RCBC vs.

Odrada

Before the Court is a petition for review on certiorari​1

The Facts

● In April of 2002, Odrada sold a secondhand Mitsubishi Montero to Lim for

1,510,000 pesos. Out of the total consideration, 610,000 pesos was paid by lim
and his balance of 900,000 was financed by RCBC through a car loan

● As a ​requisite for the approval of the loan, RCBC required Lim to submit the
original copies of the Certificate of Registration (CR) and Official Receipt (OR) in
his name.​ Unable​ to produce the Montero's OR and CR, Lim requested RCBC to
execute a letter addressed to Odrada informing the latter that his application for
a car loan had been approved.

● Later in the month, RCBC issued a letter stating that they (the bank) would
deliver the balance of the loan upon submission of the OR and CR.

● Following the letter and initial down payment, Odrada executed a Deed of
Absolute Sale on 9 April 2002 in favor of Lim and the latter took possession of
the Montero.​ chanrobleslaw

● When RCBC received the documents, RCBC issued two manager's checks dated
12 April 2002 payable to Odrada for Nine Hundred Thousand Pesos (P900,000)
and Thirteen Thousand Five Hundred Pesos (P13,500).

● After the issuance of the manager's checks and their turnover to Odrada ​but
prior to the checks' presentation, Lim notified Odrada in a letter dated 15 April
2002​ that there was an issue regarding the roadworthiness of the Montero. The
letter states:

chanRoblesvirtualLawlibrary

● Lim wants to cancel the sale of the Montero because it didn’t match
the representation explained to him:
lesVirtualawlibrary

1. You ​told me that the said vehicle has not experience [d]
collision. However, it is hidden, when you open its engine cover
there is a trace of a head-on collision. The condenser is
smashed,; the fender support is not align[ed], both bumper
supports] connecting [the] chassis were crippled and welded, the
hood support was repaired, etc.
 2. The 4-wheel drive shift is not functioning​. When Mr. Mendez
was asked about it, he said it would not function until you can
reach the speed of 30 miles.

3. During Mr. Mendez['s] representation, he said the odometer

has still an original mileage data but found tampered.

4. You ​represented the vehicle as model 1998 however; it is

indicated in the front left A-pillar inscribed at the identification
plate [as] model 1997.

● Lim asked Mr. Odrara to check the vehicle / not encash the managers
checks issued to him by RCBC until the situation was clarified.

● Odrada did not go to the meeting. Instead, he deposited the managers

checks with Ibank but the checks were dishonored both times on Lim’s
instruction to RCBC.

● Odrada filed a collection suit against Lim and RCBC in the Regional Trial Court of
Makati.​ (Wow, bagaa ug nawong uy) ​
robleslaw

Lim’s Answer

● Cancellation of the loan was at his instance upon discovering the

misrepresentations by Odrada
● He cancelled it through a letter delivered to Odrada

● On the other hand, RCBC contended that the manager's checks were dishonored
because Lim had cancelled the loan.
● RCBC claimed that the cancellation of the loan was ​prior to the presentation
of the manager's checks.​ Moreover, RCBC alleged that despite notice of the
defective condition of the Montero, which constituted a failure of consideration,
Odrada still proceeded with presenting the manager's checks.

The Regional Trial Court's Ruling

● RTC ruled in favor of Odrada

● It wasn’t proper for Lim to exercise the right of rescission since Odrada already
complied with the contract of sale by delivering the Montero while Lim remained
delinquent in payment
● RTC said the defective condition of the Montero was​ not a supervening event
that would justify the dishonor of the manager's checks.​ The trial court reasoned
that ​a manager's check is equivalent to cash and is really the bank's own check.
 ● It may be treated as a promissory note with the bank as maker. Hence, the
check becomes the primary obligation of the bank which issued it and constitutes
a written promise to pay on demand​. Being the party primarily liable, the trial
court ruled that ​RCBC was liable​ to Odrada for the value of the manager's
checks.

● Finally, the trial court found that Odrada suffered sleepless nights, humiliation,
and was constrained to hire the services of a lawyer meriting the award of
damages.​20​chanrobleslaw

wlibrary

(a) Directing defendant RCBC to pay plaintiff the amount of Php

913,500.00 representing the cash equivalent of the two (2)
manager's checks, plus 12% interest from the date of filing of
the case until fully paid;

(b) Directing defendants to solidarity pay moral damages in the

amount of Php 500,000.00 and exemplary damages in the
amount of Php 500,000.00;

(c) Directing defendants to solidarity pay attorney's fees in the

amount of Php 300,000.00.

The Court of Appeals' Ruling

● Affirmed the RTC’s decision

● Ruled that the two manager's checks, which were complete and regular, reached
the hands of Lim who deposited the same in his bank account with Ibank.
● RCBC knew that the amount reflected on the manager's checks represented
Lim's payment for the remaining balance of the Montero's purchase price. The
appellate court held that when​ RCBC issued the manager's checks in favor of
Odrada, RCBC admitted the existence of the payee and his then capacity to
endorse, and undertook that on due presentment the checks which were
negotiable instruments​ would be accepted or paid, or both according to its tenor.

● The appellate court held that the ​effective delivery of the checks to Odrada made
RCBC liable for the checks​.

● RCBC tried to use the defense of want of consideration, but CA said Odrada is a
holder in due course so they can’t use that against him

● Court of Appeals found that the award of moral and exemplary damages and
attorney's fees was excessive. Hence, modification was proper.
The Supreme Court

RCBC raised the issue to the SC:

chanRoblesvirtualLawlibrary

1. Whether or not the court a quo erred in holding that Lim cannot
cancel the auto loan despite the failure in consideration due to the
contested roadworthiness of the vehicle delivered by Odrada to him.

2. The court a quo gravely erred when it found that Odrada is a holder in
due course of the manager's checks in question despite being informed of
the cancellation of the auto loan by the borrower, Lim.

Odrada failed to file a comment​31​ within the period prescribed by this Court.​32​ chanrobleslaw

The Ruling of this Court

We grant the petition (RCBC’s petition)

● RTC touched on Sales and how​ the obligations between the parties do not cease
upon delivery of the subject matter. ​The vendor and vendee remain concurrently
bound by specific obligations. ​The vendor, in particular, is responsible for an
implied warranty against hidden defects.

Hidden Defect: The thing is unfit for the use for which it was intended

nrobleslaw

● A​ misrepresentation as to the Montero's roadworthiness constitutes a breach of

warranty against hidden defects.

(RTC he failed to appear as a witness)

RCBC May Refuse to Pay Manager's Checks

● Jurisprudence defines a manager's check as a check drawn by the bank's

manager upon the bank itself and accepted in advance by the bank by the act of
its issuance.​43​ ​It is really the bank's own check and may be treated as a
promissory note with the bank as its maker.​44​ Consequently, upon its purchase,
the ​check becomes the primary obligation of the bank and constitutes its written
promise to pay the holder upon demand​.45​ ​ It is similar to a cashier's check​46​ both
as to effect and use in that the bank represents that the check is drawn against
sufficient funds.​47​
chanrobleslaw
 ● As a general rule, the drawee bank is not liable until it accepts.​48​ Prior to a bill's
acceptance, no contractual relation exists between the holder​49​ and the drawee.

● Mere issuance of a manager's check does not ​ipso facto ​work as an automatic
transfer of funds to the account of the payee.​56​ ​In order for the holder to acquire
title to the instrument, there still must have been effective delivery.

● Accordingly, the Court, taking exception to the manager's check automatic

transfer of funds to the payee, declared that: "the doctrine that the deposit
represented by a manager's check automatically passes to the payee is
inapplicable, ​because the instrument - although accepted in advance remains
undelivered.​"​ ​This Court ruled that the holder did not acquire the instrument in
due course since title had not passed for lack of delivery.​ robleslaw

● We now address the main legal question: if the holder of a manager's check is
not a holder in due course, can the drawee bank interpose a personal defense of
the purchaser?

Jurisprudence provides @ the Mesina case’s ruling:

● This Court ruled that the issuing bank could validly refuse
payment because Mesina was not a holder in due course.
Unequivocally, the Court declared: ​"the holder of a cashier's check
who is not a holder in due course cannot enforce such check
against the issuing bank which dishonors the same."​ hanrobleslaw

chanRoblesvirtualLawlibrary

● The foregoing rulings clearly establish that the drawee bank of a manager's
check​ may interpose personal defenses of the purchaser of the manager's check
if the holder is not a holder in due course. In short, the purchaser of a manager's
check may validly countermand payment to a holder who is not a holder in due
course.

● CA erred when it said he’s a Odrada is a holder in due course. The GOOD FAITH
requisite for value is missing. And good faith means the person acted with due
honesty with regards to the rights of the parties liable.
chanRoblesvirtualLawlibrary

● Value, on the other hand, is defined as any consideration sufficient to support a

simple contract.​72​
chanrobleslaw

● RCBC acted in good faith in following the instructions of Lim. The records show
that Lim notified RCBC of the defective condition of the Montero before Odrada
presented the manager's checks.​75​ Lim informed RCBC of the hidden defects of
the Montero including a misaligned engine, smashed condenser, crippled bumper
support, and defective transmission. RCBC also received a formal notice of
 cancellation of the auto loan from Lim and this prompted RCBC to cancel the
manager's checks since the auto loan was the consideration for issuing the
manager's checks. RCBC acted in good faith in stopping the payment of the
manager's checks.

WHEREFORE​, we ​GRANT​ the petition. We ​REVERSE​ and ​SET ASIDE​ the 26 March
2014 Decision and the 18 June 2015 Resolution of the Court of Appeals in CA-G.R. CV
No. 94890 only insofar as RCBC Savings Bank is concerned.

SO ORDERED

ASIA BANKING CORPORATION vs. TEN SEN GUAN

Facts:

● Asia Banking Corporation alleges that it is a foreign corporation duly licensed to do a banking
business in the City of Manila.

● That Ten Sen Guan is a duly registered partnership with its principal office in the City of
Manila and is indebted to the plaintiff in the sum of $10,475.51, with interest and exchange,
for and on account of a New York draft for that amount drawn by "Snow's Ltd." on Ten Sen
Guan payable ninety days after sight.

● That the draft was duly endorsed, and that the plaintiff is the owner and holder of it in due
course of business. That demand therefore had been made and payment refused.
Wherefore, ​plaintiff prays for judgment against the defendants for the amount of the draft,
with interest thereon at the rate of 8 per cent per annum from May 12, 1920​, to the date of
payment, plus exchange at the rate of 14 per centum with costs. The complaint was filed
August 4, 1921.

Defendant’s Side

● They denied all the allegations / stated they were not indebted to ABC
● In February, Sen Ten Guan ordered from Snow’s Ltd ten cases of mercerized batiste (cotton
blankets?) for the value of 10,266 dollars to be shipped from New York to Manila where they
would be delivered to Sen Ten Guan.
● The merchandise arrived in Manila in June, around this time, a draft for the amount drawn by
Snow’s LTD was presented to Sen Ten Guan through ABC (the petitioner) as Snow’s
agents.
● The plaintiff refused the delivery of the bill of lading / other documents until Sen Ten Guan
accepted the draft. Delivery was contingent on acceptance of the draft.
 ● Sen Tuan Guan was assured by the plaintiff and believed that the merchandise described in
the bill of lading was “batiste” ordered. STG accepted the draft and received delivery of the
bill of lading / paid the charges.

● When the package was opened, it wasn’t “batiste” but “burlap” of little value, which was not
in any sense or manner the "batiste" ordered and guaranteed to be contained in the cases.

● The defendants declined to receive the goods and left them in the possession of the
Customs authorities, and at once notified the plaintiff and returned the bill of lading, and
demanded that their acceptance of the draft be cancelled.

● That plaintiff accepted the return of the bill of lading and documents, and agreed to cancel
defendants' acceptance of the draft, for the reason that it was without consideration.
Wherefore, defendants pray for judgment, with costs.

Ruling:

● It is undisputed that the defendants placed the order with "Snow's Ltd." for ten cases of
mercerized batiste, and that the draft was drawn for the corresponding value of ten cases of
mercerized batiste, including incidental expenses. That when the cases evidenced by the
draft arrived and were examined, they were found to contain "burlap" only which had but
little, if any, commercial value, of which the plaintiff was at once notified, and that the
defendant refused to receive the goods.

● ABC alleges that it is the holder of the draft for value and in due course of business. The
testimony upon that point is not clear or convincing, and is entitled to but little weight. If it be
a fact, as the plaintiff claims, ​that it was in good faith the purchaser of the draft, it would have
been a very easy matter to establish that fact by competent evidence, showing the nature of
the transaction in its New York office, when and how it acquired the draft and when and to
whom it paid the money and how much it paid ​and by whom it was actually paid. In other
words, to give an authentic account of the whole transaction. ​There is no such evidence in
the record (no evidence of good faith).

● The trial court found and the evidence sustains the finding that the acceptance of the draft by
the defendants was conditional, ​and that oral evidence was admissible to explain the terms
and conditions of the acceptance. That would specially be true where the plaintiff held the
draft for collection. It also found, in legal effect, that the plaintiff released and discharged the
defendants from any liability upon the draft, and the evidence sustains that finding. It will be
noted that the original draft was dated May 12, 1920, payable ninety days after sight, and
that it was accepted by the defendants on June 28, 1920, and that the complaint was filed on
 August 4, 1921, more than fourteen months after it was accepted and almost one year after it
became due.

THE PHILIPPINE NATIONAL BANK ​vs. ​RAMON MAZA and FRANCISCO MECENAS

Facts:

● The Philippine National Bank is suing Ramon Maza and Francisco Mecenas on five
promissory notes of ten thousand pesos (P10,000) each.

● Maza and Mecenas executed two of the promissory notes on January 20, 1921, due three
months after date. The three other notes due four months after date. The three other notes
due four months after date were executed by the same parties on January 21, 1921. One of
the above-mentioned notes, typical of the rest reads as follows:

The note was in Spanish but eh it’s a PM

● The notes were not paid by Maza and Mecenas at maturity. The obligations with
accumulated interest totaled P65,207.73 on September 22, 1924.

● To recover the amounts on the notes, PNB filed a case in the RTC of Iloilo

Their Defense:

● The promissory notes were ​sent in blank to them by Enrique Echaus with the request that
they sign them so that he, Echaus, might negotiate them with the Philippine National Bank in
case of need;
● That the defendants have not negotiated the promissory notes with the bank, nor have they
received the value thereof​, or delivered them to the bank in payment of any preexisting debt;
and that ​it was Enrique Echaus who negotiated the noted with the bank and who is
accordingly the real party in interest and the party liable for the payment of the notes.

● Defendants also moved that Echaus be ordered included as one of the defendants. The trial
judge denied the motion.

RTC RULING

● Judgment was rendered in favor of the plaintiff and against the defendants jointly and
severally for a total of P65,207.73, with interest at 9 per cent on twenty thousand pesos (P5)
a day, and with interest at 9 per cent on thirty thousand pesos (P30,000) from September 23,
1924, or at the rate of P7.5 a day, and with costs.

● CA probs affirmed since no focus on that ruling

 SC

● From the pleadings and the stipulation of facts, it is ​deduced that the defendants admit the
genuineness and due execution of the instruments sued on . Neither do the appellants point
out any mistake in regard to the amount and interest that the lower court sentenced them to
pay to the plaintiff bank. Predicated on these premises, from whatever point of view we look
at the case, we arrive at the same conclusion — that the defendants are liable.

● On the first assumption that ​Maza and Mecenas were the principals and Echaus the agent​,
as argued by counsel for the appellee, the principals must fulfill their obligations. On another
assumption, which is a fact, that the defendants are exactly what they appear to be, the
makers of the negotiable instruments, then they must keep their engagement and must pay
as promised. Their liability on the instruments is primary and unconditional.

SO THE QUESTION IS WHAT ARE MAZA AND MECENAS

● Even if they’re mere accomodation parties, they’re still liable to pay

Judgment affirmed with costs.

ANTONIO ARANETA vs. PEREZ

Facts:

● On June 16, 1961, Perez executed a promissory note wherein he agreed to pay Araneta, or
order, the sum of P3,700.00, 119 days from said date, or on October 13, 1961, ​and if it is not
paid on the date of maturity, to pay interest at 9% per annum on the amount of the loan, and
P370.00 as attorney's fees in addition to costs and other disbursements taxable under the
Rules of Court.

● The note became due. Perez didn’t pay, so Araneta filed a case to collect

ANSWER

● Perez admitted the execution of the PM / his failure to pay but averred certain allegations

● Thus, Perez ​alleged that the proceeds of the note were applied by him to the payment of the
medical treatment of his minor daughter Angela Perez y Tuason, who is the beneficiary of
the trust then administered by Araneta ​as trustee in Special Proceeding No. Q-73 of the
Court of First Instance of Quezon City, and that the trust estate is bound to pay the expenses
of said treatment because they were for the ​benefit of said minor and so the personal fund
 he borrowed from Araneta and for which he executed the aforesaid promissory note should
be paid by Araneta in the manner above-stated.
● He filed a counterclaim for damages

MTC (?)

● Ordered Perez to pay amount prayed for

● Filed a motion for recon but it was denied
● He appealed BUT also filed another

HE APPEALED

● He filed a complaint in the MTC of Manila in his capacity as trustee

● He repeated the same allegations contained in the answer he interposed to the complaint of
Araneta and prayed that Araneta as trustee be required to pay Perez the amount of
P3,700.00 advanced by the latter in order to meet the obligation of the trust estate. And on
the basis of a motion to dismiss filed by Araneta as trustee, and over the opposition of Perez,
the municipal court dismissed the latter's complaint. His motion for reconsideration having
been denied, Perez appealed to the court ​a quo were his case was docketed as Civil Case
No. 50706 and where he filed an amended complaint against Araneta.

● Two cases he filed were ordered consolidated

● Affirmed the judgment of the other MTC

APPEALED:

● The promissory note signed by appellant clearly states that he agreed to pay Araneta
or order the sum of P3,700.00 on October 13, 1961 and if the same is not paid on
said date to pay 9% interest thereon per annum until fully paid, plus the sum of
P370.00 as attorney's fees, in addition to the costs and other disbursements taxable
under the Rules of Court. Under these terms it is clear that appellant bound himself
to pay personally said promissory note which he cannot shift to another without the
consent of the payee. Such is the undertaking of the maker.

● Under Sec. 60 of the Negotiable Instruments Law, ​the maker of a promissory note
cannot escape liability ​by alleging that he spent the money for the medical treatment
of his daughter, the beneficiary of the trustee who is the payee of the note, since it is
not the ​payee’s concern to know how said proceeds should be spent, inasmuch as
that is the sole concern of the maker, and payee’s interest is merely to see that the
note be paid according to its terms.

● But even assuming for the sake of argument that what is claimed by appellant as to
how he spent the proceeds of the notes is true​, that will not exempt him from his
liability to Araneta but would merely give him some basis to claim for recoupment
against the share of the trust fund belonging to the benefited minor if it is properly
shown that there is fund coming to said minor. ​Here, no such showing was made.
 Moreover, the trust herein created merely provides for delivery to the beneficiaries of
the share that may correspond to them in the net income of the trust fund, but does
not impose upon the trustee the duty to pay any obligation or expense​s that may be
needed by said beneficiaries.
● We hold that appellant's claim is not justified considering that appellee was forced to
file the present suit in view of appellant's refusal to honor the note under
consideration. The request, therefore, for dismissal has no legal basis.