State Investment House, Inc.

vs Court of Appeals (1993)

217 SCRA 32 – Mercantile Law – Negotiable Instruments Law – Holder in Due Course – Notice
of Dishonor

Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the sa
me. As security for the jewelries, Moulic issued to Victoriano two post-dated checks in the aggr
egate amount of P100,000.00. Moulic was not able to sell the jewelries so she returned the sam
e to Victoriano. Victoriano was however unable to return the checks hence Moulic withdrew all
her funds from the bank.

Apparently, the checks were negotiated by Victoriano to State Investment House, Inc. So when t
he checks were dishonored, State Investment demanded Moulic to pay. Moulic refused to pay b
ecause she said the checks were merely used as security for the jewelry. Moulic further averred
that she received no notice of dishonor.

ISSUE: Whether or not State Investment House is entitled to be paid.

HELD: Yes. State Investment is a holder in due course as it met all the requirements to be one
pursuant to Section 52 of the Negotiable Instruments Law. In particular, it is clearly shown that:
(a) on their faces the post-dated checks were complete and regular: (b) State Investment bough
t these checks from Victoriano, before their due dates; (c) State Investment took these checks i
n good faith and for value, (d) State Investment was never informed nor made aware that thes
e checks were merely issued to Victoriano as security and not for value.

Further, there is no need to issue a notice of dishonor to Moulic. After Moulic withdrew her fun
ds, she could not have expected her checks to be honored. It would only be futile for State In v
estment to be sending her notices of dishonor for the two checks.

Romeo C. Garcia vs. Dionisio V. Llamas, G.R. No. 154127. December 8, 2003

Facts: A complaint for sum of money was filed by respondent Dionisio Llamas against Petitioner
Romeo Garcia and Eduardo de Jesus alleging that the two borrowed Php 400, 000 from him. T
hey bound themselves jointly and severally to pay the loan on or before January 23, 1997 with
a 15% interest per month. The loan remained unpaid despite repeated demands by respondent.
Petitioner resisted the complaint alleging that he signed the promissory note merely as an acco
mmodation party for de Jesus and the latter had already paid the loan by means of a check a
nd that the issuance of the check and acceptance thereof novated or superseded the note.

The trial court rendered a judgment on the pleadings in favor of the respondent and directed p
etitioner to pay jointly and severally respondent the amounts of Php 400, 000 representing the
principal amount plus interest at 15% per month from January 23, 1997 until the same shall hav
e been fully paid, less the amount of Php 120,000 representing interests already paid.

The Court of Appeals ruled that no novation, express or implied, had taken place when respond
ent accepted the check from de Jesus. According to the CA, the check was issued precisely to
pay for the loan that was covered by the promissory note jointly and severally undertaken by p
etitioner and de Jesus. Respondent’s acceptance of the check did not serve to make de Jesus th
e sole debtor because first, the obligation incurred by him and petitioner was joint and several;
and second, the check which had been intended to extinguish the obligation bounced upon its
presentment.

Issues: (1) Whether or not there was novation of the obligation

(2) Whether or not the defense that petitioner was only an accommodation party had any basis.

Held: For novation to take place, the following requisites must concur: (1) There must be a previ
ous valid obligation; (2) the parties concerned must agree to a new contract; (3) the old contrac
t must be extinguished; and (4) there must be a valid new contract.

The parties did not unequivocally declare that the old obligation had been extinguished by the i
ssuance and the acceptance of the check or that the check would take the place of the note.

(2) By its terms, the note was made payable to a specific person rather than bearer to or order
—a requisite for negotiability. Hence, petitioner cannot avail himself of the NIL’s provisions on t
he liabilities and defenses of an accommodation party. Besides, a non-negotiable note is merely
a simple contract in writing and evidence of such intangible rights as may have been created b
y the assent of the parties. The promissory note is thus covered by the general provisions of th
e Civil Code, not by the NIL.

Even granting that the NIL was applicable, still petitioner would be liable for the note. An acco
mmodation party is liable for the instrument to a holder for value even if, at the time of its tak
ing, the latter knew the former to be only an accommodation party. The relation between an ac
commodation party and the party accommodated is, in effect, one of principal and surety. It is
a settled rule that a surety is bound equally and absolutely with the principal and is deemed an
original promissory debtor from the beginning. The liability is immediate and direct.

Travel-On, Inc. vs Court of Appeals

G.R. No. L-56169 June 26, 1992

-accommodation party

FACTS:

Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on behal
f of airline passengers and derived commissions therefrom. Miranda was sued by petitioner to
collect on the six postdated checks he issued which were all dishonored by the drawee banks.
Miranda, however, claimed that he had already fully paid and even overpaid his obligations and
that refunds were in fact due to him. He argued that he had issued the postdated checks not f
or the purpose of encashment to pay his indebtedness but for purposes of accommodation, as
he had in the past accorded similar favors to petitioner. Petitioner however urges that the post
dated checks are per se evidence of liability on the part of private respondent and further argu
es that even assuming that the checks were for accommodation, private respondent is still liable
thereunder considering that petitioner is a holder for value.

ISSUE:
Whether Miranda is liable on the postdated checks he issued even assuming that said checks w
ere issued for accommodation only.

RULING:

There was no accommodation transaction in the case at bar. In accommodation transactions re

cognized by the Negotiable Instruments Law, an accommodating party lends his credit to the ac
commodated party, by issuing or indorsing a check which is held by a payee or indorsee as a
holder in due course, who gave full value therefor to the accommodated party. The latter, in o
ther words, receives or realizes full value which the accommodated party then must repay to th
e accommodating party. But the accommodating party is bound on the check to the holder in
due course who is necessarily a third party and is not the accommodated party. In the case at
bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the dr
awee bank but the checks bounced. Travel-On obviously was not an accommodated party; it re
alized no value on the checks which bounced. Miranda must be held liable on the checks invol
ved as petitioner is entitled to the benefit of the statutory presumption that it was a holder in
due course and that the checks were supported by valuable consideration.

**In accommodation transactions recognized by the Negotiable Instruments Law, an accommodat

ing party lends his credit to the accommodated party, by issuing or indorsing a check which is
held by a payee or indorsee as a holder in due course, who gave full value therefor to the acc
ommodated party. In the case at bar, Travel-On was the payee of all six (6) checks, it presente
d these checks for payment at the drawee bank but the checks bounced. Travel-On obviously w
as not an accommodated party; it realized no value on the checks which bounced.

Lozano vs Martinez GR No. L-63419, Dec 18, 1986

FACTS:

This is a consolidated case, the petition arose from cases involving prosecution of offenses unde
r the BP 22 also known as Bouncing Check Law. The defendant in these case moved seasonabl
y to quash the information on the ground that the acts charged did not constitute an offense,
the statute being unconstitutional. The motions were denied by the respondent trial court, excep
t in one case, which is the subject of G.R No. 75789, wherein the trial court declared the law u
nconstitutional and dismissed the case. The parties adversely affected have come to the court fo
r remedy. Those who question the constitutionality of the said statute insist the following groun
d:

1) It offends the constitutional provision forbidding imprisonment for debt;

2) it impairs freedom of contract;

3) it contravenes the equal protection clause;

4) it unduly delegates legislative and executive powers; and

5) its enactment is flawed in the sense that during its passage the interim Batasan violated the
constitutional provision prohibiting to a bill on Third Reading.

ISSUE:

Whether or not BP 22 or the Bouncing Check Law is unconstitutional.

RULING:

No, the enactment of the assailed statute is a valid exercise of Police power and is not repugna
nt to the constitutional inhibition against imprisonment for debt. It may be constitutionally imper
missible for the legislature to penalize a person for non-payment of debt ex contractu, but cert
ainly it is within the prerogative of the lawmaking body to prescribe certain acts deemed pernici
ous and inimical to public welfare. Acts mala in se are not only acts which the law can punish.
An act may not be considered by society as inherently wrong, hence, not malum in se, but bec
ause of the harm that it inflicts on the community, it can be outlawed and criminally punished
as malum prohibitum. The state can do this in the exercise of its police power.
The enactment of the said statute is a declaration by the legislature that, as a matter of public
policy, the making and issuance of a worthless check is deemed a public nuisance to be abated
by the imposition of penal sanctions.

Pineda vs De La Rama, GR No. L-31831, April 28, 1983

SCRIBD DOCUMENT

Citibank and Investors Finance Corporation vs Modesta Sabeniano

G.R. No. 156132

October 16, 2006

FACTS: Modesta Sabeniano is a client of Citibank and FNCB Finance. On February 1978, Sabenia
no obtained a loan of Php 200,000 from Citibank. This loan was followed with several other loa
ns – some were paid, while some were not. Those that were not paid upon maturity were rolle
d over, reflecting a total unpaid loan of Php 1,069,847.40 as of September 1979.

These loans were secured by Sabeniano’s money market placements with FNCB Finance through
a Deed of Assignment plus a Declaration of Pledge which states that all present and future fidu
ciary placements held in her personal and/or joint name with Citibank Switzerland, will secure all
claims that Citibank may have or, in the future, acquire against her.

The Deeds of Assignment were duly notarized, while the Declaration of Pledge was not notarize
d and Citibank’s copy was undated, while that of Sabeniano bore the date, September 24, 1979.

Since Sabeniano failed to pay her obligations to Citibank, the latter sent demand letters to requ
est payment. Her total unpaid loan initially amounted to Php 2,123,843.20 (inclusive of interests).
Still failing to pay, Citibank executed the Deeds of Assignment and used the proceeds of Sabeni
ano’s money market placement from FNCB Finance which totaled Php 1,022,916.66 and her depo
sits with Citibank which totaled Php 31,079.14 to set-off her loan.

This reduced the unpaid balance to Php 1,069,847.40 as previously mentioned. Since the loan re
mains unpaid, Citibank proceeded to execute the Declaration of Pledge and remitted a total of
$149,632.99 from Sabeniano’s Citibank-Geneva accounts to off-set the loan.

Sabeniano then filed a complaint against Citibank for damages and specific performance (for pro
per accounting and return of the remitted proceeds from her personal accounts). She also conte
nded that the proceeds of 2 promissory notes (PN) from her money market placements with Cit
ibank were rolled over or reinvested into the petitioner bank, and these should also be returned
to her.

Regarding the execution of the pledge, the RTC declared this illegal, null and void. Citibank was
ordered to return the $149,632.99 to Sabeniano’s Citibank-Geneva account with a legal interest
of 12% per annum. The RTC also ordered Sabeniano to pay her outstanding loan to Citibank wi
thout interests and penalty charges.

Both parties appealed to the CA which affirmed the RTC’s decision, but further ruled entirely in
favor of Sabeniano – holding that Citibank failed to establish her indebtedness and that all the
executed deeds should be returned to her account. The case has now reached the Supreme Co
urt.

ISSUE: Whether or not Citibank’s execution of deeds and pledge to off-set Sabeniano’s loan was
valid and legal.

HELD: The Supreme Court reversed the CA’s findings regarding Sabeniano’s Citibank loan as this
was properly documented and sufficient in evidence. Thus, the execution of deeds was valid, es
pecially that the agreement was duly notarized, signed and prepared in accordance with the law
.
The court also ordered Citibank to return the amount of P318,897.34 and P203,150.00 plus 14.5
% per annum to Sabeniano. This is the total amount from the 2 PNs which were executed desp
ite being reinvested in said bank. The bank was also ordered to pay moral damages of P300,00
0, exemplary damages for P250,000, attorney’s fees of P200,000.

The SC however affirmed the RTC’s decision regarding the pledge. Being a separate entity, Citib
ank cannot exercise automatic remittance from Sabeniano’s Citibank Geneva account to off-set h
er outstanding loan.

The court also noted that the pledge was filled out irregularly – it was not notarized and Citiba
nk’s copy bore no date. The original copy was not also produced in court.

Regarding Sabeniano’s obligation, the Supreme Court affirmed RTC’s decision and ordered her t
o pay the remaining balance of her loan which amounts to P1,069,847.40 as of 5 September 19
79. These loans continue to earn interest based on the maturity date that were agreed and stip
ulated upon by the parties.

Far East Bank & Trust Co. vs Estrella Q. Querimit (GR 148582 Jan. 16, 2002)

FACTS:Respondent deposited her savings with petitioner-bank. She did not withdraw h
er deposit even after maturity date of the certificates of deposit (CDs) precisely bec
ause she wanted to set it aside for her retirement, relying on the bank’s assurance, as reflecte
d on the face of the instruments themselves, that interest would ―accrue‖ or accumulate annua
lly evenafter their maturity. Petitioner-bank failed to prove that it had already paid
respondent, bearer and lawful holder of subject CDs, petitioner failed to prove that the CDs ha
d been paid out of its funds, since evidence by respondent stands unrebutted thatsubjec
t CDs until now remain unindorsed, undelivered, and unwithdrawn by her.

ISSUE:Whether or not it is unjust to allow the doctrine of laches to defeat the ri

ght of respondent to recover her savings which she deposited with the petitioner?
RULING:Yes, it would be unjust not to allow respondent to recover her savings wh
ich she deposited with petitioner-bank. For one, Petitioner failed to exercise that deg
ree of diligence required by the nature of its business. Because the business of banks is impr
essedwith public interest, the degree of diligence required of banks is more than tha
t of a good father of the family or of an ordinary business firm. The fiduciary n
ature of their relationship with their depositors requires banks to treat accounts of their cli
ents with the highest degree of care.Respondent is entitled to moral damages because o
f the mental anguish and humiliation she suffered as a result of the wrongly refusal of p
etitioner to pay her even after she had delivered the CDs. (Arts. 2217 and 2219). In addit
ion, petitioner should pay respondent exemplary damages which the trial court imposed by
way of example or correction for the public good (Art. 2229). Finally, respondent is entitle
d to attorney’s fees since petitioner’s act or omission compelled her to incur expenses t
o protect her interest making such award just and equitable.

Citytrust banking Corp., vs. Intermediate Appellate Court

GR No. 84281 May 27, 1994

Vitug, J:

Facts:

Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp.
at its Burgoa branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to a
mply cover 6 postdated checks she issued. All checks were dishonored due to insufficiency of fu
nds upon the presentment for encashment. Citytrust banking Corp. asserted that it was due to
Herrero’s fault that her checks were dishonored, for he inaccurately wrote his account number i
n the deposit slip. RTC dismissed the complaint for lack of merit. CA reversed the decision of R
TC.
Issue:

Whether or not Citytrust banking Corp. has the duty to honor checks issued by E
mme Herrero despite the failure to accurately stating the account number resulting to insufficien
cy of funds for the check.

Held:

Yes, even it is true that there was error on the account number stated in the depo
sit slip, its is, however, indicated the name of “Emme Herrero.” This is controlling in determining
in whose account the deposit is made or should be posted. This is so because it is not likely t
o commit an error in one’s name than merely relying on numbers which are difficult to remem
ber. Numbers are for the convenience of the bank but was never intended to disregard the real
name of its depositors. The bank is engaged in business impressed with public trust, and it is i
ts duty to protect in return its clients and depositors who transact business with it. It should no
t be a matter of the bank alone receiving deposits, lending out money and collecting interests.
It is also its obligation to see to it that all funds invested with it are properly accounted for an
d duly posted in its ledgers.

Associated Bank vs Tan GR No. 156940, Dec 12, 2004

SCRIBD DOCUMENT

Caltex (Philippines) Inc. vs. CA

GR 97753, 10 August 1992

-negotiability

FACTS:

Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of one Mr. An
gel dela Cruz who deposited with the bank P1.12 million. Dela Cruz delivered the CTDs to Cal
tex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz in
formed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate th
e issuance of the replacement CTDs. When Caltex presented said CTDs for verification with the
bank and formally informed the bank of its decision to preterminate the same, the bank rejecte
d Caltex’ claim and demand as Caltex failed to furnish copies of certain requested documents.
In 1983, dela Cruz’ loan matured and the bank set-off and applied the time deposits as paymen
t for the loan. Caltex filed a complaint which was dismissed on the ground that the subject cert
ificates of deposit are non-negotiable.

ISSUE:

Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.

RULING:

The CTDs in question are negotiable instruments as they meet the requirements of the law for
negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents pr
ovide that the amounts deposited shall be repayable to the depositor. And according to the do
cument, the depositor is the "bearer." The documents do not say that the depositor is Angel de
la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter, whosoever may be the
bearer at the time of presentment. However, petitioner cannot recover on the CTDs. Althoug
h the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreem
ent between it and dela Cruz, as ultimately ascertained, requires both delivery and indorsement.
In this case, there was no indorsement as the CTDs were delivered not as payment but only
as a security for dela Cruz' fuel purchases.
**The accepted rule is that the negotiability or non-negotiability of an instrument is determined
from the writing, that is, from the face of the instrument itself. The CTDs in question are nego
tiable instruments as they meet the requirements of the law for negotiability as provided for in
Section 1 of the Negotiable Instruments Law. The documents provide that the amounts deposit
ed shall be repayable to the depositor. And according to the document, the depositor is the "b
earer." The documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bea
rer of the documents or, for that matter, whosoever may be the bearer at the time of present
ment.