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NEGO CASES FULL TEXT (WEEK 2)

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner, vs. SIMA WEI and/or LEE KIAN HUAT, MARY
CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL

FACTS

The antecedent facts of this case are as follows:

In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and delivered to the
former a promissory note, engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on or before June
24, 1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of
P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn against
China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935,
for the amount of P500,000.00. The said checks were allegedly issued in full settlement of the drawer's account
evidenced by the promissory note. These two checks were not delivered to the petitioner-payee or to any of its
authorized representatives. For reasons not shown, these checks came into the possession of respondent Lee Kian
Huat, who deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of
respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch
Manager of the Balintawak branch of Producers Bank, relying on the assurance of respondent Samson Tung, President
of Plastic Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank to accept the
checks for deposit and to credit them to the account of said Plastic Corporation, inspite of the fact that the checks were
crossed and payable to petitioner Bank and bore no indorsement of the latter. Hence, petitioner filed the complaint as:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a sum of money against
respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation
(Plastic Corporation for short) and the Producers Bank of the Philippines, on two causes of action: (1) To enforce
payment of the balance of P1,032,450.02 on a promissory note executed by respondent Sima Wei on June 9, 1983; and
(2) To enforce payment of two checks executed by Sima Wei, payable to petitioner, and drawn against the China
Banking Corporation, to pay the balance due on the promissory note.

ISSUE: WON the undelivered checks in the instant case may be enforce against any person who became a party
thereto prior to its completion?

HELD: NO. The allegations of the petitioner in the original complaint show that the two (2) China Bank checks, numbered
384934 and 384935, were not delivered to the payee, the petitioner herein. Without the delivery of said checks to
petitioner-payee, the former did not acquire any right or interest therein and cannot therefore assert any cause of
action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other
respondents.

Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner
Bank under the loan evidenced by the promissory note agreed to by her. Her allegation that she has paid the balance of
her loan with the two checks payable to petitioner Bank has no merit for, as We have earlier explained, these checks
were never delivered to petitioner Bank. And even granting, without admitting, that there was delivery to petitioner Bank,
the delivery of checks in payment of an obligation does not constitute payment unless they are cashed or their value is
impaired through the fault of the creditor. 6 None of these exceptions were alleged by respondent Sima Wei.

However, insofar as the other respondents are concerned, petitioner Bank has no privity with them. Since petitioner Bank
never received the checks on which it based its action against said respondents, it never owned them (the checks) nor
did it acquire any interest therein. Thus, anything which the respondents may have done with respect to said checks
could not have prejudiced petitioner Bank. It had no right or interest in the checks which could have been violated by said
respondents. Petitioner Bank has therefore no cause of action against said respondents, in the alternative or otherwise.

All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere
fact that he has done these does not give rise to any liability on his part, until and unless the check is delivered to the
payee or his representative. A negotiable instrument, of which a check is, is not only a written evidence of a contract right
but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the
grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding
contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part: Every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.
The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the
business custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the
amount payable and the drawer's signature. Thus, the payee of a negotiable instrument acquires no interest with respect
thereto until its delivery to him. 3Delivery of an instrument means transfer of possession, actual or constructive, from one
person to another. 4 Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on
the instrument. Moreover, such delivery must be intended to give effect to the instrument.

In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's complaint is AFFIRMED
insofar as the second cause of action is concerned. On the first cause of action, the case is REMANDED to the trial court
for a trial on the merits, consistent with this decision, in order to determine whether respondent Sima Wei is liable to the
Development Bank of Rizal for any amount under the promissory note allegedly signed by her.

SO ORDERED.
G.R. Nos. L-25836-37 January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee, vs. JOSE M. ARUEGO, defendant-appellant.

FACTS:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the Court of First Instance of Manila, Branch
XIII, in Civil Case No. 42066 denying his motion to set aside the order declaring him in default, 1and from the order of said court
in the same case denying his motion to set aside the judgment rendered after he was declared in default. 2 These two appeals of
the defendant were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.

On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M. Aruego Civil Case No. 42066 for the
recovery of the total sum of about P35,000.00 with daily interest thereon from November 17, 1959 until fully paid and commission
equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorney's fees equivalent to 10% of the total amount due and
costs. 6 The complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of action referring to twenty-two
(22) transactions entered into by the said Bank and Aruego on different dates covering the period from August 28, 1950 to March
14, 1951. 7 The sum sought to be recovered represents the cost of the printing of "World Current Events," a periodical published
by the defendant. To facilitate the payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus,
for every printing of the "World Current Events," the printer, Encal Press and Photo Engraving, collected the cost of printing by
drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an added security for the
payment of the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also required defendant Aruego to
execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to
sell the same with the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment
of all obligations arising from the draft.

Aruego received a copy of the complaint together with the summons on December 2, 1959. 9 On December 14, 1959 defendant
filed an urgent motion for extension of time to plead, and set the hearing on December 16, 1959. 10 At the hearing, the court
denied defendant's motion for extension. Whereupon, the defendant filed a motion to dismiss the complaint on December 17,
1959 on the ground that the complaint states no cause of action because:

a) When the various bills of exchange were presented to the defendant as drawee for acceptance, the amounts thereof had
already been paid by the plaintiff to the drawer (Encal Press and Photo Engraving), without knowledge or consent of the
defendant drawee.

b) In the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an accommodating party only
for the drawer (Encal Press and Photo-Engraving) and WON be liable in the event that the accommodating party (drawer) fails to
pay its obligation to the plaintiff. The complaint was dismissed.

The failure then of the defendant to file his answer on the last day for pleading is excusable. The order setting aside the dismissal
of the complaint was received at 5:00 o'clock in the afternoon. It was therefore impossible for him to have filed his answer on that
same day because the courts then held office only up to 5:00 o'clock in the afternoon. Moreover, the defendant immediately filed
his answer on the following day. However, while the defendant successfully proved that his failure to answer was due to
excusable negligence, he has failed to show that he has a meritorious defense. The defendant does not have a good and
substantial defense.

Defendant Aruego's defenses consist of the following:

a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a representative capacity, as the then
President of the Philippine Education Foundation Company, publisher of "World Current Events and Decision Law Journal,"
printed by Encal Press and Photo-Engraving, drawer of the said bills of exchange in favor of the plaintiff bank;

b) The defendant signed these bills of exchange not as principal obligor, but as accommodation or additional party obligor, to add
to the security of said plaintiff bank. The reason for this statement is that unlike real bills of exchange, where payment of the face
value is advanced to the drawer only upon acceptance of the same by the drawee, in the case in question, payment for the
supposed bills of exchange were made before acceptance; so that in effect, although these documents are labelled bills of
exchange, legally they are not bills of exchange but mere instruments evidencing indebtedness of the drawee who received the
face value thereof, with the defendant as only additional security of the same.

The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine Education
Foundation Company where he is president. Section 20 of the Negotiable Instruments Law provides that "Where the instrument
contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent
or as filing a representative character, without disclosing his principal, does not exempt him from personal liability."
The defendant also contends that he signed the drafts only as an accommodation party and as such, should be made liable only
after a showing that the drawer is incapable of paying.

ISSUE: WON Jose Arguego is merely signing as an agent and may escape personal liability in the instant case?

WON he signs the drafts only as an accommodation party and should be made liable only after showing that
the drawer is incapable of paying?

HELD:

The court ruled in negative. An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that
he was signing as a representative of the Philippine Education Foundation Company. 34 He merely signed as follows: "JOSE
ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally liable for the drafts he
accepted. In accordance with Sec. 20 “Where the instrument contains or a person adds to his signature words indicating that he
signs for or on behalf of a prinicipal, or in a representative capacity, he is not liable on the instrument if he was duly authorized
but the mere addition of words describing him as an agent, or filling a representative character without disclosing his principal,
does not exempt him from personal liability.”

This second contention is also without merit. An accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on
the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only
an accommodation party. 35 In lending his name to the accommodated party, the accommodation party is in effect a surety for the
latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another. In
the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable.
Thus, if the defendant who is a lawyer, he should not have signed as an acceptor/drawee. In doing so, he became primarily and
personally liable for the drafts.

The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of evidence of
indebtedness because payments were made before acceptance. This is also without merit. Under the Negotiable Instruments
Law, a bill of exchange is an unconditional order in writting addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money
to order or to bearer. 36 As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered
a bill of exchange. The nature of acceptance is important only in the determination of 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.

It is evident then that the defendant's appeal can not prosper. To grant the defendant's prayer will result in a new trial which will
serve no purpose and will just waste the time of the courts as well as of the parties because the defense is nil or ineffective. 37

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First Instance of Manila denying the petition for
relief from the judgment rendered in said case is hereby affirmed, without pronouncement as to costs.SO ORDERED.
[G.R. No. 116320. November 29, 1999.]

ADALIA FRANCISCO, petitioner, vs. COURT OF APPEALS, HERBY COMMERCIAL &


CONSTRUCTION CORPORATION AND JAIME C. ONG, respondents.

FACTS:

A Land Development and Construction Contract was entered into on June 23, 1977 by A. Francisco Realty &
Development Corporation (AFRDC), represented by its president, herein petitioner, and respondent HERBY
Commercial & Construction Corporation (HCCC), represented by its President and General Manager respondent Jaime
C. Ong, pursuant to a housing project at San Jose del Monte, financed by the GSIS. Under the contract, HCCC agreed
to undertake the construction of 35 housing units and the development of 35 hectares of land. The GSIS and AFRDC
put up an Executive Committee Account with the Insular Bank of Asia in America (IBAA) from which checks would be
issued and co-signed by petitioner and GSIS Vice-President, Armando Diaz.

After examination of the records of the GSIS, Ong discovered that Diaz and petitioner had executed and signed seven
checks of various dates and amounts, drawn against IBAA and payable to HCCC for completed and delivered work
under the contract. Petitioner forged the signature of Ong without his knowledge or consent, to make it appear as if he
had indorsed said checks and that, after indorsing the checks for a second time by signing her name at the back of the
checks, she deposited said checks in her savings account with the IBAA.

Ong filed a complaint charging petitioner with estafa thru falsification of commercial documents. Petitioner, on the other
hand, denied having forged respondent Ong's signature on the checks, claiming that Ong himself indorsed the checks
and delivered the same to her in payment of the loans which he extended to respondent HCCC. As a
means of repayment, respondent Ong allegedly issued a Certification authorizing petitioner to collect respondent
HCCC's receivables from the GSIS. Petitioner's claim was given credence, hence, the complaint was dismissed.
Thereafter, private respondents filed a case against petitioner and IBAA for the recovery of the total value of the seven
checks and for damages, attorney's fees, expenses of litigation and costs. After trial on the merits, the
trial court rendered its decision in favor of private respondents. On appeal, the Court of Appeals affirmed the trial court's
ruling. Hence, this petition for review on certiorari.

ISSUE:

WON the signature of Ong on the checks as an agent will exempt him from personal liability?

Whether or not Francisco forged the signature of Ong on the seven checks?

HELD: The court ruled in negative. The Supreme Court affirmed the decision of the trial court with modification as to
award of damages. The Court concurred with the lower court's finding that petitioner forged the signature of private
respondent on the checks. Petitioner's defense must fail. The Negotiable Instruments Law provides that where any
person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal
liability. An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must disclose
the name of his principal; otherwise he shall be held personally liable. Even assuming that petitioner was authorized by
HCCC to sign private respondent's name, still, she did not indorse the instrument in accordance with law.
Instead of signing private respondent's name, petitioner should have signed her own name and expressly indicated that
she was signing as an agent of HCCC. Thus, the certification cannot be used by petitioner to validate her act of forgery.

Based upon the findings of handwriting experts from the National Bureau of Investigation (NBI), the trial court held
that Francisco had indeed forged the signature of Ong to make it appear that he had indorsed the checks. Also,
the court ruled that there were no loans extended, reasoning that it was unbelievable that HCCC was experiencing
financial difficulties so as to compel it to obtain the loans from AFRDC in view of the fact that the GSIS had issued
checks in favor of HCCC at about the same time that the alleged advances were made. The trial court stated that it was
plausible that Francisco concealed the fact of issuance of the checks from private respondents in order to make it
appear as if she were accommodating private respondents, when in truth she was lending HCCC its own money.

IBAA was held liable to private respondents for having honored the checks despite such obvious irregularities as the
lack of initials to validate the alterations made on the check, the absence of the signature of a co-signatory in the
corporate checks of HCCC and the deposit of the checks on a second indorsement in the savings accountof Francisco.
However, the trial court allowed IBAA recourse against Francisco, who was ordered to reimburse the IBAA for any
sums it shall have to pay to private respondents.
As regards the forgery, we concur with the lower courts' finding that Francisco forged the signature of Ong on the
checks to make it appear as if Ong had indorsed said checks and that, after indorsing the checks for a second time by
signing her name at the back of the checks, Francisco deposited said checks in her savings account with IBAA. The
forgery was satisfactorily established in the trial court upon the strength of the findings of the NBI handwriting
expert. 10 Other than petitioner's self-serving denials, there is nothing in the records to rebut the NBI's findings. Well-
entrenched is the rule that findings of trial courts which are factual in nature, especially when affirmed by
the Court of Appeals, deserve to be respected and affirmed by the Supreme Court, provided it is supported by
substantial evidence on record, 11 as it is in the case at bench.

WHEREFORE, we AFFIRM the respondent court's decision promulgated on June 29, 1992, upholding the February 16,
1988 decision of the trial court in favor of private respondents, with the modification that the interest upon the actual
damages awarded shall be at six percent (6%) per annum, which interest rate shall be computed from the time of the
filing of the complaint on November 19, 1979. However, the interest rate shall be twelve percent (12%) per annum from
the time the judgment in this case becomes final and executory and until such amount is fully paid. The basis for
computation of the six percent and twelve percent rates of interest shall be the amount of P370,475.00. No
pronouncement as to costs.

CASE DOCTRINE:
COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; TO NEGATIVE PERSONAL LIABILITY, AN AGENT,
WHEN SIGNING IN A REPRESENTATIVE CAPACITY, MUST DISCLOSE THE NAME OF HIS PRINCIPAL. —
Petitioner claims that she was, in any event, authorized to sign Ong's name on the checks by virtue of the Certification
executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the GSIS, including the
questioned checks. Petitioner's alternative defense must similarly fail. The Negotiable Instruments Law provides that
where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to
negative personal liability. An agent, when so signing, should indicate that he is merely signing in behalf of the principal
and must disclose the nameof his principal; otherwise he shall be held personally liable. Even assuming
that Francisco was authorized by HCCC to sign Ong's name, still, Francisco did not indorse the instrument in
accordance with law. Instead of signing Ong's name, Francisco should have signed her own name and expressly
indicated that she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate
her act of forgery.