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Sps.

Pedro and Florencia Violago vs BA Finance Corporation and Avelino Violago


Facts
Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a Toyota
Cressida car to Spouses Pedro and Florencia Violago. The latter would have to pay a down payment
of PhP 60,500.00 while the remaining balance would be financed by BA Finance Corporation.
On August 4, 1983, the spouses and Avelino signed a promissory note under which they
bound themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36
monthly installments of PhP 5,822.25 a month. Avelino prepared a Disclosure Statement of
Loan/Credit Transportation which showed the net purchase price of the vehicle, down payment,
balance, and finance charges. VMSC then issued a sales invoice in favor of the spouses with a
detailed description of the Toyota Cressida car. In turn, the spouses executed a chattel mortgage
over the car in favor of VMSC as security for the amount of PhP 209,601. VMSC, through Avelino,
endorsed the promissory note to BA Finance without recourse. After receiving the amount of PhP
209,601, VMSC executed a Deed of Assignment of its rights and interests under the promissory note
and chattel mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of PhP
60,500 to VMSC through Avelino.
Unknown to the spouses, the same car had already been sold in 1982 to Esmeraldo Violago.
Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance.
On March 1, 1984, BA Finance filed with the RTC a complaint for Replevin with Damages
against the spouses. The RTC favored BA Finance, however, declared that spouses are entitled to be
indemnified by Avelino.
The spouses and Avelino appealed to the CA. The court affirmed that the promissory note was
a negotiable instrument and that BA Finance was a holder in due course.
Issue
Whether or not BA Finance is a holder in due course of the promissory note
Held
YES. BA Finance is holder in due course. The promissory note clearly satisfies the
requirements of a negotiable instrument under the Negotiable Instrument Law. Under Section 1 of
NIL provides that an instrument to be negotiable, it must conform to the following requirements: a) it
must be in writing and signed by the maker or drawer; b) must contain an unconditional promise or
order to pay a sum certain in money; c) must be payable on demand, or at a fixed or determinable
future time; d) must be payable to order or to bearer; and e) where the instrument is addressed to a
drawee, he must be named or otherwise indicated therein with reasonable certainty.
Further, under Section 52 of NIL, 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 had been 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 the instrument or defect in the title of the
person negotiating it.
In this case, BA Finance is a holder in due course because the promissory note is complete
and regular; it was endorsed by the VMSC in favor of BA Finance; BA Finance, when it accepted the
promissory note, acted in good faith and for value; BA Finance was never informed, before and at the
time the promissory note was endorsed to the BA Finance, that the vehicle sold to the spouses was
not delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo
Violago.
Since BA Finance is a holder in due course, spouses cannot raise the defense of non-delivery
of the object and nullity of the sale against VMSC. Avelino clearly defrauded the spouses in selling
the vehicle to the spouses, a vehicle that was previously sold to Esmeraldo. His actions were the
proximate cause of spouses loss. He cannot now hide behind the separate corporate personality of
VMSC to escape from liability for the amount adjudged by the RTC in favor of spouses.

Robert Dino vs Maria Luisa-Loot, Joined by her husband Vicente Loot


Facts
Sometime in December 1992, one member of a syndicate approached Dino and induced him
to lend the group P3,000,000.00 to be secured by a real estate mortgage on the properties. Dino
then issued three Metrobank checks totaling P3,000,000.00, one of which is Check No. C-MA142119406-CA postdated 13 February 1993 in the amount of P1,000,000.00 payable to Vivencia
Ompok Consing and/or Fe Lobitana.
Dino discovered that the documents covered rights over government properties. Realizing he
had been deceived, he advised Metrobank to stop payment of his checks. However, only the
payment of Check No. C-MA- 142119406-CA was ordered stopped. The other two checks were
already encashed by the payees.
Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA to Sps Loot in exchange for
cash. Before Sps Loot accepted the check, they first inquired from the drawee bank if the subject
check was sufficiently funded, to which Metrobank answered in the positive. However, when Sps
Loot deposited the check with the bank the same was dishonored by the drawee bank for reason that
the payment stopped.
Sps Loot filed a collection suit against Dino and Lobitana before the RTC. In which the RTC ruled
in favor of Sps Loot and declared them due course holders of the subject check, since there was no
privity between Loot and Dino.
The CA affirmed the decision of RTC in favor of Sps Loot and against Dino. Lobitana, however,
did not appeal the case.
Issue
Whether or not Sps Loot are holder in due course of the check
Held
NO. Sps Loot are not holder in due course of the check. True that under Section 52 of
the Negotiable Instruments Law provides that 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 has been 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 the instrument or defect in the title of the
person negotiating it.
However, in the case of a crossed check like this case, the following principles must
additionally be considered: A crossed check (a) may not be encashed but only deposited in the bank;
(b) may be 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 has
received the check pursuant to that purpose; otherwise, he is not a holder in due course.
Accordingly, Sps Loot had the duty to ascertain the Lobitana indorsers title to the check or
the nature of her possession. Sps Loot failed to do. Sps Loots verification from Metrobank on the
funding of the check does not amount to determination of Lobitanas title to the check. Failing in this
respect, Sps Loot are guilty of gross negligence amounting to legal absence of good faith, contrary to
Section 52(c) of the Negotiable Instruments Law. Hence, Sps Loot are not deemed holders in due
course of the subject check.
Furthermore, the fact that Sps Loot are not holders in due course does not automatically
mean that they cannot recover on the check. The Negotiable Instruments Law does not provide that
a holder who is not a holder in due course may not in any case recover on the instrument. The only
disadvantage of a holder who is not in due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable. Among such defenses is the absence or failure of
consideration, which Dino sufficiently established in this case. Dino issued the subject check
supposedly for a loan in favor of syndicate group, who turned out to be defrauding gullible
individuals. Since there is in fact no valid loan to speak of, there is no consideration for the issuance
of the check. Consequently, Dino cannot be obliged to pay the face value of the check.

Sps Loot can collect from the immediate indorser. Significantly, Lobitana did not appeal the
trial courts decision, finding her solidarily liable to pay, among others, the face value of the subject
check. Therefore, the trial courts judgment has long become final and executory as to Lobitana.

People of the Philippine vs Gilbert R. Wagas


Facts
Wagas was charged with estafa for issuing unfunded check. At the trial, complainant Alberto
Ligaray testified that Wagas placed an order for 200 bags of rice over the telephone. Ligaray relented
and accepted the order. Ligaray released the goods to Wagas and at the same time received a
postdated check amounting to P200,000.00 payable to cash. Ligaray deposited the check but it was
dishonored due to insufficiency of funds
On cross-examination, Ligaray admitted that he did not personally meet Wagas because they
transacted through telephone only; that Ligaray released the 200 bags of rice directly to Robert
Caada, the brother-in-law of Wagas, who signed the delivery receipt upon receiving the rice.
In his defense, Wagas himself testified. Wagas admitted having issued check to Caada, his
brother-in-law, not to Ligaray. Wagas denied having any telephone conversation or any dealings with
Ligaray. Wagas explained that the check was intended as payment for a portion of Caadas property
that he wanted to buy, but when the sale did not push through, Wagas did not anymore fund the
check.
On cross-examination, the Prosecution confronted Wagas with a letter apparently signed by
him and addressed to Ligarays counsel, wherein Wagas admitted owing Ligaray P200,000.00 for
goods received
Wagas admitted the letter, but insisted that it was Caada who had transacted with Ligaray,
and that he had signed the letter only because his sister and her husband (Caada) had begged him
to assume the responsibility.
The RTC convicted Wagas of estafa. The RTC held that the Prosecution had proved beyond
reasonable doubt all the elements constituting the crime of estafa.
Wagas filed a motion for new trial and/or reconsideration arguing that the Prosecution did not
establish that it was he who had transacted with Ligaray and who had negotiated the check to the
latter; that the records showed that Ligaray did not meet him at any time; and that Ligarays
testimony on their alleged telephone conversation was not reliable because it was not shown that
Ligaray had been familiar with his voice.
The RTC denied the motion for new trial and/or reconsideration. Wagas appealed directly to
the Supreme Court.
Issues
Whether or not Wagas is guilty of estafa
Whether or not the check is a valid negotiable instrument
Held:
NO. Wagas is not guilty of estafa. In order to constitute estafa under Article 315(2)(d) of the
Revised Penal Code, the act of postdating or issuing a check in payment of an obligation must be the
efficient cause of the defraudation. This means that the offender must be able to obtain money or
property from the offended party by reason of the issuance of the check, whether dated or
postdated.
In this case, the Prosecution established that Ligaray had released the goods to Caada
because of the postdated check and that the check was dishonored when presented for payment
because of the insufficiency of funds. In that regard, the Prosecution did not establish beyond

reasonable doubt that it was accused Wagas who had defrauded Ligaray by issuing the check
because Ligaray expressly admitted that he did not personally meet the person with whom he was
transacting over the telephone.
YES. The check is a valid negotiable instrument. The check delivered to Ligaray was made
payable to cash. Under the Negotiable Instrument Law, this type of check was payable to the bearer
and could be negotiated by mere delivery without the need of an indorsement. This rendered it
highly probable that Wagas had issued the check not to Ligaray, but to somebody else like Caada,
who then negotiated it to Ligaray. Relevantly, Ligaray confirmed that he did not himself see or meet
Wagas at the time of the transaction and thereafter and expressly stated that the person who signed
for and received the stocks of rice was Caada.
It bears stressing that the accused, to be guilty of estafa as charged, must have used the
check in order to defraud the complainant. What the law punishes is the fraud or deceit, not the mere
issuance of the worthless check. Wagas could not be held guilty of estafa simply because he had
issued the check used to defraud Ligaray. The proof of guilt must still clearly show that it had been
Wagas as the drawer who had defrauded Ligaray by means of the check. Thus, considering that the
circumstances of the identification of Wagas as the person who transacted on the rice did not
preclude a reasonable possibility of mistake, the proof of guilt did not measure up to the standard of
proof beyond reasonable doubt.