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Law 108: Negotiable Instruments

First Semester

AY 2008-09

Prof. Rogelio V. Quevedo


411 SCRA 462; AUSTRIA-MARTINEZ; Sept. 23, 2003 ~lora~ FACTS -Astro was granted several loans by the Philippine Trust Company amounting to P3,000,000.00 with interest and secured by three promissory notes. -In each promissory notes, petitioner Roxas signed twice, as President of Astro and in his personal capacity. Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety. -Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astro’s loan, subject to the condition that upon payment by Philguanrantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro. -As a result of Astro’s failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of Makati. -In his Answer, Roxas disclaims any liability on the instruments, alleging that he merely signed the same in blank and the phrases “in his personal capacity” and “in his official capacity” were fraudulently inserted without his knowledge. -The RTC rendered its decision in favor of Philguarantee observing that if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then he should have signed only once in the promissory note. -CA affirmed the RTC decision agreeing with the trial court that Roxas failed to explain satisfactorily why he had to sign twice in the contract and therefore the presumption that private transactions have been fair and regular must be sustained. ISSUE WON Roxas should be jointly and severally liable (solidary) with Astro for the sum awarded by the RTC. HELD YES. Astro’s loan with Philtrust Bank is secured by three promissory notes. These promissory notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as

president of Astro and second, in his personal capacity. In signing his name aside from being the President of Asro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from it. -Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers, promising that they will pay to the order of the payee or any holder according to its tenor. Thus, even without the phrase “personal capacity,” Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal. -Unnoticed by both the trial court and the Court of Appeals, a closer examination of the signatures affixed by Roxas on the promissory notes, readily reveals that portions of his signatures covered portions of the typewritten words “personal capacity” indicating with certainty that the typewritten words were already existing at the time Roxas affixed his signatures thus demolishing his claim that the typewritten words were just inserted after he signed the promissory notes. If what he claims is true, then portions of the typewritten words would have covered portions of his signatures, and not vice versa. -As to the third promissory note, the copy submitted is not clear so that this Court could not discern the same observations on the notes. - The 3 promissory notes uniformly provide: “FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK or order...” -An instrument which begins with “I”, “We”, or “Either of us” promise to pay, when signed by two or more persons, makes them solidarily liable. Also, the phrase “joint and several” binds the makers jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. Having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro. Roxas’ claim that the phrases “in his personal capacity” and “in his official capacity” were inserted on the notes without his knowledge was correctly disregarded by the RTC and the Court of Appeals. It is not disputed that Roxas does not deny that he signed the notes twice. Roxas failed to prove the truth of such allegations. Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not equivalent to proof under our Rules of Court. -Roxas is a businessman who is presumed to take

ordinary care of his concerns. Clearly, he knew the nature of the transactions and documents involved as he not only executed these notes on two different dates but he also executed, and again, signed twice, a “continuing Surety ship Agreement” notarized on July 31, 1981, wherein he guaranteed, jointly and severally with Astro the repayment of P3,000,000.00 due to Philtrust. Such continuing suretyship agreement even re-enforced his solidary liability Philtrust because as a surety, he bound himself jointly and severally with Astro’s obligation. -Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of Philtrust to demand for and collect payment from both Roxas and Astro since it already paid the value of 70% of the loan obligation. -Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Instances of legal subrogation are those provided in Article 1302 of the Civil Code. Conventional subrogation, on the other hand, is that which takes place by agreement of the parties. -Roxas’ acquiescence is not necessary for subrogation to take place because the instant case is one of the legal subrogation that occurs by operation of law, and without need of the debtor’s knowledge. Further, Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against Roxas and Astro because the “guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.” Disposition Decision of the Court of Appeals AFFIRMED in toto.

FACTS -Jesus de Anduiza & Quinatana Cano borrowed money from the Agricultural and Industrial Bank (now RFC), as evidenced by a promissory note dated October 31, 1941. In said note, they promised to pay the AIB, or order, on or before October 31, 1951, the sum of P13,800.00, with interest at the rate of 6% p.a.. Said 94 Phil. 984; CONCEPCION; May 14, 1954 ~marge~

NO -Golden Savings had no clearing facilities of its own.755M. on the other hand. unless it was made against his express will. but to the execution of the deed of cancellation of the mortgage constituted in favor of said institution. February 28.425. -Jan. -In answer. and whether the payment is known and approved by the debtor or whether he is unaware of it. 1979.all in Spanish! I will not attempt to translate them. in view of the provision of the note relative to the payment in ten (10) annual installments. 19. that the makers or debtors were entitled to make a complete settlement of the obligation at any time before said date. totaling P1. 1979: Eduardo Gomez opened an account with Golden Savings and deposited over a period of 2 months 38 treasury warrants totaling P1. totaling P968. Anduiza. hence not valid. Hence this appeal by certiorari. Golden savings subsequently allowed Gomez to make withdrawals from his own account. Hence: (1) The good or bad faith of the payor is immaterial.168M from the proceeds of the apparently cleared warrants. vested by law without any qualification. Mucius Scaevola and Sanchez Roman . the same was not yet due and demandable. Estelito Madrid (who temporarily lived in the house of Anduiza) offered to pay and actually paid on October 30. Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. They were sent for clearing by the branch office to the principal office of Metrobank. -More than two weeks after the deposits. WON CA erred in holding that the treasury warrants involved in this case are not negotiable instruments. series of 1945. 49. hence. and Gomez was not allowed to withdraw from his account. not by the Bank. 2. One who makes a payment for the account of another may recover from the debtor the amount of the payment.17 with legal interest.425. -On various dates between June 25 and July 16. (b) order AIB/RFC to cancel the mortgage and release the properties. therefore. CRUZ.425. ISSUE(S) 1. etc. ^_^] -Payments in question were not made against the objection either of Anduiza or of the Bank! Anduiza impliedly.. the obligation in question. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the METROPOLITAN BANK & TRUST COMPANY V CA (GOLDEN SAVINGS & LOAN ASSOC. he may not be compelled to pay the latter. 15.425. alleged that when Madrid paid his debt. -July 30. On appeal." [The decision also cited comments from Manresa. 1942 and 1943. Quevedo [2] note also recited that payments were to be made in ten equal annual installments in accordance with the given schedule of amortizations. Rogelio V. all the warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account in the Metrobank branch in Calapan. AIB/RFC issued receipts acknowledging payment w/out qualification and demanded a signed statement of Anduiza sanctioning said payments merely as a condition precedent. acquiesced in the validity of the payment when he joined Madrid in appealing the decision of CFI Manila. The bank argued that in as much as Madrid’s payment was unauthorized by Anduiza. 1979. FACTS -Metropolitan Bank and Trust Co. 21. -Exasperated over Castillo’s repeated inquiries and also as an accommodation for a “valued client. while Golden Savings and Loan Association (Golden Savings) was at that time operating in Calapan. -RTC dismissed the complaint. -This condition was null and void. and even over the objection of either or both.17. 1991 ~anton~ . the CA reversed and directed AIB/RFC to cancel the mortgage and Anduiza to pay Madrid the P16. which had already been made. They do not deal with the NEGO topic under consideration." Although the full amount of said obligation was not demandable prior to October 31. become automatically extinguished. 1951 HELD: YES -At the outset. forcing Metrobank to sue (after trial trial court ruled in favor of Golden Savings). In the latter case he can recover from the debtor only in so far as the payment has been beneficial to him. for the creditor Bank had no other right than to exact payment. 1979: Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau on Jul.17 Anduiza owed the AIB/RFC. -Article 1158 of the Civil Code of Spain. -Jul. and the latter’s status and rights as such creditor. HELD 1. it should be noted that the makers of the promissory note quoted above promised to pay the obligation evidenced thereby "on or before October 31. AIB/RFC’s Arguments: that payments by Madrid were made against the express will of Anduiza and over the objection of the Bank. Disposition: CA affirmed. -Mortgagors Anduiza and Cano failed to pay the yearly amortizations that fell due on October 31.00. Another Issue: WON payment by third person [Madrid] was valid YES.000. that the obligation in question was not fully due and demandable at the time of the payments ISSUE (related to NEGO) WON the debtors were entitled to pay the obligation prior to Oct.17 was null and void in accordance with EO No. Madrid was entitled to pay the obligation of Anduiza irrespective of the latter's will or that of the Bank." when made against his express will. All were drawn by the Philippine Fish Marketing Authority and signed by its General Manager. and demanded Golden Savings to refund the amount previously withdrawn. not to its acceptance. AIB/RFC prayed that the complaint be dismissed. whether he has an interest in the performance of the obligation or not. 1944 the full amount of said indebtedness to AIB/RFC. 1951. can hardly be legally considered as tainted with bad faith. Also. which forwarded them to the Bureau of Treasury for special clearing. for it affects solely the rights of the former. -Withdrawals were made three times. but clearly. as regards said creditor. INC.” the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the warrants. 1951. She was told to wait. The exercise of a right. This is a defense that may be availed of by the debtor. it is clear. with Gomez as second indorser. Learning of this. at the time of the payments under consideration and of the institution of the present case provides: "Payment may be made by any person. (2) The Bank cannot invoke the provision that the payor "may only recover from the debtor insolar as the payment has been beneficial to him. WON Metrobank should be allowed to charge back any amount erroneously credited.[2] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. (Metrobank) is a commercial bank. which was in force in the Phils. Six were directly payable to Gomez while the others appeared to have been indorsed by their respective payees. Madrid’s deposit in the sum of P16. Golden Savings refused. (c) condemn Anduiza to pay Madrid the P16.) 194 SCRA 169. Mindoro. -In turn. After such payment. 1948: Madrid instituted the present action asking the court to (a) declare as paid the P16.

000. Done at Quezon City.—An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with— (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount. 2003 ~jonas~ FACTS -A complaint for sum of money and damages was filed in the RTC by herein respondent Dionisio Llamas against herein Petitioner Romeo Garcia and Eduardo de Jesus. This law is not applicable to non-negotiable treasury warrants. The appellate court ruled that no novation . ISSUE WON the note was negotiable HELD NO. who could therefore withdraw it any time. Quezon City.The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De Jesus as his Answer raised genuinely contentious issues and he was still required to present his evidence ex parte. Respondent's acceptance of the check did not serve to make De Jesus the sole debtor because. Petitioner cannot avail himself of . which must bear the consequences of its own negligence. GARCIA V LLAMAS 417 SCRA 292 . or xxx But an order or promise to pay out of a particular fund is not unconditional. the note was made payable to a specific person rather than to bearer or to order . -Without such assurance. the Negotiable Instruments Law (NIL). that he is relieved from any liability arising from the note as the loan had been paid by de Jesus by means of a check. less the amount of P120k representing interests already paid by de Jesus.a requisite for negotiability under Act 2031. because his Answer had failed to raise even a single genuine issue regarding any material fact. and. with such assurance. DIONISIO V. the issuance of the check and respondent's acceptance thereof novated the note. Philippine Currency payable on or before January 23. he was released as obligor when respondent agreed to extend the term of the obligation. jointly and severally. . the RTC disposed of the case by rendering judgment on the pleadings against petitioner and De Jesus. -Metrobank exhibited extraordinary carelessness for allowing three withdrawals without waiting for clearance. Respondent’s reply to Petitioner's answer asserted that the loan remained unpaid because the check issued by de Jesus bounced.00 for each day of court appearance. .” it is indicated that they are payable from a particular fund. first. -The argument that Golden Savings should have exercised more care in checking the circumstances does not hold water. and (2) that the loan has long been overdue and.—An instrument to be negotiable must conform to the following requirements: xxx (b) Must contain an unconditional promise or order to pay a sum of money. According to the CA. -The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay “not unconditional” and the warrants themselves non-negotiable. 66 of the NIL. 1998. Golden Savings might even have incurred liability for its refusal to return the money that to all appearances belonged to the depositor. Golden Savings would not have allowed the withdrawals. 2. The amount Gomez withdrew must be charged not to Golden Savings but to or implied .589. the respondent the principal amount of P400k plus 5% interest thereon per month until the same shall have been fully paid. SECTION 2. Fund 501. It was Gomez who was entrusting the warrants.which had been intended to extinguish the obligation . & P100k as attorney's fees plus appearance fee of P2. But the balance of P586. It was indeed negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that.had taken place when respondent accepted the check from De Jesus. Kamias. Neither did Petitioner Garcia file a pre-trial brief. As to petitioner.On July 7. There should be no question that the exception on Sec 3 of the NIL is applicable in the case. Annexed to the reply were the face of the check and the reverse side thereof.000. alternatively.[3] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. consequently. . ordering them to pay. This reasoning is misplaced. 1996. the CA treated his case as a summary judgment. 144 K-10 St. the check . averred that he assumed no liability under the promissory note because he signed it merely as an accommodation party for de Jesus. in any event. The trial court gave respondent permission to present his evidence ex parte against de Jesus. -By its terms. and his counsel even manifested that he would no longer present evidence. and. Metro Manila this 23rd day of December. December 8. and. it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.bounced upon its presentment. second. despite repeated demands. not Golden Savings that was extending him a loan. Petitioner avers that as a mere accommodation party. -Golden Savings never represented that the warrants were negotiable but signed them only for the purpose of depositing them for clearance. and that. petitioner and de Jesus have failed and refused to pay it. The note reads: PROMISSORY NOTE P400. Quevedo [3] warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. Annexed to the complaint were the promissory note and a demand letter by respondent addressed to petitioner and de Jesus. and for Petitioner Garcia to file his comment or opposition thereto. alleging (1) that petitioner and de Jesus borrowed P400k from respondent & executed a promissory note wherein they bound themselves jointly and severally. LLAMAS. the obligation incurred by him and petitioner was joint and several.Petitioner Garcia.” in accordance with Sec. the sum of FOUR HUNDRED THOUSAND PESOS.During the pre-trial conference de Jesus and his lawyer did not appear nor file any pre-trial brief. 1997 at No. there was no reason not to allow the withdrawal. DISPOSITION: The challenged decision is affirmed.—Form of negotiable instruments. the check was issued precisely to pay for the loan that was covered by the promissory note jointly and severally undertaken by petitioner and De Jesus. NO. -Metrobank cannot contend that by indorsing the warrants in general. as obviously Gomez can no longer be permitted to withdraw this amount from his deposit because of the dishonor of the warrants. as regards Petitioner Garcia. and the costs of the suit. the trial court directed respondent to file a motion for judgment on the pleadings.00 RECEIVED FROM ATTY. Clearly stamped on the face of the treasury warrants is the word “non-negotiable.00 should be debited to Golden Savings. It is understood that our liability under this loan is jointly and severally [sic]. Golden Savings assumed that they were “genuine and in all respects what they purport to be. . Panganiban. in his Answer. Rogelio V. It was only when Metrobank gave the gosignal that Gomez was finally allowed to withdraw. because the note herein is not a negotiable instrument. There was no question of Gomez’s identity or of the genuineness of his signature. Reasoning SECTION 1.—When promise is unconditional. with interest at the rate of 5% per month or fraction thereof.

REGALADO. -The pertinent portion of the note is as follows: . Even granting that the NIL was applicable. 3. Said provision is not applicable since the promissory note is not a negotiable instrument. -Seller-assignor issued the sales invoice for the two (2) units of tractors. GSIS. the Lagascas executed an instrument denominated “Assumption of Mortgage”. and gave the corresponding warranty of ninety (90) days performance of the machines and availability of parts. to be divided between the sellerassignor and petitioner-corporation which offered to bear one-half (1/2) of the reconditioning cost. IFC LEASING AND ACCEPTANCE CORP 149 SCRA 449. INC. Industrial Products Marketing (the "sellerassignor"). Quevedo [4] the NIL's provisions on the liabilities and defenses of an accommodation party. Assailed decision affirmed. -RTC dismissed the case. Disposition Petition denied. the seller-assignor did nothing with regard to the request. 3. ISSUE 1. in effect. it needed 2 units of tractors for its projects. A few years later. It also paid the down payment of Two Hundred Ten Thousand Pesos (P210. together with Mr. NO Ratio A negotiable instrument must be payable to order or to bearer Reasoning Both parties relied on Sec. A parcel of land co-owned by the mortgagor spouses was given as security. Wee asked the seller-assignor to pull out the units and have them reconditioned. -Vergara advised the seller-assignor that the payments of the installments as listed in the promissory note would likewise be delayed until the seller-assignor completely fulfills its obligation under its warranty. Thus. April 30. ISSUE/S CONSOLIDATED PLYWOOD INDUSTRIES. YES Ratio Article 2085 of the Civil code says third persons who are not parties may secure an obligation by mortgaging their own property. The mortgage was therefore void as the GSIS failed to give personal notice (notice given was thru publication) to them as to the delinquency of the amortizations and as to the subsequent foreclosure. the deed of sale with chattel mortgage with promissory note was executed. 1. their share in the property would secure the performance of the principal obligation. WON the promissory note was a negotiable instrument 2. thus assuming sole responsibility of obligation to the GSIS. until the complaint in this case was filed by the IFC. -Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and after another nine (9) days. it is not a negotiable instrument. GSIS V CA (RACHO) 170 SCRA 530. The CA reversed. GUTIERREZ . an accommodation party is liable for the instrument to a holder for value even if the latter knew the former to be only an accommodation party.[4] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. the fact that the loans were solely for the benefit of the Lagasca spouses would not invalidate the mortgage with respect to Racho’s share in the property. In consenting thereto. -Vergara informed seller-assignor and asked for prompt action. Racho. if any. -The Lagascas failed to pay the amortizations. and Mrs. assigned its rights and interest in the chattel mortgage in favor of the respondent (IFC Leasing). 29 of Act 2031. the other tractor likewise broke down. -The liability is immediate and direct. With said assurance and warranty. They alleged that they signed the mortgage contracts not as sureties or guarantors of the Lagascas but they merely gave their common property to the latter who were to solely benefit from the loans.00). praying that the foreclosure be declared void. respectively. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promisor and debtor from the beginning. 1989 ~monch~ NATURE Petition to review the judgment of the CA FACTS -Mr. The land was extrajudicially foreclosed. (Wee and Vergara) V. The proceeds were to be given to the respondent and the excess. Under Art.000. agreed to purchase on installment said two (2) units of "Used" Allis Crawler Tractors. [not important in our discussion] re: warranty – held there is warranty and it could be rescinded if breached) 2. saying that the Rachos were an accommodation party. not by the NIL. petitioner-corporation through petitioners Wee and Vergara. which defined the meaning of an accommodation party.5K and 3k). Atlantic Gulf & Pacific Company of Manila knew of the need and thus offered 2 used tractors to petitioner through its sister company and marketing arm. the Rachos filed a complaint against the Lagascas and GSIS. 29 of the Negotiable instruments law. WON there was a proper notice of the foreclosure HELD 1. the foreclosure was declared void. and Mrs. one of principal and surety. Notice thru publication is sufficient Disposition Judgment reversed. WON the promissory note in question is a negotiable instrument HELD No. -2 years later. petitioner would be liable for the promissory note. -No response was received by the petitionercorporation and despite several follow-up calls. and thereafter to offer them for sale. Petitioner inspected the tractors while seller-assignor assured petitioner-corporation that the "Used" Allis Crawler Tractors which were being offered were fit for the job. The relation between an accommodation party and the party accommodated is. A non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may have been created by the assent of the parties. president and vicepresident. Rogelio V. Reasoning So long as valid consent was given. WON the property of the Rachos was liable under the mortgage contracts 3. Since the tractors were no longer serviceable. At the same time. February 23. The seller-assignor sent to the jobsite its mechanics to conduct the necessary repairs. and relying on the seller-assignor's skill and judgment. Lagasca. executed 2 deeds of mortgage (11. the seller-assignor. The promissory note is thus covered by the general provisions of the Civil Code. It not was directly payable to a specified party. -TC and IAC granted the complaint. YES Ratio Act 3135 does not require personal notice to the mortgagor. 1987 ~ice~ NATURE Petition for Certiorari FACTS -Consolidated (petitioner) is a corporation engaged in the logging business. Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note. but the tractors did not come out to be what they should be after the repairs were undertaken because the units were no longer serviceable. by means of a deed of assignment.

but will merely 'step into the shoes' of the person designated in the instrument and will thus be open to all defenses available against the latter. Where the goods sold turn out to be defective. Rogelio V. Thus.. Disposition Annulled and set aside. 63 So. there was no need for the petitioner to implead the seller-assignor when it was sued by the respondent-assignee because the petitioner's defenses apply to both or either of them. even assuming that the subject promissory note is negotiable.' a court in one case stated: "'It may be that our holding here will require some changes in business methods and will impose a greater burden on the finance companies. It means that the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. but would result in unjust enrichment on the part of both the seller-assignor and respondent assignee at the expense of the petitioner-corporation which rightfully rescinded an inequitable contract. there is no obstacle for the respondent to file a civil suit and litigate its claims against the seller-assignor in the rather unlikely possibility that it so desires.' " -In like manner. the seller-assignor which is the Industrial Products Marketing. however. "'If this opinion imposes great burdens on finance companies it is a potent argument in favor of a rule which will afford public protection to the general buying public against unscrupulous dealers in personal property. It follows that the respondent's rights under the promissory note involved in this case are subject to all defenses that the petitioners have against the seller-assignor. subrogating it to the right to collect the price from the buyer." -We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith as to the buyer.' (Mutual Finance Co. v. . We think the buyer ---. Even assuming for the sake of argument that the promissory note is negotiable. We believe the finance company is better able to bear the risk of the dealer's insolvency than the buyer and in a far better position to protect his interests against unscrupulous and insolvent dealers . Inc. .093. the respondent. and that it was subject to the condition that the tractors sold were not defective. in pursuance of a previous arrangement with the seller. a financing company which actively participated in the sale on installment of the subject two Allis Crawler tractors." -Prescinding from the foregoing and setting aside other peripheral issues. the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P1. 128). . This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one. Without the words 'or order' or 'to the order of. "SEC. WHAT CONSTITUTES A HOLDER IN DUE COURSE.71)." -Therefore. The respondent knew that when the tractors turned out to be defective. 52. 1978 and every 15th of the month thereafter until fully paid. it follows that the respondent can never be a holder in due course but remains a mere assignee of the note in question. the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional. to be payable in 24 monthly installments starting July 15. the respondent failed to present any evidence to prove that it had no knowledge of any fact.. .Mr.. Many times. the buyer usually issues a note payable to the seller to cover the purchase price. which would justify its act of taking the promissory note as not amounting to bad faith. 2d 649. with interest. .[5] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof.. to wit: "In installment sales. The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order . There must always be a specified person named in the instrument. xxx xxx xxx "These are the only two ways by which an instrument may be made payable to order. that since the seller-assignor has not been impleaded herein. . With the increasing frequency of installment buying in this country. which is herein petitioner Consolidated Plywood Industries." -"The instrument in order to be considered negotiable must contain the so called 'words of negotiability' ---i. Therefore. which took the same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument.e. Such a ruling does not only violate the law and applicable jurisprudence. As against the argument that such a rule would seriously affect 'a certain mode of transacting business adopted throughout the State. -The records also show that respondent IFC knew that they were mere assignees. Industrial Products Marketing. . the respondent. cannot be regarded as a holder in due course of said note. . Industrial Products Marketing For Section 58 of the Negotiable Instruments Law provides that "in the hands of any holder other than a holder in due course. . 8. is not a holder in due course. As such.' the instrument is payable only to the person designated therein and is therefore non-negotiable. a negotiable instrument is subject to the same defenses as if it were non-negotiable. therefore. . xxx xxx xxx "SEC. I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING.should have some protection somewhere along the line. . 56. WHEN PAYABLE TO ORDER. it would be subject to the defense of failure of consideration and cannot recover the purchase price from the petitioners. the respondent is subject to all defenses which the petitioners may raise against the seller-assignor. the Deed of Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing the sale on installment of the tractors were all executed on the same day by and among the buyer.. . or knowledge of such facts that his action in taking the instrument amounts to bad faith. -Sections 52 and 56 of the Negotiable Instruments Law provide that: "SEC. we find that both the trial and respondent appellate court erred in holding the promissory note in question to be negotiable. p. These words serve as an expression of consent that the instrument may be transferred. WHAT CONSTITUTES NOTICE OF DEFECT. -This being so. the petitioner may raise against the respondent all defenses available to it as against the seller-assignor.789. "(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Philippine Currency. To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same the person to whom it is negotiated must have had actual knowledge of the infirmity or defect. We note. . a finance company pays the full price and the note is indorsed to it. Quevedo [5] "FOR VALUE RECEIVED. -A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note. xxx xxx xxx "When instrument is payable to order. the said principal sum. Third Edition. the finance company will be subject to the defense of failure of consideration and cannot recover the purchase price from the buyer. considering that the subject promissory note is not a negotiable instrument. Notes and Selected Cases on Negotiable Instruments Law. . Martin. . -Lastly. xxx xxx xxx "(c ) That he took it in good faith and for value. ANG TEK LIAN V CA . it is most probable that the tendency of the courts in the United States to protect the buyer against the finance company will find judicial approval here. & Mrs. which is the respondent. and the assignee-financing company. 44 ALR 2d 1 [1953])" Campos and Campos. must be payable to 'order' or 'bearer'. A holder in due course is a holder who has taken the instrument under the following conditions. General Public ---.

to have done so fully aware of the risk he was running thereby. In other words. by every rational consideration. 1946. as the defendant points out. but may pay it to the person presenting it without any indorsement. and is not negligent in failing to do so. the word “cash” does not purport to be the name of any person'. On Nov. 16. the bank. Disposition Decision is AFFIRMED. It depends upon the circumstances of each transaction. Quevedo [6] NATURE Petition for review on certiorari FACTS -Ang Tek Lian.000. HELD 1. -Ang Tek Lian argues that as the check had been made payable to "cash" and had not been endorsed by Ang Tek Lian. The drawee bank need not obtain any indorsement of the check. this petition with SC. drew on Saturday. and the bank may pay it to the person presenting it for payment without the drawer's indorsement. but it was dishonored for insufficiency of funds. the balance of the deposit of Ang Tek Lian on both dates being P335 only. that the form of the check in question was totally unconnected with its dishonor. it is significant. 1946. where no such requirement had been made. NO. -For having issued a rubber check. he is not guilty of the offense charged. Ang Tek Lian was convicted of estafa in the CFI of Manila.[6] Law 108: Negotiable Instruments 87 PHIL 383. he did so with full knowledge that it would be dishonored upon presentment. . to which the check is presented for payment. payable to the order of "cash". and conclusive. Nov." the following line of reasoning is advanced in support of the argument: "When the offended party accepted the check from defendant. the next business day. and hence the instrument is payable to bearer. Instances have undoubtedly occurred wherein the Bank required the indorsement of the drawer before honoring a check payable to "cash. . 1950 ~rean~ First Semester AY 2008-09 Prof. September 25. 9 [d]). CA affirmed the verdict. a check drawn payable to the order of "cash" is a check payable to bearer. Rogelio V. Ratio Under the Negotiable Instruments Law (sec. BENGZON. He delivered it to Lee Hua Hong in exchange for money which the latter handed in the act." ISSUE WON Ang Tek Lian is not guilty of estafa since the check had been made payable to “cash” and had not been endorsed by him." But cases there are too. defendant could not be said to have acted fraudulently because the complainant. need not have the holder identified. Based on the proposition that "by uniform practice of all banks in the Philippines a check so drawn is invariably dishonored. the check was presented by Lee Hua Hong to the drawee bank for payment. with costs. 18. CA declared that it was returned unsatisfied because the drawer had insufficient funds not because the drawer's indorsement was lacking. Hence. in so accepting the check as it was drawn.Where a check is made payable to the order of “cash”. Ang Tek is guilty of estafa. a check upon the China Banking Corporation for the sum of P4. knowing he had no funds therefor. In that sense. Reasoning SC is not aware of the uniformity of such practice. -Anyway. must be considered.

Arsenio Lim Piat. Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of “Great Asian Sales Center”. Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Arsenio had all the proper and necessary authority from the board of directors of Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated checks. Great Asian sold the postdated checks on with recourse basis against itself. save in those instances where the Code requires stockholders’ approval for certain specific acts. The Deeds of Assignment uniformly provided for one vital suspensive condition: in case the drawers fail to pay the checks on maturity. The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia. -To secure a credit accommodation from Bancasia. including checks. and about the authority of Arsenio to act and sign for Great Asian. April 25. a corporation can borrow funds or dispose of assets of the corporation only on authority of the board of directors. Great Asian. CARPIO. documents or promissory notes necessary to secure the loan. by agreement of the parties. including penalty and attorney’s fees. assigning to Bancasia 15 postdated checks issued by various customers in payment for appliances and other merchandise. This conditional obligation of Great Asian arises from its written contracts with Bancasia as embodied in the Deeds of Assignment. (text of resolutions shown in case) As plain as daylight. independent of the negotiable instruments law 3. whether or not Bancasia gives notice of dishonor to Great Asian. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks. “account under garnishment”. -In June 1982. Assignment of a negotiable instrument is actually the principal mode of conveying accounts receivable under the Financing Company Act. as provided in Art 1159 of the Civil Code. There is no iota of doubt whatsoever about the purpose of the 2 board resolutions. The failure of the drawers to pay the checks is a suspensive condition. the board of directors of Great Asian approved a resolution authorizing its Treasurer and GM. Otherwise. despite the fact that the receivables were negotiable instruments with the endorsement of Arsenio. the happening of which gives rise to Bancasia’s right to demand payment from Great Asian. the board of directors of Great Asian approved a 2nd resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2M and also designated Arsenio as the authorized signatory to sign all instruments. Tan Chong Lin signed 2 Surety Agreements in favor of Bancasia to guarantee. documents and checks necessary to secure the discounting line. In the ordinary course of business. will have no defense against the finance . ISSUES 1. -There is nothing in the Negotiable Instruments Law or in the Financing Company Act. WON Great Asian is liable to Bancasia under the Deeds of Assignment for breach of contract pursuant to the civil code. After the drawee bank dishonored the checks. Quevedo [7] CHAPTER II: TRANSFER GREAT ASIAN SALES CENTER CORPORATION V CA (BANCASIA FINANCE AND INVESTMENT CORP) 381 SCRA 557. signed 4 Deeds of Assignment of Receivables. -The explicit with recourse stipulation against Great Asian effectively enlarges. consumers who purchase appliances on installment. for Great Asian. through Arsenio. Great Asian and Bancasia agreed on this specific with recourse stipulation. YES -Bancasia’s complaint against Great Asian is founded on the latter’s breach of contract under the Deeds of Assignment. while the rest of the dishonored checks just bore the signature of Arsenio. that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly found in the Deeds of Assignment. WON Arsenio had authority to execute the Deeds of Assignment and thus bind Great Asian 2. Great Asian unconditionally obligated itself to pay Bancasia the full value of the dishonored checks. -By express provision in the Deeds of Assignment.[7] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. the latter remains liable to Bancasia because of the with recourse stipulation which is independent of the warranties of an endorser under the Negotiable Instruments Law. 1982. the endorsement of the negotiable instrument becomes necessary to enable the assignee to collect from the drawer. HELD 1. This is an obligation that Great Asian is bound to faithfully comply because it has the force of law as between Great Asian and Bancasia. The purpose of the endorsement is merely to facilitate collection of the proceeds of the checks. Great Asian obligated itself to pay Bancasia the full face value of the dishonored checks. The 2 board resolutions also categorically designated Arsenio as the authorized signatory to sign and deliver all the implementing documents. Since in discounting of receivables the assignee is subrogated as creditor of the receivable. to secure a loan from Bancasia in an amount not to exceed P1M and also authorized Arsenio to sign all papers. Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian under an authority expressly granted by its board of directors. the board of directors of Great Asian adopted 2 board resolutions on different dates. Thus. and “insufficiency of funds”. The contracting parties had the right to adopt the stipulation which is separate and distinct from the warranties of an endorser under the Negotiable Instruments Law. a negotiable instrument may be assigned. -The purpose of the endorsement is not to make the assignee finance company a holder in due course because policy considerations militate against according finance companies the rights of a holder in due course. Arsenio endorsed all the 15 checks by signing his name at the back of the checks. giving their promissory notes or checks to the seller. notifying him of the dishonor and demanding payment from him. Jr. Great Asian raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin. with any of the following as reason for the dishonor: “account closed”. WON Tan Chong Lin is liable to Great Asian under the surety agreements. Rogelio V. This is particularly true with checks because collecting banks will not accept checks unless endorsed by the payee. solidarily. “payment stopped”. the liability of Great Asian beyond that of a mere endorser of a negotiable instrument. In March 1981. the 2 board resolutions clearly authorized Great Asian to secure a loan or discounting line from Bancasia. Bancasia sent letters to Tan Chong Lin. The board of directors normally designates one or more corporate officers to sign loan documents or deeds of assignment for the corporation. In Feb. The signature of Arsenio on the Deeds of Assignment is effectively also the signature of the board of directors of Great Asian. binding on the board of directors and on Great Asian itself. 2. Instead of being negotiated. -In March 1981 and 1982. YES -The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate powers of the corporation. the debts of Great Asian to Bancasia. In short. 2002 ~jojo~ FACTS -Great Asian is engaged in the business of buying and selling household appliances.

[8] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. solidarily with Great Asian. the Negotiable Instruments Law would have governed Bancasia’s cause of action. explicitly and unconditionally bound himself to pay Bancasia. to pay the finance company in the event of dishonor of the notes or checks. Quevedo [8] company should the appliances later turn out to be defective. still there would be no prejudice whatever to Great Asian. -As endorsee of Great Asian. notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check. Thus. Rogelio V. The condition on which Tan Chong Lin’s obligation hinged had happened. or “payment stopped”. the drawers had no right to expect or require the bank to honor the checks. did not choose this route. Had it so proceeded. or if the drawer has countermanded payment. 3. insufficiency of funds”. Bancasia decided to sue Great Asian for breach of contract under the Civil Code. all the checks were dishonored for any of the following reasons: “account closed”. by signing the Surety Agreements. The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an empty bag. however. Under the Negotiable Instruments Law. Bancasia had the option to proceed against Great Asian under the Negotiable Instruments Law. Great Asian can then proceed against the drawers who issued the checks. the drawers had countermanded payment. Great Asian. . In the instant case. In the first three instances. Even if Bancasia failed to give timely notice of dishonor. Tan Chong Lin automatically became liable for the entire obligation to the same extent as Great Asian. Bancasia. the endorsement does not operate to make the finance company a holder in due course. if the drawers of the checks fail to pay on due date. For its own protection. therefore. Instead. a right that Bancasia had under the express with recourse stipulation in the Deeds of Assignment. after paying Bancasia. and in the last instance. in a separate and distinct contract. the finance company usually requires the assignor. YES -Tan Chong Lin. is subrogated back as creditor of the receivables. “account under garnishment”. As surety.

What is vital to the resolution of the issue is the concurrence of all requisites in Section 52 of the Negotiable Instruments Law. with prayer for a TRO. HiCement Corp] 353 SCRA 23. Inc (ETH). -David moved for dismissal." -Here. It was subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million with interest -Yang filed a separate case for injunction vs. February 28. (b) That he became the holder of it before it was overdue. However upon representation of PCIB. -CA modified the decision.087M. 2003 ~yella~ FACTS -Yang and Chandiramani entered into an agreement whereby the latter was to give Yang a PCIB manager’s check in the amount of P4. absolving HCC from liability and dismissing the complaint against it. Instead. absent any showing that there was something amiss about Chandiramani’s acquisition or possession of the checks. and David. They were not yet overdue when he became the holder thereof and he had no notice that the said checks were previously dishonored… -Yang’s MR denied. QUISUMBING. -FEBTC and Equitable stopped payment on the instruments.2M in exchange for two of Yang’s manager’s checks each in the amount of P2. Atrium could not be considered a holder in due course. Court cannot hold David as guilty of gross neglect amounting to legal absence of good faith. P2 million. the presumption imposed the law is to be upheld. Chandiramani. Equitable Bank. Chandiramani and David with the RTC. Also. David] 409 SCRA 159. Aug 15. PARDO. if such was the fact. ++. That he became the holder of it before it was overdue. both payable to the order of Fernando David.T. Chandiramani and David had a separate dealing in which it was precisely Chandiramani’s duty to deliver the checks to David as payee. Henry. it was denied. -Every holder of a negotiable instrument is deemed prima facie a holder in due course. this presumption arises only in favor of a person who is the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. then. and without notice that it had been previously dishonored. On appeal. ISSUE WON respondent Fernando David was a holder in due course HELD: YES. Atrium was aware of the fact that the checks were all for deposit only to payee's account. Clearly. Absent any proof from petitioner to the contrary. Section 52 defines a holder in due course. -What constitutes a holder in due course xxx 1. The Negotiable Instruments Law does not . That at the time it was negotiated to him. However. de Leon. the checks and drafts were not lost because Chandiramani was able to get hold of them and deliver them to Fernando David in exchange of US$360k. in part because the subject checks were not issued for valuable consideration. From the beginning. Rogelio V.T.T. and without such notice that it has been previously dishonored. Atrium instituted this action after its demand for payment of the value of the checks was denied. ETC and HCC to pay Atrium. It was later amended to include a prayer that defendants therein return to Yang the amount of P2. TF enabling the holder to receive the amount of US$200k. Henry that it was altogether precluded from recovering on the instrument. ETH in turn endorsed the checks to petitioner Atrium Management Corp for valuable consideration. FEBTC. Quevedo [9] CHAPTER III: HOLDER IN DUE COURSE YANG V COURT OF APPEALS [PCIB. FEBTC. meaning E. -Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar draft in the amount of US$200k payable to PCIB FCDU Account which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. Yang and Chandiramani agreed that the difference of P26k in the exchange would be their profit to be divided equally between them. David was not privy to the transaction between petitioner and Chandiramani. it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the instruments in question with notice that the same was for deposit only to the account of payee E. -However. the checks were crossed checks and specifically indorsed for deposit to payee's account only. ISSUE WON Atrium was a holder in due course and for value HELD: NO Reasoning The Negotiable Instruments Law. with the RTC. (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Henry and Co. FEBTC subsequently lifted the stop payment order on the dollar draft. -RTC rendered judgment in favor of David rationcinating thus: The evidence thus shows that defendant David was a holder in due course for the reason that the cashier’s checks were complete on their face when they were negotiated to him. -Yang lodged a Complaint for injunction and damages against Equitable. -Yang gave the checks and dollar drafts to her business associate Albert Liong to be delivered to Chandiramani by Liong’s messenger Danilo Rodrigo.[9] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. -RTC rendered a decision ordering de Leon. Chandiramani. Upon presentment for payment.000 in exchange of the said instruments. CA affirmed RTC. Cases were consolidated. -Petitioner fails to point any circumstances which should have put David on inquiry as to the why and wherefore of the possession of the checks by Chandiramani. is such was a fact 3. de Leon. However.. ATRIUM MANAGEMENT CORPORATION V CA [E. That it is complete and regular upon its face 2. of Hong Kong.087million with interest. thus: "A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face. That he took it in good faith and for value 4. PCIB. factual findings of the lower court showed that David gave Chandiramani US$360. (c) That he took it in good faith and for value.T. 2001 ~javi~ FACTS -Hi-Cement Corporation (HCC) (through its corporate signatories de Leon and de las Alas) issued checks in favor of E. Henry & Co. Chandiramani allegedly did not appear at the meeting place and Ranigo lost the checks and dollar drafts. he had no notice of any infirmity in the instrument or defect of the title of the person negotiating it -Petitioner’s challenge to David’s status as a holder in due course hinges on the allegation that the last two requisites in Section 52 are missing -Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration of for value. the drawee bank dishonored all four checks for the reason “payment stopped”. The law creates a presumption in favor of David. jointly and severally. -Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. as payee.

on checks TCBT Nos.” -In the present case. and the liability did not attach to the drawer. and subsequently. Because. contrary to Sec. we used to be beset with bouncing checks. The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were non-negotiable. to deliver 2. NOCON.] 230 SCRA 643. March 28. post dated March 31. 1979. Reasoning A check is defined by law as a bill of exchange drawn on a bank payable on demand. It may be issued so that the presentment can be made only by a bank. IAC. constitutes a good defense against petitioner who is not a holder in due course. and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course. (c) and the act of crossing the check serves as 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. -In order to preserve the credit worthiness of checks.000 was sent by Hang Lung Bank of Hong Kong to RCBC. Apparently. ISSUE WON SIHI. drawn by petitioner in favor of King. TC pronounced SIHI as having a valid claim being a holder in due course. it instituted the present case. thus resulting in the non-consummation of the loan intended to be granted by private respondents to NSWI. a holder of crossed checks. BCCFI. forging of checks. George King). in the absence of due presentment. Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. Inc. Inc. Hence. petitioner agreed to purchase add’l. 1979 respectively.[10] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. from Dec 5. March 3. King was simultaneously dealing with SIHI. whether specially or generally. 1979. (both P100K) post dated Sep 15 & 30. George King. Quevedo [10] provide that a holder not in due course can not recover on the instrument. There are a variety of checks. 1994 ~brian b~ FACTS -Petitioner. 1978. he sold at a discount check TCBT 551826 (P164K). considering that petitioner is not the proper party authorized to make presentment of the checks in question. On July 19.000 bales of tobacco leaf starting Oct 1978. Thus. -A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. In that case. 1978. -King failed to deliver the bales of tobacco leaf as agreed despite petitioner's demand. including check TCBT 551826.e. involved in the manufacturing of cigarettes. xxx xxx xxx “That the subject checks had been issued subject to the condition that private respondents (Anita and her husband) on due date would make the back up deposit for said checks but w/c condition apparently was not made. $100. a bank will not even accept second indorsements on checks. the payee named therein. 2. the negotiability of a check is not affected by its being crossed. traveler's check and crossed check. respondent can collect from the immediate indorser. despite the supplier's failure to deliver in accordance with their earlier agreement. he sent it himself prior to his arrival in the Philippines. engaged one of its suppliers. he is not a holder in due course. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed checks. 2001 ~mini~ FACTS -Petitioner: in 1979. the holder is declared guilty of gross negligence amounting to legal absence of good faith. BCCFI's defense in stopping payment is as good to SIHI as it is to George King. Dispositive decision of CA is affirmed BATAAN CIGAR AND CIGARETTE FACTORY. -The foregoing does not mean. Papercon. a corp. Inc. is a holder in due course HELD: NO. King Tim Pua George (herein after. however. -During these times. There being failure of consideration. V CA [State Investment House. by the bank mentioned between the parallel lines.1M payable sometime in Sep 1979. otherwise. (NSWI) also sold at a discount to SIHI 3 post dated crossed checks. Consequently. a stop payment order on all checks payable to George King. GONZAGA-REYES. SIHI is not a holder in due course. 1978. or if it is specially crossed. naming only BCCFI as party defendant. he again sold to respondent checks TCBT Nos. It may be crossed generally or specially. a second indorser. the checks were issued with the intention that George King would supply BCCFI with the bales of tobacco leaf. 608967 & 608968 on Sep 14 & 28. respectively. This is specially true in England where the NIL originated. Consequently. v. private respondent wife (Anita). CHIANG YA MIN V CA [RCBC. in this case. -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. INC.500 bales of tobacco leaves. i. -According to commentators. (b) the check may be negotiated only once -to one who has an account with a bank. -The facts in the present case are on all fours to the case of State Investment House. On Dec 19 and 26. jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank. 1979. however. It may legally be negotiated from one person to another as long as the one who encashes the check with the drawee bank is another bank. really. Again petitioner issued post dated crossed checks in the total amount of P1. on July 13. Unless one is a valued client. One such defense is absence or failure of consideration. w/ King as payee to SIHI. the drawer did not become liable. 52(c) of the Negotiable Instruments Law. issued by Anita Peña Chua naming as payee NSWI. BCCFI issued on March 30. He said when he checked on it in 1985. RTC decision as affirmed by CA reversed. 1978 issued crossed checks post dated sometime in March 1979 in the totaling P820K." although Article 541 of the Code of Commerce refers to such instruments. Disposition Petition granted. that respondent could not recover from the checks. It is crossed generally when only the words "and company" are written or nothing is written at all between the parallel lines. The court said: “The 3 checks had been crossed generally and issued payable to NSWI w/c could only mean that the drawer had intended the same for deposit only by the rightful person. drawn by petitioner. the remittance was for petitioner’s own account and was intended to qualify him as a foreign investor under Philippine laws. he found that the dollar deposit was transferred to the Shaw Blvd branch of . cashier's check. Failing in this respect. -The disadvantage [of Atrium] in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. BCCFI cannot be obliged to pay the checks. -In the Philippine business setting. there was no proper presentment. Tom Pek] 355 SCRA 608. In consideration thereof. -Efforts of SIHI to collect from BCCFI having failed. and so forth that banks have become quite guarded in encashing checks. Rogelio V. New Sikatuna Wood Industries. it was not the payee who presented the same for payment and therefore. no right of recourse is available to petitioner (SIHI) against the drawer of the subject checks. -Relying on the King's representation that he would complete delivery w/in 3 mos. the more popular of which are the memorandum check. 608967 & 608968. particularly those which name a specific payee.

Reyes stated that he first met petitioner in January or February 1979 when the latter was introduced to him by Tom Pek. 1979. Catalino Reyes testified that on two separate instances. A letter from RCBC in 1985 said that the account was opened with an initial deposit of P729. -Tom Pek and Papercon did not deny receiving the checks worth P712. He witnessed petitioner study the information typed on the checks. He then filled out the forms. which had a balance of only P1. Reyes then showed the check to petitioner and upon the latter’s instructions. Current Account No. -The documentary evidence accurately supports Reyes’s statements. It had instructions to transmit the money "to Rizal Commercial Banking Corporation. What the evidence establishes is that the opening of the account and the withdrawals were authorized by petitioner. Dispositive decision of CA is affirmed BANK OF THE PHIL. -TC held RCBC liable for the $100k. his allegations of fraud or negligence are unsubstantiated and the presumption that he authorized the said withdrawals will apply. 1979. 12-2009 which he opened with Shaw Boulevard branch. 1979 Pacific Banking Corporation released the money to petitioner by way of Cashier’s Check No.752.362. sign the checks. 1979. He also assisted petitioner when the latter applied for a change of visa from tourist to special non-immigrant. nor its conversion to pesos and the subsequent withdrawals. DD 244955. The microfilm copies of these checks were submitted in evidence. finding that the opening of the account and the withdrawals were authorized by petitioner. maintaining that the withdrawals on his account were unauthorized by him and that respondent bank connived with third persons to defraud him..20.700. foreign investor. depositor’s card. he was allowed to bring out of the bank the application form. -CA reversed the decision. 492328 to third-party defendant Tom Pek for the amount of P12. Head Office. "representing proceeds of inward remittance received from Pacific Banking Corporation.10 as of October.7k but argued that unless proven otherwise. using the proceeds of the check as initial deposit. -RCBC.752. for (the) account of Chiang Yia Min".20. 492327 to third-party defendant Papercon. After MR. back to the bank. Quevedo [11] RCBC and converted to a peso account. There is no evidence to demonstrate that respondent bank RCBC and Papercon and Tom Pek colluded to defraud petitioner of his money. a new business venture where petitioner will be the GM. specifically. DAVIDE. -Upon finding that the checks issued to Papercon and Tom Pek were in order. 1979 and payable to Papercon. and the signatures appearing on the checks were petitioners. and three made payable to cash (these three checks were all negotiated to Tom Pek). -Reyes describes the opening of the current account as having been done in haste. by telegraphic transfer on Feb 7. They all bear the signature of petitioner. and with the purpose of defrauding him. petitioner asked him to prepare two of the five checks questioned in this case.10. knowing them to be unauthorized by the petitioner. filed a third-party complaint against Papercon and Tom Pek. Inc. He and his fellow employees were advised by Tom Pek to "personally help (Chiang Yia Min) in all his personal accounts. the accountant of Pioneer Business Forms. petitioner asked him to pick up the US$100k which he caused to be remitted in compliance with the capital requirements for foreign investors at Pacific Banking Corporation. It held RCBC solely culpable and exonerated the other private respondents. -Petitioner insists he did not cause the transfer of his money to the Shaw Blvd branch. admitting that plaintiff conclusively appeared to have deposited the sum of US$100k with the bank and said foreign currency deposit was converted. May 10." Reyes was charged with working on the incorporation of Philippine Color Scanning. Respondent bank thus contended that should it be made liable to petitioner. which approved the opening of the current account upon a comparison of the signatures on the forms and the passport. nor did he authorize anyone to perform these acts. 12-2009 and the issuance of the questioned checks were all upon the instructions of petitioner. The court also concluded that the withdrawals couldn’t have been possible without the collusion of officers and employees of RCBC. and hand them over to Tom Pek. 12-2009. (another business venture of Tom Pek) to the effect that the opening of Current Account No. and other forms which required petitioner’s signature as depositor. On the same day. Bringing with him the letter of advise from the bank. or was otherwise deceive or misled into doing the same. since petitioner was in a hurry to have the proceeds of the remittance credited to his checking account. Defendant and third-party defendants were absolved of any liability.[11] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof." -There were five issued checks: two made payable to Papercon.00. and the check for P12. the check for P700k dated Feb 19.00. If he is unable to do so. adopting the prevailing rate of interest at the time. Reyes testified that on the first week of February 1979. Ltd. which check was in turn presented before the Board of Special Inquiry of the Bureau of Immigration as proof of petitioner’s compliance with the requirements for change of status from tourist to special non-immigrant. the presumption lies that they were holders for value and in good faith. he went to the Shaw Boulevard branch of respondent bank to open a checking account in petitioner’s name. Then he brought the signed forms. saying that the withdrawals were not made by petitioner nor authorized by him. the balance of P1. ISSUE WON petitioner has proved that respondent bank connived with private respondents and third party defendants Papercon and Tom Pek in allowing the withdrawals. 1979 and payable to cash.390 was withdrawn by way of 5 checks apparently issued by petitioner in favor of Papercon and Tom Pek. 1994 ~sarah~ . Reyes did as he was told and the bank released to him a cashier’s check representing the peso equivalent of the US$100k. Because Reyes was wellknown to the officers and employees of RCBC-Shaw Boulevard. to P730k and deposited to plaintiff’s Current Account No. -Petitioner is now seeking the reversal of the CA decision. said third-party defendants as payees and beneficiaries of the issued checks should be held solidarily liable with it. the said checks should be presumed to have been issued in their favor for a sufficient and valuable consideration. and Lim] 232 SCRA 302.e. He witnessed petitioner sign the forms. after petitioner adduced his evidence. dated Feb 23. Feb 8. ISLANDS V CA [Eastern Plywood Corp. Pacific Banking Corporation confirmed receipt of the US$100k from Hang Lung Bank.362. in the name of Chiang Yia Min. HELD NO. after which plaintiff issued Check No. the decision was amended to hold Papercon and Tom Pek solidarily liable with RCBC. for the amount of P700k and Check NO. representing the peso equivalent of the US$100k. and brought them to petitioner for signing. -Under either theory of fraud or negligence. there being no indication that respondent bank colluded in paying the checks to them for any unlawful cause. it is incumbent upon petitioner to show that the withdrawals were not authorized by him. i. was opened in RCBC-Shaw Boulevard with an initial deposit of P729. however. and a total of P728. Rogelio V. Thus. and petitioner’s passport. -Petitioner’s allegation that he did not authorize the opening of the current account and the issuance of the checks was countered by private respondents through the testimony of Catalino Reyes. the records also show that on Feb 8. No shred of evidence was presented to show that the signatures were not petitioner’s.700.

Rogelio V. Central Bank of the Philippines: bank deposits are in the nature of irregular deposits.] -The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and Velasco. When it demanded payment of the debt directly from Eastern and Lim." evidenced by the "Disclosure Statement on Loan/Credit Transaction" (Disclosure Statement) signed by CBTC through its branch manager. CBTC was not in any way precluded from demanding payment from Eastern and from instituting an action to recover payment of the loan. BPI. Defendants Lim and Eastern. 02: CBTC/BPI had every right to demand that Eastern and Lim settle their liability under the promissory note. ---. It cannot be compelled to retain and apply the deposit in Lim and Velasco's joint account to the payment of the note. Quevedo [12] FACTS -Eastern Plywood Corporation and Benigno D. wherein it was stated that "as security for the Loan [Lim and Eastern] have offered [CBTC] and the latter accepts a holdout on said [Current Account No. It acquired the note from CBTC by the contract of merger or sale between the two banks. the box with the printed word "UNSECURED" was marked with "X". WON BPI is still liable to the private respondents on the account subject of the Holdout Agreement after its withdrawal by the heirs of Velasco." Paragraph 02 of the Agreement provides as follows: “Eastply [Eastern] and Mr. a right of set-off which the bank has the option to exercise. -2 Dec 1987: BPI filed with the RTC Manila a complaint against Lim and Eastern demanding payment of the promissory note for P73k. No reference to any security for the loan appears on the note. RTC Manila dismissed the complaint and denied the counterclaim to avoid disturbing the resolution of the intestate court.522. -Also. Eastern issued on the same day a negotiable promissory note for P73k payable on demand to the order of CBTC with interest at 14% per annum. a joint checking account ("and" account) with Lim in the amount of P120k was opened by Mariano Velasco with funds withdrawn from the account of Eastern and/or Lim. by virtue of an Indemnity Undertaking executed by Lim for himself and as Pres and GM of Eastern. when and if their alleged interests in the Account Balance shall have been established with finality. ½ of this amount was provisionally released and transferred to one of the bank accounts of Eastern with CBTC. which rendered a decision affirming the RTC decision. -Velasco died on 7 April 1977.44 in the said joint account of Velasco and Lim was being claimed as part of Velasco's estate. On 5 May 1977. however. 1980.261.261.44. a case for the settlement of Velasco's estate was filed with RTC Pasig. -9 Sept 1986. -After due proceedings.meaning unsecured. -The collection suit of BPI is based on the promissory note for P73k. a bank is under no duty or obligation to make the application. Only a negotiation by indorsement could have operated as a valid transfer to make BPI a holder in due course. Eastern . What the agreement conferred on CBTC was a power. The money therein was placed in the money market. filed a counterclaim against BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the interests thereon after deducting the amount due on the promissory note. par. HELD 1. the intestate court granted the urgent motion of the heirs of Velasco to withdraw the deposit under the joint account of Lim and Velasco and authorized the heirs to divide among themselves the amount withdrawn. At the time of his death. On its face. To apply the deposit to the payment of a loan is a privilege. as depositors of CBTC/BPI. WON BPI can demand payment of the loan of P73k despite the existence of the Holdout Agreement 2. Lim shall default in payment of all obligations and liabilities thereunder. are the latter's creditors. and Eastern." which refers to the joint account of Velasco and Lim with a balance of P331. Serrano vs. the outstanding balance of the account stood at P662." And paragraph 05 thereof reads: “The acceptance of this holdout shall not impair the right of Comtrust to declare the loan payable on demand at any time. Eastern and Lim. 05 states that notwithstanding the agreement. method of enforcing its claim on the note.44 representing the outstanding balance in the bank account of defendants. -In addition. Ceferino Jimenez. 2. -For this loan. BPI had opted not to exercise its right to apply part of the deposit subject of the Holdout Agreement to the payment of the promissory note for P73k. bank deposit is payable on demand of depositor. The loan was payable on demand with interest at 14% per annum. not an exclusive. -18 August 1978: Eastern obtained a loan of P73k from CBTC as "Additional Working Capital. Generally. CBTC/BPI should have protected the defendants' interest in the estate proceedings when the said account was claimed by Velasco's estate. -March 1975. Lim in the event the Loan is declared due and payable and Eastply and/or Mr. ISSUES 1. the whole balance of P331. failed to rule on the defendants' partial appeal from the TC's denial of their counterclaim.87. Lim [officer and stockholder] held at least one joint bank account ("and/or" account) with the Commercial Bank and Trust Co. In said case. It then ordered BPI "to pay defendants the amount of P331. relationship between a depositor and a bank is one of creditor and debtor. -Both parties appealed to CA. and CBTC signed another document entitled "Holdout Agreement. in turn. Various amounts were later deposited or withdrawn from the joint account of Velasco and Lim. In the Disclosure Statement. as its Pres-GM. it is a negotiable instrument." -22 April 1992: BPI failed the instant petition. ample and sufficient power as shall be necessary to retain said Account Balance and enable Comtrust to apply the Account Balance for the purpose of liquidating the Loan in respect of principal and/or accrued interest. 2310-001-42. CA promulgated an Amended Decision wherein it ruled that the settlement of Velasco's estate had nothing to do with the claim of the defendants for the return of the balance of their account with CBTC/BPI as they were not privy to that case. What it provides is an alternative. and that the defendants.44 was equivalent to a demand that they be allowed to withdraw their bank deposit.[12] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. The note was signed by Lim both in his own capacity and as Pres-GM of Eastern. BUT BPI was not a holder in due course because the note was not indorsed to BPI by the payee. took the note subject to the Holdout Agreement. -Holdout Agreement. the predecessor-in-interest of petitioner BPI. through Lim. par. Upon MR. It. Lim hereby confer upon Comtrust [CBTC]. (CBTC)." -In the meantime. while the line with the words "this loan is wholly/partly secured by" is followed by the typewritten words "Hold-Out on 1:1 on C/A No. nor shall the existence hereof and the non-resolution of the dispute between the contending parties in respect of entitlement to the Account Balance. the note is an unconditional promise to pay the said amount. YES. [Recall: Art.261. hence." also dated 18 August 1978. Its suit for the enforcement of the note was then in order. As the real creditor of the bank. 2310-011-42 in the joint names of Lim and Velasco] to the full extent of their alleged interests therein as these may appear as a result of final and definitive judicial action or a settlement between and among the contesting parties thereto. NCC: bank deposits governed by the provisions re: simple loan. not a duty. CBTC.261. YES. therefore. preclude Comtrust from instituting an action for recovery against Eastply and/or Mr. -The counterclaim of Eastern and Lim for the return of the P331.

even if the debtor acted in utmost good faith and by mistake as to the person of the creditor. -Payment made by the debtor to the wrong party does not extinguish the obligation as to the creditor who is without fault or negligence. Award on counterclaim sustained subject to a modification of the interest. The petitioner should not have allowed such withdrawal. BPI was not specifically ordered to release the account to the said heirs. . Order of the intestate court merely authorized the heirs of Velasco to withdraw account. Rogelio V. Disposition Petition partly granted. or through error induced by fraud of a third person. hence. Quevedo [13] has the right to withdraw it or to demand payment thereof. CA decision re: dismissal of petitioner's complaint reversed and set aside. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. it was under no judicial compulsion to do so.[13] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof.