letter of credit may be: (a) independence in
toto where the credit is independent from the justification aspect and is a
separate obligation from the underlying agreement like for instance a
typical standby; or (b) independence may be only as to the justification
aspect like in a commercial letter of credit or repayment standby, which is
identical with the same obligations under the underlying agreement. In
both cases the payment may be enjoined if in the light of the purpose of
the credit the payment of the credit would constitute fraudulent abuse of
the credit.
Can the beneficiary invoke the independence principle?
Petitioner insists that the independence principle does not apply to the
instant case and assuming it is so, it is a defense available only to
respondent banks. LHC, on the other hand, contends that it would be
contrary to common sense to deny the benefit of an independent contract
to the very party for whom the benefit is intended. As beneficiary of the
letter of credit, LHC asserts it is entitled to invoke the principle.
Given the nature of letters of credit, petitioners argumentthat it is only
the issuing bank that may invoke the independence principle on letters of
creditdoes not impress this Court. To say that the independence principle
may only be invoked by the issuing banks would render nugatory the
purpose for which the letters of credit are used in commercial transactions.
As it is, the independence doctrine works to the benefit of both the issuing
bank and the beneficiary.
Letters of credit are employed by the parties desiring to enter into
commercial transactions, not for the benefit of the issuing bank but mainly
for the benefit of the parties to the original transactions. With the letter of
credit from the issuing bank, the party who applied for and obtained it
may confidently present the letter of credit to the beneficiary as a
security to convince the beneficiary to enter into the business
transaction. On the
other hand, the other party to the business transaction, i.e., the
beneficiary of the letter of credit, can be rest assured of being empowered
to call on the letter of credit as a security in case the commercial
transaction does not push through, or the applicant fails to perform his part
of the transaction. It is for this reason that the party who is entitled to the
proceeds of the letter of credit is appropriately called beneficiary.
Petitioners argument that any dispute must first be resolved by the
parties, whether through negotiations or arbitration, before the beneficiary
is entitled to call on the letter of credit in essence would convert the letter
of credit into a mere guarantee. Jurisprudence has laid down a clear
distinction between a letter of credit and a guarantee in that the settlement
of a dispute between the parties is not a pre-requisite for the release of
funds under a letter of credit.
In other words, the argument is
incompatible with the very nature of the letter of credit. If a letter of credit
is drawable only after settlement of the dispute on the contract entered
into by the applicant and the beneficiary, there would be no practical and
beneficial use for letters of credit in commercial transactions.
While it is the bank which is bound to honor the credit, it is the beneficiary
who has the right to ask the bank to honor the credit by allowing him to
draw thereon. The situation itself emasculates petitioners posture that
LHC cannot invoke the independence principle and highlights its puerility,
more so in this case where the banks concerned were impleaded as parties
by petitioner itself. Furthermore, Luzon Hydro is given the right to call
as provided in their contract.
Next, petitioner invokes the fraud exception principle. It avers that LHCs
call on the Securities is wrongful because it fraudulently misrepresented to
ANZ Bank and SBC that there is already a breach in the Turnkey Contract
knowing fully well that this is yet to be determined by the arbitral tribunals.
It asserts that the fraud exception exists when the beneficiary, for the
purpose of drawing on the credit, fraudulently presents to the confirming
bank, documents that contain, expressly or by implication, material
representations of fact that to his knowledge are untrue. In such a
situation, petitioner insists, injunction is recognized as a remedy available
to it.
Would injunction then be the proper remedy to restrain the alleged
wrongful draws on the Securities?
Fraud is an exception to the independence principle. The untruthfulness of
a certificate accompanying a demand for payment under a standby credit
may qualify as fraud sufficient to support an injunction against payment.
THE
REGULATION
OF
TRUST
RECEIPTS
(b)
"Entrustee"
shall
refer
to
the
person
having
or
taking possession of goods, documents or instruments under
a trust receipt transaction, and any successor in interest of
such person for the purpose or purposes specified in the
trust receipt agreement.
(c) "Entruster" shall refer to the person holding title over
the goods, documents, or instruments subject of a trust
receipt transaction, and any successor in interest of such person.
(d) "Goods" shall include chattels and personal property
other than: money, things in action, or things so affixed to land
as to become a part thereof.
(e) "Instrument" means any negotiable instrument as defined
in the Negotiable Instrument Law; any certificate of stock, or bond
or debenture for the payment of money issued by a public or
private corporation, or any certificate of deposit, participation
certificate or receipt, any credit or investment instrument of a
sort marketed in the ordinary course of business or finance,
whereby the entrustee, after
the
issuance
of
the
trust
receipt, appears by virtue of possession and the face of the
instrument to be the owner. "Instrument" shall not include
a document as defined in this Decree.
(f) "Purchase" means taking by sale, conditional sale, lease,
mortgage, or pledge, legal or equitable.
(g) "Purchaser" means any person taking by purchase.
(h)
"Security
Interest"
means
a
property
interest
in
goods, documents
or
instruments
to
secure
performance
of
some obligations of the entrustee or of some third
persons to the entruster and includes title, whether or not
expressed to be absolute, whenever such title is in substance
taken or retained for security only.
(i) "Person" means, as the case may be, an individual,
trustee, receiver, or other fiduciary, partnership, corporation,
business trust or other association, and two more persons
having a joint or common interest.
(j) "Trust Receipt" shall refer to the written or printed
document signed by the entrustee in favor of the entruster
containing terms
Section 10. Liability of entrustee for loss. The risk of loss shall
be borne by the entrustee. Loss of goods, documents or
instruments which are the subject of a trust receipt, pending
their disposition, irrespective of whether or not it was due to the
fault or negligence of the entrustee, shall not extinguish his
obligation to the entruster for the value thereof.
LIABILITY OF ENTRUSTEE FOR LOSS
The risk of loss is borne by the entrustee
Loss of goods, documents or instruments which are the subject of
a trust receipt, pending their disposition, irrespective of whether or not
it was due to the fault or negligence of the entrustee, shall
not extinguish his obligation to the entruster for the value thereof.
Section 11. Rights of purchaser for value and in good faith.
Any purchaser of goods from an entrustee with right to sell,
or of documents or instruments through their customary
form of transfer, who buys the goods, documents, or instruments
for value and in good faith from the entrustee, acquires
said
goods, documents
or
instruments
free
from
the
entruster's security interest.
RIGHTS OF PURCHASER FOR VALUE AND IN GOOD FAITH
Any purchaser of goods from an entrustee with right to sell, or
of documents or instruments through their customary form of
transfer, who buys the goods, documents, or instruments for value
and in good faith from the entrustee, acquires said goods,
documents or instruments free from the entruster's security interest.
Doesnt have recourse against the entrustor when there are
warranty claims or defects with regard the sale of the goods
Section
12.
Validity of
entruster's
security interest
as
against creditors. The entruster's security interest in goods,
documents, or instruments pursuant to the written terms of a
trust receipt shall be valid as against all creditors of the entrustee
for the duration of the trust receipt agreement.
VALIDITY OF ENTRUSTERS SECURITY INTEREST AS AGAINST CREDITORS
The entruster's security interest in goods, documents, or
instruments
pursuant to the written terms of a trust receipt shall be valid as
against all creditors of the entrustee for the duration of the trust
receipt agreement.
VINTOLA V. IBAA
150 SCRA 140
LETTER OF CREDIT
TRUST RECEIPT AGREEMENT
IBAA
HELD:
A trust receipt is a security agreement, pursuant to which a bank acquires
a "security interest" in the goods. "It secures an indebtedness and there
can be no such thing as security interest that secures no obligation. ...
As elucidated in Samo vs. People "a trust receipt is considered as a security
transaction intended to aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit
except through utilization, as collateral, of the merchandise imported or
purchased. "
Contrary to the allegation of the VINTOLAS, IBAA did not become the real
owner of the goods. It was merely the the holder of appeals security title
for the advances it had made to the VINTOLAS the goods the VINTOLAS
had purchased through IBAA financing remain their own property and they
hold it at their own risk. The trust receipt arrangement did not convert the
IBAA into an investor; the latter remained a lender and creditor.
... for the bank has previously extended a loan which the L/C represents to
the importer, and by that loan, the importer should be the real owner of
the goods. If under the trust receipt, the bank is made to appear as the
owner, it was but an artificial expedient, more of a legal fiction than fact,
for if it were so, it could dispose of the goods in any manner it wants,
which it cannot do, just to give consistency with the purpose of the trust
receipt of giving a stronger security for the loan obtained by the importer.
To consider the bank as the true owner from the inception of the
transaction would be to disregard the loan feature thereof. ...
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot
justifiably claim that because they have surrendered the goods to IBAA and
subsequently deposited them in the custody of the court, they are
absolutely relieved of their obligation to pay their loan because of their
inability to dispose of the goods. The fact that they were unable to sell the
seashells in question does not affect IBAA's right to recover the advances it
had made under the Letter of Credit.
To support their case, the VINTOLAS argue that their return of the goods
amounted to recovery by IBAA and to order them to further make payment
would be tantamount to double recovery. According to them, "the situation
is akin to an act or omission constituting both a quasi-delict under the Civil
Code and also criminal negligence under the Revised Penal Code" hence
they invoke the rule under Art. 2177 of the New Civil Code against double
recovery.
The VINTOLAS' reliance on said provision of law is erroneous. As correctly
argued by IBAA, there is no double recovery since the bank has not
yet recovered from them, The VINTOLAS' deposit in court of the puka and
olive shells does not amount to recovery by IBAA.
164
FACTS:
PHIL RAYON IMPORTATION OF TEXTILE MACHINES NISSHO JAPAN
LETTER OF CREDIT
TRUST RECEIPT (SURETY SOLIDARILY LIABLE TO PB UPON FAILURE OF
PHIL RAYON TO PAY) (X)
PRUDENTIAL BANK
The trial court held Phil Rayon liable but not for the reimbursement of what
the bank paid for the machineries. This was appealed to the appellate
court.
HELD:
A letter of credit is defined as an engagement by a bank or other person
made at the request of a customer that the issuer will honor drafts or other
demands for payment upon compliance with the conditions specified in the
credit. Through a letter of credit, the bank merely substitutes its own
promise to pay for one of its customers who in return promises to pay the
bank the amount of funds mentioned in the letter of credit plus credit or
commitment fees mutually agreed upon. In the instant case then, the
drawee was necessarily the herein petitioner. It was to the latter that the
drafts were presented for payment. In fact, there was no need for
acceptance as the issued drafts are sight drafts. Presentment for
accordance with the terms and conditions specified in the trusts receipt,
or for other purposes substantially equivalent to any one of the following"
Sec. 127. Bill not an assignment of funds in hands of drawee. A bill of itself does not operate as an assignment of the funds in
the hands of the drawee available for the payment thereof, and
the drawee is not liable on the bill unless and until he accepts
the same.
CAN A PAYEE SUE A BANK FOR DISHONORING A CHECK FOR NONPAYMENT?
No, since until the drawee bank pays or accepts the check, it will
not be liable for the instrument
FACTS:
The government filed a complaint for escheat of certain unclaimed bank
deposits balances pursuant to a law, which provides that unclaimed
balancescredits, money, bullion, security or other evidence of
indebtedness of any kind, and interest with banksshall be deposited with
the government if it remains to be unclaimed within a period of 10 years
of more.
One of the banks against the complaint has been filed is First National City
Bank. Although it concedes that the government had the right to claim
the unclaimed deposit balances, it seeks to exclude some which,
according to it, are not within the purview of credits and deposits as
defined in law. the trial court held in favor of the bank, excluding
from the claim the managers checks and other demand drafts.
HELD:
Credit is a sum credited on the books of a company to a person who
appears to be entitled to it. it presupposes a creditor-debtor relationship
and may be said to imply ability, by reason of property or estates, to make
a promised payment. It is correlative to indebtedness, and that which is
due to any person, as distinguished to that which he owes.
Do demand drafts and telegraphic orders come within the purview of
credits or deposits employed in the law?
Since the demand drafts herein involved have not been presented either
for acceptance or payment, the inevitable consequence is that the bank
never had the chance of accepting or receiving them. Verily, the bank
never became a debtor of the payee concerned and as such the aforesaid
drafts cannot be considered as credits subject to escheat within the
meaning of the law.
Further, a demand draft is different from a cashiers check for this is a
primary obligation of the bank which issues it and constitutes a written
promise to pay upon demand. It is an order to a third party purporting to
be drawn upon a deposit of funds.
If there is any consolation, the telegraphic orders can be escheated in favor
of the government.
The agreement to remit creates a contractual
obligation and has been termed a purchase and sale transaction. The
purchaser of a telegraphic transfer upon making payment completes the
transaction insofar as he is concerned, though insofar as the remitting
bank is concerned the contract is executory until the credit is established.
The drawer bank has already been paid the value of the telegraphic order.
It appears in the books of the bank that the amounts represented by the
orders appear in the names of respective payees. If the latter choose to
demand payment, the bank had the obligation to pay them.
Sec. 128. Bill addressed to more than one drawee. - A bill may
be addressed to two or more drawees jointly, whether they
are partners or not; but not to two or more drawees in the
alternative or in succession.
BILL ADDRESSED TO MORE THAN ONE DRAWEE: VALID
Pay to X or order P1000.
Sgd. A
To: Y and Z
BILL ADDRESSED TO MORE THAN ONE DRAWEE: INVALID
Pay to X or order P1000.
To: Y or Z
Pay to X or order P1000.
of Sgd. A
Sgd. A
To: Y or in default of Y, Z
Sec. 129. Inland and foreign bills of exchange. - An inland
of exchange is a bill which is, or on its face purports to
both drawn and payable within the Philippines. Any other bill
foreign bill. Unless the contrary appears on the face of the
the holder may treat it as an inland bill.
bill
be,
is a
bill,
INLAND BILL
Where the instrument is drawn and made payable in the Philippines
Pay to X or order P1000.
Sgd. A
To: Y, Manila, Philippines
FOREIGN BILL
1. Where the bill is not drawn and not payable in the Philippines
2. Where the bill is drawn in but not made payable in the Philippines
3. Where the bill is not drawn but made payable in the Philippines
Sec. 130. When bill may be treated as promissory note. - Where
in a bill the drawer and drawee are the same person or where
the drawee is a fictitious person or a person not having
capacity to contract, the holder may treat the instrument at his
option either
as a bill of exchange or as a promissory note.
WHEN BILL MAY BE TREATED AS PROMISSORY NOTE
1. Where the drawer and drawee are the same person
2. Where the drawee is a fictitious person
3. Where the drawee is a person not having capacity to contract
The holder may treat the instrument at his option either as a bill
exchange or a promissory note
Sec. 131. Referee in case of need. - The drawer of a bill and
any indorser may insert thereon the name of a person to
whom the holder may resort in case of need; that is to say, in
case the bill is dishonored by non-acceptance or non-payment.
Such person is called a referee in case of need. It is in the
option of the holder to resort to the referee in case of need or not
as he may see fit.
FACTS:
While the Province of Samar was still occupied by Japanese military forces,
it issued a check in favor of Santos. This check was then negotiated
to McGuire, an American citizen and resident of Borongan. After the
liberation, McGuire presented the check to the municipal treasurer of
Borongan for payment but the latter wasnt able or didnt choose to pay the
same. This prompted McGuire to write letters seeking payment of the
check. This matter was referred to PNB. The bank received photostatic
copies of the check to verify its authencity. The bank then instructed
167
PNB V. CA
25 SCRA 693
FACTS:
Lim deposited in his PCIB account a GSIS check drawn against PNB.
Following standard banking procedures, the check was sent to petitioner
for clearing. He didnt return said check but paid the amount to PCIB as
well as debited it against the account of GSIS. Thereafter, a demand was
received from GSIS asking for the credit of the amount since the
signatures found in the check were forged. This was done by PNB and it
now comes after PCIB but the latter wouldnt want to return the money.
HELD:
Acceptance is not required for checks, for the same are payable on
demand. Acceptance and payment are distinguished with each other. The
former pertains to a promise to perform an act while the latter is the actual
performance of the act.
PNB had also been negligent with the particularity that it had been guilty of
a greater degree of negligence because it had a previous and formal notice
from GSIS that the check had been lost, with the request that payment be
stopped. Just as important is that it is its acts, which are the proximate
cause of the loss.
Sec. 133. Holder entitled to acceptance on face of bill. - The
holder of a bill presenting the same for acceptance may require
that the acceptance be written on the bill, and, if such request is
refused, may treat the bill as dishonored.
Sec. 134. Acceptance by separate instrument. - Where
an acceptance is written on a paper other than the bill itself, it
does not bind the acceptor except in favor of a person to
whom it is shown and who, on the faith thereof, receives the bill
for value.
Sec. 135. Promise to accept; when equivalent to acceptance. An unconditional promise in writing to accept a bill before it is
drawn is deemed an actual acceptance in favor of every person
who, upon the faith thereof, receives the bill for value.
WHERE ACCEPTANCE IS WRITTEN
Acceptance may be made
1. On the bill itself
2. On a separate paper
3.
If on a separate paper,
a. It may be acceptance as to the existing bill
b. It may be acceptance as to a non-existing bill (virtual
acceptance). If the bill is non-existent, the acceptance
on a separate paper must comply with the following
requirements
i. That the contemplated drawee shall describe the
bill to be drawn, and promise to accept it
ii. That the bill shall be drawn within a reasonable
time after such promise is written
iii. That the holder shall take the bill upon the credit
of the promise
The drawee bank didnt return the check and said failure to return
the check implied that it did considered the check good and would
honor it, as it in fact did honor and pay
The drawee bank may not recover from the collecting bank
CONSTRUCTIVE ACCEPTANCE
1. Where the drawee to whom the bill is delivered for acceptance
destroys it
2. Where the drawee refuses, within 24 hours after such delivery, or
within such time as is given him, to return the bill acceptected or
not accepted
In any of these cases, the drawee will be deemed to have accepted
the bill even if there is no actual written acceptance by him
Accordingly, the drawee will be primarily liable as an acceptor
DRAWEE NOT ENTITLED TO KEEP BILL
The drawee isnt entitled to keep the bill while he makes up his mind
The bill is at all times the property of the holder and he is entitled
to have it when he wants it
If the holder should demand its return before 24 hours, the
drawee would be required to comply on pain of being held as an
acceptor; but return within 24 hours unaccepted wouldnt be a
dishonor
The drawee could still accept by notification within 24 hours
MERE RETENTION IS EQUIVALENT TO ACCEPTANCE
Mere failure to return the bill within 24 hours is an acceptance
The presentation for acceptance is a demand for acceptance which,
if the bill is retained by the drawee, implies a demand for its return
if acceptance is declined
SECTION 136 AND 137 COVER PRESENTMENT FOR ACCEPTANCE AND
PAYMENT
It expressly mentions presentment for acceptance but
not presentment for payment
The considerations for both are the same
He must return the instrument or be liable for its face value
as acceptor
168
CEBU INTERNATIONAL V. CA
316 SCRA 488
FACTS:
Petitioner is a quasi-banking institution involved in money market
transactions. Alegre invested with petitioner P500,000. Petitioner issued
then a promissory note, which would mature approximately after a month.
The note covered for Alegres placement plus interest. On the maturity of
the note, petitioner issued a check payable to Alegre, covering the whole
amount due. It was drawn from petitioners current account in BPI. When
the wife of Alegre tried to deposit the check, the bank dishonored the
check. Petitioner was notified of this matter and Alegre demanded the
immediate payment in cash. In turn, petitioner promised to replace the
check on the impossible premise that the first issued be returned to them.
This prompted Alegre to file a complaint against petitioner and petitioner in
turn, filed a case against BPI for allegedly unlawfully deducting from its
account counterfeit checks. The trial court decided in favor of Alegre.
ISSUE: W/N NIL is applicable to the money market transaction held
between petitioner and Alegre?
HELD:
Considering the nature of the money market transaction, Article 1249 of
the CC is the applicable provision should be applied. A money market has
been defined to be a market dealing in standardized short-term credit
instruments where lenders and borrowers dont deal directly with each
other but through a middleman or dealer in the open market. In a money
market transaction, the investor is the lender who loans his money to a
borrower through a middleman or dealer.
In the case at bar, the transaction is in the nature of a loan. Petitioner
accepted the check but when he tried to encash it, it was dishonored. The
holder has an immediate recourse against the drawer, and consequently
could immediately file an action for the recovery of the value of the check.
Further, in a loan transaction, the obligation to pay a sum certain in money
may be paid in money, which is the legal tender or, by the use of a check.
A check is not legal tender, and therefore cannot constitute valid tender of
payment.
Partial
Local
TO: X
d.
Qualified as to time
SGD. A
TO: X
X accepts but will pay 20 days after sight.
e.
FACTS:
PHIL RAYON IMPORTATION OF TEXTILE MACHINES NISSHO JAPAN
LETTER OF CREDIT
TRUST RECEIPT (SURETY SOLIDARILY LIABLE TO PB UPON FAILURE OF
PHIL RAYON TO PAY) (X)
PRUDENTIAL BANK
The trial court held Phil Rayon liable but not for the reimbursement of what
the bank paid for the machineries. This was appealed to the appellate
court.
HELD:
A letter of credit is defined as an engagement by a bank or other person
made at the request of a customer that the issuer will honor drafts or other
demands for payment upon compliance with the conditions specified in the
credit. Through a letter of credit, the bank merely substitutes its own
promise to pay for one of its customers who in return promises to pay the
bank the amount of funds mentioned in the letter of credit plus credit or
commitment fees mutually agreed upon. In the instant case then, the
drawee was necessarily the herein petitioner. It was to the latter that the
drafts were presented for payment. In fact, there was no need for
acceptance as the issued drafts are sight drafts. Presentment for
acceptance is necessary only in the cases expressly provided for in Section
143 of the Negotiable Instruments Law (NIL).
Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment
at maturity of any accepted draft, bill of exchange or indebtedness shall
not be extinguished or modified" does not, contrary to the holding of the
public respondent, contemplate prior acceptance by Philippine Rayon, but
by the petitioner. Acceptance, however, was not even necessary in the first
place because the drafts which were eventually issued were sight
drafts And even if these were not sight drafts, thereby necessitating
acceptance, it would be the petitioner and not Philippine Rayon which had
to accept the same for the latter was not the drawee. Presentment for
acceptance is defined an the production of a bill of exchange to a drawee
for acceptance. THE TRIAL COURT AND THE PUBLIC RESPONDENT,
THEREFORE, ERRED IN RULING THAT PRESENTMENT FOR ACCEPTANCE
WAS AN INDISPENSABLE REQUISITE
FOR
PHILIPPINE
RAYON'S
LIABILITY ON THE DRAFTS TO ATTACH. Contrary to both courts'
pronouncements, Philippine Rayon immediately became liable thereon
upon petitioner's payment thereof. Such is the essence of the letter
of credit issued by the petitioner. A different conclusion would violate
the principle upon which commercial letters of credit are founded
because in such a case, both the beneficiary and the issuer, Nissho
Company Ltd. and the petitioner, respectively, would be placed at the
mercy of Philippine Rayon even if the latter had already received the
imported machinery and the petitioner had fully paid for it.
170
FACTS:
Aruego, on behalf of World Current Events, entered into a Credit
Agreement with PBCom, for the publication of the companys periodicals.
At every printing endeavor by the printing press, a bill of exchange is
drawn against PBCom. The instruments are signed by Aruego, without any
indication that he is an agent of World Current Events. When he was being
held liable by PBCom, he averred that he only signed the instrument in the
capacity of agent of the company.
HELD:
An inspection of the drafts accepted by the defendant would show nowhere
that he has disclosed that he was signing in representation of the Philippine
Education Foundation Company. He merely signed his name. For failure to
disclose his principal, Aruego was personally liable for the drafts he
accepted.
Sec. 144. When failure to present releases drawer and indorser.
-Except as herein otherwise provided, the holder of a bill which
is
MANILA, PHILS.
September 17, 2007
PAY TO B OR ORDER AT THE PNB MANILA P1000 ON SEPTEMBER 20, 2007.
SGD. A
TO X, WASHINGTON, DC.
Presentment where time is insufficient
The delay for presentment for acceptance is excused
Nonetheless, still, the payee must do everything in the process
in presenting to the drawee for acceptance the instrument
Sec. 148. Where presentment is excused. - Presentment
for acceptance is excused and a bill may be treated as
dishonored by non-acceptance in either of the following cases:
(a) Where the drawee is dead, or has absconded, or is a
fictitious person or a person not having capacity to contract by bill.
(b) Where, after the exercise
presentment cannot be made.
of
reasonable
diligence,
irregular,
2.
3.
171
FACTS:
ALLIEDDISCOUNTING AGREEMENT: EXPORT BILLGG SPORTSWEAR
GUARANTYGIDWANI; ALCRON
SURETYDE VILLA; GIDWANI
It was held that the bank must stand the loss and cannot charge
the amount of the checks to the depositors account
XIII. ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. - When a bill
of exchange has been protested for dishonor by non-acceptance
or protested for better security and is not overdue, any person
not being a party already liable thereon may, with the consent of
the holder, intervene and accept the bill supra protest for the
honor of any party liable thereon or for the honor of the person
for whose account the bill is drawn. The acceptance for honor may
be for part only of the sum for which the bill is drawn; and
where there has been an acceptance for honor for one party,
there may be a further acceptance by a different person for the
honor of another party.
ACCEPTANCE FOR HONOR
An acceptance of bill made by a stranger to it before maturity,
where the drawee of the bill has refused to accept it, and the bill
has been protested for non-acceptance, or where the bill has been
protested for better security
Such an acceptance is also called an acceptance supra protest
This is a peculiar kind of acceptance. It most frequently happens
when the original drawee refuses to accept the bill in which case a
stranger may accept the bill for the honor of some one of the
parties thereto, which acceptance will inure to the benefit of all
parties subsequent to him for whose honor it was accepted
PURPOSE FOR ACCEPTANCE FOR HONOR
To save the credit of the parties to the instrument or some party to
it, as the drawer, drawee, or indorser or somebody else
Someone desires to save the credit of another on the bill and he
does so by writing accepted on the bill
The court holds that the consideration is presumed and
the presumption is that he does have funds or money for the party
for whose honor he accepts
REQUISITES FOR ACCEPTANCE FOR HONOR
1. The bill must have been previously protested for non-acceptance
or for better security
2. The bill isnt overdue at the time of the acceptance for honor
3. The acceptor for honor must be a stranger to the bill. If he is a
party, his acceptance for honor wouldnt give any additional
security to the holder, as such a party is already liable thereon
4.
Sec. 169. When delay in making presentment is excused. The provisions of Section eighty-one apply where there is
delay in making presentment to the acceptor for honor or referee
in case of need.
Sec. 170. Dishonor of bill by acceptor for honor. - When the bill
is dishonored by the acceptor for honor, it must be protested for
non-payment by him.
NECESSITY OF PROTEST
The holder must protest for non-payment by the acceptor for honor
in order to fix the liabilities of the indorsers
NOTES: WEEK #14
SEPTEMBER 24-28,
, 2007
for
as
act
an
1.
2.
First part
Manila, Philippines
September 24, 2007
30 days after sight of this First of Exchange (Second part unpaid), pay to
the order of B P2000.
Sgd. A
To X
48 Exchange Place
New York City
Second part
Manila, Philippines
September 24, 2007
30 days after sight of this Second of Exchange (First part unpaid), pay to
the order of B, P2000.
Sgd. A
To X
48 Exchange Place
New York City
PURPOSE OF BILL IN SET
Bills in set are for the purpose of increasing the probability of the
bill reaching its destination
For this reason, each part is sent by different conveyances
B, the payee, is supposed to negotiate only one part, or if he is paid
on one, he cannot be paid on the second part
Sec. 179. Right of holders where different parts are negotiated.
-Where two or more parts of a set are negotiated to
different holders in due course, the holder whose title first
accrues is, as between such holders, the true owner of the bill.
But nothing in this section affects the right of a person who,
in due course, accepts or pays the parts first presented to him.
ILLUSTRATION OF SECTION 179
B, payee, wants to raise P4000. In violation of his rights, he
negotiates the first part of the bill to C and the second part to D, both
of whom are holders in due course. Who is the true owner of the bill?
If B negotiates to C on September 25 and to D on September 27, C
is the true owner, as Cs title accrues first.
But if D succeeds in presenting his part of the bill for acceptance
for payment and X the drawee, accepts or pays the second part in
due course, X is protected and X can refuse to accept Cs part of the
bill.
Sec. 180. Liability of holder who indorses two or more parts of a
set to different persons. - Where the holder of a set indorses
two or more parts to different persons he is liable on every such
part, and every indorser subsequent to him is liable on the
part he has himself indorsed, as if such parts were separate bills.
LIABILITY OF HOLDER WHO INDORSES TWO OR MORE PARTS
B is liable on both parts as if there are two bills, on the first to C
and on the second to D
In other words, as a result of his negotiation of the 2 parts, B is
liable for a total of P4000
But A, the drawer, or X, the drawee, is liable only on one part or
for P2000 unless the drawee accepts both parts
8. Redeemable
9. Registered bonds
10. Coupon bonds
BANK NOTES
Bank notes are the promissory notes of the issuing bank payable
to bearer on demand and intended to circulate as money
Regarded as cash and pass from hand to hand without any evidence
of title in the holder than that which arises from possessession
However, they are not money
DUE BILL
Instrument whereby one person acknowledges his indebtedness
to another
CLEARING HOUSE DUE BILL
Device of clearing house associations to save inconvenience and
labor incident to the settling of balances between the members
of the association
The certificates or due bills are issued, instead of actual payment
of money, by one member of the association to another
They are not merely certificates of deposit creating a contract
of bailment but are negotiable as checks payable to bearer, or
as promissory notes payable to order or bearer
Sec. 185. Check, defined. - A check is a bill of exchange drawn on
a bank payable on demand. Except as herein otherwise provided,
the provisions of this Act applicable to a bill of exchange
payable on demand apply to a check.
CHECK, DEFINED
Bill of exchange drawn on a bank payable on demand
CHECK DISTINGUISHED FROM A PROMISSORY NOTE; USED AS
SUBSTITUTE FOR MONEY; EFFECT OF WORTHLESS CHECKS ON
TRADE CIRCLES AND BANKING COMMUNITY
A check is not a mere undertaking to pay an amount of money
It is an order addressed to a bank and partakes of a
representation that the drawer has funds on deposit against
which the check is drawn, sufficient to ensure payment upon its
presentment to the bank
Element of assurance or certainity that the instrument will be
paid upon presentation
ISSUING CHECK WITHOUT FUNDS AS ESTAFA
2.
been dishonored for the same reason had not the drawer, without
any valid reason, ordered the bank to stop payment
Issuing a check with sufficient funds or credit to pay for the same,
but with failure to keep sufficient funds or maintain a credit to
cover a full amount of the check if presented within 90 days from
the date appearing thereon, for which reason the check is
dishonored
3.
4.
reason had not the drawer, without any valid reason ordered the
bank to stop payment
If the payee was informed that the check wasnt covered by
adequate funds and it is expected that such funds would be
available when the check became due, the drawer isnt guilty of
bad faith in issuing it. Where a person issued a post dated check
without funds to cover it and informs the payee of that fact, he
isnt guilty of estafa because there is no deceit
Accused issuing unfunded check but with OD or DAUD privilege
not guilty of fraudulent intent
BP22
Deceit and damage are not essential
elements of the crime
Mala in se
Malum prohibitum
THEFT OF CHECKS
Checks are personal property and may be subject to theft even
when they are not indorsed
SPECIAL TYPES OF CHECKS
1. Cashiers checkone drawn by the cashier of a bank in the name
of the bank against the bank itself payable to a third person or
order
2. Managers checkcheck drawn by the manager of a bank in the
name of the bank against the bank itself payable to a third person
3. Memorandum checkcheck on which is written the word
memorandum signifying that the drawer engages to pay the
bona fide holder absolutely and not upon a condition to pay upon
presentment or non-payment
4.
5.
PNB
Check #1234
Phil. Trust Co.
Manila, Philippines
172
Pay to B or order P1000 only.
Sgd. A
UNDER CROSSED CHECK, THE PAYEE HAS DUTY TO ASCERTAIN HOLDERS
TITLE TO CHECKS
The SC recognizes the practice that a check with two parallel lines
in the upper left hand corner means that it could only be deposited
and may not be converted to cash
Such circumstances should put the payee into inquiry and upon
him devolves the duty to ascertain the holders title to the check
or the nature of his possession
Failing in this respect, the payee is declared guilty of gross
negligence amounting to legal absence of good faith and as such the
consensus of authority is to the effect that the holder of the check
isnt holder in good faith
The NIL doesnt provide that a holder isnt a holder in due course
may not in any case recover on the instrument if the drawee if the
latter has no valid excuse for refusing payment
DRAWEE SHOULDNT ENCASH A CROSSED CHECK BUT MERELY
ACCEPT THE SAME FOR DEPOSIT
Under usual practice, crossing a check is done by placing two
parallel lines diagonally on the left top portion of the check
The crossing may be special wherein between two 2 parallel lines
is written the name of a bank or a business institution, in which case
the drawee should pay only with the intervention of that bank or
company, or crossing may be general wherein between 2 parallel
diagonal lines are written the words And Co. or none at all as in the
case at bar, in which case the drawee shouldnt encash the same but
merely accept the same for deposit
WHERE OTHER THAN PAYEE OF CROSSED CHECKS PRESENTED IT FOR
PAYMENT, THERE IS NO PROPER PRESENTMENT AND DRAWER IS NOT
LIABLE THEREON
ADVANTAGES OF CROSSING A CHECK
It is good precaution when it is to be forwarded by mail or when it
is entrusted to an agent and the drawer wants to be sure that it will
be paid to the rightful owner
CASE DIGESTS: SECTION 185
MORAN V. CA
230 SCRA 799
FACTS:
Spouses Moran were the owners of a gasoline station. They regularly
purchased bulk fuel products on COD basis. These orders were made
through telephone and payments were effectuated through personal checks
upon delivery. Since the spouses were valued clients of the bank, they had
with the latter a pre-authorized transfer wherein they were allowed to
maintain a zero balance current account and transfers were allowed from
their savings account.
Two checks were drawn by petitioners and made payable to Petrophil.
Subsequently, these were deposited with PNB, the collecting bank. The
check underwent clearing and it was seen that the current account had
zero balance. Thereafter, the husband deposited in their savings account
money.
The wife then informed her husband days after that there was refusal to
deliver the orders since the checks they paid previously have both been
dishonored upon presentment for payment. This incident prompted the
spouses to stop business operations, which caused losses and damages. In
addition, Petrophil cancelled their credit accommodation and this led them
to pay in cash. This prompted the spouses to demand an explanation from
the bank. They were informed that a bank officer committed a grave error.
The bank manager then visited the spouses, made them sign an
agreement for the issuance of a managers check to replace the 2
dishonored checks payable to Petrophil. The husband then on a chance
meeting with Petrophils credit manager, was informed that Petrophil
received notification that the two checks were dishonored due to
operational error.
The spouses six months after wrote the bank claiming that due to the
dishonor of their checks, they suffered besmirched business and personal
reputation. The bank didnt act on their demands however.
HELD:
Where the bank possesses funds of a depositor, it is bound to honor his
checks to the extent of the amount of the deposits. The failure of the bank
to pay the check of a merchant or trader, when the deposit is sufficient,
entitles the drawer to substantial damages without any proof of actual
damages.
However, a bank isnt liable for its refusal to pay a check on account of
insufficient funds, notwithstanding the fact that a deposit may be made
later in the day. Before a depositor may maintain a suit to recover a
specific amount from his bank, he must show first that he had on deposit
sufficient funds to meet his demand.
The issue in this case is that whether or not petitioners had sufficient funds
in their account when the checks were dishonored.
Following clearing house rules, it is supposed to be processed on the date it
was presented for clearing. It was the available balance the day before the
date the funds were deposited was used by the bank in determining
whether or not there was sufficient cash deposited to fund the checks since
it was December 15 was the actual date when the checks were processed.
The funds during which the checks were dishonored wasnt enough to
cover the two checks. When the check was presented for payment, there
was insufficiency of funds. It was only the next day when the funds to
cover the checks were deposited, which unfortunately was too late to
prevent the dishonor of the checks.
Petitioner had no reason to complain, for they alone were at fault. A
drawer must remember his responsibilities every time he issues a check.
He must personally keep track of his available balance in the bank and not
rely on the bank to notify him of the necessity to fund certain checks he
previously issued. A check as distinguished from a bill of exchange, is
supposed to be drawn against a previously deposit of funds for it is
ordinarily intended for immediate payment.
Moreover, on the issuance of the checks on day 1 and 2, and the time for
presentment on day 3, the petitioners had more than 24 hours to replenish
their accounts in the bank.
It should also be noted that the bank has no responsibility to pay a check
partly when the amount drawn on the check is larger than the amount
deposited in the account. There would naturally be a conflict of interests
between the payee and the bank. The bank would then want the return of
the check while the payee will not want to do so since there is still balance
left unpaid.
Furthermore, when the drawer has two accountsa savings account and
open accountand a check was drawn with the open account having
insufficient funds, the bank has no authority to use the funds to be found in
the savings account to cover the insufficiency of the funds.
173
FACTS:
Firestone filed a complaint against Chavez for an amount representing the
price of automobile tires, tubes, and other accessories, which the former
had sold and delivered to Chavez on different dates. The trial court held in
favor of Firestone and awarded the principal as well as attorneys fees.
Chavez questioned this in the appellate court and in the SC as well. It
raised the argument that the court erred in finding her to be in bad faith.
The claim is made that when the check was issued, Firestone knew that
there were no funds to back it up and that Chavez expected that such
funds would be available when the check became due.
HELD:
Of course, if Firestone agreed to accept the check, knowing that it wasnt
covered by adequate funds, no finding of bad faith can be made against
Chavez. In a number of cases it was held that where a person issues a
post dated check without funds to cover it and informs the payee of this
fact, he cannot be held guilty of estafa because there is no deceit.
Nonetheless, it was nowhere to be found in the records that there was
knowledge on the part of Firestone.
174
BATAAN CIGAR V. CA
230 SCRA 643
FACTS:
Bataan Cigar has engaged one of its suppliers, George King, to deliver
bales of tobacco leaves. Petititoner then issued postdated crossed checks
in favor of King. This was continued despite the failure to deliver the bales.
Simultaneous to these transactions was the discounting of King of the
checks to State Investment House. Bataan then stopped payment and
SIHI tried to collect.
HELD:
The negotiability of the check isnt affected by it being crossed,
whether specially or generally. It may be legally negotiated from one
person to another as long as the one who encashes the check with the
drawee bank or if its specially crossed, by the bank mentioned
between the parallel lines.
Jurisprudence provides the following effects of crossing a check:
1. The check may not be encashed but only deposited in the bank
2.
Since the demand drafts herein involved have not been presented either
for acceptance or payment, the inevitable consequence is that the bank
never had the chance of accepting or receiving them. Verily, the bank
never became a debtor of the payee concerned and as such the aforesaid
drafts cannot be considered as credits subject to escheat within the
meaning of the law.
The check should have placed the holder in inquiry and upon him
devolves the duty to ascertain the indorsers title to the check or the
nature of his possession. Failing in this respect, the holder is declared
guilty of gross negligence amount to legal absence of good faith.
176
3.
175
REPUBLIC V. PNB
3 SCRA 851
FACTS:
The government filed a complaint for escheat of certain unclaimed bank
deposits balances pursuant to a law, which provides that unclaimed
balancescredits, money, bullion, security or other evidence of
indebtedness of any kind, and interest with banksshall be deposited with
the government if it remains to be unclaimed within a period of 10 years
of more.
One of the banks against the complaint has been filed is First National City
Bank. Although it concedes that the government had the right to claim
the unclaimed deposit balances, it seeks to exclude some which,
according to it, are not within the purview of credits and deposits as
defined in law. the trial court held in favor of the bank, excluding
from the claim the managers checks and other demand drafts.
HELD:
Credit is a sum credited on the books of a company to a person who
appears to be entitled to it. it presupposes a creditor-debtor relationship
and may be said to imply ability, by reason of property or estates, to make
a promised payment. It is correlative to indebtedness, and that which is
due to any person, as distinguished to that which he owes.
Do demand drafts and telegraphic orders come within the purview of
credits or deposits employed in the law?
MESINA V. IAC
145 SCRA 497
FACTS:
Jose Go purchased from Associate Bank a Cashiers Check, which he left on
top of the managers desk when left the bank. The bank manager then
had it kept for safekeeping by one of its employees. The employee was
then in conference with one Alexander Lim. He left the check in his desk
and upon his return, Lim and the check were gone. When Go inquired
about his check, the same couldn't be found and Go was advised to request
for the stoppage of payment which he did. He executed also an affidavit of
loss as well as reported it to the police.
The bank then received the check twice for clearing. For these two times,
they dishonored the payment by saying that payment has been stopped.
After the second time, a lawyer contacted it demanding payment. He
refused to disclose the name of his client and threatened to sue. Later, the
name of Mesina was revealed. When asked by the police on how he
possessed the check, he said it was paid to him Lim. An information for
theft was then filed against Lim.
A case of interpleader was filed by the bank and Go moved to participate
as intervenor in the complaint for damages. Mesina moved for the
dismissal of the case but was denied.
The trial court ruled in the
interpleader case ordering the bank to replace the cashiers check in favor
of Go.
HELD:
Petitioner cannot raise as arguments that a cashiers check cannot be
countermanded from the hands of a holder in due course and that a
cashiers check is a check drawn by the bank against itself. Petitioner
PEOPLE V. REYES
454 SCRA 635
FACTS:
Reyes was charged with estafa. The facts that led to this are as follows
She together with her daughter and another person issued a check in favor
of Alabastro for payment of an obligation. Alabastro was never able to get
the value of the check because when he presented it for payment in the
bank, it was dishonored for the account it was drawn upon is closed.
Reyes alleges that her liability should only be civil and not criminal for the
check was issued for payment of a pre-existing obligation.
As per the testimony of the bank manager, the accused maintained a
negotiable order of withdrawal account under her name. It was explained
that checks may be drawn against the account but only to a specific payee.
He verified also that the check issued to Alabastro is a NOW check.
As per the testimony of Alabastro, he established that the checks issued to
him were for a discounting agreement. This was countered by the accused
by saying also that the checks were dated and completed by Alabastro.
The trial court convicted the accused and she avers that the checks issued
by her doesnt fall within the meaning of checks under the NIL. First, the
NOW check was drawn against a savings account. Second, it is only
payable to a certain payee or specific person.
HELD:
It is inconsequential that the check shall be only payable to a specific
person. The same restriction is produced when the check is crossed, only
the payee named therein in the check may deposit it in the bank. If a third
person accepts a crossed check and pays cash for value despite the
warning of the crossing, he cannot be considered in good faith and thus,
not a holder in due course. The purpose of the crossing is to ensure that
the check will be encashed by the rightful payee only. Yet, despite the
restriction on negotiability of crossed checks, they were held to be
negotiable instruments.
To be sure, it is the fraud or deceit employed which is the gravamen of the
offense of estafa and not the negotiability of the check.
Nonetheless, the accused should be acquitted of estafa. It was held in a
prior case that when the payee knew that the check was drawn on an
account with insufficient funds, there would be no liability for estafa. First,
Alabastro presented 4 different checks with 4 different dates. When he
deposited the first check, he was then informed that the account was
closed and yet, on later dates, he still deposited the other four checks.
Second, was his own admission to this knowledge.
(Doctrine of
Concomitance)
Sec. 186. Within what time a check must be presented. - A
check must be presented for payment within a reasonable time
after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay.
WHEN CHECK MUST BE PRESENTED FOR PAYMENT
A check must be presented within a reasonable time after its issue
The whole theory and use of a check points to its immediate payability
A depositor places his money with his bank or banker; where it
is
subject at any time to his order; and by his check or order, he desires
to appropriate so much of it to another person, and the bank or
banker, in consideration of its temporary use of the money, agrees to
pay it in whole, or in parcels, to the depositors order when demanded
But he doesnt agree to contract to pay at a future day by
acceptance and the depositor cannot require it
Although under Section 185, a check is a bill of exchange payable
on demand, it is intended for immediate use and not to circulate
as a promissory note.
Therefore, the transfer of a check to
successive holders, where it is drawn and delivered in the place where
the drawee bank is located, doesnt extend the time for presentment.
If the check isnt delivered on one day and isnt presented before
the close of banking hours the next business day, the drawer is
discharged to the extent of any loss suffered from the failure to
present.
REASONABLE TIME
the precise age of the instrumentthat is, the good or bad faith
exercised the prime consideration. The result is that the plaintiff has
been treated as a holder in due course of checks transferred several
months after their issue
EFFECT OF DELAY AS TO INDORSERS
An unreasonable delay in the presentment of a check for payment
will discharge the indorsers thereon, whether or not he is injured by
the delay as it is presumed that he is prejudiced
Exception: when there is affirmative proof that the indorsers knew
that there was delay in presentment
CASE DIGESTS: SECTION 186
178
PNB V. SEETO
91 PHIL 756
FACTS:
Seeto called at a branch of bank and presented a check payable to cash or
bearer, and drawn by Kiao against PBC. After consultation with the
employees, Seeto made a general and qualified indorsement of the check.
He was then paid the amount of the check by bank. The check was
consequently dishonored, a letter was sent to Seeto and was asked to
refund the money given to him. A second letter was sent to him and he
averred that case against him be deferred while he inquired about why the
check was dishonored. Thereafter, he refused to pay, alleging that the
account against the check was drawn had sufficient funds when the check
was drawn and if the bank didnt delay in clearing the check, there would
have been sufficient funds.
The appellate court reversed the lower court in its decision. It ruled that
the bank was guilty of unreasonably retaining and withholding the check,
and that the delay in the presentment was inexcusable, so that respondent
thereby was discharged from liability.
HELD:
Section 84 is applicable, nonetheless, it should be read in correlation with
Section 186, which says that presentment should be within reasonable
time.
*Section 186 applies when the bank suddenly becomes bankrupt.
179
CRYSTAL V. CA
71 SCRA 443
FACTS:
Petitioner redeemed property, which has been sold upon execution, with a
check issued to the buyer Ocang. The CA found that the check for P11200
paid by petitioner for the redemption in dispute has been dishonored, in
the face of the other findings in the same decision of the CA indicating that
instead of having been dishonored, the said check had only become
stale, albeit it being replaced with new ones from time to time.
HELD:
Surely, for a check to be dishonored upon presentment, on the one hand,
and to be stale for not being presented at all in time, are incompatible
developments that naturally have variantly legal consequences. Thus, if
indeed the check in question had been dishonored, then there can be no
doubt that the petitioners redemption was null and void. On the other
hand, if it had only become stale, then it becomes imperative that the
circumstances that caused its non-presentment be determined, for if this
wasnt due to the fault of petitioner, then it would be unfair to deprive him
of the rights he acquired as redemptioner, particularly, if after all, the
value of the check has otherwise been received or realized by the party
concerned.
The case was remanded to the trial court to receive all relevant and
competent evidence to the issue of whether or not Ocang has received in
one form or another, the full amount as redemption price of the four
parcels of land in dispute as well as to the other facts.
It was found out that Ocang, when he applied for a writ of possession,
there was payment of redemption price by Crystal. Thus, there was a
proper redemption.
180
MONTINOLA V. PNB
88 SCRA 178
FACTS:
Ramos, as a disbursing officer of an army division of the USAFE, made cash
advancements w/ the Provincial Treasurer of Lanao. In exchange, the
Provl Treasurer of Lanao gave him a P500,000 check. Thereafter, Ramos
presented the check to Laya for encashment. Laya in his capacity as
Provincial Treasurer of Misamis Oriental as drawer, issued a check to
Ramos in the sum of P100000, on the Philippines National Bank as drawee;
the P400000 value of the check was paid in military notes.
Ramos was unable to encash the said check for he was captured by the
Japanese. But after his release, he sold P30000 of the check to Montinola
for P90000 Japanese Military notes, of which only P45000 was paid by the
latter. The writing made by Ramos at the back of the check was to the
effect that he was assigning only P30000 of the value of the document with
an instruction to the bank to pay P30000 to Montinola and to deposit the
balance to Ramos's credit. This writing was, however, mysteriously
obliterated and in its place, a supposed indorsement appearing on the back
of the check was made for the whole amount of the check. At the time of
the transfer of this check to Montinola, the check was long overdue by
about 2-1/2 years.
Montinola instituted an action against the PNB and the Provincial Treasurer
of Misamis Oriental to collect the sum of P100,000, the amount of the
aforesaid check. There now appears on the face of said check the words
in parenthesis "Agent, Phil. National Bank" under the signature of
Laya purportedly showing that Laya issued the check as agent of the
Philippine National Bank.
HELD:
Montinola could not be considered as a holder in due course. Why? For
one to be a holder in due course, one should take the instrument before it
has become overdue. Remember that in this case, Montinola took the
check which has long become overdue. He cannot even be in the slightest
be considered as a holder because the NIL defines a holder as being the
payee or the indorsee of the negotiable instrument. In this case, he wasn't
the payee nor was he the indorsee of the check in issue.
181
PACHECO V. CA
319 SCRA 595
FACTS:
Due to dire financial needs of petitioner spouses who were engaged in the
construction business, they secured loans from Vicencio. At every loan
secured, the lender compelled the spouses to issue an undated check
despite the admission of spouses that their bank account has insufficient
funds or as on a later date, already closed. Lender assured them that the
issuance of the check was only evidence of indebtedness, that it would
not be presented to the bank, and it would be for formalities only. On the
date wherein there was an unpaid balance to the loans secured by the
spouses, the lender had them place a date on two of the later
checks issued. Surprised later on, the spouses were charged with
estafa as the checks were presented for encashment and was dishonored.
HELD:
THE INTERNATIONAL
SPOUSES GUECO
315 SCRA 516
CORPORATE
BANK
V.
FACTS:
Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a
car. In consideration thereof, the debtors executed PNs, and a chattel
mortgage was made over the car. As the usual story goes, the spouses
defaulted in payment of their obligations and despite the lowering of the
amount to be paid, they still failed to pay. Thereafter, they tendered a
managers check in favor of the bank. Nonetheless, the car was still
detained for the spouses refused to sign the joint motion to dismiss. The
bank averred that the joint motion to dismiss is part of standard office
procedure to preclude the filing of other claims. Because of this, the
spouses filed an action for damages against the bank. And by the time the
case was instituted, the check had become stale in the hands of the bank.
HELD:
The main issue though unrelated to NIL in this case was whether or not the
signing of the joint motion to dismiss a part of the compromise agreement
between the spouses and the bank. The answer is no, it is not a part of
the compromise agreement entered by the parties. And thus, the signing
is dispensible in releasing the car to the spouses.
And on the ancillary issue of the case, which is the relevant issue for the
subject, whether or not the spouses should replace the check they paid to
the bank after it became stale, the answer is yes. It appeared that the
check has not been encashed. The delivery of the managers check did not
constitute payment. The original obligation to pay still exists. Indeed, the
circumstances that caused the non-presentment of the check should be
considered to determine who should bear the loss. In this case, ICB held
on the check and refused to encash the same because of the controversy
surrounding the signing of the joint motion to dismiss. There is no bad faith
or negligence on the part of ICB.
A stale check is one which has not been presented for payment within a
reasonable time after its issue. It is valueless and, therefore, should not be
paid. A check should be presented for payment within a reasonable time
after its issue. Here, what is involved is a managers check, which is
essentially a banks own check and may be treated as a PN with the bank
as a maker. Even assuming that presentment is needed, failure to present
for payment within a reasonable time will result to the discharge of the
drawer only to the extent of the loss caused by the delaybut here there is
no loss sustained. Still, such failure to present on time does not wipe out
liability.
183
WONG V. CA
351 SCRA 100
FACTS:
Petitioner was an agent for Limtong Press, a manufacturer of calendars.
LPI would give sample calendars to their agents and the agents would get
the purchase orders of customers and present them to the company. The
company would then make the calendars and ship them to the customers.
The agents would then collect the payments and remit it to the company.
He had a record of unremitted payments and a confirmation receipt
evidenced this.
Because of this, it became a company policy that
postdated checks must be issued by customers to secure payment for the
orders. Thereafter, Wong issued 6 postdated checks. But this wasnt
accepted by the company since it was against its policy to accept checks
from its agents. It was then agreed upon that the checks would be applied
to its unremitted payments. When the checks were about to be deposited,
Wong requested that it be deferred and he will replace the same. But this
didnt happen.
The checks were then subsequently deposited
and dishonored which prompted the company to sue Wong.
HELD:
The trial and appellate court both ruled that Wongs checks were to be
used as guarantees but due to refusal of the company, it was agreed upon
that it will be used as payment for Wongs unremitted payments.
On the issue if all the elements of violations of BP22 has been committed,
there are two ways of violating BP22:
1. By making or drawing or issuing a check to apply on account or
for value knowing at the time of issue that the check isnt
sufficiently funded
2. By having sufficient funds in or credit with the drawee bank at the
time of issue but failing to keep sufficient funds therein or credit
with said bank to cover the full amount of the check when
NAGRAMPA V. PEOPLE
386 SCRA 412
FACTS:
The sales manager of Fedcor brought into the plant Nagrampa in order for
the latter to purchase an excavation machine. He made a downpayment
and for the balance, he issued a postdated check. The checks were drawn
against Security Bank.
Upon the guarantee of the salesman, the
equipment was delivered. However, when the checks were presented for
payment, they were dishonored on the ground that the account against
which it is drawn has long been closed. The company notified petitioner
but it still failed to make payments. This prompted the company to file a
case for estafa and violation of BP22 against Nagrampa. The trial court
and appellate court both found him guilty.
HELD:
Petitioner admitted the issuance of the two checks but he would like to
argue that the same had been presented more than the 90-day period
stated in the law. This is to no avail though since the 90-day period is for
the presumption of knowledge to arise. It is not an essential element of
the offenses committed within the purview of BP22.
In this case, the checks were presented within 6 months from the issuance
of the checks and wouldnt therefore have been considered stale had
petitioners account had been existing. Although the presumption of
knowledge didnt arise, such knowledge was sufficiently proven during the
trial upon the testimony of one of the banks employees.
Likewise, for estafa, it is the same. All the elements were present. It was
the allegation however of accused that there was no damage done against
the company. He even averred that there was a return of the equipment.
Nonetheless, damage contemplated in estafa may consist in the offended
party being deprived of his money or property as a result of the
defraudation, disturbance in property rights, or temporary prejudice. In
this case, the deprivation of property was apparent. The backhoe was
delivered precisely to the accused because of his downpayment and the
issuance of the checks.
185
TY V. PEOPLE
439 SCRA 220
FACTS:
Tys mother was confined in Manila Doctors. As the daughter, she signed
the acknowledgement of responsibility for payment. Her sister was also
subsequently confined in the same hospital. She then drew promissory
notes, promising to pay her obligations to the hospital. She issued 7
checks and these were thereafter deposited on their due dates. But these
checks were dishonored for the account against which they were drawn
against had been closed. The hospital then sent demand letters but to no
avail. This prompted it to file a complaint for 7 counts of violations of
BP22.
HELD:
Ty doesnt deny to have issued the checks in issue. She claims that the
issuance was under the impulse of an uncontrollable fear of a greater
injury or in avoidance of a greater evil or injury.
It seems that all the factual findings are not disputed except for the
allegation of uncontrollable fear or injury. Nonetheless, this is insufficient
to exempt the accused of her liabilities. For uncontrollable fear or injury
to become an exempting circumstance
1. Existence of an uncontrollable fear
2. The fear must be real and imminent
3. The fear of injury is greater than or at least equal to that
committed
In this case, far from it, the fear, if any, harbored by Ty wasnt real or
imminent. Ty claims that she was compelled to issue the checksa
condition the hospital commanded of her before her mother can be
discharged. This is only speculative fear.
It is also bereft of merit to raise the justifying circumstance of state of
necessity, which has the following elements
1. That the evil sought to be avoided actually exists
2. That the injury feared be greater than the one done to avoid it
3. That there be no other practical and less harmful means of
preventing it
And to her claim of lack of consideration because she wasnt the patient, it
is no defense to an action on a promissory note for the maker to say that
there was no consideration which was beneficial to him personally. It is
sufficient if the consideration was a benefit conferred upon a third person,
or a detriment suffered by the promisee, at the instance of the promissor.
It is enough that the obligee foresees some right or privilege or suffers
some detriment and the release and extinguishment of the original
obligation.
186
FACTS:
Great Asian Sales was a business engaged in the selling and buying of
merchandise. In 2 of its board resolutions, it first authorized Arsenio, its
treasurer, to secure a loan from Bancasia as well as to sign any pertinent
documents related to such. Second, it authorized Arsenio to obtain from
Bancasia a discounting line. Pursuant to these, deeds of assignments were
issued by Great Asian in favor of Bancasia for receivablesspecifically
checks. Almost all the checks assigned by Great Asian were dishonored.
Notice of dishonor was sent by the bank and its lawyer to Tan Chong Lin.
Later, Great Asian filed for insolvency and in its petition, Bancasia was one
of those listed as its creditors. In the meanwhile, a complaint was filed
against Great Asian and Tan Chong Lin because of the surety agreement it
signed in favor of Bancasia.
HELD:
First, under the 2 board resolutions, indeed Arsenio was authorized to
obtain a loan and sign any document related to the securing of the loan.
The question is whether the deeds of assignment signed by Arsenio
was within the ambits of his authority.
OCTOBER 1-6,
, 2007
Sec. 187. Certification of check; effect of. - Where a check
is certified by the bank on which it is drawn, the certification
is equivalent to an acceptance.
CERTIFICATION OF CHECK
A certification is an agreement whereby the bank against whom
a check is drawn, undertakes to pay it at any future time
when presented for payment
But a bank is not obligated to the depositor to certify checks
And the drawee is not liable to the holder for refusal of the bank
to certify the fcheck
The refusal of the bank doesnt dispense with the requirement
of presentment for payment since a check is of right presentable only
for payment at the bank on which it is drawn
FORM OF CERTIFICATION
No particular form is required but it must be in writing
The usual method is by stamping on the check the word certified
and underneath it the signature of the cashier, or by writing upon
the check the word good with the date of certification and
signature of the officer of the bank having the express or implied
authority to certify checks, has been held to be a sufficient
certification
The letters OK with the initials of the cashier of a bank
doesnt constitute a sufficient certification under modern banking
practice
EFFECT OF CERTIFICATION
1. Equivalent to acceptance and is the operative act that makes the
drawee bank liable
2. It operates as an assignment of the funds of the drawer in the
hands of the drawee bank
3. If obtained by the holder, it discharges the persons secondarily
liable
CERTIFICATION EQUIVALENT TO ACCEPTANCE
Certification is equivalent to acceptance in the drawee bank is
bound on the instrument upon certification
And it is immaterial to such liability in favor of a holder in due
course whether the drawer had funds or not in the bank or the
drawer was indebted to the bank for more than the amount of the
check
The certifying bank has all the liabilities of an acceptor under
Section 62
PANLILIO V. DAVID
50 PHIL 105
FACTS:
Panlilio and David are both bidders for lease of a big chunk of land owned
by the government. Panlilio had a higher bid than David. Both of their
bids were accompanied by uncertified checks, the amount for Davids is
lesser than that of Panlilios. Later, David equaled the bid of Panlilo by
adding cash to the amount of his check. With this, the lease was awarded
to David. His check was encashed and the proceeds were deposited with
the Treasury. This award was questioned by Panlilio by averting that the
bid of David should have been denied since the check he offered was
uncertified. This prompted the withdrawal of the award to David and
instead, the lease was awarded to Panlilio, whom it was thought to have
submitted a certified check. After knowing that he too didnt have a
certified check, his award was cancelled. Both appealed this to the
appellate court.
HELD:
The rule that the check to be offered should be certified is an office rule. It
sought to prevent the presentation of frivolous bids and to avoid difficulties
in the collection of the amount of the accepted bid. The Director of Lands
therefore had the authority to reject both bids in question on the ground
that they werent accompanied by certified checks. Nonetheless, this
doesnt mean that if he accepted one of them, a merely formal defect
would vitiate the award. When Davids bid was accepted and the amount
of the bid was paid and covered into the Treasury, the government could
hardly be heard to say that the award was invalid because the amount paid
was originally represented in part by an uncertified check.
188
FACTS:
New Pacific Timber and Supply was the defendant in a case for collection of
money. Upon failure to comply with the compromise agreement, a writ of
execution was issued and its properties were levied. Prior though to the
auction sale, petitioner deposited with the trial court a cashiers check but
private respondent refused to accept.
HELD:
The check deposited by the petitioner is no ordinary check but a cashiers
check. It is a well-known and accepted practice in the business sector that
a cashiers check is deemed as cash. Moreover, since the said check had
been certified by the drawee bank, by the certification, the funds
represented by the check are transferred from the credit of the maker to
that of the payee or holder, and for all intents and purposes, the latter
becomes the depositor of the drawee bank, with rights and duties of one in
such situation. The certification by the bank is equivalent to acceptance.
It is an understanding that the check is good then, and shall continuegood,
and this agreement is binding on the bank as its notes in circulation, a
certificate of deposit payable to the order of the depositor, or any other
obligation it can assume. The object of certifying the check as regards
both parties is to enable the holder to use it as money. Hence the
exception to the rule on Section 64 of the CB Act to the effect that a check
which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to a creditor in cash in an amount equal to the
amount credited to his account shall apply in this case.
189
FACTS:
Unknown persons negotiated with Motor Services Company checks, which
were part of the stipulation in payment of automobile tires purchased from
the latters store.
It purported to have been issued by Pangasinan
Transportation Company. The said checks were indorsed at the back by
said unknown persons, the Motor company believing at that time that the
signatures contained therein were genuine.
The checks were later
deposited with the companys account in National City Bank of NY. The
said checks were consequently cleared and PNB credited National City Bank
with the amounts. Thereafter, PNB discovered that the signatures were
forged and it demanded the reimbursement of the amounts for which it
credited the other bank.
HELD:
A check is a bill of exchange payable on demand and only the rules
governing bills of exchanges payable on demand are applicable to it.
in view of the fact that acceptance is a step necessary insofar as
negotiable instruments are concerned, it follows that the provisions
relative
to acceptance
are
without
application
to
checks.
Acceptance impies
subsequent negotiation of the instrument, which is not true in the case of
checks because from the moment it is paid, it is withdrawn from
circulation. When the drawee banks cashes or pays a check, the cycle of
negotiation is terminated and it is illogical thereafter to speak of
subsequent holders who can invoke the warrant against the drawee.
Further, in determining the relative rights of a drawee who under a mistake
of fact, has paid, a holder who has received such payment, upon a check to
which the name of the drawer has been forged, it is only fair to consider
the question of diligence and negligence of the parties in respect thereto.
The responsibility of the drawee who pays a forged check, for
the genuineness of the drawers signature is absolute only in favor of one
who has not, by his own fault or negligence, contributed to the success
of the fraud or to mislead the drawee.
According to the undisputed facts, National City Bank in purchasing the
papers in question from unknown persons without making any inquiry as to
the identity and authority of said persons negotiating and indorsing them,
acted negligently and contributed to the constructive loss of PNB in failing
to detect the forgery. Under the circumstances of the case, if the appellee
bank is allowed to recover, there will be no change in position as to
the injury or prejudice of the appellant.
DRAWER: PANGASINAN
PAYEE: IASMOTOR SERVICE
DRAWEE: PNB
COLLECTING BANK: NATIONAL CITY BANK OF NEW YORK
190
FACTS:
Tuazon owned a big parcel of land, which was subdivided into smaller lots.
These lots were leased to people and under the contract of lease, the
lessees had the right of first refusal, in case Tuazon decides to sell the
lots. Tuazon then obtained loans from Vidal, which was secured by
mortgages over the same land. Thereafter,
Tuazon
and
Araneta
entered into a promise to buy and sell, subject to the decision of the
lessees if they will purchase the lots. Many lessees took advantage of
this proposition and bought the lots.
The only encumbrance left is
the mortgage to Vidal. Tuazon tried to tender a check for payment of
the full mortgage obligation but Vidal refused to accept the check,
prompting the former to file an action against the latter. Attached to
the complaint was the check refused by Vidal, another certified check,
and an ordinary check.
This action however wasnt pursued. The
records and the checks were destroyed in a fire and wasnt
reconstituted. Since one of the checks was issued by Araneta in favor
of Vidal, and there was a stipulation that Tuazon would be held liable,
Araneta ran after Tuazon for the value of the checks.
HELD:
The stipulation holding Tuazon liable for the loss of the checks issued was a
valid stipulation, nonetheless, Tuazon should not be held liable for the loss
of the certified checks. The matter of who should bear the loss doesnt
depend upon the validity of the sale but on the extent and scope of the
clause hereinbefore quoted as applied to the facts of the present case.
Some of the checks was issued by Araneta and payable to Vidal, and were
drawn against BPI with which Araneta had a deposit in the current account.
They were certified and the certification stated that they were to be void if
not presented for payment at the office within 90 days from date of
acceptance. Under banking laws and practices, by the certification, the
funds represented by the check were transferred from the credit of the
maker to that of the payee or holder, and for all intents and purposes, the
latter became the depositor of the bank, with rights and duties of one
in such relation. But the transfer of the corresponding funds from the
credit of the depositor to that of the payee had to be co-extensive with the
life of the checks, which in this case was 90 days. If the checks
were not presented for payment within that period they became
invalid and the funds were automatically restored to the credit of the
drawer though not as a current deposit but as special deposit.
The checks were never collected and the account against which they were
drawn wasnt used or claimed by Araneta and since the account was
opened during the Japanese occupation and in Japanese currency, the
checks became obsolete as the account subject thereto is considered null
and void.
Whether BPI could lawfully limit the negotiability of the certified checks to
a period less than what is provided by the statute of limitations doesnt
seem material. The limitation imposed by the bank as to the time
would adversely only affect the payee Vidal but in this case, Vidal actually
refused to accept the checks.
But as to Araneta and Tuazon, the conditions specified in the certification
and the prevailing regulations of the bank were the law of the case. Not
only this, but they were aware of and abided by those reghulations and
practice, as instanced by the fact that the parties presented testimony to
prove those regulations and practice. And that Araneta knew that Vidal
hadnt cashed the checks within 90 days is not, and couldnt successfully
be, denied.
In these circumstances, the stipulation that the defendant or seller shall
not hold the buyer responsible for the loss of the checks is unconscionable
and void insofar as this would stretch Tuazons liability for more than
90 days.
191
FACTS:
Sarande deposited a check with her account. After getting assurance that
the said check had been cleared, she issued two checks in the same
amount as of the proceeds of the check. One of the checks issued was
given to Ong. Thereafter, Ong instead of depositing the check given, had a
managers check issued to him in the same value of the check. This she
tried to deposit but she received a notice that the bank has stopped
payment of the check. Despite her demands to make good the value of
her check, she was refused.
HELD:
PCI should be held liable. It had certified the check and since certification
is equivalent to acceptance, the bank as drawee bank is bound on the
instrument upon certification and it is immaterial to such liability in favor of
the plaintiff who is a holder in due course whether the drawer had funds or
not with the bank or the drawer was indebted to the bank for more than
the amount of the check as the certifying bank had the same liabilities as
acceptor.
It may be true that the check which was paid to her had no funds to
support it, nonetheless, as a holder in due course, the bank cannot
rule of the bank that stop orders must be in writing, a verbal notice is
sufficient.
WHEN STOPPING PAYMENT CONSTITUTES A CRIME
It would constitute the crime of estafa where the accused issues
a check and receives money, not goods, for them to the offended
party, and where at the time the accused has received money for the
check from the offended party, he has the intention of stopping
payment on it.
CASE DIGESTS: SECTION 189
190
TAN V. CA
239 SCRA 310
FACTS:
Tan was a businessman who maintained an account with RCBC. To avoid
the risk of bringing with him cash, he bought a managers check from PCIB
and deposited it in his account. On the same day, RCBC erroneously sent
the check for clearing which was sent back for having been missent or
misrouted.
This caused RCBC to debit the account of Tan.
Thereafter, without being informed of his account being debited, Tan issued
two checks with the same value of the managers check he deposited.
This naturally bounced and this prompted Tan to file an action against
RCBC.
HELD:
RCBC cannot exculpate itself from liability by claiming that the depositor
has implied instructed it to send the check for clearing by filling a local
check deposit slip. Such posture is disingenuous to say the least. First,
why would the bank follow a patently erroneous act born of ignorance or
inattention or both. Second, bank transactions pass through a succession
of bank personnel whose duty is to check and countercheck transactions
for possible errors. As soon as their deposits are accepted by the bank
teller, they wholly repose trust in the bank personnels mastery of banking,
their and the banks sworn profession of diligence and meticulousness in
giving irreproachable service.
In the instant case, it was the bank which was remiss in its duties. The
two checks were issued 45 days after the cashiers check was deposited.
The bank had ample time to have cleared the cashiers check had it
corrected its missending the same upon the return from CB using the
correct slip this time so that it can be cleared properly. Instead, the bank
has promptly debited the account of Tan.
VILLANUEVA V. NITE
496 SCRA 459
FACTS:
Nite obtained a loan from Villanueva. This was secured by an ABC check
but when the check was deposited, it was dishonored for having been
materially altered. Afterwards, Nite remitted to Villanueva partial payment
of the loan. Nonetheless, the latter filed an action for collection of sum of
money from the former for the whole value of the check. The lower court
decided in favor of Villanueva and ordered ABC to pay the former.
Thereafter, when Nite tried to withdraw money from her account she
couldnt do so. This prompted Nite to file with the CA for annulment of
judgment which she was granted.
HELD:
Villanueva obviously acted on bad faith. Barely 6 days after accepting the
partial payment from Nite, he acted with haste in filing the action. He
didnt even implead Nite in his action against the bank, showing his intent
to prevent Nite from opposing his action.
FACTS:
Miranda had an account with Prime Savings. She withdrew some of her
money but instead of asking for cash, she requested that she be issued two
crossed cashiers check. She then deposited these in another account. But
these checks werent paid, since the BSP suspended the clearing
privileges of Prime Savings. Thereafter, Prime Savings declared bank
holiday and was placed under receivership. The checks were then
returned to Miranda unpaid and this prompted her to file an action for
collection of sum of money from PDIC, the receiver.
HELD:
The two cashiers check in issued dont constitute an assignment of
funds in the hands of Miranda as there were no funds in the first place.
The bank was insolvent for sometime even before the checks were issued
in favor of Miranda.
Second, the claim of Miranda is subject to the jurisdiction of the liquidation
court. Regular courts dont have jurisdiction over claims against insolvent
bank.
Third, it is only Prime Savings that is liable to pay for the amount of the
cashiers check. Solidary liability cannot attach to the BSP in its capacity
as regulator of banks, and the PDIC as statutory receiver because they are
principal government agencies mandated by law to determine the financial
viability of banks and quasi-banks, and facilitate receivership and
liquidation of closed financial institutions upon factual determination of the
latters insolvency.