Cebu Financial vs CA and Alegre GR No.

123031, 12 October 1999 316 SCRA 488

FACTS Vicente Alegre invested with Cebu International Finance Corporation (CIFC) P500,000 in cash. CIFC issued promissory note which covered private respondents placement. CIFC issued BPI Check No. 513397 (the Check) in favor of private respondent as proceeds of his matured investment. Mrs. Alegre deposited the Check with RCBC but BPI dishonoured it, annotating therein that the Check is subject of an investigation. BPI took possession of the Check pending investigation of several counterfeit checks drawn against CIFCs checking account. Private respondent demanded from CIFC that he be paid in cash but the latter refused. Private respondent Alegre filed a case for recovery of a sum of money against CIFC.

CIFC asserts that since BPI accepted the instrument, the bank became primarily liable for the payment of the Check. When BPI offset the value of the Check against the losses from the forged cheks allegedly committed by private respondent, the Check was deemed paid.

ISSUE Whether or not petitioner CIFC is discharged from the liability of paying the value of the Check.

HELD The Court held in the negative. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer. A check is not legal tender, and therefore cannot constitute valid tender of payment. Since a negotiable instrument is only substitute for money and not money, the delivery of such an instrument does not by itself, operate as payment.

Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. (Article 1249)

Petition denied.

ROMAN CATHOLIC OF MALOLOS V. IAC 191 SCRA 411

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.

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. T he 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. With out 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. PNB v. Rodriguez GR No. 170325 Justice Reyes

Facts: Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the account name Erlando T. Rodriguez).

The spouses were engaged in the informal lending business. In line with their business, they had a discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. The association maintained current and savings accounts with petitioner bank.

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds. As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members. It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in the checks. In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual practice for the parties. For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount ofP2,345,804.00. These were payable to forty seven (47) individual payees who were all members of PEMSLA.

Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason Account Closed. The corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks

given as payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.

Issue: Whether the subject checks are payable to order or to bearer and who bears the loss? Held: In the case at bar, respondents-spouses were the banks depositors. The checks were drawn against respondents-spouses accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements, and the genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the instructions of the drawers. Petitioner miserably failed to discharge this burden. The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the drawers, respondents-spouses. Instead, it paid the values of the checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between the drawers and the payees. Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank employees is indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of their employees.

Caltex (Philippines) Inc. vs. CA GR 97753, 10 August 1992 Second Division, Regalado (J)

Facts: On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million.

Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983, de la Cruz loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed.

Issue [1]: Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.

Held [1]: The CTDs in question meet the requirements of the law for negotiability. Contrary to the lower courts findings, the CTDs are negotiable instruments (Section 1). Negotiability or non-negotiability of an instrument is determined from the writing, i.e. from the face of the instrument itself. The documents provided that the amounts deposited shall be repayable to the depositor. The amounts are to be repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment. Issue [2]: Whether the CTDs negotiation require delivery only.

Held [2]: Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz purchases of its fuel products, and not for payment. Herein, there was

no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for.

TRADERS ROYAL BANK V. CA 269 SCRA 15 FACTS: Filriters through a Detached Agreement transferred ownership to Philfinance a Central Bank Certificate of Indebtedness. It was only through one of its officers by which the CBCI was conveyed without authorization from the company. Petitioner and Philfinance later entered into a

Repurchase agreement, on which petitioner bought the CBCI from Philfinance. The latter agreed to repurchase the CBCI but failed to do so. When the petitioner tried to have it registered in its name in the CB, the latter didn't want to recognize the transfer.

HELD: The CBCI is not a negotiable instrument. The instrument provides for a

promise to pay the registered owner Filriters. Very clearly, the instrument was only payable to Filriters. It lacked the words of negotiability which

should have served as an expression of the consent that the instrument may be transferred by negotiation.

The language of negotiability which characterize a negotiable paper as a

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

The transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law. The

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

rule that there was no valid transfer or assignment to petitioner. CONSOLIDATED PLYWOOD V. IFC 149 SCRA 448

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.

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. Surp rised later on, the spouses were charged with estafa as the checks were

presented for encashment and was dishonored.

HELD: BY MUTUAL AGREEMENT OF THE PARTIES, THE NEGOTIABLE CHARACTER OF A CHECK MAY BE WAIVED AND THE INSTRUMENT BE SIMPLY TREATED AS PROOF OF AN OBLIGATION. There cannot be deceit on the part of the spouses because they agreed with the lender at the time of the issuance and postdating of the checks that the same shall not be encashed or presented to the bank. As per assurance of the lender, the checks are

nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a promissory note.

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. Surp rised later on, the spouses were charged with estafa as the checks were presented for encashment and was dishonored.

HELD: BY MUTUAL AGREEMENT OF THE PARTIES, THE NEGOTIABLE CHARACTER OF A CHECK MAY BE WAIVED AND THE INSTRUMENT BE SIMPLY TREATED AS PROOF OF AN OBLIGATION. There cannot be deceit

on the part of the spouses because they agreed with the lender at the time of the issuance and postdating of the checks that the same shall not be encashed or presented to the bank. As per assurance of the lender, the checks are

nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a promissory note. Republic Planters Bank vs Court of Appeals Negotiable Instruments in General 216 SCRA 738 Signature of Makers

In 1979, World Garment Manufacturing, through its board authorized Shozo Yamaguchi (president) and Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank (RPB). For this, 9 promissory notes were executed. Each promissory note was uniformly written in the following manner:

___________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(.) Philippine Currency Please credit proceeds of this note to: ________ Savings Account ______XX Current Account No. 1372-00257-6of WORLDWIDE GARMENT MFG. CORP. Sgd. Shozo Yamaguchi Sgd. Fermin Canlas

The note became due and no payment was made. RPB eventually sued Yamaguchi and Canlas. Canlas, in his defense, averred that he should not be held personally liable for such authorized corporate acts that he performed inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing. ISSUE: Whether or not Canlas should be held liable for the promissory notes.

HELD: Yes. The solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase joint and several as describing the unconditional promise to pay to the order of Republic Planters Bank. Where an instrument containing the words I promise to pay is signed by two or more persons, they are deemed to be jointly and severally liable thereon. Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons: The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law. Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder according to the tenor thereof.

INSULAR DRUGS V. PNB Indrosements 55 PHIL 634

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, authorizing 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.