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Kauffman vs.

PNB 42 Phil 182 September 29, 1921

Facts: George A. Kauffman, was the president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right nearly the entire issue of capital stock. He was based in New York City and as the president of the said company, he was entitled to receive a dividend; as per instruction, Wicks who worked as the treasurer of the company, went to the exchange department of PNB and requested a telegraphic transfer of the money to Kauffman. The PNB agreed with additional charges for the transaction. The treasurer issued a check to PNB and it was accepted. The PNBs representative in New York sent a message suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain bills of the company. PNB acquiesced in this and dispatched to its NY agency a message to withhold the Kauffman payment as suggested. Meanwhile, Wicks then informed Kauffman that his dividends had been wired to his credit in the NY agency of PNB. So Kauffman went to PNB office in NYC and demanded the money, however, he was refused payment. So he filed this complaint.

Issue: Whether or not Kauffman has a right of action against PNB? Held: Yes. It is a stipulation pour autrui. Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable

that the bank's promise to cause a definite sum of money to be paid to the plaintiff in NYC is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in NYC. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although PNB had already directed its NY agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing he exchange. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary described in the cable. All these transaction are matters of purchase and sale create no trust relationship."

Government Service Insurance System v. Court of Appeals 170 SCRA 533, February 23, 1989

Facts: Private respondents, Mr. and Mrs. Isabelo R. Racho, together with spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner GSIS and subsequently, another deed of mortgage, dated April 14, 1958, in connection with two loans granted by the latter in the sums of P 11,500.00 and P 3,000.00, respectively. A parcel of land covered by Transfer Certificate of Title No. 38989 of the Register of Deed of Quezon City, coowned by said mortgagor spouses, was given as security under the two deeds. They also executed a 'promissory note".

On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of Mortgage," obligating themselves to assume the said obligation to the GSIS and to secure the release of the mortgage covering that portion of the land belonging to spouses Racho and which was mortgaged to the GSIS. This undertaking was not fulfilled. Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at public auction on December 3, 1962.

For more than two years, the spouses Racho filed a complaint against the spouses Lagasca praying that the extrajudicial foreclosure "made on, their property and all other documents executed in relation thereto in favor of the Government Service Insurance System" be declared null and void.

The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to establish a cause of action. However, said decision was reversed by the respondent Court of Appeals, stating that, although formally they are co-mortgagors, the GSIS required their consent

to the mortgage of the entire parcel of land which was covered with only one certificate of title, with full knowledge that the loans secured were solely for the benefit of the appellant Lagasca spouses who alone applied for the loan.

Issues: Whether the respondent court erred in annulling the mortgage as it affected the share of private respondents in the reconveyance of their property?

Whether private respondents benefited from the loan, the mortgage and the extrajudicial foreclosure proceedings are valid?

Held: Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments Law, which provide that an accommodation party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefor, but is held liable on the instrument to a holder for value although the latter knew him to be only an accommodation party.

The promissory note, as well as the mortgage deeds subject of this case, are clearly not negotiable instruments. These documents do not comply with the fourth requisite to be considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not apply; governance shall be afforded, instead, by the provisions of the Civil Code and special laws on mortgages.

As earlier indicated, the factual findings of respondent court are that private respondents signed the documents "only to give their consent to the mortgage as required by GSIS", with the latter having full knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses.

Contrary to the holding of the respondent court, it cannot be said that private respondents are without liability under the aforesaid mortgage contracts. The factual context of this case is precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect that third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca spouses would not invalidate the mortgage with respect to private respondents' share in the property. The respondent court, erred in annulling the mortgage insofar as it affected the share of private respondents or in directing reconveyance of their property or the payment of the value.

Caltex (Philippines) vs CA 212 SCRA 448 August 10, 1992 Facts:

On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who is tasked to deposit aggregate amounts.

One time Mr. dela Cruz delivered the CTDs to Caltex Philippines in connection with his purchased of fuel products from the latter. However, Sometime in March 1982, he informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he desired replacement of said lost CTDs.

Angel dela Cruz negotiated and obtained a loan from defendant bank and executed a notarized Deed of Assignment of Time Deposit, which stated, among others, that he surrenders to defendant bank "full control of the indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity.

In 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor.

Mr dela Cruz received a letter from the plaintiff formally informing of its possession of the CTDs in question and of its decision to pre-terminate the same. ccordingly, defendant bank

rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7, 1983.

The loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan. However, the plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees.

On appeal, CA affirmed the lower court's dismissal of the complaint, and ruled (1) that the subject certificates of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not become a holder in due course of the said certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer.

Issues: a) Whether certificates of time deposit (CTDs) are negotiable instruments? b) Is the depositor also the bearer of the document? c) Whether petitioner can rightfully recover on the CTDs?

Held: The CTDs in question are not negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz: (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. The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed) could at the most constitute petitioner only 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, necessarily, 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.


FACTS: BDO drew checks payable to member establishments. Subsequently, the checks were deposited in Trencios account with Equitable. was thereafter cleared. The checks were sent for clearing and

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.

Philippine Bank of Commerce vs. Aruego GR L-25836-37, 31 January 1981

FACTS: To facilitate payment of the printing of a periodical called World Current Events., Aruego, its publisher, obtained a credit accommodation from the Philippine Bank of Commerce. For every printing of the periodical, the printer collected the cost of printing by drawing a draft against the bank, said draft being sent later to Aruego for acceptance. As an added security for the payment of the amounts advanced to the printer, the bank also required Aruego to execute a trust receipt in favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and to sell the same with the promise to turn over to the bank the proceeds of the sale to answer for the payment of all obligations arising from the draft. The bank instituted an action against Aruego to recover the cost of printing of the latters periodical. Aruego however argues that he signed the supposed bills of exchange only as an agent of the Philippine Education Foundation Company where he is president.

ISSUES: Whether Aruego can be held liable by the petitioner although he signed the supposed bills of exchange only as an agent of Philippine Education Foundation Company.

RULING: Aruego did not disclose in any of the drafts that he accepted that he was signing as representative of the Philippine Education Foundation Company. For failure to disclose his principal, Aruego is personally liable for the drafts he accepted, pursuant to Section 20 of the NIL which provides that when a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent or as filing a representative character, without disclosing his principal, does not exempt him from personal liability.

TRADERS ROYAL BANK V. CA 269 SCRA 15, 3 March 1997

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 It

the registered owner Filriters. Very clearly, the instrument was only payable to Filriters.

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. Hence, 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. assignment to petitioner. Giving more credence to rule that there was no valid transfer or

Manuel Lim v CA 251 SCRA 409, 19 DEC 1995 Facts: Manuel Lim and Rosita Lim are the officers of the Rigi Bilt Industries, Inc. (RIGI). RIGI had been transacting business with Linton Commercial Company, Inc. The Lims ordered 100 pieces of mild steel plates from Linton and were delivered to the Lims place of business which was in Caloocan. To pay Linton, the Lims issued a postdated check for P51,800.00. On a different date, the Lims also ordered another 65 pcs of mild steel plates and were delivered in the place of business. They again issued another postdated check. On that same day, they also ordered purlins worth P241,800 which were delivered to them on various dates. The Lims issued 7 checks for this. When the 7 checks were presented to the drawee bank (Solidbank), it was dishonored because payment for the checks had been stopped and/or insufficiency of funds. So the Lims were charged with 7 counts of violation of Bouncing Checks Law. The Malabon trial court held that the Lims were guilty of estafa and violation of BP 22. They went to CA on appeal. The CA acquitted the Lims of estafa, on the ground that the checks were not made in payment of an obligation contracted at the time of their issuance. However, the CA affirmed the finding that they were guilty of violation for BP 22. Motion for Reconsideration to SC.

Issue: Whether or not the issue was within the jurisdiction of the Malabon Trial Court

Held: Yes. The venue of jurisdiction lies either in the RTC Caloocan or Malabon Trial Court. BP 22 is a continuing crime. A person charged with a transitory crime may be validly tried in any municipality or territory where the offense was partly committed. In determining the proper venue, the ff. must be considered. 1) 7 checks were issued to Linton in its place of business in Navotas. 2) The checks were delivered Linton in the same place. 3) The checks were dishonored in Caloocan 4) The Lims had knowledge

of their insufficiency of funds.

Under sec 191 of the Negotiable Instruments Law: ISSUE = 1ST delivery of the instrument complete in form to a person who takes it as a holder HOLDER = payee or indorsee of a bill/note who is in possession of it or the bearer

The place where the bills were written, signed or dated does not necessarily fix or determine the place where they were executed. It is the delivery that is important. It is the final act essential to its consummation of an obligation. An undelivered bill is unoperative. The issuance and delivery of the check must be to a person who takes it as a holder. Although Linton sent a collector who received the checks fr. The Lims at their place of business, the checks were actually issued and delivered to Linton in Navotas. The collector is not a holder or an agent, he was just an employee.

MONTINOLA V. PNB 88 PHIL 178, 26 FEBRUARY 1951 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


109 PHIL 706 30 SEPTEMBER 1950

FACTS: Tam Kim issued 11 checks payable to cash or bearer. Chan Wan presented these for payment but were dishonored for insufficiency of funds. action against Tam Kim. This prompted Chan Wan to institute an

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 was 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.


145 SCRA 497 13 NOVEMBER 1986

FACTS: Jose Go purchased from Associate Bank a Cashiers Check, which he left on top of the managers desk when left the bank. by one of its employees. The bank manager then had it kept for safekeeping

The employee was then in conference with one Alexander Lim. When

He left the check in his desk and upon his return, Lim and the check were gone.

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 When asked by the police on how he

to sue. Later, the name of Mesina was revealed.

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. Upon questioning, he admitted that he got the check from Lim who stole the check. He refused Petitioner failed to substantiate that he was a holder in due course.

to disclose how and why it has passed to him. It simply means that he has 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 payment against the issuing bank which dishonors the same. If a payee of a cashiers check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the bank would of course have the right to refuse payment of the check when presented by payee, since the bank was aware of the facts surrounding the loss of the check in question.


143 SCRA 7 14 JULY 1986 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. relative. 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 The promissory note covering the second loan was signed by their

It was also signed by them, indicating the request that the check be released by the

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 co-debtors 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. value. It has to be determined if PNB was a holder for

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. the rights of petitioners. one in due course. This was in violation of the deed of assignment and prejudiced The bank was not in good faitha requisite for a holder to be


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. was drawn by the company and was accepted by Fernandez Hermanos. A draft

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 uponFernandez Hermanos to show that indeed the chain was defective. But as the trial court found out, there was a failure of proof.

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands G.R. No. L-29432 August 6, 1975

FACTS: Petitioner deposited 10 checks in its current account with BPI. The checks which were acquired by petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island Gas Service, Inc. or order. After the checks had been submitted to Inter-bank clearing, InterIsland Gas discovered that all the indorsements made on the checks purportedly by its cashiers were forgeries. BPI thus debited the value of the checks against petitioner's current account and forwarded to the latter the checks containing the forged indorsements which petitioner refused to accept.

ISSUE: Whether BPI had the right to debit from petitioner's current account the value of the checks with the forged indorsements.

HELD: BPI acted within legal bounds when it debited the petitioner's account. Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects what it purports to be." Respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss.


22 SCRA 713 22 FEBRUARY 1987

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.

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 forpayment 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 Negotiable Instruments Law. 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.


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:


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.

1. The accommodation to which reference is made in Section 29 is not one to the person

who takes the note but one to the maker or indorser of the note. It is true, that in the case at bar, it was an

accommodation to the plaintiff, in the popular sense, to have the defendant indorse the note; but it wasn't the accommodation described in the law but rather a mere favor to him and one which in no way bound Serrano. indorser makes the indorsement In cases of accommodation indorsement, the for the accommodation of the maker. Such an

indorsement is generally for the purpose of better securing the payment of the notethat is, he lends his name to the maker and not the holder. 2. Parol evidence is admissible for the purposes named. The prohibiton against parol

evidence is to prevent alteration, change, modification, or contradiction of the term of a written instrument, admittedly existing, by the use of some parol evidence except in cases specifically named in the action. The case at bar is not one where the evidence offered varies, alters, modifies, or contradicts the terms of the indorsement admittedly existing. The evidence

was not offered for that purpose. The purpose was to show that the contract of indorsement ever existed; that the minds of the parties never met on the terms of such contract; that they never mutually agreed to enter into such contract; and that there never

existed a consideration upon which such an agreement could be founded.


48 PHIL 207

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. prayed that Enchaus be impleaded in the complaint but such was denied. court then held in favor of the bank. They also The trial

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.

Town Savings and Loan Bank vs CA Facts: In 1983, the Hipolitos applied for and were granted a loan in the amount of Php 700,000.00 with interest of 24% P.A. for which they executed and delivered to Town Savings Loan Bank a promissory note with maturity period of 3 years and with acceleration clause. Thy defaulted, subsequently, demand for payment were sent to them. The Hipolitos denied being personally liable on the Php 700,000.00 promissory note which they executed. The loan was allegedly for the account of Pilarita H. Reyes, the sister of Miguel Hipolito. She was the real party-in-interest. They argued that they are mere guarantors and not as accommodation party, not having received any part of the loan. Issue: Whether or not the Hipolitos are accommodation party? HELD: Yes. Under the Negotiable Instruments Law, 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, not withstanding such holder, at the time of the taking of the instrument knew him to be only 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, there is no question that the private respondent signed the promissory note in order to enable Pilarita to borrow money from TSLB. As observed by both the trial and appellate court, the actual beneficiary was Pilarity Reyes and no other. The Hipolitos

accommodated her by signing a promissory note for half of the loan that she applied for because

TSLB may not lend any single borrower more than the authorized limit of its loan portfolio. Under Section 29 of NIL, the Hipolitos are liable to the bank on the promissory note that they signed to accommodate Pilarita.


373 SCRA 212 FACTS: Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a current account with petitioner bank. He opted to sell his shares of stock through Island Securities. The company in turn issued checks in favor of Ong but unfortunately, the latter

wasn't able to receive any. His signatures were forged by Tamlinco and the checks were deposited in his own account with petitioner. Ong then sought to collect the money from

the family of Tamlinco first before filing a complaint with the Central Bank. As his efforts were futile to recover his money, he filed an action against the petitioner. appellate court decided in favor of Ong. HELD: Since the signature of the payee was forged, such signature should be deemed inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making The trial and

payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to collect from the collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that the payees endorsement was genuine before cashing the check. As a general rule, a bank or

corporation who has obtained possession of a check with an unauthorized or forged indorsement of the payees signature and who collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee or the other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained.

DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by desirable short cut, the person who ought to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover

directly from the collecting bank, regardless of whether the check was delivered to the payee or not.

On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of Tamlincos family to collect the sum of money, and later the Central Bank. exhausting all the measures to settle the issue amicably did he file the action. Only after