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Camille Umali
CHAPTER 2: TRANSFER
FACTS
-Great Asian is engaged in the business of buying and HELD
selling household appliances. In March 1981, the 1. YES
board of directors of Great Asian approved a -The Corporation Code of the Philippines vests in the
resolution authorizing its Treasurer and GM, Arsenio board of directors the exercise of the corporate
Lim Piat, Jr. to secure a loan from Bancasia in an powers of the corporation, save in those instances
amount not to exceed P1M and also authorized where the Code requires stockholders approval for
Arsenio to sign all papers, documents or promissory certain specific acts. In the ordinary course of
notes necessary to secure the loan. In Feb. 1982, the business, a corporation can borrow funds or dispose
board of directors of Great Asian approved a 2nd of assets of the corporation only on authority of the
resolution authorizing Great Asian to secure a board of directors. The board of directors normally
discounting line with Bancasia in an amount not designates one or more corporate officers to sign loan
exceeding P2M and also designated Arsenio as the documents or deeds of assignment for the
authorized signatory to sign all instruments, corporation.
documents and checks necessary to secure the
discounting line. -To secure a credit accommodation from Bancasia, the
board of directors of Great Asian adopted 2 board
-In March 1981 and 1982, Tan Chong Lin signed 2 Surety resolutions on different dates. (text of resolutions
Agreements in favor of Bancasia to guarantee, shown in case) As plain as daylight, the 2 board
solidarily, the debts of Great Asian to Bancasia. resolutions clearly authorized Great Asian to secure a
Great Asian, through Arsenio, signed 4 Deeds of loan or discounting line from Bancasia. The 2 board
Assignment of Receivables, assigning to Bancasia 15 resolutions also categorically designated Arsenio as
postdated checks issued by various customers in the authorized signatory to sign and deliver all the
payment for appliances and other merchandise. implementing documents, including checks, for Great
Arsenio endorsed all the 15 checks by signing his Asian. There is no iota of doubt whatsoever about the
name at the back of the checks. Eight of the purpose of the 2 board resolutions, and about the
dishonored checks bore the endorsement of Arsenio authority of Arsenio to act and sign for Great Asian.
below the stamped name of Great Asian Sales
Center, while the rest of the dishonored checks just Arsenio had all the proper and necessary authority from
bore the signature of Arsenio. The drawee banks the board of directors of Great Asian to sign the
dishonored the fifteen checks on maturity when Deeds of Assignment and to endorse the fifteen
deposited for collection by Bancasia, with any of the postdated checks. Arsenio signed the Deeds of
following as reason for the dishonor: account closed, Assignment as agent and authorized signatory of
payment stopped, account under garnishment, and Great Asian under an authority expressly granted by
insufficiency of funds. After the drawee bank its board of directors. The signature of Arsenio on the
dishonored the checks, Bancasia sent letters to Tan Deeds of Assignment is effectively also the signature
Chong Lin, notifying him of the dishonor and of the board of directors of Great Asian, binding on
demanding payment from him. Neither Great Asian the board of directors and on Great Asian itself.
nor Tan Chong Lin paid Bancasia the dishonored
checks. 2. YES
-Bancasias complaint against Great Asian is founded on
-In June 1982, Bancasia filed a complaint for collection of the latters breach of contract under the Deeds of
a sum of money against Great Asian and Tan Chong Assignment. The Deeds of Assignment uniformly
Lin. Great Asian raised the alleged lack of authority provided for one vital suspensive condition: in case
of Arsenio to sign the Deeds of Assignment as well as the drawers fail to pay the checks on maturity, Great
the absence of consideration and consent of all the Asian obligated itself to pay Bancasia the full face
parties to the Surety Agreements signed by Tan value of the dishonored checks, including penalty and
Chong Lin. attorneys fees. The failure of the drawers to pay the
checks is a suspensive condition, the happening of
which gives rise to Bancasias right to demand
ISSUES payment from Great Asian. This conditional
1. WON Arsenio had authority to execute the Deeds of obligation of Great Asian arises from its written
Assignment and thus bind Great Asian contracts with Bancasia as embodied in the Deeds of
2. WON Great Asian is liable to Bancasia under the Assignment.
Deeds of Assignment for breach of contract pursuant
to the civil code, independent of the negotiable -By express provision in the Deeds of Assignment, Great
instruments law Asian unconditionally obligated itself to pay Bancasia
3. WON Tan Chong Lin is liable to Great Asian under the the full value of the dishonored checks. In short,
surety agreements. Great Asian sold the postdated checks on with
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Camille Umali
recourse basis against itself. This is an obligation that later turn out to be defective. Thus, the endorsement
Great Asian is bound to faithfully comply because it does not operate to make the finance company a
has the force of law as between Great Asian and holder in due course. For its own protection,
Bancasia, as provided in Art 1159 of the Civil Code. therefore, the finance company usually requires the
Great Asian and Bancasia agreed on this specific with assignor, in a separate and distinct contract, to pay
recourse stipulation, despite the fact that the the finance company in the event of dishonor of the
receivables were negotiable instruments with the notes or checks.
endorsement of Arsenio. The contracting parties had
the right to adopt the stipulation which is separate -As endorsee of Great Asian, Bancasia had the option to
and distinct from the warranties of an endorser under proceed against Great Asian under the Negotiable
the Negotiable Instruments Law. Instruments Law. Had it so proceeded, the
Negotiable Instruments Law would have governed
-The explicit with recourse stipulation against Great Asian Bancasias cause of action. Bancasia, however, did
effectively enlarges, by agreement of the parties, the not choose this route. Instead, Bancasia decided to
liability of Great Asian beyond that of a mere endorser sue Great Asian for breach of contract under the Civil
of a negotiable instrument. Thus, whether or not Code, a right that Bancasia had under the express
Bancasia gives notice of dishonor to Great Asian, the with recourse stipulation in the Deeds of Assignment.
latter remains liable to Bancasia because of the with
recourse stipulation which is independent of the The exercise by Bancasia of its option to sue for breach of
warranties of an endorser under the Negotiable contract under the Civil Code will not leave Great
Instruments Law. Asian holding an empty bag. Great Asian, after
paying Bancasia, is subrogated back as creditor of
-There is nothing in the Negotiable Instruments Law or in the receivables. Great Asian can then proceed
the Financing Company Act, that prohibits Great against the drawers who issued the checks. Even if
Asian and Bancasia parties from adopting the with Bancasia failed to give timely notice of dishonor, still
recourse stipulation uniformly found in the Deeds of there would be no prejudice whatever to Great Asian.
Assignment. Instead of being negotiated, a Under the Negotiable Instruments Law, notice of
negotiable instrument may be assigned. Assignment dishonor is not required if the drawer has no right to
of a negotiable instrument is actually the principal expect or require the bank to honor the check, or if
mode of conveying accounts receivable under the the drawer has countermanded payment. In the
Financing Company Act. Since in discounting of instant case, all the checks were dishonored for any
receivables the assignee is subrogated as creditor of of the following reasons: account closed, account
the receivable, the endorsement of the negotiable under garnishment, insufficiency of funds, or
instrument becomes necessary to enable the payment stopped. In the first three instances, the
assignee to collect from the drawer. This is drawers had no right to expect or require the bank to
particularly true with checks because collecting banks honor the checks, and in the last instance, the
will not accept checks unless endorsed by the payee. drawers had countermanded payment.
The purpose of the endorsement is merely to facilitate
collection of the proceeds of the checks. 3. YES
-Tan Chong Lin, by signing the Surety Agreements,
-The purpose of the endorsement is not to make the explicitly and unconditionally bound himself to pay
assignee finance company a holder in due course Bancasia, solidarily with Great Asian, if the drawers of
because policy considerations militate against the checks fail to pay on due date. The condition on
according finance companies the rights of a holder in which Tan Chong Lins obligation hinged had
due course. Otherwise, consumers who purchase happened. As surety, Tan Chong Lin automatically
appliances on installment, giving their promissory became liable for the entire obligation to the same
notes or checks to the seller, will have no defense extent as Great Asian.
against the finance company should the appliances
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Camille Umali
hydro oil delivered by E.T. Henry to Hi-Cement? Hi- Held [2]: Personal liability of a corporate director, trustee
Cement, however, maintains that the checks were or officer along (although not necessarily) with the
not issued for consideration and that Lourdes and corporation may so validly attach, as a rule, only
E.T. Henry engaged in a "kiting operation" to raise when: (1) He assents (a) to a patently unlawful act of
funds for E.T. Henry, who admittedly was in need of the corporation, or (b) for bad faith or gross
financial assistance. There was no sufficient negligence in directing its affairs, or (c) for conflict of
evidence to show that such is the case. Lourdes M. interest, resulting in damages to the corporation, its
de Leon is the treasurer of the corporation and is stockholders or other persons; (2) He consents to
authorized to sign checks for the corporation. At the the issuance of watered down stocks or who, having
time of the issuance of the checks, there were knowledge thereof, does not forthwith file with the
sufficient funds in the bank to cover payment of the corporate secretary his written objection thereto; (3)
amount of P2 million pesos. Thus, the act of issuing He agrees to hold himself personally and solidarily
the checks was well within the ambit of a valid liable with the corporation; or (4) He is made, by a
corporate act, for it was for securing a loan to specific provision of law, to personally answer for his
finance the activities of the corporation, hence, not corporate action." Herein, Lourdes M. de Leon and
an ultra vires act. An ultra vires act is one committed Antonio de las Alas as treasurer and Chairman of Hi-
outside the object for which a corporation is created Cement were authorized to issue the checks.
as defined by the law of its organization and However, Ms. de Leon was negligent when she
therefore beyond the power conferred upon it by law" signed the confirmation letter requested by Mr. Yap
The term "ultra vires" is "distinguished from an illegal of Atrium and Mr. Henry of E.T. Henry for the
act for the former is merely voidable which may be rediscounting of the crossed checks issued in favor
enforced by performance, ratification, or estoppel, of E.T. Henry. She was aware that the checks were
while the latter is void and cannot be validated. strictly endorsed for deposit only to the payee's
account and not to be further negotiated. What is
Issue [2]: Whether Lourdes M. de Leon and Antonio de more, the confirmation letter contained a clause that
las Alas were personally liable for the checks issued was not true, that is, "that the checks issued to E.T.
as corporate officers and authorized signatories of Henry were in payment of Hydro oil bought by Hi-
the check. Cement from E.T. Henry". Her negligence resulted in
damage to the corporation. Hence, Ms. de Leon may
be held personally liable therefor.
Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a 608967 & 608968 on September 14 & 28, 1979,
corporation involved in the manufacturing of respectively, due to George King's failure to deliver
cigarettes, engaged one of its suppliers, King Tim the tobacco leaves.
Pua George (George King), to deliver 2,000 bales of
tobacco leaf starting October 1978. In consideration Efforts of SIHI to collect from BCCFI having failed, it
thereof, BCCFI, on 13 July 1978 issued crossed instituted the present case with the Regional Trial
checks post dated sometime in March 1979 in the Court, naming only BCCFI as party defendant. The
total amount of P820,000. Relying on the supplier's trial court pronounced SIHI as having a valid claim
representation that he would complete delivery being a holder in due course. It further said that the
within 3 months from 5 December 1978, BCCFI non-inclusion of King Tim Pua George as party
agreed to purchase additional 2,500 bales of defendant is immaterial in this case, since he, as
tobacco leaves, despite the supplier's failure to payee, is not an indispensable party.
deliver in accordance with their earlier agreement.
Again, BCCFI issued postdated crossed checks in Raised in the Court of Appeals, the appellate court
the total amount of P1,100,000, payable sometime in affirmed the decision of the trial court. Hence, the
September 1979. During these times, George King present petition for review.
was simultaneously dealing with State Investment
House Inc. (SIHI). On 19 July 1978, he sold at a The Supreme Court granted the petition, finding that the
discount check TCBT 551826 bearing an amount of court a quo erred in the application of law; and thus
P164,000.00, post dated 31 March 1979, drawn by reversed the decision of the Regional Trial Court as
BCCFI, naming George King as payee to SIHI. On affirmed by the Court of Appeals with cost against
19 December and 26, 1978, he again sold to SIHI SIHI.
checks TCBT 608967 & 608968, both in the amount
of P100,000.00, post dated September 15 & 30, 1. Section 52 NIL; Holder in Due Course
1979 respectively, drawn by BCCFI in favor of Section 52 of the The Negotiable Instruments Law
George King. In as much as George King failed to states what constitutes a holder in due course, thus
deliver the bales of tobacco leaf as agreed despite A holder in due course is a holder who has taken
its demand, BCCFI issued on 30 March 1979, a stop the instrument under the following conditions: (a)
payment order on all checks payable to George That it is complete and regular upon its face; (b) That
King, including check TCBT 551826. Subsequently, he became the holder of it before it was overdue,
stop payment was also ordered on checks TCBT and without notice that it had been previously
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Camille Umali
dishonored, if such was the fact; (c) That he took it in mentioned between the parallel lines. This is
good faith and for value; (d) That at the time it was specially true in England where the Negotiable
negotiated to him he had no notice of any infirmity in Instrument Law originated.
the instrument or defect in the title of the person
negotiating it." 7. Philippine setting: Effects of a crossed check
In the Philippine business setting, beset with
2. Section 59 NIL bouncing checks, forging of checks, and so forth that
Section 59 of the NIL further states that every holder banks have become quite guarded in encashing
is deemed prima facie a holder in due course. checks, particularly those which name a specific
However, when it is shown that the title of any payee. Unless one is a valued client, a bank will not
person who has negotiated the instrument was even accept second indorsements on checks. In
defective, the burden is on the holder to prove that order to preserve the credit worthiness of checks,
he or some person under whom he claims, acquired jurisprudence has pronounced that crossing of a
the title as holder in due course. check should have the following effects: (a) the
check may not be encashed but only deposited in
3. SIHI vs. IAC on all fours the bank; (b) the check may be negotiated only once
The facts in thepresent case are on all fours to the to one who has an account with a bank; (c) and
case of State Investment House, Inc. (the very the act of crossing the check serves as warning to
respondent in this case) v. Intermediate Appellate the holder that the check has been issued for a
Court wherein the Court made a discourse on the definite purpose so that he must inquire if he has
effects of crossing of checks. received the check pursuant to that purpose,
otherwise, he is not a holder in due course.
4. Check defined; Kinds
A check is defined by law as a bill of exchange 8. Crossed check should put holder on inquiry to
drawn on a bank payable on demand. There are a ascertain indorsers title or nature of
variety of checks, the more popular of which are the possession; Effects of failure, Section 52 (c) NIL
memorandum check, cashier's check, traveler's Crossing of checks should put the holder on inquiry
check and crossed check. Crossed check is one and upon him devolves the duty to ascertain the
where two parallel lines are drawn across its face or indorser's title to the check or the nature of his
across a corner thereof. It may be crossed generally possession. Failing in this respect, the holder is
or specially. declared guilty of gross negligence amounting to
legal absence of good faith, contrary to Sec. 52(c) of
5. Crossed check the Negotiable Instruments Law, and as such the
A check is crossed specially when the name of a consensus of authority is to the effect that the holder
particular banker or a company is written between of the check is not a holder in due course. In the
the parallel lines drawn. It is crossed generally when present case, BCCFI's defense in stopping payment
only the words "and company" are written or nothing is as good to SIHI as it is to George King; because
is written at all between the parallel lines. It may be the checks were issued with the intention that
issued so that presentment can be made only by a George King would supply BCCFI with the bales of
bank. Veritably the Negotiable Instruments Law (NIL) tobacco leaf. There being failure of consideration,
does not mention "crossed checks," although Article SIHI is not a holder in due course. Consequently,
541 of the Code of Commerce refers to such BCCFI cannot be obliged to pay the checks.
instruments.
9. SIHI can collect from immediate indorser, George
6. General viewpoint and English setting on crossed King
check: Negotiability of a check not affected It does not mean, however, that SIHI could not
According to commentators, the negotiability of a recover from the checks. The only disadvantage of a
check is not affected by its being crossed, whether holder who is not a holder in due course is that the
specially or generally. It may legally be negotiated instrument is subject to defenses as if it were non-
from one person to another as long as the one who negotiable. Hence, SIHI can collect from the
encashes the check with the drawee bank is another immediate indorser, in this case, George King.
bank, or if it is specially crossed, by the bank
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Camille Umali
MERCHANTS NATL BANK OF ST. PAUL V STA. MARIA SUGAR CO. (1914)
~chriscaps~
CONSOLIDATED PLYWOOD INDUSTRIES, INC V IFC LEASING AND ACCEPTANCE CORP (1987)
~apple~
-IFC filed a complaint against Consolidated for the instrument amounted to bad faith, is not a holder in
amount of the PN. due course, and therefore, subject to all defenses
-TC and IAC granted the complaint. which the petitioners may raise against the seller-
assignor.
-We subscribe to the view of Campos and Campos
ISSUE that a financing company is not a holder in good faith
WON the respondent is a holder in due course as to the buyer.
-As against the argument that such a rule would
HELD: No. seriously affect "a certain mode of transacting
(first of all, the instrument here was determined as business adopted throughout the State," a court in
not being a negotiable instrument because of the one case stated: It may be that our holding here will
lack of the words of negotiability... nevertheless, the require some changes in business methods and will
court discussed why the respondent cannot be impose a greater burden on the finance companies.
considered a holder in the course had the instrument We think the buyer-Mr. & Mrs. General Public-should
been negotiable) have some protection somewhere along the line. We
-A mere perusal of the Deed of Sale with Chattel believe the finance company is better able to bear
Mortgage with Promissory Note, the Deed of the risk of the dealer's insolvency than the buyer and
Assignment and the Disclosure of Loan/Credit in a far better position to protect his interests against
Transaction shows that said documents evidencing unscrupulous and insolvent dealers... If this opinion
the sale on installment of the tractors were all imposes great burdens on finance companies it is a
executed on the same day by and among the buyer, potent argument in favor of a rule which will afford
which is herein petitioner Consolidated Plywood public protection to the general buying public against
Industries, Inc.; the seller-assignor which is the unscrupulous dealers in personal property... (Mutual
Industrial Products Marketing; and the assignee- Finance Co. v. Martin)
financing company, which is the respondent. -The respondent, a financing company which
-Therefore, the respondent had actual knowledge of actively participated in the sale on installment of the
the fact that the seller-assignor's right to collect the subject two Allis Crawler tractors, cannot be
purchase price was not unconditional, and that it was regarded as a holder in due course of said note. It
subject to the condition that the tractors sold were follows that the respondent's rights under the
not defective. promissory note involved in this case are subject to
-The respondent knew that when the tractors turned all defenses that the petitioners have against the
out to be defective, it would be subject to the seller-assignor, Industrial Products Marketing. For
defense of failure of consideration and cannot Section 58 of the Negotiable Instruments Law
recover the purchase price from the petitioners. provides that "in the hands of any holder other than a
-Even assuming for the sake of argument that the holder in due course, a negotiable instrument is
promissory note is negotiable, the respondent, which subject to the same defenses as if it were non-
took the same with actual knowledge of the negotiable. ... "
foregoing facts so that its action in taking the Disposition Petition granted
NATURE thereon at the rate of 14% from Oct 2, 1980 until the said
Petition for review on certiorari sum is fully paid.
-Both parties appealed to the CA. Imputing fraud, bad
FACTS faith and misrepresentation against VMS for having
-Petitioner Juanita Salas bought a motor vehicle from the delivered a different vehicle to petitioner, the latter prayed
Violago Motor Sales Corporation (VMS) for P58,138.20 for a reversal so that she may be absolved from the
as evidenced by a promissory note. This note was contract.
subsequently endorsed to the respondent Filinvest -CA merely modified ordering the defendant to pay the
Finance & Leasing Corporation which financed the plaintiff the sum of P54,908.30 at 14% per annum from
purchase. Oct 2, 1980 until full payment.
-Salas defaulted in her installments allegedly due to a * Petitioners Arguments
discrepancy in the engine and chassis numbers of the -In the light of the provision of the law on sales by
vehicle delivered to her and those indicated in the sales description which she alleges is applicable, no contract
invoice, certificate of registration and deed of chattel ever existed between her and VMS and therefore none
mortgage, which fact she discovered when the vehicle had been assigned in favor of private respondent.
figured in an accident. -It is not necessary to implead VMS as a party to the
-Filinvest then filed a case for a sum of money against case because VMS was earlier sued by her for "breach of
Salas. RTC ruled in favor of Filinvest and ordered Salas contract with damages" before RTC Olongapo City. Such
to pay the plaintiff the sum of P28,414.40 with interest court originally ordered Salas to pay the remaining
balance of the motor vehicle installments; this was later
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Camille Umali
reversed by the same court ordering VMS instead to [b] it contains an unconditional promise to pay the
return to Salas the sum of P17,855.70. Such decision is amount of P58,138.20;
still pending consideration in the CA. [c] it is payable at a fixed or determinable future time
*Respondents Comment which is "P1,614.95 monthly for 36 months due and
-Issues and allegations are a mere rehash of those payable on the 21 st day of each month starting March
presented and already passed upon by the CA; judgment 21, 1980 thru and inclusive of Feb. 21, 1983;"
in the "breach of contract" suit cannot be invoked as an [d] it is payable to Violago Motor Sales Corporation, or
authority as it is still pending in CA. order and as such,
-Petitioner's liability on the promissory note, the due [e] the drawee is named or indicated with certainty.
execution and genuineness of which she never denied -It was negotiated by indorsement in writing on the
under oath is, under the foregoing factual milieu, as instrument itself payable to the Order of Filinvest Finance
inevitable as it is clearly established. and Leasing Corporation and it is an indorsement of the
entire instrument.
**This is not a simple case of assignment of credit as
ISSUE petitioner would have it appear, where the assignee
1. WON the promissory note is a negotiable instrument merely steps into the shoes of, is open to all defenses
(which will bar completely all the available defenses of available against and can enforce payment only to the
Salas against Filinvest) same extent as, the assignor-vendor.
2. WON Filinvest is a holder in due course
2. YES
HELD Reasoning Filinvest had taken the instrument under the
1. YES ff conditions:
Ratio The instrument in order to be considered [a] it is complete and regular upon its face;
negotiable must contain the so-called "words of [b] it became the holder thereof before it was overdue,
negotiability i.e., must be payable to "order" or "bearer". and without notice that it had previously been
Under Sec 8 of the Negotiable Instruments Law, there dishonored;
are only two ways by which an instrument may be made [c] it took the same in good faith and for value; and
payable to order. There must always be a specified [d] when it was negotiated to Filinvest, the latter had no
person named in the instrument and the bill or note is to notice of any infirmity in the instrument or defect in the
be paid to the person designated in the instrument or to title of VMS Corporation.
any person to whom he has indorsed and delivered the -Filinvest also holds the instrument free from any defect
same. Without the words "or order or "to the order of", the of title of prior parties, and free from defenses available
instrument is payable only to the person designated to prior parties among themselves, and may enforce
therein and is therefore non-negotiable. Any subsequent payment of the instrument for the full amount thereof.
purchaser thereof will not enjoy the advantages of being This being so, Salas cannot set up against respondent
a holder of a negotiable instrument, but will merely "step the defense of nullity of the contract of sale between her
into the shoes" of the person designated in the and VMS.
instrument and will thus be open to all defenses available - Even assuming that there was deception made upon
against the latter. Salas, this issue cannot be resolved since VMS was
Reasoning Requisites under the law have been never impleaded as a party. SC: We can only extend our
complied with: sympathies to Salas in this unfortunate incident.
[a] it is in writing and signed by the maker Juanita Salas; Disposition Assailed decision is hereby AFFIRMED.
NATURE between Ermac (to sell the press) and OCMW (to
Appeal from judgment buy the press).
-the said contract stated the ff. (re: deferred payments):
FACTS the balance shown to be due hereunder (evidenced by
-Orange County Machine Works (OCMW) was in the my note of even date to your order) is payable in 12
market for a Ferracute press. Ermac Company equal consecutive installments of $355.09 each, the
(Ermac) offered to sell to OCMW a Ferracute press first installment payable one month from date hereof.
for $5k (which Ermac would buy from a supplier). Said note is a negotiable instrument separate and
Commercial Credit Corp. (CCC) was asked to apart from this contract, even though at the time of
finance the transaction, and CCC agreed to do so execution it may be temporarily attached hereto by
after an assignment of the contract of sale between perforation or otherwise.
OCMW and Ermac was made in favor of CCC. -Latter part of the contract (in a detachable portion):
-before the assignment, Ermac obtained similar financing This contract may be assigned and/or said note may be
from CCC and CCC had some blank forms supplied negotiated without notice to me and when assigned
to Ermac. One of these forms entitled Industrial and/or negotiated shall be free from any defense,
Conditional Sales Contract is the agreement counterclaim or cross complaint by me.
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Camille Umali
a dotted or perforated line could be detached from it. At title of Ermac; (2) the conditional sales contract and
the time the president of OCMW signed the contract the attached note must be construed as constituting
and note, he raised a question regarding the said a single document. The sales contract is assignable
portion below the line but was told that it was just but not negotiable, so subject to defenses(3) CCC
part of the document. was an original party to the original transaction so it
-OCMW paid $1,512.50 to Ermac. Ermac assigned the took title subject to all equities or defenses existing
contract and endorsed the note to CCC. CCC gave in its favor against Ermac.
Ermac a check for $4,261 in return. At the time the ISSUE
contract was delivered to CCC, the note had not WON CCC is a holder in due course (and so can recover
been detached. Ermac deposited the check to its from CCC the maker)
bank and sent the said check to the supplier of the
Ferracute press that would be sold to OCMW. HELD: NO.
However, when the check was presented by the Ratio. When a finance company actively participates in a
supplier, it was dishonored. The supplier did not transaction of this type from its inception, counseling
deliver the Ferracute press. Ermac did not pay CCC. and aiding the future vendor-payee, it cannot be
-CCC filed complaint vs. OCMW and Ermac for the regarded as a holder in due course of the note given
$4,261 it paid for the assignment. Ermac did not pay. in the transaction and the defense of failure of
OCMW demands $1,512.50 from Ermac and consideration may properly be maintained.
declaratory relief from CCC. Reasoning. CCC supplied Ermac with the forms and
-TC: for CCC against Ermac, for OCMW against CCC was twice consulted by telephone as to the impeding
(So CCC had no claims against OCMW). CCC not a deal. It knew all of the details of the transaction.
holder in due course because (1) it knew at the time Indeed, financing was applied for because Ermac did
it paid Ermac for the assignment that Ermac did not not have the money to buy the machinery which
own the press it sells, and (2) knew that the press OCMW desired to obtain. Throughout the entire
was not delivered to OCMW. transaction, CCC dealt chiefly with Ermac, the future
-Arguments of CCC: (1) the note is negotiable in form, payee, rather than with OCMW, the future maker.
status not changed because of original physical CCC advanced money to Ermac with the
attachment to, nor later detachment from, the sales understanding that the agreement and the note
contract; does not lose status because it was given would be assigned or endorsed to it immediately. In
in connection with a conditional sales contract; (2) a very real sense, the finance company was a
the character of an otherwise negotiable note is not moving force in the transaction from its very
destroyed by reason of simultaneous assignment of inception and acted as a party to it. Moreover,
a conditional sales contract to the endorsee of the Commercial Credit knew the financial status of
note; (3) the note is a separate and distinct Ermac.
instrument negotiable in form; OCMW is estopped -OCMW never obtained the press for which it bargained
from asserting failure of consideration because it and, as against CCC, there is no more obligation
knew the purpose and legal effect of the note. upon it to pay the note than there is to pay the
-Arguments of OCMW: (1) CCC did not acquire the installments specified in the contract.
instrument in good faith and for value and had notice Disposition. Judgment affirmed.
of infirmities in the instrument and the defect in the
FOSTER V AGUSTANNA COLL. & THEOLOGICAL SEMINARY OF ROCK ISLAND, ILL. (1932)
~athe~
FACTS HELD
-Hopkins executed and delivered to Aurelius-Swanson -Doctrine of constructive notice does not apply to Foster.
(payee) their negotiable instrument secured by mortgage. Augustanna had no actual knowledge of the assignment
Swanson assigned the note and mortgage to Foster not to Foster. Augustanna was a purchaser of the note not
by indorsement but by assignment in a separate the mortgage. It is well-settled rule that where a
instrument duly recorded. Foster redelivered the note mortgage given to secure a negotiable PN, the note
and mortgage to Swanson as custodian. Swanson imparts its negotiable character to the mortgagee, and
subsequently assigned the note and mortgage to both are bought within the purview of the statutes, and
Augustanna. Augustanna had no actual knowledge that the mortgage is a mere incident to the note, and an
the note and mortgage had therefore been assigned to indorsement of the note automatically assigns the
Foster. Swanson became bankrupt. Foster sued mortgage, and the attempted assignment of the
Augustanna. mortgage without the transfer of the debt it secures is a
nullity.
-The doctrine of constructive notice is applicable only to
person who is dealing with the land itself, which is not the
case here.
NEGO - Quevedo B
Camille Umali
FACTS WON Mrs. Stetson is a holder in due course free from all
-Bronsons agent, Mears, effected the exchange of equities and defenses that could be set up against
Bronsons land in Flint with a farm. Mears, her and could thus collect from Bronson.
fraudulently represented that there was an $800
mortgage on the land, which he said, Bronson HELD
should assume. So Bronson made a note made of NO. At first glance, it can be said that Mrs. Stetson is a
even date for $800 payable in three years and holder in due course. Mears was given parol
secured by a mortgage. The name of the payee and authority to fill in the blank. He exceeded his
the mortgagee were left blank. It was agreed that authority in writing the name of the Mrs. Stetson.
Mears was authorized to fill the blanks with the name Mears had apparent authority and Mrs. Stetson was
of Union Trust Savings Bank. ignorant of the limitation.
-Mears received the papers, and turned them over to -It has been held that the one who entrusts an incomplete
defendant Mrs. Stetson. Instead of writing the name instrument to another is bound by anyone who relies
of the bank as payee, Mears wrote Mrs. Stetsons in good faith on the genuineness of the instrument
name. Mrs. Stetson asked him if he had a right to do although the person entrusted with completing and
so, and he said he had coz he was a notary public. delivering the instrument exceeded his authority.
So Mrs. Stetson paid Mears $800. -However, the court turns with reluctance from this.
There is no question that the papers were fraudulently Harrington Nat. Nank v. Beslin ruled that, in order
obtained by Mears and that Mrs. Stetson knew that however that any such instrument may be enforced,
the name on the note was just written by Mears at it must be filled up strictly in accordance with the
the time she paid him the money. authority given and within reasonable time.
Thus, Mrs. Stetson cannot be held to be a holder in
ISSUE due course. TC reversed.
NEGO - Quevedo B
Camille Umali
FACTS the indorser so long after its issue as to charge him with
-Payee of a draft indorsed it to Edison, against whom the notice of dishonor, and thus subject it in his hands to the
drawer, the defendant bank, had an offset. Edison indorsed defenses which the drawer had against it in the hands of
the draft to Jordan on March 8, 1882 4 months and 23 the assignor.
days after the draft became due. -General rule is that a bill, note or check, payable on
demand, must be presented for payment within
ISSUE reasonable time, having in view ordinary business
WON the draft is overdue and dishonored usages and the purposes which paper of that class is
intended to subserve. But, without any explanation of
HELD the reason, this draft which is outstanding nearly 5
YES months after its date, the trial court is fully justified in
Ratio Indorsers subsequent to Edison took it subject to the holding it overdue and dishonored when Jordan took it,
same offset to which it was subject in his hands. so as to charge it in his hands, or the hands of those
Reasoning who hold under him, with any defense or set-off which
-The term overdue in a demand bill of exchange (as in this the drawer had against it in the hands of Edison.
case) is applied when a bill has come into the hands of
FACTS Hooper Sugar made a note payable to Wright for Obiter: it is further alleged by Wright (as a defendant) that
$30,000 (note details: issued on Sept. 5, 1919, payable not only is IBS precluded from recovery on the altered
in 6 mos.). Wright then indorsed the note in blank on renewal note, but that such alteration absolved him
Sept. 2, 1920 (1 year after). On the same date, he ultimately of the principal obligation for which the
renewed a personal note that was held by National City renewal note was given
Bank of Salt Lake (NCBSL), also for $30,000. Wright -the court rejected this contention and said that although
also forwarded the note made by Hooper to NCBSL the alteration was indeed material and intentionally
but allegedly for a different purpose made, there is no finding that Wrights renewal note
-However, the cashier of NCBSL altered the renewal note was altered with fraudulent intention. While a material
(1) by erasing the name of his bank as payee and alteration of a note is a defense to an action on the
inserting that of a bank in Pocatello, Idaho, (2) by instrument itself, in order that such an alteration may
changing the interest rate from 6% to 7% p.a., and (3) be a bar to recovery on the original debt, it must
by adding a recital that the note (issued by Hooper) appear that the alteration was made with fraudulent
was deposited as collateral security for the renewal intent. Thus, Wright remains liable on the original
note. He then transferred the note to the Pocatello obligation to ISB independent of the altered renewal
Bank for $30,000. In Oct. 11, 1920, the Pocatello Bank note.
sold the 2 notes to Idaho State Bank (plaintiff).
-Idaho State Bank (ISB) now claims as holder of the note 2. YES
(made by Hooper) from Hooper and Wright, the same Ratio When Wright indorsed the note and delivered it to
note being the collateral to the renewal note. NCBSL after its maturity date, such note as to Wright
became a demand note. As a demand note it did not
ISSUE become overdue as to Wright until a reasonable length
1. WON Idaho State Bank may claim on the renewal note of time after it was indorsed by him.
made by Wright Reasoning Next in issue is the liability of Wright as an
2. WON Idaho State Bank may claim on the note made by indorser of the note made by Hooper. Wright posits
Hooper from Wright as an indorser that the note was overdue at the time it reached the
hands of IBS, thus IBS may not be considered as a
HELD holder in due course to such note. On the other hand,
1. NO, but this does not mean that Wright is freed from the IBS insists that the note was not overdue when
principal obligation which gave rise to the renewal received by it, relying on the provision where an
note. instrument is issued, accepted, or indorsed when it is
On alterations on the renewal note made by Wright overdue, it is, as regards the person so issuing,
Ratio When a mere inspection of the instrument shows that accepting, or indorsing it, payable on demand.
it has been altered, a purchaser is not a holder in due -the interpretation of the above-quoted provision can only
course because such note is not regular on its face mean one thing: see the ratio above.
Reasoning ISB is not a holder in due course of the -citing the Harvard Law Review: the instrument takes a
altered renewal note. It follows then that such note was new lease of life with respect to an indorser after
avoided in the hands of ISB maturity, and his equitable defenses are not let in until
a reasonable time after he indorses, although the
NEGO - Quevedo B
Camille Umali
paper is apparently overdue. A contract after him, namely, a reasonable time, after the transfer. ISB
maturity has a special maturity of its own, i.e. a became such holder within that reasonable time, and
reasonable time after execution, and bona fide as regards Wright, IBS received the note free from any
purchasers within that time will be protected from all equities of Wright founded upon the mere fact that the
equities of the party who signed, even equitable note appeared to be overdue.
defenses. Disposition Wright is liable to IBS, must honor the note
-in this case, when Wright indorsed the note after its (since he indorsed it after the maturity, thus effectively
maturity, he gave the note a second maturity date as to made the note on demand as between him and IBS).
FACTS ISSUE
-J.W. Sweeney Construction Company drew its check on 1. Whether or not the check in this case is NOT a
the US National Bank of Portland Oregon for USD negotiable instrument.
2,294.74 payable to the order of DAN MALCHEFF. 2. Whether or not postdating of the check amounts to a
The check was drawn and delivered on or about notice of the infirmity on the instrument as to
March 25, 1911 but was POSTDATED APRIL 15, disqualify the holder from becoming a HIDC
1911.
-Malcheff negotiated it to TRIPHONOFF before April 15, HELD
1911 who took it for value and in good faith. J.W. 1. NO. The check is a negotiable instrument. It is full and
SWEENEY CONSTRUCTION (the drawer) stopped complete on its face as it satisfies the requirements
payment for the check on the ground that Malcheff of the law for an instrument to be negotiable. It is
(the named payee), an employee of the drawer, worthy to note that the law does not require an
obtained the check by means of false and forged instrument to be dated. It is settled that the
estimates of work done by him for the drawer. The instrument is not rendered invalid by its antedating or
check was DISHONORED UPON PRESENTMENT postdating provided that it is not done for an illegal or
about APRIL 17, 1911. fraudulent purpose.
-Triphonoff (INDORSER) sued the drawer J.W.
SWEENEY. The latter argued that Triphonoff should 2. NO. The plaintiff indorsee was not as a matter of law
have been put on notice of the infirmity in the put into inquiry by reason of the checks being
instrument or defect in the tile of MALCHEFF by the negotiated prior to day of its date. The law itself does
fact that the check was POSTDATED. Counsel for not proscribe postdating of the check. It is
Sweeney goes as far as arguing that a postdated noteworthy that the drawing of a postdated check is
check is not a negotiable instrument if taken before an everyday occurrence in the commercial world and
the date on which demand can be made for payment the uniform understanding of the parties is that,
but is simply an assignment of rights of the payee when a check is postdated, it is payable on the day it
and opens the check to all equities and defenses. purports to be drawn even though it be negotiated
beforehand.
NEGO - Quevedo B
Camille Umali
NATURE timed that want of funds did not appear on the books
Action by Howard National Bank against Graham Wilson of either bank. Elliot paid the interest on the note
and another. indorsed January 1, 1920. he died in the latter part of
January 1920, when for the first time, so far as
FACTS appeared, it was discovered that he was insolvent.
-Elliot was acting president of the bank and had general -Defendant insists that the plaintiff, being the payee of
oversight and management of its affairs. He was the note, is not a holder in due course as a matter of
also interested in a lumber business conducted as law.
the W. E. Elliot Lumber Company and acted as its
treasurer. ISSUE
-He had 2 check accounts with the plaintiff bank, one his 1. WON plaintiff (being the payee) is a holder in due
personal account and the other an account as course
Treasurer of the lumber company. He also had an 2. WON plaintiff took the check in good faith
account as treasurer of the lumber company with the
Waterbury Savings Bank. HELD:
-From July 6, 1919, to sept 18, 1919, his personal 1. YES
account with the plaintiff was overdrawn in -That a payee is capable of being a holder in due course
increasing amounts until the overdraft amounted to at common law has been held almost without
$14,594.14. an arrangement was entered into by dissent. This view is confirmed by the definition of
which the plaintiff made a loan to the lumber negotiation found in Sec 30 of the act, which
company which was deposited in its account with the provides that an instrument is negotiated when it is
plaintiff, and Elliot transferred $14,750 from this to transferred from person to another in such a manner
his personal account, leaving a balance to his credit as to constitute the transferee the holder thereof. As
of $155.86. said, the remaining sentence of the section, if
-On sept 15, Elliot had drawn a check on his personal payable to bearer, it is negotiated by delivery; if
account for $10,000 which had not been returned to payable to order, it is negotiated by the indorsement
the bank when this adjustment was made. To cover of the holder completed by delivery was not
this check when returned, he drew a check to intended to include all the ways in which an
himself on the Waterbury Bank for a like amount, instrument might be negotiated, nor to restrict
which he deposited in his personal account. This the comprehensive terms of the preceding
overdrew the lumber companys account at the sentence.
Waterbury Bank about $8,700. There was no
evidence that anyone other than Elliot knew of this 2. YES
situation at the time the note in question was given. -Evidence was uncontradicted that Elliot had authority
-On the day the note was given, the defendant called at and was accustomed to approve and direct loans as
the plaintiff ank on business which was transacted this loan was approved and directed, and that the
with Elliot in the directors room. In the course of the defendant was a regular customer of the bank.
interview Elliot procured the defendant to sign a note Assuming that the evidence had the tendency
for his (Elliots) accommodation. No question is claimed for it, we are at loss to see how, in the
made but that they were false and fraudlent. The circumstances, it can be thought that the cashier had
note was executed and Elliot took it out into the bank any reason to suspect fraud in the inception of the
and directed the assistant cashier to make a note or any wrongdoing in the transaction. The note
cashiers check in favor of the defendant for the was taken in usual course, for full value and without
amount of the note. Elliot returned with the check circumstances calling for or warranting inquiry
which the defendant indorsed in blank and delivered respecting the occasion for giving it. This being so, it
to Elliott. The latter deposited the check to the credit cannot be conceived how a reasonable man could
of the lumber company in the Waterbury Bank on think that the note was taken otherwise than in good
Sept 20. The movement of these checks was so faith.
NEGO - Quevedo B
Camille Umali
Facts: Held:
Marasigan, who is a lawyer by profession, was a 1. No. We agree with the findings of the respondent
complimentary member of BECC from February court, that there was an arrangement between the
1988 to February 1989 and was issued Credit Card parties, wherein the petitioner required the private
No. 100-012-5534 with a credit limit of P3,000.00 respondent to issue a check worth P15,000.00 as
and with a monthly billing every 27th of the month payment for the latters billings. However we find that
(Exh. N), subject to the terms and conditions the private respondent was not able to comply with
stipulated in the contract (Exh. 1-b). His membership this obligation. Clearly the purpose of the
was renewed for another year and the credit limit arrangement between the parties on November 22,
was increased to P5,000.00. 1989, was for the immediate payment of the private
respondents outstanding account, in order that his
Oftentimes he exceeded his credit limits but this was credit card would not be suspended.
never taken against him by the defendant and even
his mode of paying his monthly bills in check was 2. No. Settled is the doctrine that a check is only a
tolerated. Their contractual relations went on substitute for money and not money, the delivery of
smoothly until his statement of account for October such an instrument does not, by itself operate as
1989 amounting to P8,987.84 was not paid in due payment. This is especially true in the case of a
time. On November 28, 2989, defendant served postdated check. Thus, the issuance by the private
plaintiff a letter by ordinary mail informing him of the respondent of the postdated check was not effective
temporary suspension of the privileges of his credit payment. It did not comply with his obligation under
card and the inclusion of his account number in their the arrangement with Miss Lorenzo. Petitioner
Caution List. He was also told to refrain from further corporation was therefore justified in suspending his
use of his credit card to avoid any credit card.
inconvenience/embarrassment and that unless he
settles his outstanding account with the defendant 3. No. Good faith is presumed and the burden of proving
within 5 days from receipt of the letter, his bad faith is on the party alleging it. This private
membership will be permanently cancelled. There is respondent failed to do. In fact, the action of the
no showing that the plaintiff received this letter petitioner belies the existence of bad faith. As early
before December 8, 1989. as 28 October 1989, petitioner could have
suspended private respondents card outright.
Confidential that he had settled his account with the Instead, petitioner allowed private respondent to use
issuance of the postdated check, plaintiff invited his card for several weeks. Petitioner had even
some guests on December 8, 1989 and entertained notified private respondent of the impending
them at Caf Adriatico. When he presented his credit suspension of his credit card and made special
card to Caf Adriatico for the bill amounting to accommodations for him for setting his outstanding
P735.32, said card was dishonored. One of his account. As such, petitioner cannot be said to have
guests, Mary Ellen Ringler, paid the bill by using her capriciously and arbitrarily canceled the private
own credit card a Unibankard. respondents credit card.
Marasigan filed a case for damages against the bank. It was petitioners failure to settle his obligation which
RTC ruled for Marasigans damage claim but caused the suspension of his credit card and
ordered him to pay his obligations. subsequent dishonor at Caf Adriatico. He can not
now pass the blame to the petitioner for not notifying
Issues: him of the suspension of his card. As quoted earlier,
1. WON there was indeed an agreement or the application contained the stipulation that the
arrangement entered into between the parties petitioner could automatically suspend a card whose
wherein the Bank required Marasigan to issue a billing has not been paid for more than thirty days.
postdated check in the amount of P15K as payment Nowhere is it stated in the terms and conditions of
of his overdue accounts, with the condition that his the application that there is a need of notice before
credit card will not be suspended? suspension may be affected as private respondent
2. Was the issuance of the check effective payment? claims.
3. Was the bank in bad faith in cancelling
Marasigans card?
NEGO - Quevedo B
Camille Umali
FACTS HELD
-Asia Banking is a foreign corporation licensed to engage NO, because Asia Banking is not a holder in due course.
in banking in Manila. Defendant is a duly registered -The evidence presented to prove that Asia Banking was
partnership indebted to Asia Banking in the sum of a holder of the draft for value is not convincing. To
$10,475.51 for and on account of New York draft give an authentic account of the transaction, it
which was drawn by Snows Ltd. Asia Banking had should have been established by competent
demanded for payment from Ten Sen Guan but the evidence how Asia Banking acquired the draft. Asia
latter refused to do so. Banking only presented a local employee of the bank
-February 25, 1920 Defendants ordered from Snows who testified as to the alleged meaning of certain
Ltd. 10 cases of mercerize batiste to be shipped entries made in the bank records.
from New York freight prepaid to Manila. -The trial court also found that the acceptance of the draft
-When the merchandise arrived in Manila, a draft drawn by the defendants was conditional. It was also found
by Snows Ltd. against the defendants for the that the plaintiff released and discharged the
amount alleged was presented for acceptance to the defendants from liability upon the draft because of
defendants. This was done through Asia Banking, fraud.
an agent of Snows Ltd. Snows Ltd. had negotiated Disposition Judgment affirmed.
the draft with Asia Bankings counterpart in New
York. STREET [concur]
-The delivery of the bill of lading and other documents -It was fraud on the part of Snows Ltd. to negotiate the
was refused by Asia Banking until Ten Sen Guan draft in question to the New York branch of Asia
accepted the draft. Banking.
-Ten Sen Guan accepted the draft and received delivery -This fraud having been set up in the defendants answer
of the bill of lading and made entry of the goods at and established by proof, it became incumbent upon
customs. the plaintiff to prove that it occupies the position of
-When the cases were opened, they were found to bona fide purchaser of the draft for value and without
contain burlap and not the batiste ordered by Ten notice. This requirement is not met by the
Sen Guan. So Ten Sen Guan declined to receive presumption which the law raises in favor of the
the goods and left them at customs. They then holder of a negotiable instrument arising from the
returned the bill of lading to Asia Banking and mere possession of the instrument. The plaintiff
demanded that their acceptance of the draft be must go further and prove that it is such a purchaser.
cancelled. -The reason for this is that the guilty maker or holder of
- The lower court found for the defendant. an instrument vitiated by fraud of illegality will
naturally seek to put it in the hands of some other
ISSUE person in order to cut off the defense to which the
WON Ten Sen Guan is liable for the amount due instrument is subject.
NATURE
Appeal from judgment of lower court ISSUE
WON plaintiff bank is a holder in due course
FACTS
-J.C. Barry, Trustee, executed demand notes payable to HELD
the order of the Bank of Lafayette & Trust Company, NO
of which he was president. These notes were issued Ratio There having been no negotiation of the note sued
in transactions whereby the bank purchased its own on, because it was never indorsed by the payee; it is
stock from stockholders who wished to dispose of immaterial whether plaintiff acquired the note prior to
them. The understanding was that Barry would not its maturity. It follows that plaintiff cannot be
be personally liable on the notes but that the notes regarded as a holder in due course, & the instrument
would be paid out of the proceeds of the resale and sued on is subject to the same defenses as if it were
from dividends. non-negotiable. The defense of want of
-The Bank of Lafayette & Trust Company sold all its consideration is therefore available.
assets, including the Barry note for $8,711 being Reasoning At common law, under the law merchant, &
sued on, to the plaintiff, the Commercial Bank of independently of the Negotiable Instruments Law, a
Lafayette & Trust Company. The note was not transferee of a note payable to order could not & did
indorsed by the payee bank to the plaintiff bank. not obtain a legal title thereto, except by
-Plaintiff contends that it acquired the note for valuable endorsement of the payee, and a holder without
consideration before maturity, & hence is a holder such endorsement took it subject to all the equities
against whom prior equities will not avail. Thus, the vested in prior parties.
bank objected to the offer of any evidence by the Disposition Judgment appealed from is affirmed.
defendant in support of his defense.
NEGO - Quevedo 2
Camille Umali
MURRAY V THOMPSON
136 Tenn. 118, 188 S.W. 378, LRA, 1817B 1172 (1916)
~ice~
RODRIGUEZ V MARTINEZ
5 Phil 67 (1906)
~rean~
STRADER V HALEY
216 Minn. 315, 12 N.W. (2d) 608 (1943)
~javi~
FACTS HELD
-Francisco S. Gozon II, a depositor of the Caloocan 1. YES
Branch of PNB, went to the bank accompanied by his Ratio A bank is bound to know the signatures of its
friend Ernesto Santos whom he left in the car while he customers; and if it pays a forged check, it must be
transacted business in the bank. considered as making the payment out of its own
-Santos took a check from Gozons checkbook, filled funds, and cannot ordinarily change the amount so
it up for the amount of P5T, forged the signature of paid to the account of the depositor whose name was
Gozon, and encashed it in the bank on the same day. forged. This rule is absolutely necessary to the
Upon receipt of the statement of account from the circulation of drafts and checks, and is based upon
bank, Gozon asked that the amount of P5T be the presumed negligence of the drawee in failing to
returned to his account as his signature on the check meet its obligation to know the signature of its
was forged but the bank refused. correspondent. If the paper comes to the drawee in
-Santos was apprehended by the police and he the regular course of business, and he, having the
admitted that he stole the check of Gozon. Gozon opportunity ascertaining its character, pronounces it
filed the complaint for recovery of the amount of P5T to be valid and pays it, it is not only a question of
against the bank in the CFI Rizal. payment under mistake, but payment in neglect of
-CFI ruled in favor of Gozon. Bank then filed petition duty which the commercial law places upon him, and
for review on certiorari before SC. the result of his negligence must rest upon him.
2. NO
ISSUES -The act of Gozon in leaving his checkbook in the car
1. WON PNB was negligent in encashing the forged while he went out for a short while can not be
check without carefully examining the signature considered negligence sufficient to excuse the
therein defendant bank from its own negligence. Gozon could
2. WON Gozon is precluded from setting up the not have been expected to know that Santos would
defense of forgery or want of authority (since it is his remove a check from his checkbook. Defendant had
own negligent act of leaving the checkbook in Santos trust in his classmate and friend. He had no reason to
hands that is the proximate cause of the loss) suspect that the latter would breach that trust.
Disposition Petition is DISMISSED for lack of merit.
The Lawphil Project -Arellano Law Foundation
NEGO - Quevedo 8
Camille Umali
PRICE V NEAL
3 Burr. 1354 (1762)
~ricky~
ISSUE
WON Price may recover from Neal the money he paid
on the two bills.
FACTS ISSUE
SUBJECT: 18 forged checks WON defendant bank is liable to plaintiff bank
DRAWER: Willamette Iron & Steel Works
DRAWEE: First National Bank of Portland HELD: NO
PAYEES: Rose and Shea, separately -GEN RULE: Where a holder for value in due course
INDORSEES: various merchants United States presents to the drawee a bill of exchange to
National Bank of Portland which the name of the drawer has been forged,
-Rose and Shea confederated to obtain 18 blank and the drawee pays the instrument, the holder
checks bearing the lithographed signature of Ball, and drawee alike ignorant that the signature of
president of Steel Works, and forge therein the the ostensibly drawer was forged, and it is
signature of Insley, secretary-treasurer. subsequently discovered that the signature of the
-The checks were negotiated by the two to various drawer was forged, the drawee cannot recover
merchants, all of whom deposited the checks in payment made to the holder.
their accounts in the United States National -EXCEPTIONS: This defense is not available to a
Bank. holder who (1) is guilty of bad faith, or (2) has
-Defendant bank collected from drawee/plaintiff bank. been negligent.
-Forgery was discovered and drawee was -Was the defendant negligent? NO. There was
immediately notified. nothing upon the face of any of the checks to
-Plaintiff bank wants to recover from defendant bank excite suspicion, and it is not claimed that any of
on the theory that (1) the latter was negligent in the 18 merchants knew or had any reason to
not detecting the forgery (apparently, drawer also suspect the checks were forgeries.
had a checking account in defendant bank, so -The fact that the defendant had in its files the
they should have been aware of the required genuine signature of a drawer might, if there are
signatures), and (2) even if not negligent, the other circumstances tending to show negligence
indorsement of the checks and presentment for be considered in determining whether the
payment, followed by actual payment, oblige the defendant was negligent; but it cannot be said
defendant to refund. that the failure to compare the signatures was, as
a matter of law, negligence on the part of the
defendant.
Disposition Judgment affirmed.
NEGO - Quevedo 10
Camille Umali
PHIL. NATL BANK V NATL CITY BANK OF NY and MOTOR SERVICE CO., INC.
63 PHIL 711; RECTO; 1936
~chriscaps~
FACTS [Consolidation]
[BPI case] -By agreement of the parties, said cases were jointly
-Jacinto Carranza asked the Corporacion de los Padres heard. (Kasi,BPI filed a complaint against the
Dominicos to cash 24 treasury warrants from which Corporacion; Equitable filed a similar complaint for
encashment his wife expected to earn a sort of whatever reimbursements it and BPI may be
commission. sentenced to give the Govt.)
-The Corporacion accommodated Carranzas request
since the latter was a trusted former employee but ISSUE
subject to certain conditions: WON said banks are liable
a) that the warrants be deposited with BPI;
b) that the actual payment of the value of the warrants HELD: No. The Treasury was the negligent one here
would be made only after the same had been duly since there was a 24 hour clearing rule, wherein
accepted and cleared by the Treasurer and the items that should be returned for whatever reason
proceeds thereof duly credited to the BPI account of should be done so within 24 hours. This it failed to
the Corporacion. do in these two cases.
-Said conditions were met and deposited with BPI who (Note: there is no mention of the NIL here because the
accepted the warrants subject to collection only 28 warrants were not negotiable; Campos posed
and with each of them (warrants) bearing the the question that had the said warrants been
indorsement of the respective payee and that of the negotiable, would the Courts ruling be different?)
Corporacion. -Negligence in clearing: The Auditor of the Treasury,
-BPI presented the warrants for payment to the drawee whose signature was forged, exceeded his
(the Government) through the Clearing Office and authority to approve since each of the warrants
upon clearing, was paid by the Treasurer. involved were for over 5k pesos. The irregularity of
-BPI then credited the proceeds to the Corporacions the warrants was apparent on the face thereof from
account, which was then withdrawn by the the Treasurys viewpoint yet the banks were not
Corporacion. informed of any of the irregularity in them until after
-The Treasurer returned 3 of the warrants to the Central said warrants were cleared and honored. Only then
Bank on the ground that those were forged and did the Treasury give notice of the forgeries.
then demanded that the value of said warrants be -As was stated, all 28 warrants were cleared and paid
charged against BPIs account with the Clearing by the Treasury, this, then, induced the banks to
Office and credited back to the demand deposit of credit the amounts to the respective depositors. TF,
the Treasury. the loss of amounts was imputable to the acts and
-Eventually, all warrants were returned by the Treasury omissions of the Treasury so the banks should not
to the Central Bank for the same reason and with and cannot be penalized.
the same demand. -Treasury should bear the loss, citing PNB v Natl City
-Central Bank then referred the matter to BPI for Bank of NY, Where a loss, which must be borne by
appropriate action but the latter opposed the return one of two parties alike, innocent of forgery, can be
of the warrants or to have their value charged traced to the neglect or fault of either, it is
against its account and requested, instead, to the reasonable that it would be borne by him, even if
CB to return said warrants to the Treasurer. innocent of any intentional fraud, through whose
means it has succeeded.
[Equitable Case] -Generally, where a drawee bank otherwise would have
-4 warrants were deposited with Equitable by its a right of recovery against a collecting or indorsing
depositors Robert Wong, Lu Chiu Kau and Chung bank for its payment of a forged check, its action
Ching . will be barred if it is guilty of an unreasonable delay
-Equitable cleared said warrants through the Clearing in discovering the forgery and in giving notice
Office and then collected the corresponding thereof. (C.J.S. 769-770)
amounts from the Treasurer, and thereafter, -First State Bank & Trust v. First Natl Bank: (restated
credited those to the accounts of the depositors. lang to ha!) Where a defendant bank, on
-The Treasurer notified Equitable that said warrants presentation to it of a forged check drawn on
were defective and demanded reimbursement of another bank, paid part of amount to presenter,
said amounts, which the latter refused. drawee having had the check cleared through the
clearing house, with no notice of forgery given, said
bank cannot be held liable for amount so paid.
Disposition The decree in favor of the First National The defendants Noble may have their costs and
Bank is reversed. It is ordered that the disbursements from the plaintiff First National
defendants Noble recover the sum $10,573.50 Bank.
paid into the registry of the court xxx The decree
is affirmed as to the United States National Bank.
HELD
NEGO - Quevedo 15
Camille Umali
-Under Section 67 of the Negotiable Instruments Law, warranty should not be held liable for the
"Where a person places his indorsement on an resulting loss.
instrument negotiable by delivery he incurs all the -Also, under article 2154 of the New Civil Code "If
liability of an indorser," and under Section 66 of something is received when there is no right to
the same statute a general indorser warrants that demand it and it was unduly delivered through
the instrument "is genuine and in all respects mistake, the obligation to return it arises." There
what it purports to be." Considering that the was, therefore, in contemplation of law, no valid
petitioner indorsed the said checks when it payment of money made by the drawee-banks to
deposited them with the respondent, the the respondent on account of the questioned
petitioner as an indorser guaranteed the checks.
genuineness of all prior indorsements thereon.
The respondent which relied upon the petitioner's
REPUBLIC BANK VS. CA, 1991
Facts: Issue: Who shall bear the loss resulting from the
San Miguel Corporation issued a dividend check for altered check.
P240 in favor of J. Roberto Delgado, a
stockholder. Delgado altered the amount of the Held:
check to P9,240. The check was indorsed and When an indorsement is forged, the collecting bank or
deposited by Delgado with Republic Bank. last indorser, as a generalrule, bears the loss.
Republic Bank endorsed the check to First But the unqualified indorsement of the collecting
National City Bank (FNCB), the drawee bank, by bank on the checkshould be read together with
stamping on the back of the check the 24-hour regulation on clearing house
operation. Thus,when the drawee bank fails to
all prior and / or lack of indorsements return a forged or altered check to the collecting
guaranteed. bank withinthe 24-hour clearing period (as
provided by Section 4c of Central Bank Circular
Relying on the endorsement, FNCB paid the amount 9, asamended), the collecting bank is absolved
to Republic Bank. Later on, San Miguel informed from liability. The drawee bank, FNCB,
FNCB of the material alteration of the amount. shouldbear the loss for the payment of the
FNCB recredited the amount to San Miguels altered check for its failure to detect and warn
account, and demanded refund from Republic RepublicBank of the fraudulent character of the
Bank. Republic Bank refused. Hence, the present check within the 24-hour clearing house rule.
action.
NEGO - Quevedo 17
Camille Umali
On 19 February 1981, the Provincial Treasurer As both banks resisted payment, the Province
requested the manager of the PNB to return all of brought suit against PNB which, in turn,
its cleared checks which were issued from 1977 impleaded Associated Bank as third party
to 1980 in order to verify the regularity of their defendant. The latter then filed a fourth-party
encashment. complaint against Adena Canlas and Fausto
Pangilinan.
After the checks were examined, the Provincial
Treasurer learned that 30 checks amounting to After trial on the merits, the lower court rendered its
P203,300.00 were encashed by one Fausto decision on 21 March 1988, on the basic
Pangilinan, with the Associated Bank acting as complaint, in favor of the Province and against
collecting bank. PNB, ordering the latter to pay to the former, the
sum of P203,300.00 with legal interest thereon
It turned out that Fausto Pangilinan, who was the from 20 March 1981 until fully paid; on the third-
administrative officer and cashier of payee party complaint, in favor of PNB and against
hospital until his retirement on 28 February 1978, Associated Bank ordering the latter to reimburse
collected the checks from the office of the to the former the amount of P203,300.00 with
Provincial Treasurer. legal interests thereon from 20 March 1981 until
fully paid; on the fourth-party complaint, the same
He claimed to be assisting or helping the hospital was ordered dismissed for lack of cause of action
follow up the release of the checks and had as against Adena Canlas and lack of jurisdiction
official receipts. Pangilinan sought to encash the over the person of Fausto Pangilinan as against
first check with Associated Bank. However, the the latter. The court also dismissed the
manager of Associated Bank refused and counterclaims on the complaint, thirdparty
suggested that Pangilinan deposit the check in complaint and fourth-party complaint, for lack of
his personal savings account with the same merit. PNB and Associated Bank appealed to the
bank. Court of Appeals.
Pangilinan was able to withdraw the money when the The appellate court affirmed the trial court's decision
check was cleared and paid by the drawee bank, in toto on 30 September 1992. Hence the
PNB. After forging the signature of Dr. Adena
NEGO - Quevedo 18
Camille Umali
consolidated petitions which seek a reversal of The bank knows him, his address and history
the appellate court's decision. because he is a client. It has taken a risk on his
deposit. The bank is also in a better position to
Issue: Whether PNB was at fault and should solely detect forgery, fraud or irregularity in the
bear the loss because it cleared and paid the indorsement. Hence, the drawee bank can
forged checks. recover the amount paid on the check bearing a
forged indorsement from the collecting bank.
Held:
The present case concerns checks payable to the However, a drawee bank has the duty to promptly
order of Concepcion Emergency Hospital or its inform the presentor of the forgery upon
Chief. discovery. If the drawee bank delays in informing
the presentor of the forgery, thereby depriving
They were properly issued and bear the genuine said presentor of the right to recover from the
signatures of the drawer, the Province of Tarlac. forger, the former is deemed negligent and can
The infirmity in the questioned checks lies in the no longer recover from the presentor.
payee's (Concepcion Emergency Hospital)
indorsements which are forgeries. At the time of Herein, PNB, the drawee bank, cannot debitthe
their indorsement, the checks were order current account of the Province of Tarlac
instruments. Checks having forged indorsements because it paid checks which bore forged
should be differentiated from forged checks or indorsements.However, if the Province of Tarlac
checks bearing the forged signature of the as drawer was negligent to the point of
drawer. substantially contributing to the loss, then the
drawee bank PNB can charge its account. If both
Where the instrument is payable to order at the time drawee bank-PNB and drawer-Province of Tarlac
of the forgery, such as the checks in the case, were negligent, the loss should be properly
the signature of its rightful holder (here, the apportioned between them.
payee hospital) is essential to transfer title to the
same instrument. The loss incurred by drawee bank-PNB can be
passed on to the collecting bank-Associated
When the holder's indorsement is forged, all parties Bank which presented and indorsed the checks
prior to the forgery may raise the real defense of to it. Associated Bank can, in turn, hold the
forgery against all parties subsequent thereto. An forger, Fausto Pangilinan, liable. If PNB
indorser of an order instrument warrants "that the negligently delayed in informing Associated Bank
instrument is genuine and in all respects what it of the forgery, thus depriving the latter of the
purports to be; that he has a good title to it; that opportunity to recover from the forger, it forfeits
all prior parties had capacity to contract; and that its right to reimbursement and will be made to
the instrument is at the time of his indorsement bear the loss. The Court finds that the Province
valid and subsisting." He cannot interpose the of Tarlac was equally negligent and should,
defense that signatures prior to him are forged. therefore, share the burden of loss from the
checksbearing a forged indorsement.
A collecting bank where a check is deposited
andwhich indorses the check upon presentment The Province of Tarlac permitted Fausto Pangilinan to
with the drawee bank, is such an indorser. So collect the checks when the latter, having already
even if the indorsement on the check deposited retired from government service, was no longer
by the banks' client is forged, the collecting bank connected with the hospital. With the exception of
is bound by his warranties as an indorser and the first check (dated 17 January 1978), all the
cannot set up the defense of forgery as against checks were issued and released
the drawee bank. The bank on which a check is afterPangilinan's retirement on 28 February 1978.
drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the After nearly three years, the Treasurer's office was
payee. still releasing the checks to the retired cashier. In
addition, some of the aid allotment checks were
The drawee bank is not similarly situated as the released to Pangilinan andthe others to Elizabeth
collecting bank because the former makes no Juco, the new cashier. The fact that there were
warranty as to the genuineness of any now two persons collecting the checks for the
indorsement. The drawee bank's duty is but to hospital is an unmistakable sign of an irregularity
verify the genuineness of the drawer's signature which should have alerted employees in the
and not of the indorsement because the drawer is Treasurer's office of the fraud being committed.
its client. Moreover, the collecting bank is made
liable because it is privy to the depositor who There is also evidence indicating that the
negotiated the check. provincialemployees were aware of Pangilinan's
retirement and consequent dissociation from the
NEGO - Quevedo 19
Camille Umali
hospital. Hence, due to the negligence of the In effect, the Province of Tarlac can only recover
Province of Tarlac in releasing the checks to an 50% of P203,300.00 from PNB. The collecting
unauthorized person (FaustoPangilinan), in bank, Associated Bank, shall be liable to PNB for
allowing the retired hospital cashier to receive the 50% of P203,300.00. It is liable on its warranties
checks for the payee hospital for a periodclose to as indorser of the checks which were deposited
three years and in not properly ascertaining why by Fausto Pangilinan, having guaranteed the
the retired hospital cashier was collecting checks genuineness of all prior indorsements, including
forthe payee hospital in addition to the hospital's that of the chief of the payee hospital, Dr. Adena
real cashier, the Province contributed to the loss Canlas. Associated Bank was also remiss in its
amounting to P203,300.00 and shall be liable to duty to ascertain the genuineness of the payee's
the PNB for 50% thereof. indorsement.
NEGO - Quevedo 20
Camille Umali
HELD: YES
NEGO - Quevedo 21
Camille Umali
FACTS
SUBJECT: 2 checks for the pretermination of a HELD: NO
money market placement -Under Sec. 23, the general rule is that forged
DRAWER/DRAWEE: BPI signatures are wholly inoperative and payments
PAYEE: Eligia Fernando, impersonated by Susan through such are ineffectual; the exception is
Lopez where the party relying on the forgery is
INDORSMENT: China Banking Corp., collecting bank precluded from setting up the forgery or want of
of the BPI checks authority. The court recognizes negligence of the
-Lopez impersonated Fernando, preterminated the party invoking forgery as an exception; hence
latters money market placement evidenced by a general rule does not apply here. BPI claims the
promissory note (P2,462,243.19) from and clearing guaranty makes CBC wholly liable for
through BPI, who issued her 2 checks. She later forged checks. Records show both BPI (not
opened an account at CBC and endorsed the calling Fernando to confirm pretermination; not
checks there; CBC stamped them with guaranty verifying Fernandos signatures; not asking for
of prior endorsements and/or lack of the promissory note upon pickup of checks) and
endorsement; BPI cleared them. Lopez withdrew CBC (opening account for Lopez with only
nearly the whole amount. The real Fernando Fernandos tax account number as ID, not
came on the maturity date of the placement for questioning Lopez huge deposit and
rollover and claimed forgery of endorsements. withdrawals) were negligent in the
selection/supervision of their employees and thus
ISSUE both liable.
WON in the event that the payees signature is Disposition BPI is liable 60%, CBC is liable 40%
forged, BPI may claim reimbursement from CBC
NEGO - Quevedo 24
Camille Umali
-The applicable law is Section 23 of the NIL which payment against the drawee bank in the course of
provides: normal banking transactions between banks. The
"When a signature is forged or made without the crossed check cannot be presented for payment but it
authority of the person whose signature it purports to can only be deposited and the drawee bank may only
be, it is wholly inoperative, and no right to retain the pay to another bank in the payee's or indorser's
instrument, or to give a discharge therefor, or to account.
enforce payment thereof against any party thereto, can
be acquired through or under such signature, unless 4. NO.
the party against whom it is sought to enforce such Ratio The banking rule banning acceptance of checks
right is precluded from setting up the forgery or want of for deposit or cash payment with more than one
authority." indorsement unless cleared by some bank officials
-General Rule: Forgery is a real or absolute defense does not invalidate the instrument; neither does it
by the party whose signature is forged. A party whose invalidate the negotiation or transfer of the said check.
signature to an instrument was forged was never a In effect, this rule destroys the negotiability of
party and never gave his consent to the contract which bills/checks by limiting their negotiation by indorsement
gave rise to the instrument. Since his signature does of only the payee. Under the NIL, the only kind of
not appear in the instrument, he cannot be held liable indorsement which stops the further negotiation of an
thereon by anyone, not even by a holder in due instrument is a restrictive indorsement which prohibits
course. -This section covers both the forged signature the further negotiation thereof (Sec. 36, NIL). In this
of the maker of a promissory note/drawer of a check kind of restrictive indorsement, the prohibition to
and forged indorsement, i.e., the forged signature of transfer or negotiate must be written in express words
the payee or indorsee of a note or check. at the back of the instrument, so that any subsequent
-Example: If a person's signature is forged as a maker party may be forewarned that it ceases to be
of a promissory note, he cannot be made to pay negotiable. However, the restrictive indorsee acquires
because he never made the promise to pay. Or where the right to receive payment and bring any action
a person's signature as a drawer of a check is forged, thereon as any indorser, but he can no longer transfer
the drawee bank cannot charge the amount thereof his rights as such indorsee where the form of the
against the drawer's account because he never gave indorsement does not authorize him to do so.
the bank the order to pay. -Although the holder of a check cannot compel a
-Exception: Where the drawer is guilty of such drawee bank to honor it because there is no privity
negligence which causes the bank to honor such a between them, as far as the drawer-depositor is
check or checks. concerned, such bank may not legally refuse to honor
-Example: If a check is stolen from the payee, it is a negotiable bill of exchange or a check drawn against
quite obvious that the drawer cannot possibly discover it with more than one indorsement if there is nothing
the forged indorsement by mere examination of his irregular with the bill or check and the drawer has
cancelled check. This accounts for the rule that sufficient funds. The drawee cannot be compelled to
although a depositor owes a duty to his drawee bank accept or pay the check by the drawer or any holder
to examine his cancelled checks for forgery of his own because as a drawee, he incurs no liability on the
signature, he has no similar duty as to forged check unless he accepts it. But the drawee will make
indorsements. A different situation arises where the itself liable to a suit for damages at the instance of the
indorsement was forged by an employee or agent of drawer for wrongful dishonor of the bill or check.
the drawer, or done with the active participation of the
latter. Most of the cases involving forgery by an agent 5. YES. Article 1170 of the New Civil Code provides -
or employee deal with the payee's indorsement. The -Those who in the performance of their obligations are
drawer and the payee oftentimes have business guilty of fraud, negligence or delay, and those who in
relations of long standing. The continued occurrence of any manner contravene the tenor thereof, are liable for
business transactions of the same nature provides the damages."
opportunity for the agent/employee to commit the fraud Reasoning There is no question that there is a
after having developed familiarity with the signatures of contractual relation between petitioner as depositor
the parties. (obligee) and the respondent drawee bank as the
Reasoning In the case at bar, the agent was the one obligor. In the performance of its obligation, the drawee
who perpetrated the series of forgeries. Had the bank is bound by its internal banking rules and
petitioner been more prudent under the circumstances, regulations which form part of any contract it enters
she could have discovered the fraud earlier. into with any of its depositors. When it violated its
internal rules that second endorsements are not to be
3. NO. accepted without the approval of its branch managers
Ratio Issuing a crossed check imposes no legal and it did accept the same upon the mere approval of
obligation on the drawee not to honor such a check. It Boon, a chief accountant, it contravened the tenor of
is more of a warning to the holder that the check its obligation at the very least, if it were not actually
cannot be presented to the drawee bank for payment guilty of fraud or negligence.
in cash. Instead, the check can only be deposited with We hold that banking business is so impressed with
the payee's bank which in turn must present it for public interest where the trust and confidence of the
NEGO - Quevedo 26
Camille Umali
public in general is of paramount importance such that Disposition: REMANDED to the trial court for the
the appropriate standard of diligence must be a high reception of evidence to determine the exact amount of
degree of diligence, if not the utmost diligence. Its loss suffered by the petitioner (which one half must be
liability as obligor is not merely vicarious but primary paid by respondent drawee bank to herein petitioner-
wherein the defense of exercise of due diligence in the 50/50 ratio based on Article 1172).
selection and supervision of its employees is of no
moment.
NEGO - Quevedo 27
Camille Umali
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PICB; FORMERLY INSULAR BANK OF ASIA AND
AMERICA) VS. COURT OF APPEALS [GR 121413, 29 JANUARY 2001]; ALSO FORD PHILIPPINES VS. COURT
OF APPEALS [GR 121479], AND FORD PHILIPPINES V.S CITIBANK N.A. [GR 128604]
Second Division: Quisumbing (J): 4 concur
Citibank Check SN-16508 in the amount of drawer-payor, in the absence of some circumstance
P6,311,591.73, representing the payment of raising estoppel against the drawer. This rule likewise
percentage tax for the first quarter of 1979 and applies to the checks fraudulently negotiated or
payable to the Commissioner of Internal Revenue. diverted by the confidential employees who hold them
in their possession.
Again a BIR Revenue Tax Receipt A-1697160 was
issued for the said purpose. Both checks were Issue [b]: Whether the collecting bank (PCIB) was
"crossed checks" and contain two diagonal lines on negligent in preparing two managers check to
its upper left corner between which were written the replace Citibank Check SN-04867, on orders of
words "payable to thepayee's account only." The persons besides the CIR.
checks never reached the payee, CIR. Thus, in a
letter dated 28 February 1980, theBIR, Region 4-B, Held [b]: YES.
demanded for the said tax payments the Citibank Check SN-04867 was deposited at PCIB
corresponding periods above-mentioned. As far asthe through its Ermita Branch. It was coursed through the
BIR is concerned, the said two BIR Revenue Tax ordinary banking transaction, sent to Central Clearing
Receipts were considered "fake and spurious". with the indorsement at the back "all prior
indorsements and/or lack of indorsements
This anomaly was confirmed by the NBI upon the guaranteed," and was presented to Citibank for
initiative of the BIR. The findings forced Ford to pay payment.
the BIR anew, while an action was filed against
Citibank and PCIBank for the recovery of the amount Thereafter PCIB, instead of remitting the proceeds to
of Citibank Check Numbers SN-10597 and 16508. the CIR, prepared two of its Manager's checks and
enabled the syndicate to encash the same. On
On 9 December 1988, Regional Trial Court of Makati, record, PCIB failed to verify the authority of Mr.
Branch 57, held drawee-bank Citibank liable for the Rivera to negotiate the checks. The neglect of PCIB
value of the two checks while absolving PCIB from employees to verify whether his letter requesting for
any liability. Both Ford and Citibank appealed to the the replacement of the Citibank Check SN-04867 was
Court of Appeals which affirmed, in toto, the decision duly authorized, showed lack of care and prudence
of the trial court. Hence, the petition for review. required in the circumstances.
[1] GRs 121413 and 121479 Furthermore, it was admitted that PCIB is authorized
Issue [a]: Whether the forgery committed by the to collect the payment of taxpayers inbehalf of the
drawer-payors confidential employees precludes BIR. As an agent of BIR, PCIB is duty bound to
Ford from recovering the amount of its checks. consult its principal regarding the unwarranted
instructions given by the payor or its agent.
Held [a]: NO.
Although the employees of Ford initiated the As agent of the BIR, IBAA/PCIB should receive
transactions attributable to an organized syndicate, instructions only from its principal BIR and not from
their actions were not the proximate cause of any other person especially so when that person is
encashing the checks payable to the CIR. The degree not known to IBAA/PCIB. It is very imprudent on the
of Ford's negligence, if any, could not be part of IBAA/PCIB to just rely on the alleged
characterized as the proximate cause of the injury to telephone call of one (Rivera) and in his signature to
the parties. the authenticity of such signature considering that the
Ford is not a client of IBAA/PCIB.
The Board of Directors of Ford did not confirm the
request of Godofredo Rivera to recall Citibank Check [2] GR 128604
SN- 04867. Rivera's instruction to replace the said Issue [a]: Whether PCIB is liable for fraud
check with PCIB's Manager's Check was not in the (embezzlement) committed by PCIB employees while
ordinary course of business which could have the checks were in transit for clearing.
prompted PCIB to validate the same. As to the
preparation of Citibank Checks SN-10597 and 16508, Held [a]: YES.
it was established that these checks were made Even if PCIB had no official act in the ordinary course
payable to the CIR. Both were crossed checks. of business that would attribute to it the case of the
embezzlement of Citibank Check Numbers SN-10597
These checks were apparently turned around by and 16508, because PCIB did not actually receive
Ford's employees, who were acting on their own nor hold the two Ford checks at all; that the switching
personal capacity. Given these circumstances, the operation (involving the checks whilein transit for
mere fact that the forgery was committed by a drawer "clearing") were the clandestine or hidden actuations
payor's confidential employee or agent, who by virtue performed by the members of the syndicate in their
of his position had unusual facilities for perpetrating own personal, covert and private capacity and done
the fraud and imposing the forged paper upon the without the knowledge of PCIB; as a general rule,
bank, does not entitle the bank to shift the loss to the however, a banking corporation is liable for the
NEGO - Quevedo 29
Camille Umali
HELD:
FACTS: Petitioner ought to have known that where a check is
RPN, IBC and BBC were all assessed for tax drawn payable to the order of one person and is
by the BIR. To pay the assessed taxes, they presented for payment by another and purports upon
bought managers checks from petitioner bank. None its face to have been duly indorsed by the payee of
of these checks were paid to the BIR. They the check, it is the primary duty of the petitioner
were found to have been deposited in the account to know that the check was duly indorsed by the
of a third person in Security Bank. As the taxes original payee, and it pays the amount of the check to
remained unpaid, the BIR issued a levy, distraint and the third person, who has forged the signature of the
garnishment against the three networks. An payee, the loss falls upon the petitioner who cashed
action was filed wherein it was decided that the the check. Its only remedy is against the person
networks should be reimbursed for the amounts of the to whom it paid the money.
checks by petitioner bank and the latter in turn, must
be reimbursed by Security Bank. In the appellate It should be further noted that one of the checks was
court, it was held that Traders Bank should be a crossed check. The crossing of the check
the only bank liable. should have put petitioner on guard; it was duty-
bound to ascertain the indorsers title to the
check or the nature of his possession.
NEGO - Quevedo 31
Camille Umali
FACTS ISSUE
-A check was drawn on the Treasurer of the US WON US is barred from recovery
through the Federal Reserve Bank of
Philadelphia to the order of Clair Barner in the HELD: NO
amount of $24.20. -He who presents a check for payment warrants that
-It was dated aat Harrisburg, Pennsylvania and was he has title to it and the right to receive payment.
drawn for the services rendered by Barner to the If he has acquired the check through forged
Works Progress Administration. endorsement, the warranty is breached at the
-The check was placed at the mail addressed to time the check is cashed. The drawees right to
Barner but he did not receive the check. recover accrues when the payment is made.
-Some unknown person obtained it and presented it There is no other barrier to the maintenance of
to JC Penney Co. store representing that he was cause of action. The theory of the drawees
the payee and endorsed the check in the name of responsibility where the drawers signature is
Barner and transferred it to JC Penney Co. in forged is inapplicable here. The drawee, whether
exchange for cash and merchandise. it be the US or another, is not chargeable with the
-JC Penney Co. endorsed the check to Clearfiled knowledge of the signature of the payee.
Trust Co. which accepted it as an agent and -Prompt notice of discovery of forgery was not a
endorsed it as follows: Pay to the order of condition precedent to suit. If it shown that the
Federal Reserve Bank, Prior endorsements drawee on learning of the forgery did not give
guaranteed prompt notice of it and that damages resulted,
-Clearfield collected check from the US and paid the recovery by the drawee is barred.
full amount to JC Penney. -But we do not think that he who accepts a forged
-Neither Clearfield nor JC Penney had any knowledge signature of a payee deserves a preferential
or suspicion of forgery treatment. It is his neglect or error in accepting
-US filed a case against Clearfield based on the the forgers signature which occasions the loss.
express guaranty of prior endorsements made by He should be allowed to shift that loss to the
Clearfield. drawee only upon clear showing that the
-District Court held that the rights of the parties were drawees delay in notifying him of the forgery
to be determined by the law of Pennsylvania and caused him damage. No such damage has been
since the US unreasonably delayed in giving shown by Clearfield.
notice to the forgery to Clearfield, it was barred
from recovery. Circuit CA reversed.
NEGO - Quevedo 34
Camille Umali
presented the check itself and had its face excuse as to how it was lost, that it was
marked and the back thereof. But the check is mixed up with household effects is not
badly mutilated, blotted, torn and partly plausible, considering the fact that it involves
burned, and its condition can best be his life savings, and that before the alleged
appreciated by seeing it. In explanation of the loss, he took extreme pains and precautions
mutilation of the check Montinola told the to save the check from the possible ravages
court that several months after indorsing and of the war, had it photographed, registered
delivering the check to him, Ramos said check with the General Auditing Office
demanded the return of the check to him, and he knew that Ramos, since liberation,
threatening Montinola with bodily harm, even was not after the possession of that check.
death by himself or his guerrilla forces if he 2. NO
did not return said check, and that in order to -If he issued the check as agent of the PNB, then
justify the non-delivery of the document and the bank is not only drawee but also a drawer
to discourage Ramos from getting it back, he of the check, and Montinola evidently is trying
(Montinola) had to resort to the mutilation of to hold PNB liable in that capacity of drawer,
the document. because as drawee alone, inasmuch as the
II. Laya stated that he issued the check only his bank has not yet accepted or certified the
capacity as Provincial Treasurer, and that the check, it may yet avoid payment.
words in parenthesis "Agent, Phil. National -What renders more probable the testimony of
Bank" now appearing under his signature did Laya and Ramos the money for which the
not appear on the check when he issued the check was issued was expressly for the use
same. The words 'Agent, Phil. National Bank' of USAFFE of which Ramos was then
which now appear on the check were not disbursing officer. And upon delivery of
typewritten below his signature when he P400K in emergency notes and the P100K
signed the said check and delivered the same check to Ramos, Laya credited his depository
to Ramos. According to Laya, when he accounts as provincial treasurer with the
issued checks in his capacity as agent of PNB corresponding credit entry. In the normal
Misamis Oriental the said check must be course of events the check could not have
countersigned by the cashier of the said been issued by the bank, and this is borne by
agency -not by the provincial auditor. the fact that the signature of Laya was
Montinola on the other hand said that when countersigned by the provincial auditor, not
he received the check it already bore the the bank cashier.
words 'Agent, Phil. National Bank' below the -said check was issued by the provincial treasurer
signature of Laya and the printed words of Lanao to Ramos who requisitioned the said
'Provincial Treasurer'. funds in his capacity as disbursing officer of
-TC: dismissed the complaint. Montinola the USAFFE. The check is not, in business
appealed directly to this Court because the parlance, 'certified check' or 'cashier's check.'
amount exceeds P50,000 3. NO
-Naturally, Ramos must have known the
procedure followed as to the issuance of
ISSUES checks, namely, that when a check is issued
1. WON the photostatic copy of the check is by the Provincial Treasurer, it is
acceptable given its mutilated condition countersigned by the Provincial Auditor as
2. WON the words, 'Agent, Phil, National Bank' was done on the check. And that if the
were added after Laya had issued the check Provincial Treasurer issues a check as agent
TF issued in the capacity as agent of PNB of the PNB, the check is countersigned not by
3. WON Ramos added or placed those words "in the Provincial Auditor who has nothing to do
his capacity as Provincial Treasurer of with the bank, but by the bank cashier, which
Misamis Oriental" (obviously, not as agent of was not done in this case. It is not likely,
the Bank) below the signature of Laya before therefore, that Ramos had made the insertion
transferring the check to Montinola of the words "Agent, Phil. National Bank"
4. WON there was valid negotiation (P30,000 only after he received the check, because he
indorsed) should have realized that following the
HELD practice already described, the check having
1. NO been issued by Laya as Provincial Treasurer,
-a comparison between the photostatic copy and and not as agent of the bank, and since the
the original check reveals discrepancies check bears the countersignature not of the
between the two. The condition of the check Bank cashier but of the Provincial Auditor,
as it was produced is such that it was the addition of the words "Agent, Phil.
partially burned, partially blotted, badly National Bank" could not change the status
mutilated, discolored and pasted with and responsibility of the bank. It is therefore
cellophane. What is worse is that Montinola's more logical to believe and to find that the
NEGO - Quevedo 37
Camille Umali
addition of those words was made after the only of the amount payable does not operate
check had been transferred by Ramos to as a negotiation of the instrument." Montinola
Montinola. may therefore not be regarded as an
4. NO indorsee. At most he may be regarded as a
-The check was not legally negotiated within the mere assignee of the P30,000 sold to him by
meaning of the Negotiable Instruments Law. Ramos, in which case, as such assignee, he
Section 32 of the same law provides that "the is subject to all defenses available to the
indorsement must be an indorsement of the drawer Provincial Treasurer of Misamis
entire instrument. An indorsement which Oriental and against Ramos.
purports to transfer to the indorsee a part 4) He should have known that a check for such a
only of the amount payable, . . . (as in this large amount of P100K could not have been
case) does not operate as a negotiation of the issued to Ramos in his private capacity but
instrument." Montinola may therefore not be rather in his capacity as disbursing officer of
regarded as an indorsee. At most he may be the USAFFE, and that at the time that Ramos
regarded as a mere assignee of the P30,000 sold a part of the check to him, Ramos was
sold to him by Ramos, in which case, as such no longer connected with the USAFFE but
assignee, he is subject to all defenses already a civilian who needed the money only
available to the drawer Provincial Treasurer of for himself and his family.
Misamis Oriental and against Ramos. 5) Ramos had he retained the check may not now
IN SUMMARY collect its value because it had been issued to
-Montinolas complaint cannot prosper because him as disbursing officer. As observed by the
1) Check long overdue by about 2 1/2 years. It trial court, the check was issued to M. V.
may therefore be considered even then, a Ramos not as a person but M. V. Ramos as
stale check. the disbursing officer of the USAFFE.
2) The insertion of the words "Agent, Phil. Therefore, he had no right to indorse it
National Bank" which converts the bank from personally to plaintiff. It was negotiated in
a mere drawee to a drawer and therefore breach of trust, hence he transferred nothing
changes its liability, constitutes a material to the plaintiff.
alteration of the instrument without the 6) It is absolutely necessary for the court to
consent of the parties liable thereon, and so examine the original in order to see the actual
discharges the instrument. (Section 124 of the alterations supposedly made thereon, and
Negotiable Instruments Law). that should this Court grant the prayer
3) The check was not legally negotiated within the contained in the bank's brief that the check be
meaning of the Negotiable Instruments Law. later referred to the city fiscal for appropriate
Section 32 of the same law provides that "the action, said check may no longer be available
indorsement must be an indorsement of the if the appellant is allowed to withdraw said
entire instrument. An indorsement which document.
purports to transfer to the indorsee a part
BANK OF COMMERCE OF SULPHUR V WEBSTER
70 Okla. 73, 172 942 (1918)
~maia~
delivery discharges the original parties when is altered in any respect, or the remedies or rights
such change is made without their knowledge or of the creditor against the principal in respect
consent thereto, in any way impaired or suspended.
-the reason why the addition of a name to a note as a -the addition of the name of Lizzie to the note,
joint maker, after its issuance, materially alters it, payment of which the guarantors guaranteed,
is because it changes the number of parties and changed the identity of the said note and its
their relative rights, the rate of contribution, and effect and operation, and such alteration being
the character and description of the instrument made without the consent and knowledge of the
-a guarantor is exonerated, except as far as he may guarantors, the guarantors are discharged from
be indemnified by the principal, if by any act of their liability on the guaranty,
the creditor, without the consent of the Disposition Judgment affirmed.
guarantor, the original obligation of the principal
NEGO - Quevedo 39
Camille Umali
3. NO. It was held that the defendant was also guilty allegation of negligence on the part of the
of negligence in paying the check. The sixth in defendant is used only to defeat its claim for relief
sequence of these forgeries was a check with the on account of the plaintiffs negligence.
name of the payee erased and cash written in Disposition The judgment should be reversed, and a
the place thereof. The teller of the defendant who new trial granted.
paid the check and was a witness on its behalf DISSENTING OPINION Since plaintiffs entrusted the
testified that the check showed on its face that work to a competent agent and, as established
the word cash had been written in the place for by evidence, took other precautions, there was
the payees name over an erasure; that it was in evidence to support the finding in their favor. The
such mutilated condition when it was presented rule which imputes to a principal knowledge
to him that, before paying it he required Davis to acquired by his agent rest upon the presumption
indorse upon the check a receipt for its amount. that the latter has disclosed all the material facts
Had Davis been required to obtain the to the former. This presumption does not extend
indorsement or guaranty of the plaintiffs as to its to a fact which, if disclosed would subject the
correctness, the forgeries of Davis would have agent to a prosecution for crime or defeat a
been exposed, and their repetition would not scheme in which he was engaged to defraud his
have occurred.The action brought by plaintiffs employer.
was brought on contract, not on tort for the
NEGO - Quevedo 43
Camille Umali
FACTS
SUBJECT: A check drawn on Wells Fargo Bank by ISSUE
McCormick Co. made payable to order of Albert WON the drawee bank may recover the money it paid
Meyer Co. was altered. The name of the payee
thereon was erased and the name of one Harry HELD: NO
Behling was substituted. -Under Sec. 62, the acceptor, by accepting the
DRAWER: McCormick Steamship Company instrument, engages to pay according to the
DRAWEE: Wells Fargo Bank tenor of his acceptance.
PAYEE: Albert Meyer and Company -It makes for the usefulness and currency of
-Behling, an employee of steamship co., purchased negotiable paper to construe the words
clothes from a store owned by a certain Popkin, according to the tenor of his acceptance as
and offered the check in question as payment. (It referring to the instrument as it was at the time it
is not known how Behling got hold of the check). came into the hands of the acceptor for
The 2 then went to drawee bank to have the acceptance, for he accepts no other instrument
check cashed. After presentment, the drawee other than the one presented to him-the altered
bank certified the check but suggested that form-and it alone he engages to pay.
Popkin, being a depositor of defendant bank, -The presentation of a check to a drawee for payment
should cash it there instead. So defendant bank, is not a negotiation. It involves no warranties as
after the check was presented to it, paid the the drawee is not a holder in due course. A
amount thereof and transmitted it to drawee drawee who has paid the instrument is not a
bank, which in turn paid the amount of the check transferee of title as the last holders indorsement
to defendant bank. does not transfer the check but converts it into a
-Drawer did not discover the alteration until the voucher.
original payee made an inquiry several months -Banking institutions can readily protect themselves
after the check had been paid. Drawer notified against liability on altered instruments either by
drawee. Drawee then notified defendants (Bank qualifying their acceptance or certification or by
of Italy and Popkin) demanding repayment of the relying on forgery insurance and special paper,
amount of the check. Drawee filed action to which will make alterations obvious.
recover the sum. Talo. Sa District Court of Disposition Judgment affirmed
Appeals, talo rin.
*Note: The alteration was made with such skill that it
could not be detected. The person responsible
for the alteration is unknown.
NEGO - Quevedo 45
Camille Umali
which was made an equitable defense by Sec. the common law rule, and that both before and
16. Either possibility would change the common after the adoption of that uniform statute, fraud in
law and protect the holder in due course. the execution was and remained, a real defense.
-In further support of this position it should be noted -The applicable rules under the NIL is stated as:
that the other real defenses are covered by the Although there are some decisions to the
act and broad interpretation of Sec. 55, especially contrary, the weight of authority holds that if a
the last clause under such circumstances as person intending to sign an instrument of an
amount to fraud certainly includes all kinds of entirely different character places his signature to
fraud in factum. Since this is so it is hard to a negotiable instrument not being due to laches
believe that the framers overlooked this particular or negligence on the part of the signor, the latter
defense. The equities are all in favor of such is not liable on the instrument, although it has
interpretation, since the defrauded party really passed into the hands of a bona fide holder for
caused the situation and should be the one to value.
suffer. -Mr. Brannan quoted in the majority opinion approves
-Under the old common law view fraud in Sec. 55 the minority rule.
would be limited to fraud in the inducement and -The many courts and legal writers have not approved
defenses in Sec, 57 restricted to defenses which the rule that fraud in execution, where the maker
were equitable at common law, while fraud in the is not negligent, is a real defense, by blindly
factum would continue to be a real defense following the common law rule. Cogent and
analogous to forgery under Sec. 23. Such is the compelling reasons exist for this approval.
result of a number of cases which have arisen -It must be remembered that NIL is not an entirely
since the NIL, most of which do not cite the act, new statute, nor did it purport to repeal the entire
but there is a strong line of well reasoned cases law of contracts. It purported to codify the law of
contra. merchant and where there was a conflict to adopt
-Freedom from negligence on the part of the makers what was considered to be the better rule. Where
has never been regarded in California in following the NIL has no excess provision, or where its
the common law rule, or made by statute a meaning is ambiguous, cases decided under the
defense, real or personal, against a claim of a law merchant and fundamental rules of contract
holder of a negotiable instrument in due course. If should be looked to in arriving at a proper
the legislature had intended such defense it interpretation.
would undoubtedly have so provided in no -So far as the present problem is concerned, the NIL
uncertain terms, as the courts of this state have has no express provision covering the subject.
not, at any time, recognized such a defense. There are provisions, however which tend to
-It follows that the defendants were not in position to show that the drafter of the act intended fraud in
set up as a defense in this case any equities the execution to be real defense.
existing between them and the Home -Sec. 57 of NIL, Sec. 3138 of the Civil Coe, provides
Improvement Company even if, as found by the that the holder in dues course free from any
court, they were free from negligence in defect of title of prior parties, and free from
executing notes. defenses available prior parties among
Disposition Judgment Reversed. themselves. When a party, without negligence,
signs a document by reason of fraud of another
PETERS (Dissenting) and honestly and reasonably believes it to be
-The type of fraud here involved has been referred to something else other than a negotiable
as fraud in esse contractus, fraud in the factum, instrument, the document, when executed is not
fraud in the inception or fraud in execution, to merely voidable it is void. Fraud of this type is
distinguish it from fraud in the inducement which not a mere defense nor a mere defect of title
is a mere personal defense. At common law the such as referred to in Sec. 57. It is a factor which
cases were practically unanimous that fraud in renders the instrument non-existent as a binding
the execution was a real defense. obligation.
-The overwhelming weight of authority is to the effect Disposition Judgment Affirmed
that the adoption of the NIL in now way changed
NEGO - Quevedo 49
Camille Umali
FACTS (as found by the District Court of Appeals) -A negotiable instrument which is void (as when there
SUBJECT: 2 promissory notes in payment of certain is in fact no contract or there is fraud in the
repairs and renovations to be performed by execution) is not enforceable by a holder in due
payee upon two dwelling houses owned by course in the absence of negligence on the part
makers of the maker.
MAKERS: Sps. Panac, illiterate, unable to read or -A person who cannot read is not always negligent in
write the English language not calling on a third person to read the
PAYEE: Home Improvement Company instrument to him. The question as to his
INDORSEE: C.I.T. Corp, a holder for value in due negligence is one for the jury (that is, the courts)
course to decide.
-Makers were defrauded by payee in the procurement Circumstances showing that makers were not
of the notes. William Hart, agent of the payee, negligent:
gained their trust and confidence and secured -Sps. Panac were illiterate
their signatures to the notes by false -Hart employed high pressure method
representations w/c induced them to believe that -Only contract for repair was read, not the notes
they were signing a contract to repair the houses -Hart insisted an immediate execution
and nothing else. They were ignorant of the fact -Hart brushed aside Mrs. Panacs suggestion that
that they were signing notes, and were not legal advice be obtained
negligent in signing the same. -Witnesses to the signing were all friends of Hart.
Even Krajer, whom makers personally knew
ISSUE couldnt have objected to such fraud since he
WON the defense put up by the makers is a real was promised commission. In fact, it was his
defense, good even against indorsee as a holder apparent acquiescence in the transaction that
in due course served to silent any apprehensions of the
makers.
HELD: YES
NEGO - Quevedo 50
Camille Umali
SMITH V DOTTERWEICH
200 NY 299, 93 NE 985, 33 LRA (NS) 892; 1911
~jonas~
FACTS
-Plaintiff Pavilis filed the action to recover upon an HELD: NO
instrument alleged to be a check transferred to -The check in controversy was an incomplete
plaintiff for value by one C. Hoard who was instrument when stolen and cannot be enforced
named as payee therein. Defendant Farmers in the absence of conduct on the part of the
Union Livestock Commission argues that: (a) drawer creating estoppel.
plaintiff was not HIDC, and (b) the instrument -It is urged that defendant is chargeable with
signed in blank by defendant and having been negligence and is estopped to deny liability. The
stolen from his possession prior to delivery had cases cited are those in which the party sought to
no legal inception or existence as a check. Lower be charged upon a negotiable instrument has
court ruled in favor of plaintiff. Defendant entrusted an instrument signed in blank to an
appealed. agent or some other person who has wrongfully
-It was practice of defendants office manager, who completed and negotiated the instrument; an
was authorized to sign checks, to sign a block of agency or trust was created by means of which
instruments, printed to be used as check at the the fraud was committed and the fact that there
beginning of the business day and deliver the was no authority for completing the instrument
same to the bookkeeper whose regularly duty was otherwise wrongfully dealt with was no
was to complete the instruments as checks and defense.
deliver the same to customers during the -In Linick v AJ Nutting Co: blank check signed by
business day. It was also the practice of such plaintiff was stolen by Rycoff and Silbermann,
office manager to procure the return of such who filled the amount and a fictitious name as
signed instruments not delivered at the close of payee and presented it to drawee bank. They
business day for the purpose of safekeeping and endorsed the name of the payee and transferred
for the purpose of checking or auditing the same. the check to defendant for value who collected
-Around February 1939, one C. Hoard was employed the amount of the check from the bank. Court
by defendant as a bookkeeper and clerk. Hoard held that the check was an incomplete instrument
was expressly authorized by defendant in the and that negligent custody of the check was not
presence of such other bookkeeper to complete borne out by the facts.
and deliver checks only during business hours -Court concludes: If as a result of negligence such
and only for amounts due them as shown by instrument comes into the hands of a holder in
such account of sales. Hoard was not entrusted due course, the latter may recover, yet we cannot
with a key to the defendants office although he say under the facts and circumstances of the
did have access to a key kept in a desk in the instant case that defendant was negligent. The
office in order to unlock the padlock on the inside loss did not result from completion and
of the gate across the counter between negotiation of the check by one entrusted with its
defendants office and the hall. On or about Feb possession, and we are not concerned with a
24, 1939, after the close of the defendants office, breach of duty as between a depositor and
Hoard gained access thereto by unlocking the drawee. It does not appear that defendant
gate across the counter and climbed over the company had reason to mistrust its employee
counter into defendants office and then opened and to anticipate the wrongful taking by him of a
the safe in defendants office by using the check signed in blank, the subsequent
combination which he knew, and w/o defendants completion and negotiation.
knowledge, took certain instruments printed for -The drawer owes the duty to use due care in the
use as checks, blank as to amount, date and execution of checks, but it does not follow as a
payee, which had been signed by defendants legal conclusion that signers of checks in blank
office manager authorized to sign checks, and, in assume the risk of liability in all cases where
one of which instruments Hoard w/o defendants such instruments are wrongfully taken, completed
knowledge or express consent, inserted the date, and negotiated. To hold that a person is negligent
amount and payee. Then Hoard placed his name in having in his possession a check signed in
upon the back of the instrument and delivered the blank would require something more than the
same to plaintiff for value of $102.85. exercise of ordinary care
ISSUE Disposition Judgment of lower court is reversed.
WON the lost check was completed and therefore
giving plaintiff Pavilis title to the instrument
NEGO - Quevedo 53
Camille Umali
FACTS -Not upon negligence: since the paper was stolen and
Plaintiff Linick signed his name to a blank check. the persons guilty of the crime have been
Thereafter Rycoff and Silberman stole the check, convicted. Plaintiff then cannot be charged with
filled in the name of FA Mann as payee and negligence giving rise to an estoppel, unless a
$147.87 as the amount thereof, and presented it man is guilty of negligence in writing his name
to the State Bank, where plaintiff kept his upon a piece of paper which by some possibility
account, and procured it to be certified. may afterwards be stolen from him, which paper
Thereafter they indorsed said check with the comes into the hands of a third person who is an
name of FA Mann and passed it to defendant A.J entire stranger to the transaction, with words
Nutting and Co. for value, who collected the written over the signature which are sufficient in
amount from said bank. Plaintiff, having taken up form to make it a check or note. Actionable
said check from the bank, now sues defendant as negligence involves, first, the existence of a duty;
for money had and received for the amount of the second, the omission to exercise ordinary and
check. reasonable care in connection therewith; and
third, injury resulting in consequence thereof.
ISSUE -Sec. 34 (NIL 15) states: Where an incomplete
WON defendant obtained any title to the check which instrument has not been delivered, it will not, if
as against the plaintiff, was a valid obligation for completed and negotiated, without authority, be a
$147.87. valid contract in the hands of any holder, as
against any person whose signature was placed
HELD: NO thereon before delivery.
-In the case of a commercial paper, when by -The next section in the same act to the effect that
voluntary act a party instructs another with such where the instrument is in the hands of a holder
paper with a blank thereon designed to be filled in due course, a valid delivery thereof by all
up with a stipulated amount, such party is liable parties prior to him so as to make them liable to
to a bona fide holder, of the instrument. As to the him is conclusively presumed must be read with
basis of (plaintiffs) liability, some say that it rests Sec 34 (NIL 15), and this provision does not
upon an implied authority conferred by the maker apply in the case of an incomplete instrument
upon the person to whom it was delivered to fill in completed and negotiated w/o authority.
the blanks, and others upon estoppel by reason -Court concludes: The delivery of a PN by a maker is
of negligence. necessary to a valid inception of a contract. The
-Not upon implied authority: for such doctrine grows possession of such a note by the payee or
out of principal-agent relationship, and theres no indorsee is prima facie evidence of delivery. But if
such relation between a thief and his victims. The it appears that the note has never been actually
rule that the bona fide holder of an incomplete delivered, and that without any confidence, or
instrument, negotiable but for some lack capable negligence, or fault of the maker, but by force
of being supplied, has implied authority to supply and fraud, it was put in circulation, there can be
the omission, and to hold the maker thereon, only no recovery upon it, even when in the hands of
applies when the latter has by his own act, or the an innocent holder. So, defendant did not obtain
act of another, authorized, confided in or invested any title to the check, and cannot recover upon it.
with apparent authority by him, put the instrument Disposition Judgment appealed from must be
in circulation as a negotiable paper. reversed, and a new trial ordered.
NEGO - Quevedo 55
Camille Umali
DOUGHERTY V SALT
227 N.Y. 200, 125 N.E. 94 (1919)
~javi~
LAWLESS V TEMPLE
254 Mass 395, 150 NE 176 (1926)
~iNa~
FACTS ISSUE
-Waddell transacted with Moore Brothers, a firm WON Kilgore is liable for the other check
engaged in the lumber business. As payment for
the lumber he purchased, Waddell drew 2 checks HELD: NO. Section 132 governs.
wroth $350 drawn against Kilgore National Bank. Campos enumerates the ff requisites:
-2 checks were deposited by Moore Brothers in Grand 1)it must be in writing
Saline Bank for collection. A few days later, 2)it must be signed by the drawee, and
Grand Saline notified G.J. Moore that the checks 3) it must not change the implied promise of acceptor
had been returned by Kilgore Bank unpaid. to pay only in money.
-Because of this, G.J. Moore brought Waddell to Acceptance is usually made by writing "accepted" and
Kilgore Bank where Waddell, Moore and the signing immediately below. However, the
cashier of Kilgore Bank had an ORAL drawee's signature alone is NOT sufficient
agreement. Waddell instructed Kilgore bank to -The plain purpose of 132 is to prevent any liability to
pay Moore. The cashier promised Moore the the holder of a check from arising from the bare
payment of said checks once presented again. oral promise of the drawee bank to pay the
On the ledger of the bank in connection with check. In the present case, the liability of Kilgore
Waddell's account, the cashier made the Bank to Moore Brothers depends entirely on the
unsigned notation: "Hold for Moore Brothers BARE ORAL PROMISE of the drawee bank to
$350.00" pay. As we have said, this should have been in
-G.J. Moore ordered Grand Saline to forward the writing (and of course, complying as well with the
checks to Kilgore again. One of the checks was other two requities).
paid. The other, however, was not. This -The notation in the bank's ledger "Hold for Moore
prompted Moore to file suit against Kilgore Bank Brother, $350.00" adds no force to said promise.
to recover amount of the last mentioned unpaid This statement (as opposed to the oral promise
check. to pay) does NOT EVEN make any contract, oral
-TC and Civil Appeals: in favor of Moore Brothers. or written, to pay.
Section 137, to destroy the effect of the decision. unless its return has been demanded, will not
The following proviso was added: "Provided, that amount to an acceptance..."
the mere retention of such bill by the drawee,
COOLIDGE V PAYSON
2 Wheat 66, 4 L. Ed. 185 (1817)
~jojo~
FORTUNADO V CA, Campano, Bautista, Register of Deeds, and National Steel Corporation
GR 78556; 196 SCRA 269; Cruz; April 21, 1991
~giulia~
an ordinary banker's check, the payment is compel redemption but it is not in itself a payment
regarded as sufficient. that relieves the redemption bt is not in itself a
The Court does not, by this decision, sanction the use payment that relieves the redemtioner from his
of check for the payment of obligations over the liiability t pay the redemption price. While the
objection of the creditor. It is just that a check private respondents have properly exercised their
may be used for the exercise of the right of right of redemption, they remain liable for the
redemption, the same being a right and not an payment of the redemption price.
obligation. The tender of a check is sufficient to
MESINA V IAC [Gonong, Go and Uy]
L-70145; Nov. 13, 1986; 145 sCRA 499; Paras
~ajang~
the fraud referred to in Article 1170 of the Civil specific circumstances of the cited cases
Code is the deliberate and intentional evasion of constituted unreasonable time as a matter of law.
the normal fulfillment of obligation. We fail to see -In the case at bar, however, the check involved is not
how the act of the bank in requiring the Spouses an ordinary bill of exchange but a managers
to sign the joint motion to dismiss could constitute check. A managers check is one drawn by the
as fraud. True, the Bank may have been remiss banks manager upon the bank itself. It is similar
in informing Dr. Gueco that the signing of a joint to a cashiers check both as to effect and use. A
motion to dismiss is a standard operating cashiers check is a check of the banks cashier
procedure of the bank. However, this can not in on his own or another check. In effect, it is a bill
anyway have prejudiced Dr. Gueco. It should, of exchange drawn by the cashier of a bank upon
likewise, be noted that in cases of breach of the bank itself, and accepted in advance by the
contract, moral damages may only be awarded act of its issuance. It is really the banks own
when the breach was attended by fraud or bad check and may be treated as a promissory note
faith. The law presumes good faith. with the bank as a maker. The check becomes
the primary obligation of the bank which issues it
3. NO and constitutes its written promise to pay upon
-The Bank would make us hold that petitioner should demand. The mere issuance of it is considered
return the car or its value and that the latter, an acceptance thereof. If treated as promissory
because of its own negligence, should suffer the note, the drawer would be the maker and in
loss occasioned by the fact that the check had which case the holder need not prove
become stale. It is their position that delivery of presentment for payment or present the bill to the
the managers check produced the effect of drawee for acceptance.
payment and, thus, the Bank was negligent in
opting not to deposit or use said check. -Even assuming that presentment is needed, failure to
Rudimentary sense of justice and fair play would present for payment within a reasonable time will
not countenance the Spouses position. result to the discharge of the drawer only to the
-A stale check is one which has not been presented extent of the loss caused by the delay. Failure to
for payment within a reasonable time after its present on time, thus, does not totally wipe out all
issue. It is valueless and, therefore, should not be liability. In fact, the legal situation amounts to an
paid. Under the negotiable instruments law, an acknowledgment of liability in the sum stated in
instrument not payable on demand must be the check. In this case, the Spouses have not
presented for payment on the day it falls due. alleged, much less shown that they or the bank
When the instrument is payable on demand, which issued the managers check has suffered
presentment must be made within a reasonable damage or loss caused by the delay or non-
time after its issue. In the case of a bill of presentment. Definitely, the original obligation to
exchange, presentment is sufficient if made pay certainly has not been erased.
within a reasonable time after the last negotiation
thereof. -It has been held that, if the check had become stale,
it becomes imperative that the circumstances that
-A check must be presented for payment within a caused its non-presentment be determined. In
reasonable time after its issue, and in the case at bar, there is no doubt that the bank
determining what is a reasonable time, regard is held on the check and refused to encash the
to be had to the nature of the instrument, the same because of the controversy surrounding the
usage of trade or business with respect to such signing of the joint motion to dismiss. We see no
instruments, and the facts of the particular case. bad faith or negligence in this position taken by
The test is whether the payee employed such the Bank.
diligence as a prudent man exercises in his own
affairs. This is because the nature and theory Disposition Petition for review is given due course.
behind the use of a check points to its immediate CA decision affirming RTC decision is SET
use and payability. In a case, a check payable on ASIDE. Spouses Gueco is ordered to pay the
demand which was long overdue by about two original obligation amounting to P150,000.00 to
and a half (2-1/2) years was considered a stale the Bank upon surrender or cancellation of the
check. Failure of a payee to encash a check for managers check in the latters possession,
more than ten (10) years undoubtedly resulted in afterwhich, the Bank is to return the subject
the check becoming stale. Thus, even a delay of motor vehicle in good working condition.
one (1) week[27] or two (2) days, under the
NEGO - Quevedo 73
Camille Umali
WACHTEL V ROSEN
248 NY 386, 164 NE 326
~RPR~
FACTS
SUBJECT: a check for $5000 ISSUE
DRAWER: Mitchell, as buyer of an oil property WON Allegheny is liable for the amount under the
DRAWEE: Allegheny Trust Co circumstances
PAYEE: Bulliet, as seller of the the oil property
-the memorandum of agreement of the parties HELD: YES
provided that the 5000 would be given in escrow -the reply of Allegheny that it would honor the check
in evidence of good faith that Mitchell would pay amounted to certification of the bank, thus
the remainder of the purchase price. In the event making it liable
of Mitchells failure to pay, the 5000 would be -the effect of the banks certifying a check at the
forfeited in favor of Buillet. Mitchell made sure request of the holder is to create a new obligation
with Allegheny that it had enough funds. Buillet on the part of the bank to that holder, the amount
then sent a telegram to Allegheny inquiring of the check passes to the credit of the holder,
whether it would honor Mitchells check, and the who is thereafter a depositor to that amount
bank replied through wire that it would. -the obligation of the acceptor is to pay the instrument
-Mitchell did not pay the purchase price. Buillet then according to the tenor of his acceptance. It has
claimed from Allegheny, but the latter refused to been said that an acceptor admits everything
pay because Mitchell had given a stop payment essential to the validity of the bill, and on this
order. Allegheny also insisted that, putting itself ground he cannot, for example, even set up the
in the position of Mitchell, there was no transfer defense of want of consideration between the
of title as to the property being conveyed as there parties.
was failure of consideration, thus it should not be -the acceptor cannot defend on the ground of want of
liable to pay since Mitchell itself would not be consideration between the drawer and the payee
liable to pay. (in effect, Allegheny invoked the Disposition Judgment affirmed (Allegheny liable to
defense available to Mitchell) pay Buillet)
NEGO - Quevedo 76
Camille Umali
FACTS ISSUE
SUBJECT: Checks WON Security Trust Co. was justified in paying the
DRAWER: Mr. Sutter indorsee Mr. Mack the $1000 value of the check
DRAWEE: Security Trust Co.
PAYEE: Mrs. Sutter HELD: YES.
INDORSEE: Mr. Mack -The Bank was justified and legally called upon to
-Mr. Sutter drew a check in favor of his wife on March make payment to Mrs. Sutter upon presentation
25 1922 in the amount of $1000 for which he and demand as against the notice of the maker of
procured the certification of drawee Security the check to stop payment, its obligation under
Trust Co. The check was delivered to his wife in the facts was likewise to make the payment to
consideration of a certain agreement between the indorsee holder Mr. Mack
them concerning their separation. The wife Reasoning: A check may be certified by the bank at
violated said agreement after the delivery of the the request of the payee or the holder, when the
check to her. check is certified at the request of the drawer or
-On March 27, 1922 Mr. Sutter requested that maker before it reaches the hands f the payee
payment be stopped upon the check because of therein named. When such a certification is made
Mrs. Sutters violation of their agreement. Mrs and there is delivery to the payee, under the
Sutter on the same day went to her brother Mr. circumstances and conditions making him a bona
Mack and indorsed the check to him and he fide holder for value, without notice of defects
deposited it in his bank in Philadelphia. therein then the instrument is beyond recall by
-March 30, through the Federal Reserve Bank of the maker as against the payee. He may only do
Philadelphia, the check was presented to so (recall) if the payee is not a bona fide holder
Security Trust Co for payment which was refused for value but has obtained the check by fraud
on ground of payment stopped. Respondent perpetrated by him upon the maker.
told Mr. Sutter that the check was in the hands of -In this case since Mr. Mack is not a holder in due
an innocent third person for value and that unless course, it is necessary to inquire whether the
he indemnified respondent the check would be bank by reason of its certification would have
paid. He refused to indemnify respondent, thus been justified in making payment to Mrs. Sutter
respondent paid the check upon subsequent the payee upon proper presentation of the check
presentment. Mr. Sutter demanded the payment by her notwithstanding the service of notice to
to him of his alleged balance of $1034.41 w/c stop payment by her husband the maker and the
includes the $1000 drawn w/c was refused disclosure by him to the bank of the conditions
except as to balance of $34. upon which the check was obtained by Mrs.
Sutters. There is nothing in the case that indicate
that Mrs Sutter procured the check by any fraud
perpetrated by her to her husband.
NEGO - Quevedo 77
Camille Umali
PNB V PICORNELL
Romualdez; 46 Phil. 716 (1922)
~bry_sj~
1. WON the bank is subject to the defense of partial -As to Bartolome Picornell, he warranted, as drawer
want of consideration. of the bill, that it would be accepted upon proper
2. WON Picornell is not liable on the instrument on presentment and paid in due course, and as it
the theory that he is merely a commissioned was not paid, he became liable to the payment of
agent. its value to the holder thereof, which is the
plaintiff bank. (Sec. 61, Negotiable Instruments
Law.)
HELD -The fact that Picornell was a commission agent
1. NO. of Hyndman, Tavera & Ventura, in the
-The question whether or not the tobacco was worth purchase of the tobacco, does not
the value of the bill, does not concern the plaintiff necessarily make him an agent of the
bank. Such partial want of consideration, if it was, company in its obligations arising from the
does not exist with respect to the bank which drawing of the bill by him. His acts in
paid to Picornell the full value of said bill of negotiating the bill constitute a different contract
exchange. The bank was a holder in due course, from that made by his having purchased the
and was such for value full and complete. The tobacco on behalf of Hyndman, Tavera &
Hyndman, Tavera & Ventura company cannot Ventura. Furthermore, he cannot exempt himself
escape liability in view of section 28 of the from responsibility by the fact of his having been
Negotiable Instruments Law. a mere agent of this company, BECAUSE
The drawee by acceptance becomes liable to the NOTHING TO THIS EFFECT WAS INDICATED
payee or his indorsee, and also to the drawer OR ADDED TO HIS SIGNATURE ON SIGNING
himself. But the drawer and acceptor are the THE BILL. (Sec. 20, Negotiable Instruments
immediate parties to the consideration, and if the Law.)
acceptance be without consideration, the drawer -Concerning the notice to Picornell of the dishonor of
cannot recover of the acceptor. The payee holds the bill, it appears from Exhibit C, which is the
a different relation; he is a stranger to the protest for the non-payment thereof, that a copy
transaction between the drawer and the acceptor, of such protest was sent by mail in good season
and is, therefore, in a legal sense a remote party. addressed to Bartolome Picornell, the
In a suit by him against the acceptor, the presumption, now conclusive, that the latter
question as to the consideration between the received it (secs. 105, 106, Negotiable
drawer and the acceptor cannot be inquired into. Instruments Law), not having been rebutted, or at
The payee or holder gives value to the drawer, least, contradicted. Upon the non-payment of the
and if he is ignorant of the equities between the bill by the drawee-acceptor, the bank had the
drawer and the acceptor, he is in the position of a right of recourse, which it exercised, against the
bona fide indorsee. Hence, it is no defense to a drawer. (Sec. 84, Negotiable Instruments Law.)
suit against the acceptor of a draft which has -The drawee, the Hyndman, Tavera & Ventura
been discounted, and upon which money has company, or its successors, J. Pardo de Tavera,
been advanced by the plaintiff, that the draft was accepted the bill and is primarily liable for the
accepted for the accommodation of the drawer. . value of the negotiable instrument, while the
. ." drawer, Bartolome Picornell, is secondarily liable.
2. NO. However, no question has been raised about this
aspect of the responsibility of the defendants.
NEGO - Quevedo 79
Camille Umali
any party thereto could have been acquired by comply with any of the conditions set forth under this
the petitioner. section will make one's title to the instrument
Reasoning: The petitioner paid the amounts of the defective.
three (3) checks in question to Virginia Boncan -The check for US$90,000.00 was a demand note.
without previously clearing the said checks with the When Miss Boncan the payee of this check,
drawee bank, Philippine National Bank, New York. negotiated the same by depositing it in her account, at
This is contrary to normal or ordinary banking practice the game time informing the bank in writing (copy of
specially so where the drawee bank is a foreign bank her letter is enclosed for ease of reference) that it be
and the amounts involved were large. The drawer of not presented for collection until a later date, Banco
the aforementioned checks was not even a client of Atlantico through its agent teller or cashier should
the petitioner. There is a showing that Virginia Boncan have been put on guard that there was something
enjoyed special treatment from the employees and wrong with the check. The fact that the amount
chiefs of the petitioner's foreign department. It was involved was quite big and it was the payee herself
probably because of this special relationship that the who made the request that the same not be
petitioner, in of the elementary principle that should presented for collection until a fixed date in the future
attend banking transactions, cashed the three (3) was proof of a glaring infirmity or defect in the
checks in question without prior clearances from the instrument. It loudly proclaims, "Take me at your risk."
drawee bank. The interest of the payee was the immediate
-SEC. 52. What constitutes a holder in due course A punishment of the check of which she was the
holder in due course is a holder who has taken the beneficiary and not the deferment of the presentment
instrument under the following conditions: for collection of the same to the drawee bank. This
a. That it is complete and regular on its face; being the case, Banco Atlantico was not a holder in
b. That he became the holder of it before it was due course as defined by Sec. 52 of NIL, because it
overdue, and without notice that it has been was obvious that it had knowledge of the infirmity or
previously dishonored, if such was the fact; defect of the cheek. The fact that the check was
c. That he took it in good faith and for value; honored by claimant bank was proof not only of their
d. That at the time it was negotiated to him he had no gross negligence but a further manifestation of the
notice of infirmity in the instrument or defect in the title special treatment they were according Miss Boncan.
of the person negotiating it. Disposition Decision of Auditor General denying
-All four conditions enumerated under this section claim of petitioner for payment of the three
must concur before a holder can be considered as a checks is affirmed
holder in due course. The absence or failure to
irregularity in the payment of the check, the claim naked and primary question of its liability for
was barred by the statute of limitations having paid a check upon a forged indorsement.
6. McCornacks were guilty of negligence in not Here, the check was paid by the bank without
sooner notifying the bank of the alleged error in inquiry as to the indorsement of Kutsman.
the payment of the check, for the reason that d. McCornack was not negligent. There is no showing
they knew, or should have known, that Halverson that anything had come to his knowledge
was receiving the proceeds of checks turned over respecting Halverson to put him upon inquiry as
to him under similar circumstances, and so to his honesty. Moreover, McCornacks failure to
received the proceeds of the check in question, ascertain that the payee of his check was a
thereby causing loss to the bank. fictitious person did not induce or contribute to
the payment of the check by the bank. The
ISSUE drawer of the check, who, through failure to
WON Central State Bank (drawee) is liable. discover the fraud that is being practiced upon
him, makes a check payable to the order of a
HELD: YES. fictitious payee in ignorance of that fact, stands in
a. A check payable to the order of a fictitious person the same position with reference to the bank
with the knowledge of the drawer is payable to upon which it is drawn as where his check is
bearer. But where the fact that it is payable to a payable to the order of a real person. His
fictitious person is unknown to the drawer, that negligence in so drawing the check is immaterial
bank upon which it is drawn, or paying it, is in no unless directly and proximately affects the
different position than where it pays a check conduct of the bank in paying the check.
payable to a real party upon a forged instrument. e. On Sec.9521 of Code 1924 (Sec.61 of NIL):
McCornack did not know that the payee was This provision would seem to be, not for the benefit of
fictitious; the check was not, therefore, payable to the drawee, nor designed to relieve the drawee of
bearer, and the bank cannot escape liability on the duty to pay out the drawers money in
that ground. accordance with his order, but for the protection
b. Where an impostor represents himself to be of holders of the paper in case the drawee
another, whether the person whom he so refuses to pay. It provides, not only that the
impersonates be a real or fictitious person, and drawer admits the existence of the payee and
procures a check payable to the order of such his capacity to indorse, but that he engages
person, the bank is protected in paying the check that upon dishonor and the necessary
to the impostor, because it made payment to the proceedings thereon he will pay the amount
person to whom the drawer intended it should be to the holder or any subsequent indorser who
made, no matter what name he assumed. But may be compelled to pay it. There is here no
where one represents himself to be the agent of engagement to pay the amount to a drawee
a ficititious person and fraudulently procures the who has honored the check.
delivery to himself of a check payable to the -When the payee is a fictitious person and this is
order of such fictitious person as payee, and unknown to the drawer the statute does not have
secures the payment of the check to himself by the effect to bind the drawer by an indorsement
indorsing the name of the fictitious payee upon it, of the name of the payee by one to whom he did
in the absence of estoppel or negligence on the not intend payment to be made.
part of the drawer, the loss must be borne by the -If the drawee demanded a genuine indorsement, as it
drawee and not by the drawer. was its duty to do before honoring the check,
c. The bank in paying the check was bound to know since there could be no such thing in the case of
at its own risk that the indorsements by which the a fictitious payee, the check would not have been
holder of the check claimed title were genuine. Its honored. In such case, an innocent holder, upon
liability for payment not in accordance with the taking proper steps, would have been protected
direction of the drawer did not depend upon by Sec.9521. The purpose of that section was to
negligence, but upon a violation of its implied protect the innocent holder of dishonored paper-
contract with its depositor. The question WON not the drawee who paid it in violation of duty.
the bank was negligent is immaterial upon the
NEGO - Quevedo 82
Camille Umali
LOZANO V MARTINEZ
146 SCRA 323; Yap; Dec. 18, 1986
~jat~
payment of a debt under the threat of penal contravene public policy. Besides, a check is not a
sanction. contract. Its a commercial instrument used as a
-BP 22 punishes making & issuing a worthless check substitute for money forming part of the banking
and not the non-payment of an obligation. It does not system & thus not entirely free from states regulatory
intend to coerce a debtor to pay his debt. Its power.
punished because of its deleterious effects on the
public interest. It punishes the act not as an offense WON BP 22 denies equal protection of the laws or is
against property, but an offense against public order. discriminatory since it penalizes the drawer of the
-Although the legislature cannot penalize a person for check but not the payee.
non-payment of a debt ex-contractu, it can proscribe -NO. It would be absurd to punish the person
certain acts deemed pernicious & inimical to public swindled. No sense in talking about swindleds
welfare. It is within the police power of the state indispensable participation in the commission of the
(making & issuing of worthless checks is a public crime. Classification per se is valid as long as it is not
nuisance to be abated by the imposition of penal unreasonable/arbitrary.
sanctions). Court cannot question its wisdom. Its
sufficient that there be a reasonable nexus between WON BP 22 constitutes undue/improper delegation of
the means & end. A check is a convenient substitute legislative/executive powers since completion of act is
for currency in commercial & financial transactions dependent on the will of the payee.
due to the assurance that it will be paid upon -NO. What cannot be delegated is the power to
presentation. Central Bank reports show that 1/3 of legislate, or the power to make laws, which means, as
the entire money supply of the country consists of applied to the present case, the power to define the
peso demand deposits (funds against w/c commercial offense sought to be punished and to prescribe the
papers like checks are drawn). Considering these penalty. The power to define the crime and prescribe
facts and that there are approximately 50-80 million the penalty therefore has not been in any manner
pesos worth of bouncing checks per day, we can see delegated to the payee. Nor is the power to enforce
that the State has a legitimate purpose in protecting the statute delegated to the offended party.
checks. Any practice tending to destroy the
confidence in checks should be deterred since it WON BP 22 violates Art. VII Sec. 9(2) of the 1973
would injure trade & commerce, banking system, the Consti w/c prohibits the introduction of the
rd
nations economy & eventually the welfare of the amendments to a bill during the 3 reading.
society & the public interest. It would be mistaken -NO. Although there was confusion among Batasan
charity of judgment to place this felony alongside a Members regarding this matter, a Special Committee
felony committed by an honest man unable to pay his investigated the matter & found that there were
debts. actually no amendments introduced during the 3rd
reading. Amendment in question was made during the
WON BP 22 impairs freedom of contract. 2nd reading.
-NO. The Constitution only protects the freedom to
enter into LAWFUL contracts & not those which
NEGO - Quevedo 84
Camille Umali
PEOPLE V NITAFAN
G.R. No. 75954; Oct 22, 1992; 215 SCRA 79
~kooky~
FACTS will greatly erode the faith the public reposes in the
-Wong was an agent of Limtong Press. Inc. (LPI), a stability and commercial value of checks as currency
manufacturer of calendars. LPI would print sample substitutes, and bring about havoc in trade and in
calendars, then give them to agents to present to banking communities. So what the law punishes is the
customers. The agents would get the purchase orders issuance of a bouncing check and not the purpose for
of customers and forward them to LPI. After printing which it was issued nor the terms and conditions
the calendars, LPI would ship the calendars directly to relating to its issuance. The mere act of issuing a
the customers. Thereafter, the agents would come worthless check is malum prohibitum.
around to collect the payments. Wong, however, had -2 ways of violating BP 22: (1) by making or drawing
a history of unremitted collections, thus his customers and issuing a check to apply on account or for value
were required to issue postdated checks before LPI knowing at the time of issue that the check is not
would accept their purchase orders. sufficiently funded; and (2) by having sufficient funds
-In December 1985, Wong issued 6 postdated checks in or credit with the drawee bank at the time of issue
totaling P18,025.00. These checks were initially but failing to keep sufficient funds therein or credit
intended to guarantee the calendar orders of with said bank to cover the full amount of the check
customers who failed to issue post-dated checks. when presented to the drawee bank within a period of
However, LPI refused to accept the checks as ninety (90) days.
guarantees. Instead, the parties agreed to apply the -The elements of BP 22 under the first situation are:
checks to the payment of Wongs unremitted (1) The making, drawing and issuance of any check to
collections for 1984 amounting to P18,077.07. LPI apply for account or for value; (2) The knowledge of
waived the P52.07 difference. the maker, drawer, or issuer that at the time of issue
-Before the maturity of the checks, Wong told LPI not he does not have sufficient funds in or credit with the
to deposit the checks and promised to replace them drawee bank for the payment of such check in full
within 30 days. However, Wong reneged on his upon its presentment; and (3) The subsequent
promise. On June 5, 1986, LPI deposited the checks dishonor of the check by the drawee bank for
with RCBC. The checks were returned for the reason insufficiency of funds or credit or dishonor for the
account closed. same reason had not the drawer, without any valid
-LPI through counsel notified Wong of the dishonor. cause, ordered the bank to stop payment.
Wong failed to make arrangements for payment within -Wong contends that the 1st element does not exist
5 banking days. Thus, Wong was charged with because the checks were not issued to apply for
violation of BP 22 (bouncing checks law) account or for value since the checks were issued as
-According to Wong, he issued the checks not as guarantee and the obligations they were supposed to
payment for any obligation, but to guarantee the guarantee were already paid. This argument has no
orders of his customers. Although these customers legal basis, for what BP 22 punishes is the issuance
had already paid their respective orders, Wong of a bouncing check and not the purpose for which it
claimed LPI did not return the said checks to him. was issued nor the terms and conditions relating to its
-RTC: guilty. CA: guilty issuance.
-As to the 2nd element, BP 22 creates a presumption
ISSUE juris tantum that the 2nd element prima facie exists
WON Wong should be convicted considering that the when the 1st and 3rd elements of the offense are
checks were issued as guaranty and the present. Thus, the drawers knowledge is presumed
accounts that said checks supposedly from the dishonor. Wong avers that since LPI
guaranteed have already been paid by the deposited the checks 157 days after the Dec 30, 1985
customers maturity date, the presumption of knowledge of lack of
2
funds under Sec2 of BP 22 should not apply to him
HELD: YES -However, an essential element of the offense is
-Wong contends that LPI is not a "holder for value" knowledge on the part of the drawer of the
considering that the checks were deposited by LPI insufficiency of his funds in or credit with the
after the customers already paid their orders. Instead bank. Since this involves a state of mind difficult
of depositing the checks, LPI should have returned
the checks to him. 2 Evidence of knowledge of insufficient funds. -The making, drawing and
-the lowers courts found that although initially issuance of a check payment of which is refused by the drawee because
intended to be used as guarantee for the purchase of insufficient funds in or credit with such bank, when presented within
orders of customers, the checks were eventually used ninety (90) days from the date of the check, shall be prima facie evidence
to settle the remaining obligations of Wong with LPI. of knowledge of such insufficiency of funds or credit unless such maker or
Besides, in Llamado v. Court of Appeals, it was held drawer pays the holder thereof the amount due thereon, or makes
that [t]o determine the reason for which checks are arrangements for payment in full by the drawee of such check within five
issued, or the terms and conditions for their issuance, (5) banking days after receiving notice that such check has not been paid
by the drawee.
NEGO - Quevedo 86
Camille Umali
to establish, the statute itself creates a prima from liability thereon to the extent of the loss
facie presumption Nowhere in said provision caused by the delay. By current banking
does the law require a maker to maintain funds in practice, a check becomes stale after more than
his bank account for only 90 days. Rather, the 6 months or 180 days. LPI deposited the checks
clear import of the law is to establish a prima 157 days after the date of the check. Hence said
facie presumption of knowledge of such checks are not stale. Only the presumption of
insufficiency of funds under the ff conditions: (1) knowledge of insufficiency of funds was lost, but
presentment within 90 days from date of the such knowledge could still be proven by direct or
check, and (2) dishonor of check and failure of circumstantial evidence. Here, LPI did not deposit
maker to make arrangements for payment in full the checks because of the reassurance of Wong
within 5 days after notice that he would issue new checks. Upon his failure
-That the check must be deposited within 90 days is to do so, LPI was constrained to deposit the said
simply one of the conditions for the prima facie checks. After the checks were dishonored, Wong
presumption of knowledge of lack of funds to was duly notified of such fact but failed to make
arise. It is not an element of the offense nor does arrangements for full payment within 5 banking
it discharge Wong from his duty to maintain days thereof. There is sufficient evidence that
sufficient funds in the account Wong had knowledge of the insufficiency of his
-Under Section 186 of NIL: a check must be funds in or credit with the drawee bank at the
presented for payment within a reasonable time time of issuance of the checks.
after its issue or the drawer will be discharged
LIM V PEOPLE
G.R. No. 143231; Davide; Oct 26, 2001
~da~
worthless and the fact of its worthlessness is representing the obligations of Sarangani, Inc., is
known to appellant at the time of their issuance, a only P1,600,000, while the sum total of the twelve
required element under B.P. Blg. 22. This is (12) checks and the remaining fifty-two checks is
because the mere act of issuing a worthless P7,455,000. If we add the P7,455,000 to the
check is malum prohibitum value of the more than three hundred checks,
-The law enumerates the elements of B.P. Blg. 22 to which ALBERTO alleged to have been issued
be (1) the making, drawing and issuance of any also in payment of the said obligation then the
check to apply for account or for value; (2) the total amount of all the replacement checks will be
knowledge of the maker, drawer, or issuer that at P111,476,000.
the time of issue he does not have sufficient -Moreover, records show that the twelve(12) checks
funds in or credit with the drawee bank for the and the other fifty-two (52) checks were issued
payment of the check in full upon its sometime May 1992 and all postdated 1992,
presentment; and (3) the subsequent dishonor of whereas the 330 checks which were submitted to
the check by the drawee bank for insufficiency of prove the fact of payment were all encashed
funds or credit or dishonor for the same reason before the issuance of the said checks. Thus, if
had not the drawer, without any valid cause, full payment was made as early as July 22, 1991,
ordered the bank to stop payment. the date of the last check of the 330 checks, why
-The issuance of the twelve checks and its would ALBERTO issue the twelve (12) checks
subsequent dishonor were admitted by and the fifty-two (52) checks, if not for a
ALBERTO. His defense rests solely on the consideration other than to answer for an
payment of the obligation by Sarangani, Inc. obligation which was already paid. Hence, the
including its interests, which was allegedly 330 checks submitted by the defense did not
accommodated by him. ALBERTO insists that as prove that the twelve checks were not issued for
a guarantor, he merely issued the twelve checks valuable consideration. On the contrary, it
to replace the bad checks that were previously supported the version of the prosecution that the
issued by Sarangani, Inc., and considering that checks were issued for rediscounting and not as
the total amount of the checks encashed by replacements for the bad checks of Sarangani,
ROBERT have exceeded the amount of the bad Inc., as claimed by ALBERTO.
checks including the interest, then the twelve -Further, if indeed it were true as claimed by
checks already lack valuable consideration. ALBERTO that the indebtedness covered by the
-The seven(7) checks issued by Sarangani, Inc. were checks sued upon has been paid, the petitioner
all dated and dishonored in September 1989. The should have redeemed or taken the checks back
twelve (12) checks including the other fifty-two in the ordinary course of business. But the same
(52) checks were all dated November 1992, checks remained in the possession of the
hence the same cannot be a replacement of the complainant who asked for the satisfaction of the
bad checks which were dishonored as far back obligations involved when said checks became
as three years ago.Even the corresponding due, without the petitioner heeding the demand
amount of the checks negates said conclusion. for him to redeem his checks which bounced.
The total amount of the seven (7) checks,
NEGO - Quevedo 88
Camille Umali
MERIZ V PEOPLE
Vitug; 368 SCRA 524 (2001)
~bry_sj~
LAGMAN V PEOPLE
371 SCRA 679; Kapunan; Dec 7, 2001 ~kitik~
HOROWITZ V WOLLOWITZ
59 Misc. 520, 110 NY Supp. 972 (1908)
~marge~
INGALLS V MARSTON
121 Me. 182, 116 Atl. 216 (1922)
~anton~
FACTS
-The note in suit is a promissory note, signed by HELD
defendant Buck, an employee of the Buck 1. YES
Lumber Company, as MAKER then INDORSED Ratio If the note was given to plaintiff bank merely as
by defendant Houston. This note is a renewal of a semblance of collateral security, the result was
another note, also signed by Buck as maker & to effect a scheme to deceive the bank examiner.
indorsed by Houston, which was delivered to If so, it was an illegal transaction, and it is against
plaintiff bank as collateral security for the public policy to permit defendants to rely upon it
indebtedness of the Buck Lumber Company to it. as a defense. In such circumstances, the
-Buck testified that before the note was signed, he defendants are bound as the face of the note
had a talk with F.L. Jones, treasurer of the discloses.
plaintiff bank. Jones told him that the bank Reasoning Transactions with banks are affected with
examiner was expected to visit the bank very an unusual public interest. It is of public
soon, & that he wanted a new note, to be held by importance that all dealings with banks be
the bank as collateral, as he thought that the conducted with integrity & honesty.
indebtedness of the Buck Lumber Company to 2. YES
the bank was larger than the bank examiner Ratio Under the Uniform Act, one who takes a
would like. Jones explained that he was afraid negotiable note as collateral to secure a pre-
not to have some extra collateral to show the existing debt takes for value, even though no
examiner, & that the note would be held only until independent consideration is given. An
the examiner had examined the books & then accommodation party cannot claim the benefit of
returned to either of the defendants. Houston being treated as a surety as against a holder for
testified that he spoke with Buck about signing value, but is liable as if he were financially
the note in suit, & he was told the purpose of the interested in the transaction. It follows that the
note, after which he signed it. liability of the defendants on the note is primary &
-NOTE: the bank examiner is sent by the absolute and that there was no error in the
commissioner of banking & insurance to oversee direction of a verdict against them.
& inspect banks in order to protect the public Reasoning Under the Negotiable Instruments Act,
interest. the previous rule to the effect that, if a holder for
-The receiver of the plaintiff bank (it appears the bank value knew a party had signed for
was subsequently placed in receivership) brought accommodation only he must be treated as a
an action to recover from the defendants, as surety, has been abolished. An accommodation
makers. The trial was by jury, and at the close of party is now primarily & absolutely liable on the
the evidence, a verdict was directed for plaintiff. instrument to a holder for value.
The defendants excepted to the direction of the Sec. 25 provides that xxx an antecedent or pre-
verdict & to the judgment thereon. existing debt constitutes value xxx
Sec. 27 provides that xxx where the holder has a lien
ISSUE/S on the instrument, xxx he is deemed a holder for
1. WON defendants are bound on the note value to the extent of his lien xxx.
2. WON the liability of the defendants is primary & Disposition Judgment affirmed.
absolute
NEGO - Quevedo 94
Camille Umali
GOODMAN V GAUL
244 Mass 528, 138 NE 910 (1923)
~monch~
CLARK V SELLNER
42 Phil. 384 (1921)
~ice~
MAULINI V SERRANO
28 Phil. 640; Moreland; Dec 16, 1914
~rean~
ACUA V VELOSO
50 Phil 241; Street; 1927
~javi~
FACTS
-Xavier is an agent working in Manila of Veloso. ISSUE
Veloso has certain properties in Manila but is WON Veloso is jointly and severably liable with Xavier
based in Cebu. Xavier on his own, is in the
practice of trading real estate as far as his credit HELD: YES
allowed. Xavier wanted to purchase a property in -In this case the accommodating party and the
Legarda for which he lacked P25000 for partial accommodated party unite in making a joint and
purchase. He asked assistance from Veloso. several note to a person who advances the face
They approached Gonzalez and Gonzalez value of the note to one of its makers at the very
agreed to lend the money on two conditions: time of its creation. The consideration for the
1)Xavier and Veloso execute a joint and several note, as regards both makers, was the money
note in the amount lent by Gonzalez; 2) that which the payee advanced to Xavier; and it
Xavier (only) purchases interest which cannot be said that the note was lacking in
Gonzalez had in a mortgage credit on a property consideration as to Veloso because he himself
in Pangasinan. received non of this money. Value was given for
-Acuna sued Veloso and Xavier for the amount in the the note, and this was enough. In equity as
note and interests. TC gave judgment jointly and between Veloso and Xavier, the former is entitled
severally against the defendants. TC having to all the rights of surety, and Xavier is the real
found that Veloso was a mere accommodation debtor; but as to the creditor, both Veloso and
maker as regards Xavier, gave judgment over in Xavier are mere joint and several makers.
favor of Veloso against Xavier for whatever the *however the Court noted that the second mortgage
former should pay upon the judgment, and lastly was already under foreclosure. Thus it held that if
ordered that Veloso be subrogated to the rights the amount received for the foreclosure of such
of the plaintiff Acuna in a mortgage given by property is enough to cover the indebtedness of
Xavier to secure the debt. Xavier and Veloso, Gonzales would thus be fully
-after execution of note, it was found that the Legarda paid and that would end the matter.
property was already encumbered with a *issue of Velosos subrogation (Veloso on appeal
mortgage to another bank. Thus to secure raised the issue of his right to be subrogated to
himself further, Gonzalez asked Xavier to the rights of Gonzalez in case amount after
execute a second mortgage to him upon the foreclosure of Legarda property was not enough)
Legarda property. The encumbrance on the - Veloso's right of subrogation in case enough is not
Legarda property was now 25000 plus 22,070 realized to pay off the whole, must be understood
(1/2 interest in the Pangasinan property) to extend to such proportion of the proceeds of
*Acuna is a transferee of the note executed by Xavier the contemplated foreclosure sale of the
and Veloso. But he is said to be a holder only mortgaged property on Legarda Street as the
and not a holder in due course for although he amount of the note, and interest, bears to the
purchased the note for value, he purchased the entire secured indebtedness.
note 2 years after it fell due. (the court discussed *if hindi nyo maintindihan and feeling nyo kulang sa
the case by putting Gonzalez in the shoes of details, feel free to approach me. Mejo magulo
Acuna. talaga yung case and may stuff na hindi nilagay
si Campos.
NEGO - Quevedo 98
Camille Umali
SADAYA V SEVILLA
L-17845, April 27, 1967; 19 SCRA 924
~mini~
PRUDENCIO V CA
L-34339 July 1, 1986; 143 SCRA 7
~ricky~
FACTS
SUBJECT: Promissory note (PN) for P10,000 payable HELD
to PNB secured by a real estate mortgage on the 1. NO.
property of the Prudencios. Concepcion & Ratio In lending his name to the accommodated
Tamayo Construction Company (Company) had party, the accommodation party is in effect a
a pending contract with the Bureau of Public surety. However, unlike a contract of suretyship,
Works for the construction of the municipal the liability of the accommodation party remains
building of Puerto Princesa, Palawan. As the not only primary but also unconditional to a
Company needed funds for the construction, holder for value such that even if the
Toribio, a relative of the Prudencios and the accommodated party receives an extension of
attorney-in-fact of the Company, prevailed upon the period for payment without the consent of the
the Prudencios to mortgage their property to accommodation party, the latter is still liable for
secure the loan of P10,000 being negotiated with the whole obligation and such extension does not
PNB. They were finally persuaded as Toribio also release him because as far as a holder for value
signed on the day of the signing of the PN a is concerned, he is a solidary co-debtor.
Deed of Assignment (DA) assigning all payments 2. YES.
from the Bureau to the Company in favor of PNB. Ratio Between the immediate parties to a negotiable
MAKER: Jose Toribio as attorney-in-fact of the instrument the parties between whom there is
Company and the Spouses Prudencio as privity the consideration may be inquired into;
accommodation parties. PAYEE: PNB and as to them the only superiority of a bill or
-Unknown to the Prudencios and contrary to the DA, note over other unsealed evidence of debt is that
the Bureau, with the approval of PNB, made 3 it prima facie imports a consideration.
payments totaling P11,234.40 directly to the Reasoning Although as a general rule, a payee may
Company for labor and materials. Another be considered a holder in due course, in this
payment for P5,000 was, however, denied by case, such a rule cannot apply to PNB. Not only
PNB as the loan was already overdue. The was PNB an immediate party or in privy to the
Company abandoned the work and PN, that is, it had dealt directly with the
subsequently, its life as a partnership expired. Prudencios knowing fully well that the latter only
The Bureau rescinded the contract and assumed signed as accommodation makers but more
the work. The Prudencios wrote PNB requesting important, it was the DA executed by the
the cancellation of the mortgage since the Company in favor of PNB which principally
conditions of the contract were changed without moved the Prudencios to sign the PN also in
their knowledge when PNB allowed payment to favor of PNB. Under the terms of the DA, it is
the Company instead of on account of the loan. clear that there are no further conditions which
PNB refused. The trial court ruled for PNB and could possibly alter the agreement without the
ordered the Prudencios to pay jointly and consent of the Prudencios. Yet, PNB approved
severally with the owners of the Company, the Bureaus release of 3 payments directly to the
Concepcion and Tamayo. The CA affirmed. Company in violation of the DA and without
notice to the Prudencios who stood to lose their
ISSUES property once the PN falls due without it having
1. WON the CA erred in holding the Prudencios as been paid because PNB, in effect, waived
solidary co-debtors instead of sureties. payment of the first three releases. PNB cannot
2. WON the CA erred in not holding that the be regarded as having acted in good faith which
Prudencios were released from their obligation is also one of the requisites of a holder in due
when PNB, without their knowledge and consent, course. Thus, the Prudencios can validly set up
changed the tenor and condition of the their personal defense of release from the real
assignment of payments made by the principal estate mortgage against PNB.
debtor and released to such principal debtor Disposition Petition is GRANTED. Decision of the
payments from the Bureau which were more than CA reversed.
enough to wipe out the indebtedness to the PNB.
NEGO - Quevedo 100
Camille Umali
PRATT V HOPPER
12 Cal App.(2d) 291, 55 P. 2d 517 (1936)
~del~
PBCOM V ARUEGO
L-25736, Jan 31, 1981; 102 SCRA 530 ~iNa~
NATURE ISSUES
Appeal from an order of trial court denying motion to set 1. WON Aruego is a mere representative
aside order of default. (Remember requirements to 2. WON Aruego is a primarily liable
set aside default order: failure to answer was due to 3. WON the documents are bills of exchange
FAME and that defendant has meritorious defense.) HELD
The SC found that failure was due to E; but 1. NO
defendant (Aruego) does not have a meritorious -Sec. 20 of NIL says that an agent who does not
defense. disclose his principal is not exempt from liability.
FACTS Aruego did not disclose that he was signing as a
-Involves 22 transactions between Bank and Aruego for representative of PEFC. For failure to disclose his
the printing of defendant's periodical. Defendant principal, Aruego is personally liable.
had a credit accommodation with Bank. The 2. YES
printers would collect the cost of printing from Bank. -Accomodation party = one who signs instrument as
The total amount demanded was P35k. maker, drawer, indorser, without receiving value for
-The instruments were signed: "Jose Aruego (Acceptor) the purpose of lending his name = surety; therefore,
(Sgd.) Jose Aruego" primarily liable.
Aruego's defenses: -The defendant who is a lawyer should not have signed
1. he signed in his capacity as President of Philippine as an acceptor/drawee. In doing so, he became
Education Foundation (PEFC), publisher of the primarily and personally liable for the drafts.
periodical 3. YES
2. he's not a principal obligor, but only an -As long as a commercial paper conforms with the
accommodation party definition of a bill of exchange, that paper is
3. the documents are not legally bills of exchange but considered a bill of exchange. The nature of
only instruments evidencing indebtedness because acceptance is important only in the determination of
payments were made before acceptance the kind of liabilities of the parties involved, but not
in the determination of whether a commercial paper
is a bill of exchange or not.
NEGO - Quevedo 103
Camille Umali
FICK V JONES
185 Wash. 365, 55 P. 2d 334 (1936)
~apple~
GORDON V LEVINE
Morton; 194 Mass. 418, 80 NE 505; (1907)
~rach~
FACTS HELD: NO
SUBJECT: Check dated December 30, 1905, Saturday -Where the drawer, the drawee and the payee of a
DRAWER: Max Levine, defendant check are all in the same city or town, the check should
DRAWEE: Provident Securities & Banking Company be presented for payment before the close of banking
PAYEE: Samuel Gordon, plaintiff hours on the day after its delivery, and its circulation
-Gordons version: Levine asked him not to present the from hand to hand by indorsement does not extend the
check for a couple of days; still, he presented it on time for its presentment. If it is presented and paid
Monday morning and was told there were no funds. afterwards the drawer suffers no harm. But if not
Gordon then passed the check to one Saievitz in presented within the time thus fixed, and there is a loss
payment of a bill. On Tues, Saievitz indorsed it to one it falls not on him but on the holder.
Rootstein who deposited it on Thurs, in the Faneuil Hall -The general rule is that a check must be presented for
National Bank, Boston, for collection. On Friday, that payment within a reasonable time after it is issued.
bank's messenger then went to the bank on which the If it is not so presented and the drawer sustains a
check was drawn, the Provident Securities & Banking loss by reason of the failure of the drawee, he will
Company, and found its doors closed. Hence, with this be discharged from liability to the extent of such
non-payment, Levine should still be liable. loss, continuing liable otherwise. This results from
-Levines version: When the check was drawn, he had the nature of the instrument which though defined
sufficient funds on deposit at the bank to meet it, and in the negotiable instruments act as 'a bill of
continued to maintain such account. The check should exchange drawn on a bank payable on demand' is
have been presented for payment within a reasonable intended for immediate use and not to circulate as a
time -the check in suit should have been presented promissory note, and it consequently would be
before the close of banking hours on Mon, Jan 1. unjust to subject the drawer to the loss if any
-The court refused to instruct the jury that the transfer to resulting from failure to present it for payment within
successive holders would not extend the time, or that a a reasonable time.
presentment on Friday was not within a reasonable -'In determining what is a 'reasonable time' or an
time. Defendant seeks exceptions from this ruling. 'unreasonable time' regard is to be had to the nature of
the instrument, the usage of trade or business, if any,
with respect to such instruments and the facts of the
ISSUE particular case.'
WON there was proper diligence in presentment Disposition Exceptions sustained.
MORRISON V McCARTNEY
30 Mo. 183
~cHa~
FACTS before suit, brought, and within a reasonable time,
SUBJECT: check delivered and transferred on demand, protest, and notice were duly given
Oct.2, 1957 but was presented only on January
1958 HELD: YES
DRAWER: McCartney -The drawer is treated as in some sort of principal
DRAWEE: E.W. Clark & Brothers (C&B) debtor, and he is not discharged by any laches of
PAYEE: Bohn & Co. the holder in not making due presentment thereof,
SUBSEQUENT INDORSEMENTS: Bohn & Co. to or in not giving him notice of the dishonor, unless
Morrison he has suffered some loss or injury thereby, and
-Check was not presented Oct.3 because C&B was then only pro tanto.
closed or stopped payment. On Oct.6, McCartney -The drawer is the principal debtor. The check is the
who previously commenced suits by attachment acknowledgement of a certain sum due. It is an
compromised the suits, settled with the C&B then absolute appropriation of so much money in the
withdrew his deposits with C&B. Morrison only hands of his banker to the holder if the check, and
presented check January 1958, payment refused, there it ought to remain till called for; and unless the
duly protested, notice given to McCartney. drawer actually suffers by the delay, as by the
intermediate failure of his banker, he has no reason
ISSUE to complain of delay not unreasonably protracted. If
WON Morrison was entitled to recover, notwithstanding the holder does so unreasonably delay, he
their failure to present the check on the day after it assumes the risk of the drawees failure, and he
was endorsed to them, upon showing that the may, under circumstances, be deemed to have
drawer sustained no injury by the delay, and that made the check his own to the discharge of the
drawer.
NEGO - Quevedo 105
Camille Umali
FACTS
-Atty. Gullas has a current account with PNB. The HELD
treasurer of the U.S. for the United Veterans 1. YES.
Bureau issued a treasury warrant worth $361 -As a general rule, a bank has a right of set off of the
payable to the order of Sabectoria Bacos. Atty. deposits in its hands for the payment of any
Gullas and Pedro Lopez signed as indorsers of indebtedness to it on the part of the depositor. In
this check. Thereupon, it was cashed by PNB. Louisiana however, the rule is denied and it is held
However, the treasury warrant was dishonored that a bank has no such right without an order from or
by the Insular Treasury, so PNB sent notices by special assent of the depositor. The basis of this
mail to Gullas which could not be delivered to him doctrine is the theory of confidential contracts arising
at that time because he was in Manila. In the from irregular deposits e.g. the deposit of money with
letter, the bank said that in view of the fact that a banker. The court decided to adopt the general rule
the treasury warrant was dishonored, the bank as more in harmony with modern banking practice.
has applied the outstanding balances of his From this premise that PNB had the right, the next
current accounts (worth P509) to the part question is whether the bank properly enforced such
payment of the check. right. The bank mailed the notice of dishonor, but
-When Atty. Gullas went back to Cebu, he received made use of the money standing in hi saccount
the notice of dishonor and immediately paid the without waiting for any action by Gullas. Thus, Gullas
unpaid balance of the treasury warrant. didnt have any notice of the set off when he issued
-However, Atty. Gullas was inconvenieced because of the other checks. It must be noted that Gullas was
this. Check including one for his insurance was merely an indorser of the treasury warrant. As to an
not paid because of lack of funds. Also, indorser, the situation is different, notice should
periodicals in the vicinity gave prominence to this actually have been given to him in order that he might
news, to great mortification of Gullas. protect his interest.
2. YES.
ISSUES: -Atty. Gullas should be awarded nominal damages,
1. WON PNB had right to apply a deposit to debt of P250, because of the premature action of the bank
the depositor to the bank against Gullas, he had no means of protection.
2. WON award for damages should be given to Atty.
Gullas
ARTERBURN V WAKEFIELD
309 Ky. 212, 217 S.W. 2nd 203 (1949)
~RPR~
require that the drawee or acceptor will pay the -It follows that neither presentment nor dishonor was
instrument. necessary in light of the facts pleaded by the
plaintiff and therefore, protest was not required.
BISHOP V DEXTER
2 Conn. 419 (1817)
~eva~
FOX V KROEGER
119 Tex. 511, 35 S.W. (2d) 679 (1931)
~kooky~
IN RE HARNAUGHS ESTATE
320 Pa. 209, 182 Atl. 394 (1936)
FACTS -If the holder receives payment through an agent or
SUBJECT: P/N in the sum of $7,677.17, due April1, the surrounding circumstances show that money
1919 in discharge of the instrument actually reached
MAKER: Decedent his hands he cannot recover merely because he
PAYEE: Flora Moore, administrator of Peyton retains possession of the instrument.
Harbaugh -In this case, there is no testimony on record to show
INDORSEE: Jessie P. Harbaugh agency and therefore appellee, to sustain her
-Peyton, claimant and decedent were all children of position, must show that the indorsee received
Flora Moore. the money in discharge of the note.
-Payment is always an affirmative defense and the
ISSUE burden of proving it rests on the party asserting it.
WON the maker of a negotiable instrument who It must be shown by preponderance of evidence.
makes payment to the payee after the latter, -The auditor and the court below found that the
before maturity, has indorsed the note to another, claimant indorsee holder had received payment
may be relieved of liability on the note if evidence of the note in question.
is received showing that the payee acted as the -April 4, 1919: decedent gave a check to Flora M.
indorsees agent or that payment was in fact Moore for $13, 249. 40 which included the
received by the indorsee. amount due on the note and certain other items
payable by decedent to Flora Moore.
HELD: YES. -The findings of fact of an auditor will not be disturbed
-Payment to the payee of a negotiable instrument unless they are unsupported by the evidence.
when title and possession of the instrument has Disposition Decision affirmed.
passed to another before maturity will not protect
the maker.
NEGO - Quevedo 119
Camille Umali
MANCHESTER V PARSONS
75 W. Va. 93, 84 S.E. 885 (1915)
FACTS -Sec. 119 of the NIL describes how a note may be
SUBJECT: promissory note executed on Sept. 33, discharged. Subsection 4 reads by any other act
1910, for $800. which will discharge a simple contract for the
MAKER: L.W. Parsons payment of money.
PAYEE: Burton & Co. indorsed to Manchester -This provision must be interpreted with reference to
-L.W. Parsons executed his negotiable note on Sept. the general purpose of the NIL. Reading Sec. 4, it
33, 1910, for $800 payable to the order of Burton is apparent that it was never the legislative intent
& Co., 18 months from date, and delivered the to make a radical change in the general law as
same to the payee for value. would be brought by the literal interpretation
-The note was negotiated to Manchester (plaintiff), for argued by Parsons. The legislature did not
value about Nov. 1, 1910. contemplate making so vital a change in the law,
-June 3, 1911: Parsons sold and delivered to the as to permit equities between the original parties
payee some Percheron Colts for $1,675, with the to a negotiable instrument to defeat the title of an
understanding between the parties that this innocent holder for value in due course.
transaction was to pay the note, and the balance -The acts which will discharge a simple contract for
was to be paid for the execution and delivery by payment of money, in order to effect a discharge
Burton & Co. of their note payable to Parsons. of negotiable paper, must be necessarily limited
-Manchester is suing Parsons for payment. Parsons to such acts as relate to and affect the holder of
put up the defense of payment. the paper demanding payment of it. It does not
include a holder in due course.
ISSUE:WON there was discharge (payment) of the -It would injuriously affect the value of commercial
instrument. paper, by putting it on a plane with simple
contracts for the payment of money.
HELD: NO. -The elements constituting what a holder in due
-Negotiable paper in the hands of a holder in due course is, and the rights of an HDC must be
course is not discharged by payment made to his considered in construing Sec. 119. The rights of
transferor, either before or after the transfer. a bona fide assignee of such a note, in due
-The uncontradicted testimony of L.A. Burton (the course, are not affected by the equities of the
surviving partner of Lee Whorton) is that it had maker.
been indorsed to Manchester, for value, on -Payment by Parsons to Burton & Co. before the note
November 1, 1910, and therefore the payment to became due, whether before or after they had
the original holders did not discharge it. The negotiated it, could not defeat collection by an
delivery of the Colts was on June 3, 1911, almost innocent bystander for holder for value who
a year after the indorsement of the note to acquired it in due course.
Manchester. Disposition Judgment is affirmed.
SCHWARTZMAN V POST
94 App. Div. 474, 84 NYS 922, 87 NYS 872 (1903)
FACTS Ratio Subdivision 5 of Section 200 of the Negotiable
-Defendant Post executed a note for $5,000 payable Instruments Law provides that a negotiable
to his own order on demand, indorsed by him, his instrument is discharged when the principal
father and by defendant Postawalsky. The note debtor becomes the holder of the instrument at or
was delivered to plaintiff Schwartzman in after maturity in his own right.
payment of his interest in a partnership of which Reasoning Post was the maker of the note, &
he & Postawalsky were members. primarily liable thereon. It was surrendered to
-Subequently, Post paid $2,750, & a 3rd party paid him, & he became the holder thereof without
$500. The payment was made on the condition fraud or mistake, in his own right.
that the note for $5,000 be surrendered to him. DEFINITIONS:
-Schwartzman sued Post for the balance due on the Holder Sec. 2: Holder means the payee or indorsee
note, but as Post had possession of the same, he of a bill or note who is in possession of it, or the
did not allege that he was the holder thereof. At bearer thereof.
the conclusion of the case, defendant moved to Person Primarily Liable on Instrument Sec. 3: The
dismiss the complaint on the ground that the person primarily liable on an instrument is the
surrender of the note to defendant constituted a person who, by the terms of the instrument, is
discharge thereof. absolutely required to pay the same.
In his own right merely excludes such a case as that
ISSUE of a maker acquiring the instrument in purely a
WON the instrument has been discharged representative capacity.
HELD: YES Disposition Judgment reversed.
NEGO - Quevedo 121
Camille Umali
McGLYNN V GRANSTROM
168 Min 164, 210 NW 892 (1926)
~monch~
McCORMICK V SHEA
99 NY Supp. 467 (1906)
~ice~
FACTS ISSUE
SUBJECT: Promissory Note Who bears the burden of proving the cancellation
MAKER: Thomas Shea without authority?
PAYEE: John McCormick
INDORSER: Annie Shea HELD
-Before maturity Annie Shea as indorser was -A cancellation made unintentionally or under a
cancelled through the representative of the mistake or without the authority of the holder is
attorney of Shea in the presence of McCormick. inoperative; but where an instrument or any
Defendant claims that the cancellation was part signature thereon appears to have been
of their claims against each other while plaintiff cancelled, the burden of proof lies on the party
claims that the cancellation was not authorized who alleges that the cancellation was made
and that there was no consideration for such unintentionally or under a mistake or without
cancellation. Also, plaintiff claims that even if he authority.
did agree, the effect would only be to release the -The burden of proof was with the plaintiff
indorser as a person secondarily liable. Disposition: Judgment affirmed.
ROBERTS V CHAPPELL
63 Ohio Apple 397, 26 NE 2d 930
~rean~
FACTS ISSUE
SUBJECT: Promissory note WON Chappell was discharged
MAKER: George Daily, Audrey Daily, Lewis Daily
PAYEE/INDORSER: Chappell HELD: NO
HOLDER: Roberts -The discharge of a prior party referred to is a
-George Daily, Audrey Daily, Lewis Daily executed a discharge by an act of the holder and not a
note for S237 payable to the order of Chappell. discharge accomplished by operation of law.
The latter indorsed it to Roberts. Upon Reasoning
presentment, the note was dishonored. Roberts - Romero case: discharge in the NIL contemplates
sued Chappell some affirmative act by the holder and does not
-Defense of Chappell: No claim against the estate of contemplate passive conduct. This interpretation
Lewis Daily (now dead) was filed by Roberts. The is in accord with the Ohio law relating to
estate has now been administered and closed. suretyship. Under such law, mere failure to claim
Roberts should have presented the note to the of a creditor against the estate does not
administrator. Since he failed to do so, Chappell discharge the surety. The rule relating to sureties
should be discharged. becomes important since the rights and duties of
-Chappell bases his claim on S8225 of the General sureties correspond to that of indorsers.
Code which says that a person secondarily liable -The words discharge by a prior party must be given
on the instrument is discharged by the discharge its common and accepted meaning. Prior to the
of a prior party. enactment of the law, such meaning refers to a
discharge by an act of the holder and not a
discharge accomplished by operation of law.
NEGO - Quevedo 123
Camille Umali
CORLEY V FRENCH
154 Tenn. 672, 294 S.W. 513 (1927)
~eva~
MAGLIONE V PENTA
266 Mass. 413, 165 N.E. 424 (1929)
~javi~
FACTS
SUBJECT: a note secured by mortgage ISSUE
MAKER/MORTGAGOR: unnamed WON Penta being secondarily liable for the note, is
PAYEE /INDORSER/DEFENDANT/: PENTA discharged from liability in lieu of Magliones
INDORSEE/HOLDER/PLAINTIFF:MAGLIONE agreement with maker-mortgagor
-Penta is a payee of a note secured by mortgage.
Penta indorsed the note and assigned the HELD: YES
mortgage to Maglione. A subsequent foreclosure -If the plaintiff made a valid and binding agreement
(on the mortgage) was instituted by Maglione. with the makers of the note extending the time of
But he dropped the foreclosure suit (mortgagor payment without the knowledge and consent of
paid $300). the surety, the surety is thereby discharged.
-Some months later, Penta inquired of Maglione -As an indorser, Penta was secondarily liable. But the
whether the note and mortgage have been paid. jury found that there was a valid and binding
Maglione said that he had a satisfactory agreement between Maglione and the makers
arrangement with the maker-mortgagor. thereby discharging Penta from his liability.
-Maker defaulted so Maglione sued indorser Penta
-Jury found that Maglione had entered into a valid and
binding agreement with maker to extend deadline
of note
NEGO - Quevedo 125
Camille Umali
it receive the proceeds of the aforesaid loans and sufficient consideration. As observed by the
since no loan was ever released to or received by Court of Appeals, a similar presumption is found
MICO, the corresponding real estate mortgage in Section 24 of the Negotiable Instruments Law
and the surety agreements signed concededly by which provides that every negotiable instrument
the petitioners-sureties are null and void. is deemed prima facie to have been issued for
-The trial court gave credence to the testimonies of valuable consideration and every person whose
herein petitioners and dismissed the complaint signature appears thereon to have become a
filed by PBCom. In ruling for herein petitioners, party for value. Negotiable instruments which are
the trial court said that PBCom failed to meant to be substitutes for money, must conform
adequately prove that the proceeds of the loans to the following requisites to be considered as
were ever delivered to MICO. Hence, inasmuch such a) it must be in writing; b) it must be signed
as no consideration ever passed from PBCom to by the maker or drawer; c) it must contain an
MICO, all the documents involved therein, such unconditional promise or order to pay a sum
as the promissory notes, real estate mortgage certain in money; d) it must be payable on
including the surety agreements were all void or demand or at a fixed or determinable future time;
nonexistent for lack of cause or consideration. e) it must be payable to order or bearer; and f)
The trial court said that the lack of proof as where it is a bill of exchange, the drawee must be
regards the existence of the merchandise named or otherwise indicated with reasonable
covered by the letters of credit bolstered the certainty. Negotiable instruments include
claim of herein petitioners that no purchases of promissory notes, bills of exchange and checks.
the goods were really made and that the letters of Letters of credit and trust receipts are, however,
credit transactions were simply resorted to by the not negotiable instruments. But drafts issued in
PBCom and Chua Siok Suy to accommodate the connection with letters of credit are negotiable
latter in his financial requirements. instruments.
-CA reversed -Private respondent PBCom presented the following
-Petitioners contend that there was no proof that the documentary evidence to prove petitioners credit
proceeds of the loans or the goods under the availments and liabilities: Promissory Notes,
trust receipts were ever delivered to and received Irrevocable letter of credits, drafts, trust receipts.
by MICO. -The above-cited documents presented have not
merely created a prima facie case but have
ISSUE: WON the proceeds of the loans and letters of actually proved the solidary obligation of MICO
credit transactions were ever delivered to MICO and the petitioners, as sureties of MICO, in favor
of respondent PBCom. While the presumption
HELD: YES found under the Negotiable Instruments Law may
-In civil cases, the party having the burden of proof not necessarily be applicable to trust receipts and
must establish his case by preponderance of letters of credit, the presumption that the drafts
evidence. During the trial of an action, the party drawn in connection with the letters of credit have
who has the burden of proof upon an issue may sufficient consideration. Under Section 3(r), Rule
be aided in establishing his claim or defense by 131 of the Rules of Court there is also a
the operation of a presumption, or, expressed presumption that sufficient consideration was
differently, by the probative value which the law given in a contract. Hence, petitioners should
attaches to a specific state of facts. A have presented credible evidence to rebut that
presumption may operate against his adversary presumption as well as the evidence presented
who has not introduced proof to rebut the by private respondent PBCom. The letters of
presumption. The effect of a legal presumption credit show that the pertinent
upon a burden of proof is to create the necessity materials/merchandise have been received by
of presenting evidence to meet the legal MICO. The drafts signed by the
presumption or the prima facie case created beneficiary/suppliers in connection with the
thereby, and which if no proof to the contrary is corresponding letters of credit proved that said
presented and offered, will prevail. The burden of suppliers were paid by PBCom for the account of
proof remains where it is, but by the presumption MICO. On the other hand, aside from their bare
the one who has that burden is relieved for the denials petitioners did not present sufficient and
time being from introducing evidence in support competent evidence to rebut the evidence of
of his averment, because the presumption stands private respondent PBCom. Petitioner MICO did
in the place of evidence unless rebutted. Under not proffer a single piece of evidence, apart from
Section 3, Rule 131 of the Rules of Court the its bare denials, to support its allegation that the
following presumptions, among others, are loan transactions, real estate mortgage, letters of
satisfactory if uncontradicted: a) That there was a credit and trust receipts were issued allegedly
sufficient consideration for a contract and b) That without any consideration.
a negotiable instrument was given or indorsed for
NEGO - Quevedo 127
Camille Umali
ENOCH V BRANDON
New York CA; 249 N.Y. 263, 164 N.E. 45; 1928
~ricky~
FACTS ISSUE
-On 4 different occasions in 1961, De Reny through WON it was the duty of the correspondent banks of
Aurora Carcereny (aka Aurora Gonzales), BPI to take the necessary precaution to ensure
president and Aurora Tuyo, secretary of the that the goods shipped under the covering L/C
corporation, applied to the BPI for 4 irrevocable conformed w/ the item appearing therein TF
commercial letters of credit (L/C) to cover the having failed to do so, no claim for recoupment
purchase of goods such as dyestuffs from their could be had against the defendants
supplier J. B. Distributing Co.
-All the applications of the corporation were approved HELD: NO, defendants are liable for recoupment.
and the corresponding commercial L/C -Under the terms and conditions of their commercial
agreements were executed pursuant to banking L/C agreement with BPI, the defendants agreed
procedures. that BPI shall not be responsible for the
-Under the agreements, the aforementioned officers existence, character, quality, quantity,
bound themselves personally as joint and conditions, packing, value or delivery of the
solidary debtors with the corporation. property purporting to be represented by
-As per bank regulations then in force, De Reny documents; for any difference in character,
delivered to BPI peso marginal deposits as each quality, quantity, condition, or value of the
L/C was opened. property from that expressed in documents, or
-BPI then issued irrevocable commercial L/Cs for partial or incomplete shipment, or failure or
addressed to its correspondent banks in the US omission to ship any or all the property referred
with uniform instructions for them to notify the to in the Credit, as well as for any deviation
beneficiary thereof, JB Distributing Co, that they from instructions, delay, default, or fraud by the
have been authorized to negotiate the latters shipper or anyone else in connection with the
sight drafts up to the amounts mentioned therein, property the shippers or vendors and
if accompanied upon presentation, by full set of ourselves(purchasers) or any of us.
negotiable clean on board ocean bills of lading, -Having agreed to these terms, the defendants have
covering the merchandise appearing on the L/Cs to comply w/ their covenant.
(ie dyestuffs). -But even w/o said stipulation, they are still liable
-Consequently, the corresponding banks debited the because banks, in providing financing in intl
account of BPI w/ them up to the full value of the business transactions such as those entered into
drafts presented by the JB Dist. Co. plus by the defendants, do NOT deal with the property
commission thereon, and thereafter, endorsed to be exported or shipped to the importer but deal
and forwarded all documents to BPI. only with documents (as per Art 10 of the Uniform
-As each of the shipments arrived, De Reny made Customs and Practices for Commercial
partial payments to BPI however, further Documentary Credits Fixed for the 13th
payments were discontinued subsequently as a Congress of Intl Chamber of Commerce)
result of the chemical test wherein it was found -Having proved that there exists a custom in intl
that the goods that arrived in Manila were not banking and financing circles negating any duty
dyestuffs but were colored chalks. on the part of a bank to verify whether what has
-De Reny refused to take possession of the goods so been described in the L/Cs or drafts or shipping
BPI caused them to be deposited w/ a bonded docs actually tallies with what was loaded in the
warehouse and sued De Reny. ship, the defendants are bound by said
-The lower court ordered the defendants to pay BPI established usage.
w/ interest. Disposition Judgment affirmed.
NEGO - Quevedo 132
Camille Umali
SANTAMARIA V HSBC
Bautista-Angelo; 89 Phil. 780 (1951)
~jaja~
that the plaintiff-appellee was not chargeable with in blank, the Bank would still have been justified
negligence in the transaction which gave rise to in believing that R.J. Campos & Co. Inc. had the
this case. title thereto for the reason that it is a well-known
practice that a certificate of stock, indorsed in
ISSUE blank, is deemed quasi negotiable, and as such
WON defendant bank was obligated to inquire who the transferee thereof is justified in believing that
the real owner of the shares represented by the it belongs to the holder and transferor.
certificate of stock was -A mere claim of ownership does not establish the
fact of ownership. The right of the plaintiff in such
HELD: NO. a case would be against the transferor. The fact
-The certificate of stock in question was issued in the that on the right margin of said certificate the
name of the brokerage firmWoo, Uy-Tioco & name of the plaintiff appeared written, granting it
Naftaly and that said indorsement was to be true, cannot be considered sufficient reason
guaranteed by R.J. Campos & Co., Inc., which in to indicate that its owner was the plaintiff
turn indorsed it in blank. This certificate is what is considering that said certificate was indorsed in
known as street certificate. Upon its face, the blank by R.J. Campos & Co., Inc. and was
holder was entitled to demand its transfer into his transferred in due course by the latter to the Bank
name from the issuing corporation. The Bank under their letter of hypothecation. Said indicium
was not obligated to look beyond the certificate to could at best give the impression that the plaintiff
ascertain the ownership of the stock at the time it was the original holder of the certificate.
received the same from R.J. Campos & Co., Inc. Disposition Decision modified in the sense of ordering
for it was given to the Bank pursuant to their the defendant to deliver to the plaintiff certificate
letter of hypothecation. Even if said certificate of stock No. 715
had been in the name of the plaintiff but indorsed
NEGO - Quevedo 134
Camille Umali
CAPCO V MACASAET
L-9088; 189 SCRA 561; Sept 13, 1990
FACTS -TC in favor of Capco. CA reversed.
-Capco was a stockholder, director & executive VP of ISSUE: WON CA erred.
Monte Oro Mineral, a local mining company. HELD: NO. CA did not err.
-He owned shares of capital stock of Monte Oro. It's -Certificates of stocks are considered "quasi-negotiable"
total value was over 565K. instruments. When the owner/shareholder of these
-Capco INDORSED and delivered his 2 stock certificates signs the printed form of sale
certificates (02 and 26) to Macasaet, President of /assignment at the back of every stock certificate
Monte Oro. Macasaet received it with an without filling in the blanks provided for the name of
ACKNOWLEDGMENT RECEIPT wherein he the transferee and name of atty-in-fact, the said
acknowledged that he received said certificates in owner/stockholder, in effect, confers on another all
trust and for safekeeping only to be delivered to the indicia of ownership of said certificates.
Capco ON DEMAND. -In the case at bar, Capco signed the printed form at the
-Capco demanded the return of his certificates. back of both certificates without filling in the blanks.
Macasaet replaced cert 26 with his own. As for the Capco's acts of indorsement and delivery conferred
other certificate, it was returned later than cert26. on Macasaet the right to hold them as though they
Note that both certificates were not returned on were his own. Because of this, there was nothing
demand. irregular about Macasaet delivering the certificates
-Capco filed a complaint saying that because of the to Feliciano for a consideration in connection with
delay, he lost over 300K. the contemplated business tie-up.
-Macasaet said that there was delay because Feliciano, -This is the way to look at the case, notwithstanding the
the person to whom he entrusted the certificates, Acknowledgment Receipt.
failed to return the same.
NEGO - Quevedo 135
Camille Umali
possible the negotiation of the warehouse However, one who secures title to property by
receipts (2) SouthPac knew at the time when it fraudulent misrepresentations may convey good
obtained the title from PNB that its agent title to a bona fide purchaser. The vendor is there
wrongfully delivered the goods to the vendee and stopped to assert its rights.
that the vendee assigned the warehouse receipts -The purchaser whom the act protects is he who is
to BA for value entitled to assume that the carrier has not
delivered the goods and will not thereafter deliver
ISSUE them except to a person who holds the bill of
WON SouthPac could acquire the goods from BA lading.
Reasoning. Here, by its fraudulent representations,
HELD: NO. For BA. the vendee persuaded the delivering carrier to
-It would be contrary to the established law to allow surrender the goods. That delivery was a
Southern Pac, who has purchased his title with conscious, voluntary delivery, induced by fraud,
full knowledge of the facts, to prevail against a true it is, but none the less a delivery consciously
bona fide purchaser, for its act (through its agent) and voluntarily made, a delivery within the
made possible the procurement of the negotiable apparent scope of the plaintiffs agents authority.
warehouse receipts and the sale thereof by the The goods were not stolen; they were not
vendee received by the vendee as a result of a trespass,
Ratio. No owner of merchandise may be deprived of but consent to delivery was fraudulently
title thereto, except by his consent, or by the procured. It follows that the purchaser from the
existence of such facts as will create an estoppel vendee stands in the position of the purchaser
against him to assert his title. A thief can convey from any fraudulent vendee, whose rights by
no title to a bona fide purchaser, nor can a virtue of the doctrine of estoppel are well
trespasser, or other tortuous taker of recognized as being superior to those of the
merchandise, convey a good title thereto. vendor or parties in privity with him.
DUNAGAN V GRIFFIN
CA of Texas, 151 S.W. 2d 250 (1941)
FACTS ISSUE
-Dunagan employed Whitehead to haul beer from WON Griffin acquired rights to the beer
Houston to Big Springs, Texas, and gave him a
check payable to Gulf Brewing Co. as payment HELD: NO
upon receipt of the goods. Whitehead hauled the -Article 5616 of the Uniform Warehouse Receipts Act
beer to Fort Worth for storage in defendant provides that an indorsee of a negotiable receipt
Storage Companys warehouse and received a acquires such title as the indorser or depositor
warehouse receipt in his own name. Defendants had (or the latters ability to convey to a
refused to deliver to plaintiff. Company alleged it purchaser in good faith and for value).
was told Griffin was the owner and holder of the -Griffin, despite his good faith, could acquire no better
receipt; Griffin was interpleaded, filed intervention title than Whitehead, who was in possession of
stating he loaned money to Whitehead and took the beer only by virtue of his contract to transport
the receipt as security in good faith and for value it. Griffin only received such title as Whitehead
($730). Judgment in favor of Griffin. could have conveyed to a purchaser of the goods
in good faith and for value.