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For Digest: Negotiable Instruments By: Nicolas D. Aranilla, Jr.

26. 27. 28. 32.

Tan Jua Sia vs. Yu Biao 56 Phil 707 ( Liability of Maker) FEBTC vs. Gold Palace Jewelry Co. 562 SCRA 604 ( Liability of Drawer) Araneta vs. Perez 14 SCRA 498( Liability of Drawer/Maker) Bank of America vs. ACB 588 SCRA 51( Real Mortgage)

************************************************************************************** 1. Tan Jua Sia vs. Yu Biao FACTS: Tan Tua Sia and the other plaintiffs are the widow and children of Sebastian Sontian. The latter was formerly a partner of Yu Biao. Upon the death of Sebastian Sontian differences arose between his heirs and the partnership Yu Biao as to the amount the heirs should receive for Sebastian Sontian's share in the said company. Finally they agreed to liquidate the accounts of Sebastian Sontian and it was discovered that his share amounted in September, 1925 to P45,260.78; but deducting from this the sums he had on different occasions received, which in all amounted to P17,017.38, his share was reduced to P28,243.40. This sum was left in the hands of Yu Biao as a loan payable within five years, bearing interest at 14 per cent per annum. It was to secure the payment of this amount that a promissory note was executed, the makers binding themselves to pay the plaintiffs jointly and severally the sum of P28,243.40 according to the terms of said note. The signatories of the promissory note as co-makers were YU BIAO SONTUA HERMANOS & CO. Per (Sgd.) YU BIAO SONTUA, Manager. (Sgd.) YU BIAO SONTUA (Sgd.) FEDERICO GOTUA. Witnesses: (Sgd.) YU LIU PUANG. (Sgd.) LUIS EGAY." The court rendered decision ordering the assignee of the insolvency of the defendants Yu Biao Sontua Hnos. y Cia. and Yu Biao Sontua, and the defendant Federico Gotua to pay the plaintiffs jointly and severally the sum of P28,243.40 plus the stipulated interest at the rate of 14 per cent per annum from September 31, 1927 until fully paid; to pay, as penalty by way of attorney's fees and costs of collection an amount equivalent to 9 per cent of P28,243.40 and finally to pay the costs. The defendant Federico Gotua filed an answer to the complaint, wherein, after entering a general and specific denial of the allegations of the complaint that he was deceived by Yu Biao at the time he signed the promissory note and he did not know the contents of the documents he signed. ISSUE: Whether or not, Federico Gotua as co-maker of the promissory note is relieved from his obligation on the promissory note? HELD: Yes. Inasmuch as the appellant is of age and a business man, he is presumed to have acted with due care, and to have signed the document in question with full knowledge of its contents. And this presumption of law is not overcome by the evidence adduced by the appellant, consisting in his own testimony. There being no evidence of fraud, and the appellant having admitted the genuineness of his signature on the promissory note in question, the same must be given its legal effects. ************************************************************************************ 2. FEBTC vs. Gold Palace Jewelry Co FACTS: Samuel Tagoe, a foreigner, purchased from Gold Palace (SM North) jewelries worth P258,000.00. As payment, he offered a foreign draft issued by the United Overseas Bank of Malaysia addressed to Land Bank, and payable to Gold

Palace for P380,000.00. Judy Yang, the assistant GM of Gold Palace inquired from Far East Bank (SM North) regarding the drafts nature. The teller told her that it was similar to a managers check but advised her not to release the jewelry until the draft has been cleared. Following the advice, Yang issued a cash invoice to Tagoe & told him that the jewelries would be released when the draft had been cleared. Julie Yang-Go, the manager of Gold Palace, deposited the draft in thecompanys account with Far East Bank SM North and presented it for clearing to LBP, the drawee bank, who cleared the same. United Overseas account with LBP was debited and Gold Palaces account with Far East was credited with the amount stated in the draft. The pieces of jewelry were then released to Tagoe and because the amount in the draft was more than the value of the goods, a check for PHP 122,000 was issued to him. It was encashed by Tagoe. 3 weeks after, Land Bank informed Far East that the amount in the foreign draft had been materially-altered from PHP 300.00 to PHP 380,000.00 and that they will be returning it. Far East thus refunded the amount paid by Land Bank and had to seek reimbursement from Gold Palace but they were only able to debit PHP 168,053.37, which was done without a prior written notice to Gold Palace as they only informed them by phone. They thus demanded the difference of PHP 211,946.64 from Gold Palace. As the latter did not respond favorably, Far East instituted a civil case for the balance of P211,946.64 sum of money and damages. Gold Palace denies the allegations in the complaint and claims as their defense that the subject foreign draft has been cleared and it was not they who caused the alteration. The RTC ruled in favor of Far East but this was reversed by the CA as Far East failed to undergo the proceedings on the protest and thus, Far East could not charge Gold Palace on its secondary liability as an indorser. It further said that the drawee bank had cleared the check and its remedy should be against the part responsible for the alteration. ISSUE: WHETHER OR NOT FAR EAST BANK COULD PROCEED AGAINST GOLD PALACE. HELD: No. The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance. This provision applies with equal force in case the drawee pays a bill without having previously accepted it. His actual payment of the amount in the check implies not only his assent to the order of the drawer and a recognition of his corresponding obligation to pay the aforementioned sum, but also, his clear compliance with that obligation. Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to pay. The payment of a check includes its acceptance. Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the collecting bank. Land Bank was liable on its payment of the check according to the tenor of the check at the time of payment, which was the raised amount. Thus, Land Bank could no longer repudiate the payment it erroneously made to a due course holder. Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due courseit received the draft complete and regular on its face, before it became overdue and without notice of any dishonor, in good faith and for value, and absent any knowledge of any infirmity in the instrument or defect in the title of the person negotiating it. *************************************************************************************** 3. Araneta vs. Perez 14 SCRA 498 FACTS: On June 16, 1961, Antonio M. Perez executed a promissory note wherein he agreed to pay J. Antonio 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 having become due and Antonio M. Perez having failed to pay it despite demand made upon him to do so, Araneta filed on October 31, 1961 a complaint in the Municipal Court of Manila to collect its import under the terms therein stipulated. Perez alleged that the proceeds of the note was 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.

ISSUE: Whether or not the maker of the note is bound himself to pay personally the promissory note? HELD: Yes. Under Section 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.

*************************************************************************************** 4. Bank of America vs. Associated Citizens Bank FACTS: BA-Finance Corporation granted Miller Offset Press, Inc. a credit line facility through which the latter could assign or discount its trade receivables with the former. The representatives of Miller (Uy Kiat Chung, Ching Uy Seng, and Uy ChungGuan Seng) executed a Continuing Suretyship Agreement with BA-Finance whereby they jointly and severally guaranteed the full and prompt payment of any and all indebtedness which Miller may incur with BA-Finance. Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of Assignment in favor of the latter and in consideration thereof, BA-Finance issued four checks payable to the order of Miller with the notation "For Payees Account Only and were drawn against Bank of America. The four checks were deposited by Ching Uy Seng in Associated Citizens Bank with his joint account with Uy Chung Seng and the bank stamped the checks and guaranteed all prior endorsements and/or lack of endorsements and sent them through clearing. Later, Bank of America as drawee bank honored the checks and paid the proceeds to Associated Bank as the collecting bank. When Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables, BA-Finance filed a collection suit against Miller and impleaded the three representatives of the latter. Miller, Uy Kiat Chung, and Uy Chung Guan Seng filed a joint answer with cross-claim against Ching Uy Seng, wherein they denied that (1) they received the amount covered by the four Bank of America checks, and (2) they authorized their co-defendant Ching Uy Seng to transact business with BA-Finance on behalf of Miller. Uy Kiat Chung and Uy Chung Guan Seng also denied having signed the Continuing Suretyship Agreement with BA-Finance. BAFinance filed an Amended Complaint impleading Bank of America as additional defendant for allegedly allowing encashment and collection of the checks by person or persons other than the payee named thereon. Ching Uy Seng did not file his Answer to the complaint. Bank of America filed a third party complaint against Associated Bank. In its answer to the third party complaint, Associated Bank admitted having received the four checks for deposit in the joint account of Ching Uy Seng and Uy Chung GuanSeng, but alleged that Ching Uy Seng, being one of the corporate officers of Miller, was duly authorized to act for and on behalf of Miller. RTC rendered judgment ordering Bank of America to pay BA-Finance the value of the four checks. CAaffirmed the trial courts ruling with modification that Associated Bank shouldreimburse Bank of America. ISSUES: Whether or not Bank of America is liable to pay BA-Finance and Whether or not Associated Bank should reimburse Bank of America the amount of four checks? HELD: Yes. The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the contract between the bank and its customer(drawer), to pay the check only to the payee or the payees order. The drawers

instructions are reflected on the face and by the terms of the check. When the drawee bank pays a person other than the payee named on the check, it does not comply with the terms of the check and violates its duty to charge the drawers account only for properly payable items. On the part of Associated Bank, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct. In presenting the checks for clearing and for payment, the defendant [collecting bank] made an express guarantee on the validity of "all prior endorsements." Thus, stamped at the back of the checks are the defendants clear warranties. As the warranty has proven to be false and inaccurate, Associated Bank is liable for any damage arising out of the falsity of its representation