DELA VICTORIA V.

BURGOS
245 SCRA 374
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.
DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.
G.R. No. 85419 March 9, 1993
--complete undelivered

FACTS:
Respondent Sima Wei executed and delivered to petitioner Bank a
promissory note engaging to pay the petitioner Bank or order the amount of
P1,820,000.00. Sima Wei subsequently issued two crossed checks payable
to petitioner Bank drawn against China Banking Corporation in full
settlement of the drawer's account evidenced by the promissory note. These
two checks however were not delivered to the petitioner-payee or to any of
its authorized representatives but instead came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitionerpayee's indorsement to the account of respondent Plastic Corporation with
Producers Bank. Inspite of the fact that the checks were crossed and
payable to petitioner Bank and bore no indorsement of the latter, the Branch
Manager of Producers Bank authorized the acceptance of the checks for
deposit and credited them to the account of said Plastic Corporation.
ISSUE:
Whether petitioner Bank has a cause of action against Sima Wei for the
undelivered checks.
RULING:
No. A negotiable instrument must be delivered to the payee in order to
evidence its existence as a binding contract. Section 16 of the NIL provides
that every contract on a negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of giving effect thereto.
Thus, the payee of a negotiable instrument acquires no interest with respect
thereto until its delivery to him. Without the initial delivery of the instrument
from the drawer to the payee, there can be no liability on the instrument.
Petitioner however has a right of action against Sima Wei for the balance due
on the promissory note.
METROPOL vs SAMBOK
L-39641
February 28, 1983
De Castro, J.:
Facts:
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok
Sons Motors Co., Ltd. Payable in 12 equal monthly installments with interest.
It is further provided that in case on non-payment of any of the installments,
the total principal sum then remaining unpaid shall become due and payable
with an additional interest. Sambok Motors co., a sister company of Ng
Sambok Sons negotiated and indorsed the note in favor of Metropol
Financing & investment Corporation. Villaruel defaulted in the payment, upon
presentment of the promissory note he failed to pay the promissory note as
demanded, hence Ng Sambok Sons Motors Co., Ltd. notified Sambok as
indorsee that the promissory note has been dishonored and demanded
payment. Sambok failed to pay. Ng Sambok Sons filed a complaint for the

collection of sum of money. During the pendency of the case Villaruel died.
Sambok argues that by adding the words with recourse in the indorsement
of the note, it becomes a qualified indorser, thus, it does not warrant that in
case that the maker failed to pay upon presentment it will pay the amount to
the holder.
Issue:
Whether or not Sambok Motors Co is a qualified indorser, thus it is not
liable upon the failure of payment of the maker.
Held:
No. A qualified indorserment constitutes the indorser a mere assignor
of the title to the instrument. It may be made by adding to the indorsers
signature the words without recourse or any words of similar import. Such
indorsement relieves the indorser of the general obligation to pay if the
instrument is dishonored but not of the liability arising from warranties on
the instrument as provided by section 65 of NIL. However, Sambok indorsed
the note with recourse and even waived the notice of demand, dishonor,
protest and presentment.
Recourse means resort to a person who is secondarily liable after the default
of the person who is primarily liable. Sambok by indorsing the note with
recourse does not make itself a qualified indorser but a general indorser
who is secondarily liable, because by such indorsement, it agreed that if
Villaruel fails to pay the not the holder can go after it. The effect of such
indorsement is that the note was indorsed witout qualification. A person who
indorses without qualification engages that on due presentment, the note
shall be accepted or paid, or both as the case maybe, and that if it be
dishonored, he will pay the amount thereof to the holder. The words added
by Sambok do not limit his liability, but rather confirm his obligation as
general indorser.
DE OCAMPO vs. GATCHALIAN
(3 SCRA 596)
Facts: Anita Gatchalian was interested in buying a car when she was offered
by Manuel Gonzales to a car owned by the Ocampo Clinic. Gonzales claim
that he was duly authorized to look for a buyer, negotiate and accomplish
the sale by the Ocampo Clinic. Anita accepted the offer and insisted to
deliver the car with the certificate of registration the next day but Gonzales
advised that the owners would only comply only upon showing of interest on
the part of the buyer. Gonzales recommended issuing a check (P600 /
payable-to-bearer /cross-checked) as evidence of the buyers good faith.
Gonzales added that it will only be for safekeeping and will be returned to
her the following day.

The next day, Gonzales never appeared. The failure of Gonzales to appeal
resulted in Gatchalian to issue a STOP PAYMENT ORDER on the check. It was
later found out that Gonzales used the check as payment to the Vicente de
Ocampo (Ocampo Clinic) for the hospitalization fees of his wife (the fees
were only P441.75, so he got a refund of P158.25). De Ocampo now
demands payment for the check, which Gatchalian refused, arguing that de
Ocampo is not a holder in due course and that there is no negotiation of the
check.
The Court of First Instance ordered Gatchalian to pay the amount of the
check to De Ocampo. Hence this case.
Issue: Whether or not De Ocampo is a holder in due course.
Held: NO. De Ocampo is not a holder in due course. De Ocampo was
negligent in his acquisition of the check. There were many instances that
arouse suspicion: the drawer in the check (Gatchalian) has no liability with de
Ocampo ; it was cross-checked(only for deposit) but was used a payment by
Gonzales; it was not the exact amount of the medical fees. The
circumstances should have led him to inquire on the validity of the check.
However, he failed to exercise reasonable prudence and caution.
In showing a person had knowledge of facts that his action in taking the
instrument amounted to bad faith need not prove that he knows the exact
fraud. It is sufficient to show that the person had NOTICE that there was
something wrong. The bad faith here means bad faith in the commercial
sense obtaining an instrument with no questions asked or no further inquiry
upon
suspicion.
The presumption of good faith did not apply to de Ocampo because the
defect was apparent on the instruments face it was not payable to
Gonzales or bearer. Hence, the holders title is defective or suspicious. Being
the case, de Ocampo had the burden of proving he was a holder in due
course, but failed.
YANG V. COURT OF APPEALS
409 SCRA 159
FACTS:
Yang and Chandimari entered into an agreement that the latter would issue
to the former a 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 of the checks she believe to be lost,
relying on the report of her messenger. The stoppage order was
eventually lifted by the banks and the drafts and checks were able to be
encashed. Yang then filed an action for injunction and damages against
the banks, Chandimari and David. The trial court and CA held in favor of
David as a holder in due course.
HELD:
Every holder of a negotiable instrument is presumed to be a holder in due
course. This is specially true if one is a holder because he is the payee or
indorsee of the instrument. In the case at bar, it is evident that David was
the payee of the checks. The prima facie presumption of him being
a holder in due course is in his favor. Nonetheless, this presumption
is disputable. On whether he took the check under the conditions set forth in
Section 52 must be proven. Petitioner relies on two arguments on
why
David isnt a holder in due coursefirst, because he took the checks
without valuable consideration; and second, he failed to inquire on
Chandimaris title to the checks given to him. The law gives rise to the
presumption of valuable consideration. Petitioner has the burden of
debunking such presumption, which it failed to do so. Her allegation
that David received the checks without consideration is unsupported and
devoid
of
any
evidence.
Furthermore, petitioner wasn't able to show any circumstance which should
have placed David in inquiry as to why and wherefore of the possession of
the checks by Chandimari. David wasn't a privy to the transactions
between Yang and Chandimari.
Instead, Chandimari and David had
the agreement between themselves of the delivery of the checks. David
even inquired with the banks on the genuineness of the checks in issue. At
that time, he wasn't aware of any request for the stoppage of payment.
Under
these circumstances, David had no obligation to ascertain from Chandimari
what the nature of the latters title to the checks was, if any, or the nature of
his possession.
MESINA vs IAC
145 SCRA 497 Mercantile Law Negotiable Instruments Law Rights of the
Holder What Constitutes a Holder in Due Course Stolen Check
Jose Go maintains an account with Associated Bank. He needed to transfer
P800,000.00 from Associated Bank to another bank but he realized that he
does not want to be carrying that cash so he bought a cashiers check from

Associated Bank worth P800,000.00. Associated Bank then issued the check
but Jose Go forgot to get the check so it was left on top of the desk of the
bank manager. The bank manager, when he found the check, entrusted it to
Albert Uy for the later to safe keep it. The check was however stolen from Uy
by a certain Alexander Lim.
Jose Go learned that the check was stolen son he made a stop payment
order against the check. Meanwhile, Associated Bank received the subject
check from Prudential Bank for clearing. Apparently, the check was
presented by a certain Marcelo Mesina for payment. Associated Bank
dishonored the check.
When asked how Mesina got hold of the check, he merely stated that Alfredo
Lim, whos already at large, paid the check to him for a certain transaction.
ISSUE: Whether or not Mesina is a holder in due course.
HELD: No. Admittedly, Mesina became the holder of the cashiers check as
endorsed by Alexander Lim who stole the check. Mesina however refused to
say how and why it was passed to him. Mesina had therefore notice of the
defect of his title over the check from the start. The holder of a cashiers
check who is not a holder in due course cannot enforce such check against
the issuing bank which dishonors the same. The check in question suffers
from the infirmity of not having been properly negotiated and for value by
Jose Go who is the real owner of said instrument.