Philippine National Bank vs.

Seeto G.R. No. L-4388 (August

1952)

FACTS:

On March 13, 1948, Benito Seeto presented to the Philippine National

Bank at Surigao a check in the amount of P5,000, payable to cash or bearer, and
drawn by one Gan Yek Kiao against the Cebu branch of the Philippine National
Bank of Communications. After consultation with the bank employees, Seeto
made a general and unqualified endorsement of the check, which was accepted
by PNB’s agency, which paid Seeto the value of the check therefore. Upon being
presented to the drawee bank for payment, however, the check was dishonored
for “insufficient funds.” PNB demanded refund from Seeto. Seeto, however,
refused, claiming that at the time of the negotiation of the check, the drawer had
sufficient funds in the drawee bank, and had not PNB delayed in forwarding the
check until the drawer’s funds were exhausted, the same would have been paid.

PNB alleged that Seeto gave assurances that the drawer of the check had
sufficient funds with the bank, and that Seeto had made a general and unqualified
indorsement thereon. As evidence, PNB presented two witnesses at the trial, who
testified that the check was cashed due to assurances given by Seeto and the
promise that he would refund the amount paid by PNB should the check be
dishonored.

ISSUE:

WON should parole evidence with respect to the verbal assurances made by
Seeto be admitted as evidence.

HELD:

Yes. It has been held that any prior or contemporaneous conversation in

connection with a note or its indorsement may be proved by parole evidence.
An extrinsic agreement between indorser and indorsee which cannot be
embodied in the instrument without impairing its credit is provable by parole. If,
therefore, the supposed assurances that the drawer had funds and that the Seeto
would refund the amount of the check if the drawer had no funds, were the
considerations or reasons that induced the branch agency of PNB to go out of
its ordinary practice of not
cashing out of town checks and accept the check and to pay its face value, the
same would be provable by parole, provided, of course, that the assurances or
inducements offered would not vary, alter, or destroy the obligations attached
by law to the indorsement.

However, in this case, there was no express obligation assumed by Seeto

that the drawer would always have funds, or that he would refund the amount of
the check even if there was delay in its presentation. Therefore, though the
supposed assurances given were part of Seeto’s obligation as an indorser, such
assurances were discharged by the unreasonable delay in the presentation of the
check for payment.

DOCTRINE:

Any prior or contemporaneous conversation in connection with a note or

its indorsement may be proved by parole evidence. An extrinsic agreement
between indorser and indorsee which cannot be embodied in the instrument
without impairing its credit is provable by parole.