TOPIC: PRELIMINARY CONSIDERATION
authority in the US is that postal moneys are not negotiable instruments. The
PHILIPPINE EDUCATION VS SORIANO
Facts:
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post
Office ten (10) money orders of P200.00 each payable to Montinola.
Subsequently, after the teller handed out the money orders to Montinola, he
offered to pay the post office with a private check. Since the private checks
are not accepted as money orders, the teller advised Montinola to see the
Chief of the Money Order Division, herein respondent, but he did not listen
instead he left the building.
On the same day, it was discovered that some of the money orders including
the ones issued to Montinola were reported unpaid. It informed all
postmasters not to pay anyone of the money orders if presented for payment.
Banks were also given such notice however, the Bank of America received a
copy of the notice three days later.
Respondent herein sent a letter to the Bank of America stating that the money
order it received had been found to have been irregularly issued and that the
amount it represented had been deducted from the bank’s clearing account.
On the part of the Bank of America, it debited to the respondent’s account by
means of a debit memo.
Subsequently, Montinola was charged with theft but after was acquitted.
Issue:
Whether the postal money order in question is a negotiable instrument?
Supreme Court:
No.
Ratio:
Since our postal statutes were patterned in the United States, the weight of
reason being is that in establishing and operating a postal money order
system, the government is not engaging in commercial transactions but
merely exercises a governmental power for the public benefit. In this
connection some of the restrictions imposed upon money orders by postal
laws and regulations are inconsistent with the character of negotiable
instruments. For instance, such laws and regulations usually provide for not
more than one endorsement; payment of money orders may be withheld
under a variety of circumstances.
PAL vs CA
Facts:
Amelia Tan was found to have been wronged by PAL. She filed her complaint
in 1967. After ten (10) years of protracted litigation in the Court of First
Instance and the Court of Appeals, Ms. Tan won her case. It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what
the courts have solemnly declared as rightfully hers. Through absolutely no
fault of her own, Ms. Tan has been deprived of what, technically, she should
have been paid from the start, before 1967, without need of her going to court
to enforce her rights. And all because PAL did not issue the checks intended
for her, in her name. Petitioner PAL on the other hand, sought the dismissal
of the case and averred that the obligation was already paid by payment in
check issued to the absconding sheriff satisfying the judgment.
Issue:
Whether the payment made to the absconding sheriff by check in his name
operate to satisfy the judgment debt?
Supreme Court:
No.
Ratio:
The payment to the absconding sheriff by check in his name did not operate
as a satisfaction of the judgment debt. In general, a payment, in order to be
effective to discharge an obligation, must be made to the proper person as
provided by Article 1240 of the Civil Code. Thus, payment must be made to
the obligee himself or to an agent having authority, express or implied, to
receive the particular payment. Payment made to one having apparent
authority to receive the money will, as a rule, be treated as though actual
authority had been given for its receipt. Likewise, if payment is made to one
who by law is authorized to act for the creditor, it will work a discharge. The
receipt of money due on a judgment by an officer authorized by law to accept
it will, therefore, satisfy the debt.
Further, the payment made by the petitioner to the absconding sheriff was not
in cash or legal tender but in checks. The checks were not payable to Amelia
Tan or Able Printing Press but to the absconding sheriff as provided in Article
1249 of the Civil Code. In the absence of an agreement, either express or
implied, payment means the discharge of a debt or obligation in money and
unless the parties so agree, a debtor has no rights, except at his own peril, to
substitute something in lieu of cash as medium of payment of his debt.
Consequently, unless authorized to do so by law or by consent of the obligee,
a public officer has no authority to accept anything other than money in
payment of an obligation under a judgment being executed. Strictly speaking,
the acceptance by the sheriff of the petitioner's checks, in the case at bar,
does not, per se, operate as a discharge of the judgment debt.
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment. A
check, whether a manager's check or ordinary check, is not legal tender, and
an offer of a check in payment of a debt is not a valid tender of payment and
may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by
commercial document is actually realized.
BPI vs SPOUSES ROYECA
Facts:
Respondents executed and delivered to Toyota Shaw a Promissory Note or
P577,008.00 payable in 48 equal monthly installments of P12,021.00, with a
maturity date of August 18, 1997. The Promissory Note provides for a penalty
of 3% for every month or fraction of a month that an installment remains
unpaid. A chattel mortgage of motor vehicle was made by the spouses as
security. Toyota assigned its rights, title and interest to Far East Bank Trust
Company (FEBTC).
The FEBTC alleged that the respondents paid to pay their amortizations and
so it demanded the delivery of the vehicle. The respondents denied and
claimed that they have delivered to the Auto Financing Department of FEBTC
eight (8) postdated checks in different amounts. The respondents further
averred that they did not receive any notice from the drawee banks or from
FEBTC that these checks were dishonored. They explained that, considering
this and the fact that the checks were issued three years ago, they believed in
good faith that their obligation had already been fully paid. The petitioners
contended that delivery of checks does not constitute payment. It points out
that this principle stands despite the fact that there was no notice of dishonor
of the two checks and the demand to pay was made three years after default.
Issue:
Whether the check issued constitute a valid payment?
Supreme Court:
No.
Ratio:
Settled is the rule that payment must be made in legal tender. A check is not
legal tender and, therefore, cannot constitute a valid tender of payment. Since
a negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as payment. Mere
delivery of checks does not discharge the obligation under a judgment. The
obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized.
Further, it should be noted that the petitioner, as payee, did not have a legal
obligation to inform the respondents of the dishonor of the checks. A notice of
dishonor is required only to preserve the right of the payee to recover on the
check. It preserves the liability of the drawer and the indorsers on the check.
Otherwise, if the payee fails to give notice to them, they are discharged from
their liability thereon, and the payee is precluded from enforcing payment on
the check. The respondents, therefore, cannot fault the petitioner for not
notifying them of the non-payment of the checks because whatever rights
were transgressed by such omission belonged only to the petitioner. In this
case, the respondents therefore had to present proof, not only that they
delivered the checks to the petitioner, but also that the checks were
encashed. The respondents failed to do so. Had the checks been actually
encashed, the respondents could have easily produced the cancelled checks
as evidence to prove the same. Instead, they merely averred that they
believed in good faith that the checks were encashed because they were not
notified of the dishonor of the checks and three years had already lapsed
since they issued the checks. Because of this failure of the respondents to
present sufficient proof of payment, it was no longer necessary for the
petitioner to prove non-payment, particularly proof that the checks were
dishonored. The burden of evidence is shifted only if the party upon whom it is
lodged was able to adduce preponderant evidence to prove its claim.
EQUITABLE BANKING CORPORATION EQUITABLE BANKING
CORPORATION
vs. THE HONORABLE THE HONORABLE INTERMEDIATE
APPELLATE COURTand THE EDWARD J. NELL CO.
G.R. No. 74451. May 25, 1988.
Facts:
Casals went to plaintiff Edward J. Nell Company and said that he wants
to buy plaintiff's garrett skidders. He was referred to Javier to negotiate
the payment. When Javier asked for cash payment Casals informed him
that his corporation, Casville Enterprises, Inc., had a credit line with
Equitable Banking Corporation. Javier agreed to have the skidders paid
by way of a domestic letter of credit.
Equitable Bank approved their application for letter of credit but Casals need
P300,000.00 to stand as collateral or marginal deposit in favor of the
bank and another 100,000 to clear the title of the Estrada property as
security. Edward J. Nell. Co. agreed to advance the necessary amount in
order to facilitate the transaction. It issued a check drawn against the
First National City Bank and made payable to the order of Equitable
Banking Corporation.
On August 16, 1976, plaintiff issued a check for P427,300.00, payable
to the 'order of EQUITABLE BANKING CORPORATION A/C CASVILLE
ENTERPRISES, INC.' and drawn against the First National City Bank.
The check did not contain the notation found in the previous check
issued by the plaintiff but the substance of said notation was
reproduced in a covering letter dated August 16, 1976 that went with
the check. The two instrument were sent to defendant bank through
defendant Casals. Plaintiff entrusted the delivery of the check and the
letter to defendant Casals believing that no one, including defendant
Casals, could encash the same as it was made payable to the defendant
bank alone.
Casals immediately deposited it with the bank and the bank teller
accepted it for deposit in Casville's checking account. After depositing
said check Casville then withdrew all the amount deposited. Plaintiff later
on discovered that the checks issued by Casals were dishonored and he
withdrawn the money without paying its obligation. Thus, the plaintiff filed a
case. Casals showed lack of interest in disputing plaintiff's claim by not
appearing in most of the hearings, but they also assigned to plaintiff
the garrett skidder which is an action of clear recognition of their
liability.
ISSUE:
Whether or not petitioner Equitable Banking Corporation is liable to
private respondent Edward J. Nell Co. for the value of the second
check issued by NELL which was made payable
"TO THE ORDER OF EQUITABLE BANKING CORPORATION
A/C OF CASVILLE ENTERPRISES INC."
and which the Bank teller credited to the account of Casville.
Ruling:
SC held that the subject check was equivocal and patently ambiguous.
The the payee ceased to be indicated with reasonable certainty in
contravention of Section 8 of the Negotiable Instruments Law. As
worded, it could be accepted as deposit to the account of the party
named after the symbols "A/C," or payable to the Bank as trustee, or
as an agent, for Casville Enterprises, Inc., with the latter being the
ultimate beneciary. That ambiguity is to be taken contra proferentem
that is, construed against NELL who caused the ambiguity and could
have also avoided it by the exercise of a little more care pursuant to Art.
1377 of the Civil Code.
The check was initially negotiable. The rubber-stamping transversally on the
face of the subject check of the words "Non-negotiable for Payee's
Account Only" between two (2) parallel lines, and "Non-negotiable,
Teller No. 4, August 17, 1986," separately boxed, was made only by
the Bank teller in accordance with customary bank practice, and not by
NELL as the drawer of the check, and simply meant that thereafter the
same check could no longer be negotiated.
NELL's own acts and omissions and its implicit trust in Casals, were the
proximate cause of its own defraudation. The original check was
payable to the order solely of "Equitable Banking Corporation." NELL
changed the payee in the subject check however, to "Equitable Banking
Corporation, A/C of Casville Enterprises Inc.," upon Casals request. It
was NELL's own acts, which put it into the power of Casals and
Casville Enterprises to perpetuate the fraud against it and,
consequently, it must bear the loss. Equitable Banking Corporation is
absolved from any and all liabilities to the private respondent, Edward
J. Nell Company.
TRADERS ROYAL BANK TRADERS ROYAL BANK
vs. COURT OF APPEALS, COURT OF APPEALS, FILRITERS
GUARANTY ASSURANCE CORPORATION
G.R. No. 93397. March 3, 1997.
Facts:
Filriters is the registered owner of CBCI No. D891. Under a deed of
assignment , Filriters transferred CBCI No. D891 to Philippine
Underwriters Finance Corporation (Philnance). Subsequently, Philnance
transferred CBCI No. D891, which was still registered in the name of
Filriters, to appellant Traders Royal Bank (TRB). The transfer was made
under a repurchase agreement dated February 4, 1981, granting
Philnance the right to repurchase the instrument on or before April 27,
Ruling:
1981. When Philnance failed to buy back the note on maturity date, it
executed a deed of assignment, dated April 27, 1981, conveying to
appellant TRB all its rights and title to CBCI No. D891.
NO. The appellate court ruled that the subject CBCI is not a negotiable
instrument, stating that: "As worded, the instrument provides a promise
'to pay Filriters Guaranty Assurance Corporation, the registered owner
Armed with the deed of assignment, TRB then sought the transfer and
hereof.' Very clearly, the instrument is payable only to Filriters, the
registration of CBCI No. D891 in its name before the Security and
registered owner, whose name is inscribed thereon. It lacks the words
Servicing Department of the Central Bank (CB). Central Bank, however,
of negotiability which should have served as an expression of consent
refused to effect the transfer and registration in view of an adverse
that the instrument may be transferred by negotiation."
claim filed by defendant Filriters.

The subject CBCI is not a negotiable instrument in the absence of

Left with no other recourse, TRB led a special civil action for
words of negotiability within the meaning of the negotiable instruments
mandamus against the Central Bank in the Regional Trial Court of
law. A certicate of indebtedness pertains to certicates for the creation
Manila. The suit, however, was subsequently treated by the lower court
and maintenance of a permanent improvement revolving fund, is similar
as a case of interpleader when CB prayed in its amended answer that
to a "bond.” Being equivalent to a bond, it is properly understood as
Filriters be impleaded as a respondent and the court adjudge which of
an acknowledgment of an obligation to pay a fixed sum of money. It is
them is entitled to the ownership of CBCI No. D891.
usually used for the purpose of long term loans.

The pertinent portions of the subject CBCI read:

The Central Bank of the Philippines (the Bank) for
value received, hereby promises to pay to bearer, or
if this Certicate of indebtedness be registered, to
FILRITERS GUARANTY ASSURANCE CORPORATION,
the registered owner hereof, the principal sum of
FIVE HUNDRED THOUSAND PESOS.
Issue:
A reading of the subject CBCI indicates that the same is payable to
FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one
else, thus, discounting the petitioner's submission that the same is a
negotiable instrument, and that it is a holder in due course of the
certificate. The language of negotiability which characterize a negotiable
paper as a credit instrument is its freedom to circulate as a substitute
for money. This freedom in negotiability is totally absent in a certicate of
indebtedness as it merely acknowledges to pay a sum of money to a
specified person or entity for a period of time. Thus, the transfer of the
instrument from Philnance to TRB was merely an assignment, and is
not governed by the negotiable instruments law.

WON the CBCI is a negotiable instrument. ROMEO C. GARCIA vs. DIONISIO V. LLAMAS
 [G.R. No. 154127. December 8, 2003.]
Facts:
Garcia and de Jesus borrowed money from Llamas. They executed a
promissory note wherein they bound themselves jointly and severally to
pay the loan on or before 23 January 1997 with a 5% interest per
month. They failed to pay despite repeated demands. Llamas then filed a
case against Garcia and de Jesus and hired a counsel whom he agreed to
pay 25% of the sum to be recovered from the plaintiffs, plus P2,000.00
for every appearance in court.
Garcia claimed that he assumed no liability under the promissory note
because he signed it merely as an accommodation party for de Jesus
and he is already relieved when de Jesus paid the loan. He also claimed that
the loan reemained unpaid because the check issued by de Jesus bounced.
Issue:
Whether the defense that petitioner was only an accommodation party
had any basis.
Ruling:
Petitioner avers that he signed the promissory note merely as an
accommodation party; and that, as such, he was released as obligor
when respondent agreed to extend the term of the obligation. This
reasoning is misplaced, because the note herein is not a negotiable
instrument. The note reads:
"PROMISSORY NOTE "
P400,000.00
"RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the
sum of FOUR HUNDRED THOUSAND PESOS, Philippine
Currency payable on or before January 23, 1997 at No.
144 K-10 St. Kamias, Quezon City, with interest at the
rate of 5% per month or fraction thereof. "
It is understood that our liability under this loan is jointly
and severally [sic].
"Done at Quezon City, Metro Manila this 23rd day of
December, 1996."
By its terms, the note was made payable to a specific person rather
than to bearer or to order 31 31 — a requisite for negotiability under Act
2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot
avail himself of the NIL's provisions on the liabilities and defenses of
an accommodation party. Besides, a non-negotiable note is merely a
simple contract in writing and is evidence of such intangible rights as
may have been created by the assent of the parties. 32 32 The
promissory note is thus covered by the general provisions of the Civil
Code, not by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner
would be liable for the promissory note. Under Article 29 of Act 2031,
an accommodation party is liable for the instrument to a holder for value
even if, at the time of its taking, the latter knew the former to be only
an accommodation party. The relation between an accommodation party
and the party accommodated is, in effect, one of principal and surety —
the accommodation party being the surety. 33 33 It is a settled rule that
a surety is bound equally and absolutely with the principal and is
deemed an original promisor and debtor from the beginning. The liability
is immediate and direct.

Topic: Negotiability
Salas vs CA
Facts:
Juanita Salas bought a motor vehicle from Violago Motor Sales Corporation
(VMS) for P58, 138.20 as evidenced by a promissory note. The note was
subsequently indorsed to Filinvest. Salas defaulted in her installments
allegedly due to a discrepancy in the vehicle delivered to her and those
indicated in the sales invoice, certificate of registration and deed of chattel
mortgage. Failure of Salas to pay prompted Filinvest to initiate a case for a
sum of money against her in the RTC.
RTC ordered Salas to pay Filinvest the sum of P28, 414.40 with interest.
Salas appealed to CA on the ground that VMS committed fraud and bad faith
in delivering a different vehicle to Salas.
CA modified RTC’s decision only to the amount Salas was to pay Filinvest.
CA further held that when an action or defense is founded upon a written
instrument, copied or attached to the corresponding pleading, the
genuineness and due execution of the instrument shall be deemed admitted
unless the adverse party, under oath, specifically denied them and sets forth
what he claims to be facts.
Salas filed motion for reconsideration but was denied hence the current
petition alleging that no contract existed between her and VMS and therefore
non had been assigned in favor of Filinvest.
Issues:
Whether the promissory note in question is a negotiable instrument which will
bar completely all the available defenses of the Salas against Filinvest.
Ruling:
The promissory note is a negotiable instrument.
Instrument in order to be considered negotiable must contain the so-called
"words of negotiability — i.e., must be payable to "order" or "bearer"". Under
Section 8 of the Negotiable Instruments Law, there are only two ways by
which an instrument may be made payable to order. There must always be a
specified person named in the instrument and the bill or note is to be paid to
the person designated in the instrument or to any person to whom he has
indorsed and delivered the same. Without the words "or order or "to the order
of", the instrument is payable only to the person designated therein and is
therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the
advantages of being a holder of a negotiable instrument, but will merely "step
into the shoes" of the person designated in the instrument and will thus be
open to all defenses available against the latter.
A careful study of the questioned promissory note shows that it is a negotiable
instrument, having complied with the requisites under the law as follows: [a] it
is in writing and signed by the maker Juanita Salas; [b] it contains an
unconditional promise to pay the amount of P58,138.20; [c] it is payable at a
fixed or determinable future time which is "P1,614.95 monthly for 36 months
due and payable on the 21 st day of each month starting March 21, 1980 thru
and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales
Corporation, or order and as such, [e] the drawee is named or indicated with
certainty.
Accordingly, Filinvest holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves,
and may enforce payment of the instrument for the full amount thereof. This
being so, Salas cannot set up against Filinvest the defense of nullity of the
contract of sale between her and VMS.
Rivera vs Sps. Chua
Facts:
Rivera obtained a loan from the Spouses Chua. In the promissory note,
Rivera promised “to pay Spouses Salvador and Violeta Chua the sum of
P120, 000.00 on December 31, 1995”.
In October 1998, almost three years from the date of payment stipulated in
the promissory note, Rivera, as partial payment for the loan, issued and
delivered to the Spouses Chua, as payee, a check. On 21 December 1998,
the Spouses Chua received another check presumably issued by Rivera.
Upon presentment for payment, the two checks were dishonored for the
reason “account closed.” As of 31 May 1999, the amount due the Spouses
Chua was pegged at P366,000.00 covering the principal of P120,000.00 plus
five percent (5%) interest per month from 1 January 1996 to 31 May 1999.
Spouses Chua alleged that they have repeatedly demanded payment from
Rivera to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses
Chua filed a suit in June 1999.
MeTC ruled in favor Spouses Chua. RTC affirmed the MeTC. CA affirmed
RTC.
Rivera alleged that there was no demand for payment prior to the
encashment. That demand was necessary in order to charge him liable. And
that it was a grave error for the CA to apply Sec. 70 of the NEgotibale
Instruments Law.
Hence the present petition.
Issues:
Whether or not the Negotiable Instruments Law is applicable to Rivera’s
promissory note.
Ruling:
No, the promissory note is not a negotiable instrument this the Negotiable
Instruments Law does not apply in this case. Section 1 of the NIL requires the
concurrence of the following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
Section 184 of the NIL defines what negotiable promissory note as a
negotiable promissory note within the meaning of this Act is an unconditional
promise in writing made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable future time, a sum
certain in money to order or to bearer. Where a note is drawn to the maker’s
own order, it is not complete until indorsed by him. The Promissory Note in
this case is made out to specific persons, herein respondents, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua as
payees. However, even if Rivera’s Promissory Note is not a negotiable
instrument and therefore outside the coverage of Section 70 of the NIL which
provides that presentment for payment is not necessary to charge the person
liable on the instrument, Rivera is still liable under the terms of the Promissory
Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls
due and becomes demandable—31 December 1995. Rivera had already
incurred in delay when he failed to pay the amount of P120,000.00 due to the
Spouses Chua on 31 December 1995 under the Promissory Note. Promissory
Note expressly provided that after 31 December 1995, default commences
and the stipulation on payment of interest starts.
PNB v. RODRIGUEZ
FACTS:
Spouses Rodriguez maintained a savings and demand/checking accounts
with petitioners Philippines National Bank (PNB). They were engaged in the
informal lending business and had a discounting arrangement with the
Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees, which likewise maintained current and
savings accounts with petitioner bank. PEMSLA regularly granted loans to its
members. Spouses Rodriguez would rediscount the postdated checks issued
to members whenever the association was short of funds. As was customary,
the spouses would replace the postdated checks with their own checks issued
in the name of the members.
It was PEMSLA’s policy not to approve applications for loans of members with
outstanding debts. To subvert this policy, some PEMSLA officers devised a
scheme to obtain additional loans despite their outstanding loan accounts.
They took out loans in the names of unknowing members, without the
knowledge or consent of the latter. The PEMSLA checks issued for these
loans were then given to the spouses for rediscounting. The officers carried
this out by forging the indorsement of the named payees in the checks. In
return, the spouses issued their personal checks (Rodriguez checks) in the
name of the members and delivered the checks to an officer of PEMSLA. The
PEMSLA checks, on the other hand, were deposited by the spouses to their
account. Meanwhile, the Rodriguez checks were deposited directly by
PEMSLA to its savings account without any indorsement from the named
payees. This usual irregular procedure is made possible through the
facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in
the PNB Branch.
The spouses issued 69 checks, in the total amount of P2,345,804.00,
payable to 47 members of PEMSLA. After finding out such fraudulent act,
PNB closed the current account of PEMSLA. As a result, the PEMSLA checks
deposited by the spouses were returned or dishonored for the reason
“Account Closed.” The corresponding Rodriguez checks, however, were
deposited as usual to the PEMSLA savings account. The amounts were duly
debited from the Rodriguez account. Thus, because the PEMSLA checks
given as payment were returned, spouses Rodriguez incurred losses from the
rediscounting transactions. Spouses Rodriguez sued PEMSLA and PNB.
They contended that because PNB credited the checks to the PEMSLA
account even without indorsements, PNB violated its contractual obligation to
them as depositors. PNB paid the wrong payees, hence, it should bear the
loss. Trial court ruled in favor of spouses and ordered PNB to pay. CA
affirmed the decision. Hence this petition
Issue: Whether or not PNB can be made liable to pay the amount of checks
which were deposited to the PEMSLA savings account.
Held: A bank that regularly processes checks that are neither payable to the
customer nor duly indorsed by the payee is apparently grossly negligent in its
operations. This Court has recognized the unique public interest possessed
by the banking industry and the need for the people to have full trust and
confidence in their banks.
For this reason, banks are minded to treat their customer’s accounts with
utmost care, confidence, and honesty. In a checking transaction, the drawee
bank has the duty to verify the genuineness of the signature of the drawer and
to pay the check strictly in accordance with the drawer’s instructions, i.e., to
the named payee in the check. It should charge to the drawer’s accounts only
the payables authorized by the latter.
Otherwise, the drawee will be violating the instructions of the drawer and it
shall be liable for the amount charged to the drawer’s account. Rodriguez
checks are payable to order since the bank failed to prove that the named
payees therein are fictitious. Hence, the fictitious-payee rule which will make
the instrument payable to bearer does not apply. PNB accepted the 69
checks for deposit to the PEMSLA account even without any indorsement
from the named payees. It bears stressing that order instruments can only be
negotiated with a valid indorsement.
San Miguel Corp. v. Puzon
FACTS:
Puzon was a dealer of San Miguel Corporation (SMC). Puzon purchased
SMC products on credit. SMC requires him to issue postdated checks
equivalent to the value of the products purchased to ensure payment. The
checks are to be return to Puzon once he settles his credit. In one instance,
Puzon went to SMC Sales Office and allegedly requested to see particular
checks that he gave to SMC. When he got hold of them, he allegedly
immediately left the office with the checks. SMC demanded for the return of
the checks which Puzon ignored. As such, SMC filed a complaint against him
for theft. The prosecutor however found no probable cause for theft because
of SMC and Puzon’s relationship as one of creditor-debtor and recommended
dismissal. Hence, this petition.
ISSUE/S: 1. Was there probable cause for theft?
HELD: 1. None. One of the essential elements of theft is the taking of a
personal property belonging to another. A such, it is necessary to ascertain
whether the ownership of the checks were transferred to SMC. If SMC owns
the checks, then there is probable cause for theft, otherwise, there is none.
According to the Sec. 12 of the NIL, the person to whom an instrument is
delivered acquires the title to it. The delivery mentioned in Sec. 12 must be
read in conjunction with Sec. 16 of the NIL which says that the delivery must
be for the purpose of giving effect to the instrument. Since the checks were
given merely as security and not as payment for the credit, then the checks
were not delivered so as to give effect to them. As such, ownership was not
transferred to SMC. Hence, the checks that Puzon allegedly took were not
properties belonging to another. Consequently, there is no probable cause for
theft. Prepared by: Daniel John A. Fordan
State Investment House, Inc., petitioner vs. Court of Appeals and Nora
B. Moulic, respondents
G.R. No. 101163, January 11, 1993
Facts:
Private respondet Nora B. Moulic issued to Corazon Victoriano, as
security for pieces of jewelry to be sold on commission, two post-dated
Equitable Banking Corporation checks in the amount of 50,000.00 each, one
dated August 30 and the other September 30. Thereafter, the payee
negotiated the checks to petitioner State Investment House, Inc.
Moulic failed to sell the pieces of jewelry, so she returned them to the
payee before maturity of the checks. The checks, however, could no longer
be retrieved as they had already been negotiated. Consequently, before their
maturity dates, MOULIC withdrew her funds form the drawee bank. Upon
presentment for payment, the checks were dishonored for insufficiency of
funds. On December 20, 1979, STATE allegedly notified MOULIC of the
dishonor of the checks and requested that it be paid in cash instead, although
MOULIC avers that no such notice was given her.
STATE sued to recover the value of the checks plus attorney’s fees
and expenses of litigation. MOULIC contends that she incurred no obligation
on the checks because the jewelry was never sold and the checks were
negotiated without her knowledge and consent. She also instituted a Third-
Party Complaint against Corazon Victoriano, who later assumed full
responsibility for the checks.
Trial Court dismissed the Complaint as well as the Third-Party
Complaint, and ordered STATE to pay MOULIC P3,000.00 for attorney’s fees.
CA affirmed the trial court on the ground that the Notice of Dishonor of
MOULIC was made beyond the period prescribed by the Negotiable
Instruments Law.
Issue:
1. Whether or not State Investment House, Inc. was a holder of the
check in due course.
2. Whether or not Moulic can set up against the petitioner the defense
that there was a failure or absence of consideration.
Held:
1. Yes, Section 52 of the NIL provides what constitutes a holder in due
course. The evidence shows that: on the faces of the post-dated checks were
complete and regular; that State Investment House Inc. bought the checks
from Victoriano before the due dates; that it was taken in good faith and for
value; and there was no knowledge with regard that the checks were issued
as security and not for value. A prima facie presumption exists that a holder of
a negotiable instrument is a holder in due course. Moulic failed to prove the
contrary.
2. No, Moulic can only invoke this defense against the petitioner if it
was a privy to the purpose for which they were issued and therefore is not a
holder in due course. The post-dated checks were merely issued as security
is not a ground for the discharge of the instrument as against a holder in due
course. Section 119 of NIL provides how an instruments be discharged.
Moulic can only invoke paragraphs c and d as possible grounds for the
discharge of the instruments. Since Moulic failed to get back the possession
of the checks as provided by paragraph c, intentional cancellation of
instrument is impossible. As provided by paragraph d, the acts which will
discharge a simple contract of payment of money will discharge the
instrument. Correlating Article 1231 of the Civil Code which enumerates the
modes of extinguishing obligation, none of those modes outlined therein is
applicable in the instant case. Thus, Moulic may not unilaterally discharge
herself from her liability by mere expediency of withdrawing her funds from
the drawee bank. She is thus liable as she has no legal basis to excuse
herself from liability on her check to a holder in due course. Moreover, the fact
that the petitioner failed to give notice of dishonor is of no moment. The need
for such notice is not absolute; there are exceptions provided by Sec 114 of
NIL.
Philippine National Bank vs. Concepcion Mining Company, Inc. Et-al
G.R. No. L-16968, July 31, 1962
Facts:
The present action was instituted by the plaintiff to recover from the
defendants the face of a promissory note. Upon filing of the compliant the
defendants presented their answer in which they allege that the co-maker the
promissory note Don Vicente L. Legarda died on February 24, 1946 and his
estate is in the process of judicial determination in Special Proceedings No.
29060 of the Court of First Instance of Manila.
On the basis of the allegation, it is prayed, that the estate of said
deceased Vicente L. Legarda be included as party defendant. The court in its
decision ruled that the inclusion of said defendant is unnecessary and
immaterial, in accordance with the provisions of Article 1216 of the Deny Civil
Code and section 17 (g) of the Negotiable Instruments Law.
A motion to reconsider this decision was denied and thereupon
defendants presented a petition for relief, asking that the effects of the
judgment be suspended for the reason that the deceased Vicente L. Legarda
should have been included as a party-defendant and his liability should be
determined in pursuance of the provisions of the promissory note. This motion
for relief was also denied, hence defendant appealed to this Court.
Issue:
Whether or not the plaintiff can recover the sum of money from the
defendants jointly or severally in the face of a promissory note.
Held:
Yes. In Sec. 17 (g) of the Negotiable Instruments Law provides as
follows.
SEC. 17. Construction where instrument is ambiguous. Where the language
of the instrument is ambiguous or there are omissions therein, the following
rules of construction apply.
(g) Where an instrument containing the word “I promise to pay” is signed by
two or more persons, they are deemed to be jointly and severally liable
thereon.
In view of the above quoted provisions, and as the promissory note
was executed jointly and severally by the same parties, namely, Concepcion
Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee
of the promissory note had the right to hold any one or any two of the signers
of the promissory note responsible for the payment of the amount of the note.
The judgement of the lower court should be affirmed.