RCBC v Odrada

- In Apr 2002, Noel Odrada sold a secondhand Mitsubishi Montero to Teodoro Lim for P1.51m, with P610k up
front and P900k financed by an RCBC car loan. Noel later executed a DoAS & Lim took possession.
- After P913.5k worth of checks were issued to Noel but before he presented them, Lim notified Odrada that the
roadworthiness of the car was in issue and requested Noel not cash the checks until he clarified the issue.
- Instead of going to the meeting & clearing things up, Noel deposited the checks with i-Bank. However, both
checks were dishonoured. Thus, Noel filed a collection suit in the Makati RTC.
- The RTC ruled for Noel, holding he was the proper party to ask for rescission, as Lim was delinquent in payment
despite his delivery of the car. It ruled that the defective car was not a supervening event to justify dishonour,
since the managers check is equivalent to cash and is the banks check, hence can be treated as a PN with RCBC
as the maker. Thus, it is the primary obligation of the bank & constitutes a promise to pay upon demand.
- The CA affirmed, ruling Odrada was a holder in due course and that want of consideration is not a defense, but
modified the damages to P50k MD & P20k ED & AF. RCBC alone appealed, making the decision final for Lim.

SC: Reverses CA, rules for RCBC.

1. Did Lim have the right to rescind via cancellation of the loan? YES.
a. In Sales, obligations do not cease upon delivery the vendor is bound by an implied warranty against
hidden defects (A1547), defined as that which would render a thing unfit for the use intended, or
diminish its fitness to such an extent that, had the vendor known, he would pay less/not buy the thing.
2. May RCBC interpose the abovementioned personal defense of Lim? YES, since Noel is not a holder in due course.
a. The general rule is a drawee bank is not liable until it accepts a BoE. Acceptance creates a privity of
contract between the holder & drawee such that the latter becomes primarily liable. Upon acceptance,
the drawee admits the following (S62 NIL):
i. Existence of the drawer
ii. Genuineness of the drawers signature
iii. Capacity & authority of the drawer to draw the instrument
iv. Existence of the payee & his capacity to endorse
b. A managers check is a check drawn by a banks manager upon the bank itself & accepted in advance by
the bank through the act of its issuance. It is really the banks own check and may be treated as a PN
with the bank as maker. Consequently, the bank is the primary obligor of the check.
c. Thus, banks normally have the unconditional obligation to pay a managers check to the holder in due
course irrespective of any available personal defenses. However, a holder other than a holder in due
course is still subject to defenses, as per S58 NIL (not a HiDC, subject to non-negotiable defences).
i. In Mesina v IAC, a missing managers check went missing and a stop payment order was issued.
When it was presented by a certain Mesina and dishonoured, the Court declared that the holder
of a cashiers check who is not a holder in due course cannot enforce it against an issuing bank
which dishonors the same.
ii. In UCBP v IAC, UCPB refused to pay a managers check due to a stop order after a partial failure
of consideration, which rendered Makati Bel-Air Developers not a holder in due course.
d. The CA erred in ruling Noel is a holder in due course, since S52 of the NIL provides that such requires for
one to have taken the instrument under the following conditions:
i. That the NIL is complete & regular upon its face
ii. That he became the holder of it before it was overdue, and without notice that it has been
previously dishonoured, if such was the fact,
iii. That he took it for good faith and for value,
iv. 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.
e. Good faith requires due honesty re: the rights of the parties liable on the instrument. Noel lacks this
because despite being notified re: car issues, Noel in fact evaded the meeting.
f. However, since Lim did not appeal & his testimony re: defects was stricken by the RTC, he failed to
prove the defects and must still pay Noel. As for RCBC, it cannot be made liable.