CHECKS
Court of Appeals
State Investment House vs. Court of Appeals
Facts: New Sikatuna Wood Industries Inc. (NSWI) requested for a loan from
Harris Chua, who issued 3 crossed checks. Subsequently, NSWI entered in an
agreement with State Investment House Inc. (SIHI) where the former discounted
several checks including the crossed checks. When the crossed checks were
deposited by SIHI, the checks were dishonoured by reason of insufficient funds
and account closed. SIHI made demands upon Chua to make good said checks
by Chua failed.
Issue: Whether SIHI is a holder in due course so as to recover the amounts in the
checks from Chua.
Held: No, the act of crossing a check serves as a warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he has
received the check pursuant to that purpose, otherwise he is not a holder in due
course. His failure to inquire from the holder the purpose prevents him from being
considered in good faith. SIHI, is subject to personal defences for such as the
lack of consideration between the NSWI and Chua.
Bataan Cigar and Cigarette Factory, Inc. vs. Court of Appeals
Facts: Petitioner engaged one of its suppliers King Tim Pua George to deliver
bales of tobacco leaf. In consideration thereof, petitioner issued a crossed check.
Relying on the supplier's representation, petitioner agreed to purchase additional
bales of tobacco leaves, despite the supplier's failure to deliver in accordance
with their earlier agreement upon which he issued post dated crossed checks.
However, the supplier sold the said check at a discount to private respondent
State Investment House Inc.(SIHI). Upon failure to deliver said bales of tobacco
leaf, petitioner issued a stop order payment on all checks. SIHI then instituted this
action, upon dishonour of the check, on the ground that the same is a holder in
due course and would be able to collect from petitioner.
Issue: Whether or not SIHI, a holder of a crossed check, is a holder in due course
and would be able to collect from petitioner.
Held: It is a settled ruled that crossing of checks should put the holder on inquiry
and upon him devolves the duty to ascertain the indorser’s title to the check or
the nature of his possession. Failing in this respect, the holder is declared guilty
of gross negligence amounting to legal absence of good faith and is to the effect
that the holder of the check is not a holder in due course. There being failure of
consideration which is a personal defense, cannot be obliged to pay the checks
to SIHI who is not a holder in due course.
CItytrust Banking Corporation vs. Court of Appeals
Facts: The case emanated from a complaint filed by respondent Emme for
damages against petitioner. Respondent deposited with petitioner several cash
in order to amply cover the post dated checks she issued. When presented for
encahsement upon maturity, all checks were dishonoured due to insufficiency of
funds. Petitioner in its answer averred that it was respondent’s fault that her
checks were dishonoured because the account no. Reflected in the deposit slip
which is 2900823 was not her correct no. Which is 29000823.
Issue: Whether of not petitioner is liable for damages on the dishonoured checks.
Held: The depositor expects the bank to treat his account with utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The
bank is engaged in business impressed with public interest and it is its duty to
protect in return its many clients and depositors who transact business with it. It
is under obligation to treat the accounts of its depositors with meticulous care
having in mind the fiduciary nature of their relationship. Hence, nominal damages
may be awarded in order that a right of the plaintiff, which have been violated or
invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.
Ramon Tan vs.
Facts: Ramon tan secured a cashier’s from Philippine Commercial Industrial
Bank (PCIB) payable to his order. He deposited his check in his account with
Rizal Commercial Banking Corporation (RCBC) Binondo. On the same day,
RCBC erroneously sent the same cashier’s check for clearing to the Central Bank
which was returned for having been “missent” or “misrouted.” The next day,
RCBC debited the amount covered by the same cashier’s check from the account
of the petitioner. Respondent bank at this time had not informed the petitioner of
its action.
Relying that said checks were honoured, petitioner issued two personal check
which was dishonoured due to insufficiency of funds. Petitioner alleging to have
suffered humiliation and loss of face in the business sector due to the bounced
check filed a complaint against RCBC.
Issue: Whether or not RCBC may be held liable for damages upon erroneous
debit covered by the cashier’s check.
Held: A bank cannot exculpate itself from liability for the consequences of the use
of wrong deposit slip resulting in the misrouting of a regional check to the Central
Bank for clearing. The bank is not expected to be infallible but it must bear the
blame for not discovering the mistake of its teller despite the established
procedure requiring the papers and bank books to pass through a battery of bank
personnel whose duty it is to check and countercheck them for possible errors.
As the result of the negligence of the bank, the depositor has the right to recover
moral damages even if the bank’s negligence may not have been attended with
malice and bad faith if the former suffered mental anguish, serious anxiety,
embarrassment and humiliation.
Papa vs. A.U. Valencia and Co. Inc.
Facts: On 1992, a complaint was against Petitioner Myron C. Papa as attornery-
in-fact of Angela M. Butte sold to respondent Penaroyo through respondent
Valencia a parcel of land on 1973. Petitioner appealed decision, alleging among
others that the sale was never “consummated” as he did not encash the check
given by respondents Valencia and Peñarroyo in payment of the full purchase
price of the subject lot. He maintained that what said respondents had actually
paid was only the amount of P5,000.00 (in cash) as earnest money.
Issue: Whether or not the check did not amount to payment.
Held: While it is true that the delivery of a check produces the effect of payment
only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is
otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in
presentment. The acceptance of a check implies an undertaking of due diligence
in presenting it for payment, and if he from whom it is received sustains loss by
want of such diligence, it will be held to operate as actual payment of the debt or
obligation for which it was given.
It has, likewise, been held that if no presentment is made at all, the drawer cannot
be held liable irrespective of loss or injury unless presentment is otherwise
excused. This is in harmony with Article 1249 of the Civil Code under which
payment by way of check or other negotiable instrument is conditioned on its
being cashed, except when through the fault of the creditor, the instrument is
impaired. The payee of a check would be a creditor under this provision and if its
non-payment is caused by his negligence, payment will be deemed effected and
the obligation for which the check was given as conditional payment will be
discharged. Failure of a payee to encash a check for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable
and unexplained delay.
Sincere Villanueva vs. Marlyn Nite
Facts: Respondent took a loan from petitioner. To secure the loan, respondent
issued petitioner an Asian Bank Corporation check. The check was, however,
dishonored due to a material alteration when petitioner deposited the check on
due date. Petitioner, however, filed an action for a sum of money against ABC
which was awarded by the court. When respondent went to withdraw from her
account on ABC, she was unable to do so because the trial court had ordered
ABC to pay petitioner the value of respondent’s ABC check. Respondent then
filed a petition to annul and set aside the trial court’s decision ordering ABC to
pay petitioner the value of the ABC check.
Issue: Whether or not ABC may be held liable to petitioner for the dishonour of
the check.
Held: If a bank refuses to pay a check notwithstanding the sufficiency of funds,
the payee-holder cannot sue the bank because there is no privity of contract
exists between the drawee-bank and the payee. Contracts take effect only
between the parties, their assigns and heirs. In this case, the contract of loan was
between petitioner and respondent. No collection suit could prosper without
respondent who was an indispensable party
Bank of the Philippine Island vs. Commissioner of Internal Revenue
Facts: Petitioner Bank of the Philippine Islands (BPI) sold to the Central Bank of
the Philippines U.S. dollars. BPI instructed, by cable, its correspondent bank in
New York to transfer U.S. dollars deposited in BPI’s account therein to the
Federal Reserve Bank in New York for credit to the Central Bank’s account
therein. Thereafter, the funds had been credited to its account and the Central
Bank promptly transferred to the petitioner’s account in the Philippines the
corresponding amount in Philippine pesos.
Under the NIRC Section 195, it imposes a documentary stamp tax on (1) foreign
bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise,
for the payment of money issued by express or steamship companies or by any
person or persons.
Issue: Whether or not the instruction by cable is a bill of exchange included
in the activities where documentary stamp tax is imposed.
Held: From this enumeration, two common elements need to be present: (1)
drawing the instrument or ordering a drawee, within the Philippines; and (2)
ordering that drawee to pay another person a specified amount of money outside
the Philippines. What is being taxed is the facility that allows a party to draw the
draft or make the order to pay within the Philippines and have the payment made
in another country.
The fact that the funds belong to BPI and were not advanced by the
correspondent bank will not remove the transaction from the coverage of Section
195 of the NIRC. A bill of exchange, when drawn in the Philippines but payable
in another country, would surely be covered by this section. And in the case of a
bill of exchange, the funds may belong to the drawer and need not be advanced
by the drawee, as in the case of a check or a draft. In the description of a draft
provided hereunder, the drawee is in possession of funds belonging to the drawer
of the bill.
Equitable PCI Bank vs. Rowena Ong
Facts: Sarande deposited in her account with Philippine Commercial International
(PCI) Bank a check in amount of P225,000 which was cleared. Thereafter,
Sarande issued a check amounting to P132,000 owing to a business
consideration. On the same day, Ong presented the check to PCI Bank but
instead of depositing it, she requested that proceeds thereof converted into a
manger’s check whereupon a manager’s check was issued. Thereafter, he
deposited said check to Equitable Banking Corporation but was later on
dishonored because PCI Bank issued a stop payment owing to Sarande’s
account being closed.
Issue: Whether or not Ong is a holder in due course in the absence of
consideration in the issuance of the manager’s check.
Held:The claim is without basis. Easily discernible is that what Ong obtained from
PCI Bank was not just any ordinary check but a manager’s check. A manager’s
check is an order of the bank to pay, drawn upon itself, committing in effect its
total resources, integrity and honor behind its issuance. By accepting PCI Bank
Check issued by Sarande to Ong and issuing in turn a manager’s check in
exchange thereof, PCI Bank assumed the liabilities of an acceptor under Section
62 of the Negotiable Instruments Law. Hence, Petitioner is liable to pay the value
of the check with damages.
PROTEST
Allied Banking Corporation vs Court of Appeals
494 SCRA 467 [G.R. No. 125851 July 11, 2006]
Facts: On January 6, 1981, petitioner Allied Bank, Manila (ALLIED) purchased
Export Bill No. BDO-81-002 in the amount of US $20,085.00 from respondent
G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of credit
No. BB640549 covered Men’s Valvoline Training Suit that was in transit to West
Germany (Uniger via Rotterdam) under Cont. #73/S0299. The export bill was
issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill,
ALLIED credited GGS the peso equivalent of the aforementioned bill amounting
to P acknowledged by the latter in its letter dated June 22, 1981. 151,474.52 and
the receipt of which was On the same date, respondents Nari Gidwani and Alcron
International Ltd. (Alcron) executed their respective Letters of Guaranty, holding
themselves liable on the export bill if it should be dishonored or retired by the
drawee for any reason. Subsequently, the spouses Leon and Leticia de Villa and
Nari Gidwani also executed a Continuing Guaranty/Comprehensive Surety
(surety, for brevity), guaranteeing payment of any and all such credit
accommodations which ALLIED may extend to GGS. When ALLIED negotiated
the export bill to Chekiang, payment was refused due to some material
discrepancies in the documents submitted by GGS relative to the exportation
covered by the letter of credit. Consequently, ALLIED demanded payment from
all the respondents based on the Letters of Guaranty and Surety executed in
favor of ALLIED. However, respondents refused to pay, prompting ALLIED to file
an action for a sum of money.
Issue: Whether or not private respondents are liable for the obligation since there
was no protest made after dishonor.
Held: Yes. Section 152 of the Negotiable Instruments Law pertaining to
indorsers, relied on by respondents, is not pertinent to this case. There are well-
defined distinctions between the contract of an indorser and that of a
guarantor/surety of a commercial paper, which is what is involved in this case.
The contract of indorsement is primarily that of transfer, while the contract of
guaranty is that of personal security. The liability of a guarantor/surety is broader
than that of an indorser. Unless the bill is promptly presented for payment at
maturity and due notice of dishonor given to the indorser within a reasonable time,
he will be discharged from liability thereon. On the other hand, except where
required by the provisions of the contract of suretyship, a demand or notice of
default is not required to fix the surety’s liability. He cannot complain that the
creditor has not notified him in the absence of a special agreement to that effect
in the contract of suretyship. Therefore, no protest on the export bill is necessary
to charge all the respondents jointly and severally liable with G.G. Sportswear
since the respondents held themselves liable upon demand in case the
instrument was dishonored and on the surety, they even waived notice of
dishonor as stipulated in their Letters of Guarantee.
As to respondent Alcron, it is bound by the Letter of Guaranty executed by its
representative Hans-Joachim Schloer. As to the other respondents, not to be
overlooked is the fact that, the “Suretyship Agreement” they executed, expressly
contemplated a solidary obligation, providing as it did that “… the sureties hereby
guarantee jointly and severally the punctual payment of any and all such credit
accommodations, instruments, loans, … which is/are now or may hereafter
become due or owing … by the borrower”. It is a cardinal rule that if the terms of
a contract are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulation shall control. In the present case,
there can be no mistaking about respondents’ intent, as sureties, to be jointly and
severally obligated with respondent G.G. Sportswear.