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Bothwell v. Corum, 135 Ky. 766, 123S.w. 291; Jett v. Standafer, 143
Ky. 787, 137 C.w. 513; 7 Cyc. 930; Montgomery v, Bank, 16 Ky. Law
Rep. 445; 5 Am. & Eng. Ency. 283... .
Judgment reversed, and cause remanded for new trial.
d. Effect of notice before full payment.
PAID.-Wbere the transferee receives notice of any
infirmity in the instrument or defect in the title of
the person negotiating the same before he has paid
the full amount agreed to be paid therefor, he will
be deemed a holder in due course only to the ex
tent of the amount theretofore paid by him.
Notice of defenses to a purchaser before he has acquired
title and before he has paid any portion of the purchase price
is fully operative to prevent him from being a holder in due
course. But where he receives such notice after he has par
tially paid the instrument, he is a holder in due course as to
such amount paid by him. Should he pay the remainder de
spite the notice he cannot thereafter recover such amount from
the maker because to that extent, he will be subject to the
defenses which the maker may have. The term "paid" in Sec
tion 54 includes any performance by the purchaser of the in
strument, whether such performance consists in the payment
of money, the giving of credit, the assumption of obligations,
the rendition of services, the transfer of title to property or the
performance of any other promise.P However, it applies only
where the obligation incurred by the holder of the note or bill
is such that, on discovering the infirmity thereof, he is relieved
from all further legal obligation to make further payment. It
does not apply where the holder has given for the instrument
a promise whichha must perform, in which case he would be
in the same position as one who had paid money or property at
the time of the transfer.v To illustrate:
23 Britton, op, cit ., 459.
1. Griswold v. Morrison, 200 P. 62 (1921). This rule is incorpo
rated in Sec. 3-303(c) of the Uniform Commercial Code.
Aissues a note payable to the order of B. I3v-anta to bor
roWmoney frorr, C who is willing to lend him only ifB gets X to
sign with him a note in favor of C. X agrees to do 80 on the
condition that B indorse to him p.;s note 8S collateral. So B
indorses Ns note to X. When Ns note falls due, Arefuaes to pay
X on the ground that B was guilty of fraud in procuring the
note. Subsequently, X's and B's note in favor ofC falls due and
since B has defaulted, X has to pay the full amount to C. Natu
rally, X wants now to recoup his loss by demanding payment
again from A of the first note. A invokes Section 54. X cannot
be covered by this section because when he signed the note in
favor of C, he had become unconditionally obligated to the lat
ter to pay the note when due and cannot be released from such
obligation by the mere fact that the collateral he got from B
turned out to be a result of fraud. At the time X received notice
of the fraud, he had already given full value for Ns note. He
had become a holder in due course of N8note at the time it was
negotiated to him by B. He can thus recover from A.
CASES: .... .., .
35 Wyo. 319, 249 Pac. 795 (1926)
The Wyoming Live Stock Loan Company, through its agents.
Roy and Jones, by fraud sold to GeorgeA. Pennoyer shares of its
capital stock. This stock was paid for by the purchaser's two notes
payable to the order of the seller, dated July 21, 1920 and payable
six nonths from date
On July 22, 1920, the payee negotiated the notes to the Dubois
State Bank. The bank paid for the notes by its issuance to the payee
of the notes, of its own certificate of deposit, for the full amount of
the notes, payable to the order of Wyoming Live Stock Loan Com
pany, nine months from date
At the time of its purchase of the notes the purchasing bank
had no knowledgeof the fraud whichhad been practicedby the payee
thereof upon the maker. On December 31, 1920, the WyomingLive
Stock Loan Company, as payee of the certiflcate of deposit, negoti.
ated it to the First National Bank of Cody, as collateral security for
a loan. The record did not disclose the date of the I".egotiation.
After the execution and issuance of the notes the maker learned
of the fraud which had been practiced upon him by the agents of the
payee. And when these notes matured, on January 21, 1921, and
were presented for payment by the holder, the Dubois State Bank,
the maker refused to pay and he then informed the bank of the facts'
which constituted the fraud. Thus the bank had no notice of the
defense at the time it issued its certificate of deposit but did have
notice at the time it discharged its certificate of deposit by payment
on April 28, 1921, six days after it fell due on April 22, 1921.
Ayear later, inApril1922, the indorsee of the notes, the Dubois
State Bank, sued the maker of the notes, George A. Pennoyer. The
defendant claimed that plaintiff was not a holder in due course and
, that therefore his personal defense of fraud was available as against
: the plaintiff, There was judgment fur the plaintiff. The defendant
brings err or.
KIMBALL, J . .. .
Section 3987, Wyo. C.S. 1920 (Negotiable Instruments Law,
Sec. 64), provides:
"Where the transferee receives notice of any infirmity in the
instrument or defect in the title of the person negotiat ing the same
before he has paid the full amount agreed to be paid therefor, he will
be deemed a holder in due course only to the extent of the amount
therefore paid by him."
Relying on this sect ion, tne defendant argues that the plaintiff
is not a holder in due course . The cont ent ion is that the giving of the
certificates of deposit was not payment, but only a promise to pay,
and, while the plaintiff had no notice of the fraud when it took the
notes and issued the certificates, it did have notice before it paid
anything on the certificates, and cannot be deemed a holder in due
.. . The plaintiffs testimony to show lack of notice was con
fined to the time when it took the notes and issued the certificates of
deposit, If, to avoid the effect of the statute, it was necessary for
plaintiff to prove that it had no notice of the fraud when it paid the
certificates of deposit, it failed to prove its case. But the plaintiff
was unaffected by the statute if, when it acquired the notes, it "paid
the full amount agreed to be paid therefor." . .. Section 54 is in
tended to define cases in which the holder must protect himself by
refusing to make .further payment. The section has always been con
sidered as a declaratory of the law as it existed before the enact
ment of the statute. Crawford, Neg. Ins. Law (3d Ed.) Sec. 93;
Brannan, Neg. Ins. Lsw (4th Ed.), p. 410. The law intended to be
codified is that announced in Dresser v. Missouri, etc., Co., 93 U.S.
92,23 L. Ed. 815 . . .
Dresser v, Missouri, atc., Co., supra, WIlS a clear case for appli
cation of the rule. The plaintiff had bought notes made by defendant
aggregating $10.000. Plaintiff paid on acquiring the notes $500, and
promised orally to pay the balance. Before he had paid anything
more than $500, he received notice that the notes had been obtained
from the maker by fraud. This notice was accompanied by a prohibi
tion to pay. It was held that plaintiff could recover from the maker
only $500 . This was because he could have protected himself, after
notice of fraud, by refusing to make further payment. The opinion is
carefully guarded so as not to control cases where th e purchaser has
given a negotiable instrument, as witness the following excerpts:
"It does not appear that, upon the purchase of the notes in
suit, the plHintiff gave his note or other obligation which might by
its transfer subject him to liability."
Referring to the contention that negotiabte paper. may be sold
for less that its Iace value. the court said (italics ours):
''This is true, and if the plaintiff had bought the notes in suit
for $500, before maturity and without .notice of any defense, and
paid that sum, or given his negotiable note therefor, the authorities
cited show that the whole interest in the notes would have passed to
hi.m, and he could have recovered the full amount due upon them."
When the holder has given for the paper his promise which he
must perform, as for i.nstance, when he has incurred liability to a
third person, it is quite clenr that he is in the same position and
entitled to the same protection as one who paid for the paper in
money or property at the time of the transfer. Citizens' Bank v. Shaw,
14 S.D. 197, B4 u.w 779; Griswold v. Morrison, 53 Cal. App. 93, 200
p.62, In the California case just cited, speaking of the effect of Sec
tion 54 of the Negotiable Instruments Law, the court said:
"In our opinin this provision is applicable only where the obli
gation incurred by the holder of the note is such that, on discovering
the infirmity in the instrument, he is relieved from all further legal
obligation to make any further paym ent, as, for example, where the
note has been transferred to him in considerntion of his promise to
make future payments to his transferor. In that case, if it should
turn out that, by reason of fraud on the part of the transferor, the
maker of the note had a defense thereto, the transferee would be
under no legal obligation to pay the balance of the amount that he
had agreed to pay to his transferor for the transfer."
We think this comment may be taken as a reasonable inter
pretation of the statute. How, then, does it affect the plaintiff who
gave for the notes his negotiable certificates of deposit which were
outstanding when rlaintiff received notice of the defect in the title
of the notes? There can be no doubt that when the plaintiff gave the
certificates of deposit for the notes it took the notes for "value" within
the meaning of Sections 62 and 25 of the Negotiable Instruments
Law-the other conditions necessary to make it a holder in due course
being present-and if it was under a legal obligation to pay the cer
tificates of deposit when they bearne due, its right to protection as a
holder in due course was the same as if it had paid money for the
notes when it acquired them.
It may be argued that when the pia intiff received notice of the
fraud it could have protected itself from liability on the certificates
of deposit by enjoining their transfer or having them impounded by
the court to await a decision on the question of fraud. We believe the
duty of bringing proceedings for such a purpose was on the defen
dant. It was he who had put the notes in circulation, and it was he
who contended that.the notes had been procured by fraud. If he ex
peded to defend on the ground that plaintiff had not paid for the
notes at the time they were transferred, he ought to have inquired
as to the nature of the consideration, and would then probably have
learned that plaintiff had given for the notes its own negotiable cer
tificates of deposit. If the defendant then thought that an action
should be brought to prevent a transfer of the certificates of deposit,
it would seem that such an action ought to have been commenced by
the defendant, who was prepared to assert and prove the fraud.
Adams v. Soule, 33 Vt . 538, 660. Had the plaintiff purpoaely con
cealed from defendant the fact that the notes had been taken in
exchange for certificates of deposit, and thus deprived the defen
dant of the opportunity to steps to protect himself, the case
might assume a different aspect. Simmons v. Hodges, 260 F. 424,
427, 162 C.CA 494. When plaintiff was notified of the fraud, it had
no way of knowing that its certificates of deposit had not already
been transferred to holders 'in due course. An inquiry to ascertain
where the certificates were might have been a signal for their trans
fer. Even the commencement of an action for injunction against the
then holder might have been ineffectual. Southard v. Lantharn, 18
N.M. 603, 138 P. 206, 60 L.R.A (N.S.) 871, and note. In hringing
such an action the plaintiff would have to decide at his peril that
defendant's claim of fraud was true and face the burden of proving
it. We cannot believe that the plaintiff was required to embroil itself
in such litigation. See Duncan v. Gilbert, 29 N.J. Law 521, 640. Cases
directly in point on this question are not numerous. Where a check
had been given for the note in suit, it is held that the drawer of the
check had no duty of stopping payment on the check after notice of
fraud in the note. Matlock v. Scheuerman, 51 Ore. 49,93 P. 823, 17
L.R.A. (N.S.) 747; Miller v, Marks, 4& Utah. 257, 148 P. 412;
Reitherman v. VI heeler (Mo. ApP.) 247 SW. 222. The reasoning in
those cases supports fully our views in this.
We come now to what was necessary to be proved by
the plaintiff to show that it was not affected by Section 54 of the
Negotiable Instruments Law.
When the notes matured and plaintiff's cause of action accrued,
the certificates of deposit were still outstanding and not yet due. If
plaintiff's status were to be determined by the conditions at that
time, there would be authority for holding that it was a holder in
due course and not affected by Section 54. Duncan v. Gilbert, 29 N.J.
Law 521, 639; Howlett v. Fitzgibbon (City Ct. NY), 1 N.Y.S. 321;
Montgomery Garage Co. v, Manufacturers' L.I. ce, 94 N.J Law 152,
109 A. 295, 22 AL.R. 1224; Clayton v. Bank of 'East Chattanooga,
204 Ala. 64, 84 So. 271; Simmons v. Hodges, 250 F. 424, 162, C.CA
494; Ranchmen's Trust Co. v. Gill, 113 Kan. 261, 214 P. 413,417. See
Digby v. Jones, 67 Mo. 104, 108. ". '.F
But there is authority for holding that the plaintiff to avoid
the effect of Section 54, and to sustain the burden of proving that it
was a holder in due course, was required to prove that the certifl
cates of deposit had been negotiated and that the plaintiff had ei
ther paid or become liable to pay them to someone other than the
payee. This eeems to have been held or assumed to be the rule in the
following caseS: Rueh v. Mitchell, 71 Iowa, 333, 32 NW. 367; Fluegel
v. Henschel, 7 N.D. 276, 74 N.w. 996, 66 Am. St. Rep. &42; Thoma.8v.
Stone, Walk. cs. (Mich.) 117; Davis v. Ward, 109 Cal. 186, 41 P.
1010, 50 Am. St. Rep. 29; Wynn v. Carter, 20 WlS. 107; City Bank v.
Bryan, 72 W. Va. 29,78 S.E. 400; Elmore County Bank v. Avant, 189
Ala. 418, 66 So. 509; Security State Bank v. Brown, 110 Neb. 237,
193 N.W. 336; Miller v. State Savings Bank, 227 Mich. 31&, 198 N.W.
996; Cartier v. Morrison, 232 Mich. 352, 205 NW. 108.
Under any rule that can be gathered from the cases, both be
fore and since the Negotiable Instruments Law, the plaintiff's evi
dence met the burden of proof if it was sufficient to establish that
the First National Bank of Cody, to whom the certificates of deposit
were paid by the plaintiff, was a holder in due course of euch certHl.
cates. By Section 3978, C.S. Wyo. 1920 <.Negotiable Instruments Law,
Sec. 45), the negotiation' of the certificates of deposit to the First
National Bank of Cody is deemed prima facie to have been effected
before the certificates were overdue. By Section 3992, C.S. (Nego
tiable Instruments Law, Sec. 59):
"Every holder is deemed prima facie to be a holder in due course;
but when it is ahown that the title of any person who has negotiated
the instrument was defective, the burden is on the holder to prove
that he or some persou under whom he claims acquired the title as a
holder in due course."
If the plaintiff was editled to the benefit of the presumptions
declared by these statutes, particularly the presumptions stated in
the first clause of Section 60 of the Negotiable Instruments Law,
there can be no doubt that proof that the First National Bank of
Cody was the indorsee and holder of the certificates of deposit was a
prima facie showing that it was a holder in due course, and auffi
cient tojustify a finding of that fact, there being no other evidence to
require a different finding. The fact that the notes in suit had been
procured by fraud, when eatablished, or assumed, as it mu st be in
this case, destroyed the presumption that plaintiff was a holder in
due course of the notes (Glendo State Bank v. Abbott, 49 Wyo. 98,
105,216 P. 700, 34AL.R. 294), but we cannot believe that it had the
effect of destroying presumptions in favor of the First National Bank
of Cody as the holder of the certificates of deposit. The defendant,
the victim of the fraud, was not a party to the cert i fica tes of deposit.
If the plaintiff had been sued by the indorsee of the certificates of
deposit, it is at least doubtful whether the fraud practiced in obtain
ing the notes could have been set up as a defense. See Wegener v.
Emmetsburg Nat. Bank. 195 Iowa , 1267, 193 N.W: 927. We assume,
however, that the plaintiff, if sued by the indorsee of the certificates '
vf deposit, might have defended on the ground that the notes given
for the certificates of deposit were worthless, and therefore the cer
tificates of deposit without consideration. Mann v. Second-Nat. Bank,
30 Kan. 312, 1 P. 579. That defense would not have put upon the
holder of the certificates of deposi t the burden of proving that he
was a holder in due course. Failure of consideration does not render
the title defective. Brannan, supra, p. 538, and cases cited. The
indorsee of the certificates of deposit therefore, in a suit on the cer
tificatea, would have had the benefit of the presumption that it was
0. holder in due course. For reasons at least as good as plaintiff in
this case was entitled to rely upon that presumption.
We have deemed it proper to give to the last point most careful
consideration, and to state our views at some length, because a dif
ferent view, in which we regret we cannot concur, was reached by
th e Supreme Court of Michigan in the recent case of Cartier v.
Morr ison, 232 Mich. 352, 205 N.W. 108.
We think the finding of the trial court that the plaintiff was a
holder in due course was supported by the evidence and cannot be
The judgment will be affirmed.
e. Constructiue notice not sufficient.
Just as a purchaser of a negoti able instrument is not put
on inquiry, neither he is charged with notice of defenses or
equities disclosed by public records." nor is he affected by the
doctrine of lis pendens.2ll However, notice to an agent is charge
able against the principal.
92 Oki i . 96, 218 Pac. 335 (1932)
On September 6, 1916, John F. Hopkins and Myra Hopkins
executed and del ivered to the Aurelius-Swanson Co., lnc ., the payee
their negotiable note for $2,500, due December 1;" 1926. This note
was secured by mortgage and appended to said note, but not incor
porated in the body of it, was the followin g recital: "This note is
secured by first mortgage on" ... (here followed the description of
the land mortgaged). The mortgage was duly recorded on Septem
ber 6, 1916.
On November 23, 1916, the mortgagee assigned the note and
mortgage to the plaintiff, Ira T. Foster, for full value. The note Wll8
not indorsed but th e assignment of both the note and mortgage wd
accomplished solely by virtue of a separate instru:
of assign
ment. Both the note and the mortgage ins trument were relayed to
Foster. The assignment of the mortgage was dul y recorded on July
~ Metropotitan State Bank v. McNutt, 73 Colo, 291, 215 P. 151
(1923). Th is is expressly provided by Sec. 3-304(4) of the Uniform
Commercial Code .
26 First Trust & Savings Bank v. U.S. Fidelity & Guaranty Co.,
200 N.W. 848 (1924); Ross v. Title Guarsntee & Trust Co., 29 P. 2d
236 (1934).
2'T See Mechem, Agency, Sees. 1802-185 4, (2d ed. Vol. 11).
only an accommodation party." 'Ib paraphraae, the accommodation,
party is liable to a holder for value as if the contract was not for'
accommodation:iIt is not a valid defense that the accommodation
party did not receive any valuable consideration when he executed
the instrument. Nor is it correct to say that the holder for value is
not a holder in due course merely because at the time he acquired
the instrument, he knew that the indorser was only an accommoda
tion party. (Footnotes omitted.)
3. That the appellant, again assuming him to be an accom
modation indorser, may obtain security from the makej- to protect
himself against the danger of in30lvency of the latter, cannot in aw
manner affect his liabilHy to the 'appellee, as the said remedy is.a
matter of concern exclusively between aeco'mmodation indorser arid '
accommodated party "So that the fact that the appellant stands only
as a surety in relation to the maker, granting this to be true for the
sake of argument, is immaterial to the claim of the appellee, and
does not a whit diminish nor defeat the rights of the latter who is a
holder for value. The liability of the appellant remains primary and
unconditional. 'Ib sanction the appellant's theory' is to give Unwar
ranted legal recognition to the patent absurdity of a situation where
an indorser, when sued on an instrument by a holder in due course
andlfor value, can escape liability on his indorsement by the conve
nient and expedient of interpcei-ig the defense that he is a mere
accommodatior. indorser.
Accordingly, the judgm.ent a quo is affirmed in toto, at
appellant's cost.
L-17845, April 27, 1967; 19 SCRA 924
s ; ., .
On March 28, 1949, 8.eviHa, Oscar. Varona .and Simeon
Sa9liY.!'! .executed, joil)t.1y ll:pd I of the Bank of the
Philippine Islands, .or its ?rder, a promissorY note. for PI5,OOO with
interest at 6% per annum, payable on demand. The entire amount of
P15,OOO, proceeds of the promissory note, was received from the bank
by Oscar Varona alone. Victor Sevilla and Simeon Sadaya signed the
promissory not,e as co-makers only as a favor to Oscar Varona. Pay
ments were made on account. As of June 15, 1950, the outstandin!;
balance stood at P4,850. No payment was thereafter made,
On October 6, 1952, the bank collected from Sadaya the fore
going balance WhichI together with interest totaled P5,746.12. Varona
failed to reimburse Sadaya despite repeated demands.
.Victor Sevilla died. Intestate estate proceedings were started
in the Court of First Instance of Rizal, Special Proceeding No. 1518.
Francisco' Sevilla was named administrator.
In Special Proceeding No. 1518, Sadaya filed a creditor's claim
for the above sum of P5,746.12, plus attorney's fees in the sum-of
Pl,500. The administrator resisted the claim upon the averment
J hat' the,deceased Victor Sevilla "did not receive any amount as con
for the promissory note," but signed it cnly as "surety for
Oscar Varona".
x x x x x.
Sadaya's brief here seeks reversal of the appellate court's deci
sion and prays that his claim "in the amount of 50% of P5,746.12 or
P2,873.06, against the intestate estate of the deceased Victor Sevilla,"
be approved.
1. That Victor Sevilla and Simeon Sad aya were joint and sev
,acco}l1II)-?diltion makers of the PI5,OOO promissory note in favor
of the Bank of the Philippine Islands, need not be essayed. As such
accommodation makers, the individual obligation of each of them to
the .bank is no different from, and no greater and no less than that
contracted by Oscar Varona.'. 'For, .while these two did not receive
value onthe promissory note,' they executed the same with, and for
the' purpose of lending their names to, Oscar Varona. Their liability
to the bank upon the explicit terms of the promissory note is joint
and several. Better yet, the bank could have pursued its right to
collect the unpaid balance against either Sevilla or Sadaya. And the
fact is that one of the last two, Simeon Sadaya, paid that balance.
2. It is beyond debate that Simeon Sadaya could have sought
reimbursement of the total amount paid from Oscar Varona. This is
but right and just. Varona received full value of the promissory note.
Sadaya received tberefrom.' He paid the bank because he
" If ' " . . " , .
was joint and several obligor. The .least that can be said is that, as
between Varona and Sadaya, there is an implied contract of indem
6ity: And Varona is bound by the obligation to reimburse Sadaya.
. , 3. The common creditor, the Bank of the Philippine Islands,
now out of the way, we first look into the relation inter se amongst
the three cosigners of the promissory note. Their relation vis-a-vis
the Bank, we repeat, \S that of joint and several obligors. But can
the same thing be said about the relations of the three cosigners in
respect to each other?
Surely enough, as amongst the three, the obligation of Varona
and Sevilla to Sadaya who paid cannot be joint and several. For
indeed, had, payment been made by Oscar Varona, instead of Simeon
Sadaya, could not have had reason to seek reimbursement
from Sevilla or Sadaya, or both. After all, the proceeds of the
u . , .. :. .. .
loan went to Varona and the other two received nothing therefrom.
. 4. On' principle, a solidary accommodation made
payment-has the right to contribution, from his cc-accommodatioii
maker, in the absence of agreement to the contrary between' them,
and subject to conditions imposed by law. This right springs from an
implied promise between the accommodation makers to share equally
the burdens that may ensue from their having consented to stamp.
their signatures on the promissory note, For having lent their signa
tures to the principaldebtor, they clearly placed themselves-in so
far as payment made by one may create liability on the other-in the
category of mere joint guarantors of the former. This is as it should
be. Not one of them benefited by the promissory note . They stand 0(1
the same footing. In misfortune, their burdens should be equally
spread. ,
x x x x x x.
5. And now, to the requisites before one accommodation maker
can seek reimbursement from a co-accommodation maker. ,
By Article 18 of the Civil Code, in matters not covered by spe
cial laws, "their deficiency shall be supplied by the provisions of this
Code." Nothing extant in the Negotiable Instruments Law would
define the right of one accommodation maker to seek
merit from another. Perforce, we must go to the Civil Code.
Because Sevilla and Sadaya, in themselves, are but co-guar
antors of Varona, their case comes within the ambit of Article 2073
of the Civil Code which reads:
"Art . 2073 , When there are two or more guarantors of the
same debt, the one among them who has paid may demand of each
I If the others the share which "is pr'oportionaUy'owing' from him ,
I If any of the guarantors should be insolvent, the share shall be
borne by the others, including the payer, in the same proportion.
' The provisions of this alticl.e shall not be applicable, the
payment has been made in uirtue of a judicial demand or unless the
principal debtor is insolvent."
x x x x x.
All of the foregoing postulate the following rules: (1) A joint
and several accommodation maker of a negotiable promissory note
may demand from the principal debtor reimbursement for the amount
that he paid to the 'payee; and (2) a joint and several accommodation
maker who pays on the said promissory note may directly demand
reimbursement from hill co-a<.:commodation maker without first di
recting his action against the principal debtor provided that (a) he
made the payment by virtue of a judicial demand or (b) th e principal
debtor is insolvent.
The Court of Appeals found that Sadaya'a payment to the bank
"was made voluntarily and without any judicial demand," and that
"there is an absolute absence of evidence showing that Varona is
insolvent ." This combination of fact and lack of fact epitomizes the
fatal distance between payment by Sadaya and Sadaya's right to
demand of Sevilla "the share which is proportionately owing from
For the reasons given, the judgment of the Court of Appeals
under review is hereby affirmed. No costs.
L-34339 July 1, 1986; 143 SCRA 7
This is a petition for review seeking to annul and set aside the
decision of the Court of Appeals, now the Intermediate Appellate
Court, affirming that order of the trial court which dismissed the
petitioners' complaint for cancellation of their real estate mortgage
and held them jointly and severally liable with the principal debtors
on a promissory note which they signed as accommodation makers.
The factual background of this case is atated.jn the decision of
the appellate court: '
"Appellants are the registered owners of a parcel of land lo
cated in Sarnpaloc, Manila, and covered by T.C.T. 35161 of the Reg
ister of Deeds of Manila. On October 7, 1954, this property was
mortgaged by the appellants to the Philippine National Bank, here
inafter called PNB, to guarantee a loan ofPt,OOO.OO extended to one
Domingo Prudencio.
"Sometime in 1955, the Concepcion & Tamayo Construction
Company, hereinafter called Company, had a pending contract with
the Bureau of Public Works , hereinafter called the Bureau, for the
construction of the municipal building in Puerto Princesa, Palawan,
in the amount of P36,800.00 and, as said Company needed funds for
said construction, Jose Toribio, appellant's relative, and attorney
in-fact of the Company, approached the appellants asking them to
mortgage their propertyto secure the loan of P10,000.00 which the
Company "as negotiating with the PNB.
"After some persuasion appellants signed on December 23, 1955
the 'Amendment of Real Estate Mortgage', mortgaging their said
property to the PNB to guaranty the loan of PI0,OOO.OO extended to
the Company. The terms and conditions of the original mortgage for
L-70145, November 13, 1986; 145 SCRA 499
x x x.
Respondent Jose Go, on December 29, 1983, purchased from
Associated Bank CaShier'a Check No. 011302 for P800,OOO.OO. Un
fortunately, Jose Go left said check on top of the desk of the bank
manager when he left the bank. The bank manager entrusted the
check for safekeeping to a bank official, a certain Albert Uy, who had
then a visitor in the per son of Alexander Lim . Uy had to answer a
phone call on a nearby telephone after which he proceeded to the
men's room. When he returned to his desk, his visitor Lim Was al
ready gone. When Jose Goinquired for his cashier's check from Albert
Uy, the check Was not in his folder and nowhere to be found. The
latter advised Jose Go to the bank to accomplish a "STOP PAYMENT"
order, which suggestion Jose Go immediately followed. He also ex
ecuted an affidavit of loss. Albert Uy went to the police to report the
loss of the check, pointing to the person of Alexander Lim as the one
who could shed light on it.
The records of the police show that Associated Bank received
the lost check for clearing on December 31, 1983, coming from Pru
dential Bank, Escolta Branch. The check was immediately dishon'
ored by Associated Bank by sending it back to Prudential Bank, with
the words "Payment Stopped" stamped on it . Howevel; the same
was again returned to Associated Bank on January 4, 1984 and for
the second time ic was dishonored. Several days later, respondent
Associated Bank received a retter, dated January 9, 1984, from a
certain Atty. Lorenzo Navarro demanding payment on the cashier 's
check in question, which was being held by his client . He however
refused to reveal the name of his client and threatened to sue, if
payment is not made. Respondf:<nt bank, in its lettel; dated January
20, 1984, replied saying the check belonged to Jose Go who lost it in
the bank and is laying claim to it.
On February I, 1984, police sent a letter to the Manager of
Prudential Bank, Escolta Branch, requesting assistance in identify- _
ing the person who tried to encash the check but said bank refused'
saying that it had to protect its client's interest and the identity
could only be revealed with the client's conformity. Unsure of what
to do with the matter, respondent Associated Bank on February 2,
1984 filed an action for lnter'pleader naming as respondent, Jose Go
and one John Doe, Atty. Navarro's then unnamed client. On even
date, respondent bank received summons and copy of the compliant
for damages of a certain Marcelo A. Mesina from the Regional Trial
Court (RTC) of Caloocan City filed on January 23, 1984 bearing the
number C-11139. Respondent bank moved to amend its complaint,
having been notified for the first time of th e name of Atty. Navarro's
client and substituted Marcelo A. Mesina for John Doe. Simulta
neously, respondent bank, thru representative Albert Uy, informed
Cpl. Gimao of the Western Police District that the lost check of Jose
Go is in the possession of Marcelo A. Mesina, herein petitioner. When
Cpl. Gimao went to Marcelo A. Mesina to ask how he came to pos
sess the check, he said it was paid to him by Alexander Lim in a
"certain transaction" but refused to elucidate further. An informa
tion for theft (Annex J) wss instituted against Alexander Lim and
the corresponding warrant for his arrest was issued (Annex 6-A)
which up to the date of the filing of this instant petition remains
unserved because of Alexander Lim's successful evasion thereof.
Meanwhile, Jose Go filed his answer on February 24, 1984 in
the Interpleader Case and moved to participate as intervenor in the
complaint for damages. Albert Uy filed a motion for intervention
and answer in the complaint for Interpleader. On the scheduled date
of pretrial conference in the interpleader case, it was disclosed that
Doe" impleaded as one of the defendanra is actually peti
tioner Marcelo A. Mesina. Petitioner instead of filing his answer to
the complaint in the interpleader filed on May 17, 1984 an Omnibus
Motion to Dismiss Abudante Cautela alleging lack of jurisdiction
in view of the absence of an order to litigate, failure to state a cause
of action and lack of personality to sue. Respondent bank in the
other civil case (CC-11l39) for damages moved to dismiss suit in
view of the existence already of the Interpleader case .
The trial court in the interpleader case issued an order dated
July 13, 1984, denying the motion to dismiss of petitioner Mesina
and ruling the respondent bank's complaint sufficiently pleaded a
cause of action for interpleader. Petitioner filed his motion for reo
consideration which was denied by the trial court on September 26,
1984. Upon motion for respondent Jose Go dated October 31, 1984,
respondent judge issued an order on November 6, 1984 declaring
petitioner in default since his period to answer has already expired
and set the ex-parte presentation of respondent bank's evidence on
November 7, 1984.
Petitioner Mesina filed a petition for certiorari with prelimi
nary injunction with lAC to set aside 1) order of respondent court
denying his omnibus Motion to Dismiss 2) order of respondent court
denying his Motion for Reconsideration and 3) order of default against

On January 22, 1985, LAC rendered its decision dismissing
the petition for certiorari. Petitioner Mesina filed his Motion for
Reconsideration which was also denied by the same court in its reso
lution dated Fermary 18, 1985.
Meanwhile, on same date (February 18, 1985), the trial court
in Civil Case No. 84-22515 (Interpleader) rendered a decision, the
dispositive portion reading as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby
rendered ordering plaintiff ASSociated Bank to replace Cashier's
Check No. 011302 in favor of Jose Go or its cash equivalent with
legal rate of interest from date of complaint, and with costs of suit
against the latter.
On March 29, 1985, the trial court in Civil Case No. C-l1l39,
for damages, issued an order, the pertinent portion of which states:
"The records of this case show that on August 20, 1984 pro
ceedings in this case was (were) ordered suspended because the main
issue in Civil Case No. 8'422515 and in this instant case are the
same which is: who between Marcelo Mesina and Jose Go is entitled
to payment of Associated Bank's Cashier's Check No. CC-01I3027
Said issue having been resolved already in Civil Case No. 84
really this instant case has become moot and academic.
WHEREFORE, in view of the foregoing, the motion should be
as it is hereby granted and this case is ordered dismissed.
In view of the foregoing ruling no more action should be taken
on the "Motion For Reconsideration (of the Order admitting the In
tervention)" dated June 21,1984 as well as the Motion for Reconsid
eration dated September /J.O, 1984.
Petitioner now comes to Us, alleging that:
1. LAC erred in ruling that a cashier's check can be Counter
manded even in the hands of B holder in due course.
2. LAC erred in countenancing the filing and maintenance of
an interpleader suit by a party who had earlier been sued on the
same claim.
3. rAC erred .in UPhOlding the trial court's order declaring
petitioner as in def9ult when there was no proper order for him to
plead the interpleader complaint.
4. rAC went beyond the scope of its certiorari jurisdiction by
making findings of facts in advance of trial.
Petitioner now interposes the following prayer:
1. Reverse the decision of the lAC, dated January 22, 1985
and set aside the February 18, 1985 resolution denying the Motion
for reconside ration. .
2. Ann ul the orders of respondent Judge of RTC Manila giv
ing due course to the interpleader suit in declaring petitioner in
Petitioner's allegations hold no water. Theories and examples
advanced by petitioner on causes and effects of a cashier's check
such 8S 1) it cannot be countermanded in the hands of a holder in
due course and 2) a cashier's check is a bill of exchange drawn by
the bank against itself-are general principles which cannot be aptly
applied to the case at bar, without considering other things. Peti
tioner failed to substantiate his claim that he is a holder in due
course and for consideration or value as shown by the established
facts of the case. Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who stole the check.
.refused to say how and why it was passed to him . He had there
fore .notice of the defect of his title over the check from the start. The
holder of a cashier's check who is not a holder in due course cannot
.enforce such check .against the issuing-bank wH.'i'th"dishonors the.
'.If a payee of a cashier's check obtained it from the issuing
bank by fraud, or if there is some other reason why the payee is not
entitled to collect the check, the respondent bank would, of course,
have the right to refuse payment of the check when presented by the
payee, since respondent bank was aware of the facts surrounding
the loss of the check in question. Moreover, there is no similarity in
the cases cited by petitioner since respondent bank did not issue the
cashier's check in payment of its obligation. Jose Go bought it from
respondent bank for purposes of transferringhis funds from respon
dent bank to another bank near his establishment realizing that
carrying money in this form is safer than if it were in cash. The
check was Jose Go's property when it was misplaced or stolen, hence
he stopped its payment. At the outset, respondent bank knew it was
Jose Go's check and no one else since Go had not paid or indorsed it
toanyone. r'I'he bank was therefore liable 'to nobody ori'the checkbut
Jose Go. The bank had no intention to issue it to petitioner but only
to buyer Jose Go. When payment on it wa s therefore stopped, re
spondent bank was nOL the one who did it but Jose Go, the owner of
the check. Respondent bank could not be drawer and drawee for
clearly, Jose Go owns the money it represents and he is therefore
the drawer and the drawee in the same manner as ifhe has a cur
rent account and he issued a check against it; and from the moment
said cashier's check was lost and/or stolen no one outside of Jose Go
can be termed a holder in due course because Jose Go had not
indorsed it in due course . The check in question suffers from the
infirmity of not having been properly negotiated and for value by
respondent Jose Go who as already been said if' the real owner of
said instruments.
In his second assignment of error, petitioner stubbornly in
aiats that there is no showing of conflicting claims and interpleader
is out of the question. There is enough evidence to establish the con
trary. Considering the aforementioned facts and circumstances, re
spondent bank merely took the necessary precaution not to make a
mistake as to whom to pay and therefore interpleader was its proper
remedy. It has been shown that the interpleader suit was filed by
respondent because petitioner and Jose Go were both laying their
claims on the check, petitioner asking payment thereon and Jose Go
as the purchaser or owner. The allegation of petitioner that respon
dent bank had effectively relieved itself of its primary liability un
der the check by simply filing a complaint for interpleader is belied
by the willingness of respondent bank to issue a certificate of time
deposit in the amount of P800,OOO representing the cashier's check'
in question in the name of the Clerk of Court of Manila to be awarded
to whoever will be found by the court as validly entitled to it. Said
validity will depend on the strength of the parties' respective' rights
and titles thereto. Bank filed the interpleader suit not because peti
tioner sued it but because petitioner is laying claim to the same
check that Go is claiming. On the very day that the bank instituted
the case in interpleader, it was not aware of any suit for damages
filed by petitioner against it as supported by the fact that the
interpleader case was first entitled Associated Bank vs. Jose G<> and
John Doe, but later on changed to Marcelo A Mesina for John Doe
when his name became known to respondent bank.
In his third assignment of error, petitioner assails the then
respondent IAC in upholding the trial court's order declaring peti
tioner in default when there WB.$ no proper order for him to plead in
the interpleader case . Again, such contention is untenable. The trial
court issued an order, compelling petitioner and respondent Jose Go
to file their Answers setting forth their respective claims. Subse
quently, a Pre-Trial Conference was set with notice to parties to sub
mit position papers. Petitioner argues in his memorandum that this
order requiring petitioner t o file his answer was issued without ju
risdiction alleging that since he is presumably a holder in due course
and for value, how can he be compelled to litigate against Jose Go
who is not even a party to the check? Such argument is trite and
ridiculous if we have to consider that neither his name or Jose Go's
name appears on the check. Following such line of argument, peti
tioner is not a party to the check either and therefore had no valid
claim to the Check. Furthermore the Order of the trial court requir
ing the parties to me their answers is to all intents and purposes an
order to interplead, substantially and essentially and therefore in
compliance with the provisions of Rule 63 of the Rules of Court.
What else 1S the purpose of a law suit but to litigate?
The records of the case show that respondent bank had to re
sort to details in support of its action for Interpleader. Before it re
sorted to Interpleader, respondent bank took all precautionary and
necessary measures to bring out the truth. On the other hand, peti
tioner concealed the circumstances known to him and now that pri
vate respondent bank brought th ese circumstances out in court
(which eventually rendered its decision in the light of these facts),
petitioner charges it with "gratuitous e:x:cursions in these non-is
sues." Respondent lAC cannot rule on whether respondent RTC com
mitted an abuse of discretion or not, without being apprised of the
facta and reasons why respondent Associated Bank instituted the
Interpleader case. Both parties were given an opportunity to present
their sides. Petitioner chose to withhold substantial facts. Respon
dents were not forbidden to present their side-J.9-
.is the purpose
of the Comment of respondent to the p'etition , IAC decided the ques
tion by considering both the facts submitted by petitioner and those
given by respond.ents. IAC did not act therefore beyond the scope of
the remedy sought in the petition. '
WHEREFORE, finding that the instant petition is merely dila
tory, the same is hereby denied and the as sailed orders of the reo
spondent court are hereby affirmed in toto.
NOTE: The clear implication from th e case is that if Mesina
had been a holder in due course, the Court would have granted recov
ery. Wha.t provisions of the NIL would justify such a. recovery? Would
not the defense of Go be available against a holder in due course?
Why 1
b. Certification and its effects.
FECT OF.-Where a check is certified by the bank
on which it is drawn, the certification is equiva
lent to an acceptance.