VELASQUEZ vs. SOLIDBANK CORPORATION, G.R. No.

157309
March 28, 2008

FACTS:
The case arose out of a business transaction for the sale of dried sea cucumber for export to South Korea
between Wilderness Trading (of Velasquez), as seller, and Goldwell Trading of Pusan, South Korea, as buyer.
To facilitate payment of the products, Goldwell Trading opened a letter of credit in favor of Wilderness Trading
with the Bank of Seoul, Pusan, Korea.
Petitioner applied for credit accommodation with Solidbank for pre-shipment financing. The credit
accommodation was granted. Petitioner was successful in his first two export transactions both drawn on the
letter of credit. The third export shipment, however, yielded a different result. Petitioner submitted to Solidbank
the necessary documents for his third shipment. Wanting to be paid the value of the shipment in advance,
petitioner negotiated for a documentary sight draft to be drawn on the letter of credit, chargeable to the account
of Bank of Seoul. The sight draft represented the value of the shipment.
As a condition for the issuance of the sight draft, petitioner executed a letter of undertaking in favor of
respondent. Under the terms of the letter of undertaking, petitioner promised that the draft will be accepted and
paid by Bank of Seoul according to its tenor. Petitioner also held himself liable if the sight draft was not
accepted.
Respondent failed to collect on the sight draft as it was dishonored by non-acceptance by the Bank of Seoul.
The reasons given for the dishonor were late shipment, forged inspection certificate, and absence of
countersignature of the negotiating bank on the inspection certificate.Goldwell Trading likewise issued a stop
payment order on the sight draft because most of the bags of dried sea cucumber exported by petitioner
contained soil.
Due to the dishonor of the sight draft and the stop payment order, respondent demanded restitution of the sum
advanced. Petitioner failed to heed the demand.
Solidbank filed a complaint for recovery of sum of money with the RTC. In his answer, petitioner alleged that
his liability under the sight draft was extinguished when respondent failed to protest its non-acceptance, as
required under the Negotiable Instruments Law (NIL). He also alleged that the letter of undertaking is not
binding because it is a superfluous document, and that he did not violate any of the provisions of the letter of
credit.
RTC rendered judgment in favor of respondent. The CA affirmed with modification. hence this petition.

ISSUE: WON not petitioner should be held liable to respondent under the sight draft or the letter of
undertaking.

Held: petition denied.

YES; letter of undertaking
Admittedly, petitioner was discharged from liability under the sight draft when respondent failed to protest it for
non-acceptance by the Bank of Seoul. A sight draft made payable outside the Philippines is a foreign bill of
exchange. When a foreign bill is dishonored by non-acceptance or non-payment, protest is necessary to hold
the drawer and indorsers liable. Verily, respondents failure to protest the non-acceptance of the sight draft
resulted in the discharge of petitioner from liability under the instrument.

Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a
separate contract from the sight draft. The liability of petitioner under the letter of undertaking is direct and
primary. It is independent from his liability under the sight draft. Liability subsists on it even if the sight draft was
dishonored for non-acceptance or non-payment.
Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking that he will
reimburse the amount in case the sight draft is dishonored. The bank would certainly not have agreed to grant
petitioner an advance export payment were it not for the letter of undertaking. The consideration for the letter of
undertaking was petitioners promise to pay respondent the value of the sight draft if it was dishonored for any
reason by the Bank of Seoul.

**GUARANTY**
We cannot accept petitioners thesis that he is only a mere guarantor under the letter of credit.
Petitioner cannot be both the primary debtor and the guarantor of his own debt. This is inconsistent with the
very purpose of a guarantee which is for the creditor to proceed against a third person if the debtor defaults in
his obligation. Certainly, to accept such an argument would make a mockery of commercial transactions.

Roberto Dino vs. Maria Luisa Judal-Loot

Facts
: Petitioner was induced to lend a syndicate P3,000,000.00 to be secured by a real estatemortgage on several
parcels of land situated in Canjulao, Lapu-lapu City. Upon scrutinizing thedocuments involving the properties,
petitioner discovered that the documents covered rightsover government properties. Realizing he had been
deceived, petitioner advised Metrobank tostop payment of his checks. However, only the payment of Check
No. C-MA- 142119406-CAwas ordered stopped. The other two checks were already encashed by the
payees.Meanwhile, Check No. C-MA- 142119406-CA (a cross-check) was negotiated and indorsed
torespondents by petitioner in exchange for cash in the sum of P948,000.00, which respondentsborrowed from
Metrobank and charged against their credit line. Drawee bank, Metrobank,Cebu-Mabolo Branch, which is also
their depositary bank, answered that the checks weresuffiiently funded. However, the same was dishonored by
the drawee bank when they tried todeposit it for reason PAYMENT STOPPED. Respondents filed a collection
suit againstpetitioner and Lobitana before the trial court.The trial court ruled in favor of respondents and
declared them due course holders of thesubject check, since there was no privity between respondents and
defendants. CA affirmed butmodified the trial courts decision by deleting the award of interest, moral damages,
attorneysfees and litigation expenses. The Court of Appeals opined that petitioner was only
exercising(although incorrectly), what he perceived to be his right to stop the payment of the check whichhe
rediscounted. The Court of Appeals ruled that petitioner acted in good faith in ordering thestoppage of
payment of the subject check and thus, he must not be made liable for thoseamounts.
Issue
: WON The respondents were holders in due course?
Held
: PETITION GRANTED.
Section 52 of the Negotiable Instruments Law defines a holder indue course, thus: A holder in due course is a
holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its
face;
(b) That he became the holder of it before it was overdue, and without notice that it hasbeen previously
dishonored, if such was the fact;(c) That he took it in good faith and for value;(d) That at the time it was
negotiated to him, he had no notice of any infirmity in theinstrument or defect in the title of the person
negotiating it.In the case of a crossed check, as in this case, the following principles must additionally
beconsidered: A crossed check (a) may not be encashed but only deposited in the bank; (b) maybe negotiated
only once to one who has an account with a bank; and (c) warns the holder that it has been issued for a
definite purpose so that the holder thereof must inquire if he hasreceived the check pursuant to that purpose;
otherwise, he is not a holder in due course.Based on the foregoing, respondents had the duty to ascertain the
indorsers, in this caseLobitanas, title to the check or the nature of her possession. This respondents failed to
do.Respondents verification from Metrobank on the funding of the check does not amount todetermination of
Lobitanas title to the check. Failing in this respect, respondents are guilty of gross negligence amounting to
legal absence of good faith,[15] contrary to Section 52(c) of theNegotiable Instruments Law. Hence,

respondents are not deemed holders in due course of thesubject check.However, the fact that respondents are
not holders in due course does not automatically meanthat they cannot recover on the check. The Negotiable
Instruments Law does not provide that aholder who is not a holder in due course may not in any case recover
on the instrument. Theonly disadvantage of a holder who is not in due course is that the negotiable instrument
issubject to defenses as if it were non-negotiable. Among such defenses is the absence or failureof
consideration,[ which petitioner sufficiently established in this case. Petitioner issued thesubject check
supposedly for a loan in favor of Consings group, who turned out to be asyndicate defrauding gullible
individuals. Since there is in fact no valid loan to speak of, there isno consideration for the issuance of the
check. Consequently, petitioner cannot be obliged topay the face value of the check.
G.R. No. 93048 March 3, 1994
BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,vs.THE COURT OF APPEALS and STATE
INVESTMENT HOUSE, INC.,respondents.
Facts
Bataan Cigar & Cigarette Factory, Inc. engaged one of its suppliers, King Tim PuaGeorge to deliver 2,000
bales of tobacco leaf starting October 1978. BCCFI, on July13, 1978 issued crossed checks post dated
sometime in March 1979 in the totalamount of P820,000.00.Relying on the supplier's representation that he
would complete delivery within threemonths from December 5, 1978, petitioner agreed to purchase additional
2,500 balesof tobacco leaves, despite the supplier's failure to deliver in accordance with their earlier
agreement. Again petitioner issued post dated crossed checks in the totalamount of P1,100,000.00, payable
sometime in September 1979. George King failedto deliver the bales of tobacco leaf as agreed despite
petitioner's demand, BCCFIissued on March 30, 1979, a stop payment order on all checks payable to George
KingEfforts of SIHI to collect from BCCFI failed, the trial court pronounced SIHI ashaving a valid claim being a
holder in due course. Which was affirmed by the CA
Issue
whether or not SIHI, a second indorser, a holder of crossed checks, is a holder indue course, to be able to
collect from the drawer, BCCFI?
Held: No. Ratio: crossing of a check should have the following effects: (a) the check may not beencashed but
only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a
bank; (c) and the act of crossing the check servesas warning to the holder that the check has been issued for a
definite purpose so thathe must inquire if he has received the check pursuant to that purpose, otherwise, he
isnot a holder in due courseBCCFI's defense in stopping payment is as good to SIHI as it is to George
King.Because, really, the checks were issued with the intention that George King wouldsupply BCCFI with the
bales of tobacco leaf. There being failure of consideration,SIHI is not a holder in due course.

Sesbreno vs CA
GR 89252, 24 May 1993
FACTS:
Petitioner Sesbreno made a money market placement in the amount of P300,000 with the Philippine
Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the
Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note, the Certificate of Securities
Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas
Bank, and postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on
March 13, 1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank
never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the
security which was issued on April 10, 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with
PhilFinance as payee and Delta Motors as maker; and was stamped non-negotiable on its face. As
Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against
Delta Motors and Pilipinas Bank. Delta Motors contents that said promissory note was not intended to be
negotiated or otherwise transferred by Philfinance as manifested by the word "non-negotiable" stamped across
the face of the Note.
ISSUE:
Whether the non-negotiability of a promissory note prevents its assignment.
RULING:
A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal
consequences of negotiation and assignment of the instrument are different. A non-negotiable instrument may
not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or
transfer written in the face of the instrument. The subject promissory note, while marked "non-negotiable,"

was not at the same time stamped "non-transferable" or "non-assignable." It contained no stipulation which
prohibited Philfinance from assigning or transferring such note, in whole or in part.
**A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent an express
prohibition against assignment or transfer written on the face of the instrument.

Republic Bank vs. CA, GR No 42725, 196 SCRA 100

FACTS:
San Miguel Corporation (SMC) drew a check amounting to P240.00 on its account in First National City Bank
(FNCB) in favor of Delgado, a stockholder. Delgado fraudulently altered the amount of the check to P9,240
after which he endorsed and deposited it with Republic Bank. Republic Bank endorsed the check to First
National City Bank (FNCB), the drawee bank, by stamping on the back of the check all prior and / or lack of
indorsement guaranteed". Based on such endorsement, FNCB paid the amount to Republic Bank. Later on,
San Miguel informed FNCB of the material alteration of the amount. FNCB recredited the amount to San
Miguels account, and demanded refund from Republic Bank. Republic Bank refused, claiming there was
delay in giving it notice of the alteration.
ISSUE:
Whether petitioner Republic Bank as the collecting bank should bear the loss resulting from the altered check.
RULING:
The drawee bank, FNCB, should bear the loss for the payment of the altered check for its failure to detect and
warn Republic Bank of the fraudulent character of the check within the 24-hour clearing house rule. Republic
Bank, as the collecting bank, is protected by the 24-hour clearing house rule found in Central Bank Circular No.
9. When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the loss. But
the unqualified indorsement of the collecting bank on the check should be read together with the 24-hour
regulation on clearing house operation. Hence, when a drawee bank fails to return a forged or altered check to
the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability.
Samsung Construction v. Far East Bank (August 15, 2004)
Facts: Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable to
cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check was certified
to be true by Jose Sempio, the assistantaccountant of Samsung, who was also present during the time the
check was cashed. Later however it was discovered that no such check was ever approved by the Samsungs
head accountant, the president of the company also never signed any such check.
Issue: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check, which
was
drawn
from
the
account
of
Samsung
Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged
signature makes the instrument wholly inoperative. If payment is made the drawee (Far East) cannot charge
it to the drawers account (Samsung). The fact that the forgery is clever is immaterial. The forged signature
may so closely resemble the genuine as to defy detection by the depositor himself. And yet, if the bank pays
the check, it is paying out with its own money and not of the depositors. This rule of liability can be stated
briefly in these words: A bank is bound to know its depositors signature. The accusation of negligence on the
part of Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the ordinary
course of business was followed.

BPI vs. Casa Montessori Internationale, G. R. No. 149454 & 149507, May 28, 2004

Facts: CASA Montessori International opened an account with BPI, with CASAs President as one of its
authorized signatories. It discovered that 9 of its checks had been encashed by a certain Sonny D. Santos
whose name turned out to be fictitious, and was used by a certain Yabut, CASAs external auditor. He
voluntarily admitted that he forged the signature and encashed the checks.
RTC granted the Complaint for Collection with Damages against BPI ordering to reinstate the amount in the
account, with interest. CA took account of CASAs contributory negligence and apportioned the loss between
CASA and BPI, and ordred Yabut to reimburse both.

BPI contends that the monthly statements it issues to its clients contain a notice worded as follows: If no error
is reported in 10 days, account will be correct and as such, it should be considered a waiver.
Issue:Whether or not waiver or estoppel results from failure to report the error in the bank statement
Held: Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it estopped
from questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation or "circularization" -- in accounting parlance -- that requests clientdepositors to affirm the accuracy of items recorded by the banks. Its purpose is to obtain from the depositors a
direct corroboration of the correctness of their account balances with their respective banks.
Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement,
the passive one is duty-bound to suffer such enforcement. On the one hand, BPI could not have been an
active subject, because it could not have demanded from CASA a response to its notice. CASA, on the other
hand, could not have been a passive subject, either, because it had no obligation to respond. It could -- as it
did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything
contrary to that established as the truth, in legal contemplation. Our rules on evidence even make a juris et de
jure presumption that whenever one has, by ones own act or omission, intentionally and deliberately led
another to believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising
from such act or omission -- be permitted to falsify that supposed truth.
In the instant case, CASA never made any deed or representation that misled BPI. The formers omission, if
any, may only be deemed an innocent mistake oblivious to the procedures and consequences of
periodic audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will
not arise. A person who has no knowledge of or consent to a transaction may not be estopped by it. "Estoppel
cannot be sustained by mere argument or doubtful inference x x x." CASA is not barred from questioning BPIs
error even after the lapse of the period given in the notice.
Associated Bank vs. CA, January 31, 1996
Facts:
Faustino Pangilinan, cashier of the Concepcion Emergency Hospital, forged the signature of Dr. Adena Canlas
who was the Chief of the said hospital and endorsed 30 checks amounting to P203,300 to himself. The money
was drawn from the account of the Province of Tarlac with PNB. Pangilinan deposited the checks to his
personal savings account with Associated Bank which was cleared and paid for by PNB. The checks have a
stamp of Associated Bank which reads All prior endorsements guaranteed by Associated Bank.
The Province of Tarlac, through the Provincial Treasurer, wrote PNB to restore the various amounts debited
from the current account of the Province. PNB on its part demanded reimbursement from Associated Bank.
Both banks resisted payment which led to the Province of Tarlac suing PNB. PNB in turn impleaded Associated
Bank in the suit as a third-party defendant while Associated Bank impleaded Canlas and Pangilinan as fourthparty defendants.
The trial court ruled that 1) PNB should pay the Province of Tarlac the P203,300 with legal interests, 2)
Associated Bank should be pay the same amount to PNB and 3) dismissed the complaints against Canlas and
Pangilinan. On appeal, the CA affirmed the ruling of the trial court
Issue:
Who should bear the loss arising from the forgery, the Province of Tarlac, PNB, Associated Bank or
Pangilinan?
Held:
The SC held that the Province and Associated Bank should bear losses in the proportion of 50-50.
The Province can only recover 50% of the P203,300 from PNB because of the negligence they exhibited in
releasing the checks to the then already retired Pangilinan who is an unauthorized person to handle the said
checks.
On the other hand, Associated Bank is liable to PNB only to 50% of the same amount because of its liability as
indorser of the checks that were deposited by Pangilinan, and guaranteed the genuineness of the said checks.
They failed to exercise due diligence in checkingthe veracity of indorsements.