Metropolitan Bank and Trust Company, etc. vs.

BA Finance Corporation

Facts: Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a P329,280 loan to secure which, he mortgaged his car to respondent BA Finance. Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan Insurance). The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of B.A. Finance Corporationand Lamberto Bitanga for P224,500, drawn against China Banking Corporation (China Bank). The check was crossed with the notation For Deposit Payees Account Only. Without the indorsement or authority of his copayee BA Finance, Bitanga deposited the check to his account with the Asianbank Corporation (Asianbank), now merged with herein petitioner Metropolitan Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds of the check. In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it. BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed check payable to it and Bitanga, and of Bitangas depositing it in his account at Asianbank and withdrawing the entire proceeds thereof. BA Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail, prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum of money and damages against Asianbank and Bitanga,[8]alleging that, inter alia, it is entitled to the entire proceeds of the check. The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his account and to withdraw the proceeds thereof, without his co-payee BA Finance having either indorsed it or authorized him to indorse it in its behalf,[16] found Asianbank and Bitanga jointly and severally liable to BA Finance following Section 41 of the Negotiable Instruments Law andAssociated Bank v. Court of Appeals. Issue: Is petitioner liable for the full amount of the check? Held :Petitioner, at all events, argue that its liability to BA Finance should only be one-half of the amount covered by the check as there is no indication in the check that Bitanga and BA Finance are solidary creditors to thus make them presumptively joint creditors. Argument is flaweed. The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-letter law provide definitive justification for petitioners full liability on the value of the check.

To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment with the drawee bank, is an indorser.[31] This is because in indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the phrase all prior endorsements and/or lack of endorsement guaranteed[32] and, for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser.[33] Without Asianbanks warranty, the drawee bank (China Bank in this case) would not have paid the value of the subject check. Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of prior indorsements.[34]

Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the entire amount of the check. To reiterate, petitioners liability is based not on contract or quasi-contract but on quasi-delict since there is no pre-existing contractual relation between the parties.[40] Article 2231 of the Civil Code,

which provides that in quasi-delict, exemplary damages may be granted if the defendant acted with gross negligence, thus applies. For gross negligence implies a want or absence of or failure to exercise even slight care or diligence, or the entire absence of care,[41] evincing a thoughtless disregard of consequences without exerting any effort to avoid them.

BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner, vs.THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC., respondents.G.R. No. 93048 March 3, 1994
Facts:Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of
cigarettes, engaged one of its suppliers, King Tim Pua George (herein after referred to as George King), to deliver 2,000 bales of tobacco leaf starting October 1978. In consideration thereof, BCCFI, on July 13, 1978 issued crossed checks post dated sometime in March 1979 in the total amount of P820,000.00. Petitioner agreed to purchase additional 2,500 bales of tobacco leaves, despite the supplier's failure to deliver in accordance with their earlier agreement. Again petitioner issued post dated crossed checks in the total amount of P1,100,000.00, payable sometime in September 1979. During these times, George King sold at a discount the checks drawn by petitioner to private respondent SIHI. In as much as George King failed to deliver the bales of tobacco leaf as agreed despite petitioner's demand, BCCFI issued

on March 30, 1979, a stop payment order on all checks payable to George King. Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming only BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due course .

Issue: Whether or not SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able to
collect from the drawer, BCCFI.

Held: YES. As preliminary, a check is defined by law as a bill of exchange drawn on a bank payable on demand .
There are a variety of checks, the more popular of which are the memorandum check, cashier's check, traveler's check and crossed check. Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. It may be crossed generally or specially.According to commentators, the negotiability of a check is not affected by its being crossed, whether specially or generally . 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, or if it is specially crossed, by the bank mentioned between the parallel lines. In order to preserve the credit worthiness of checks, 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; (b) the check may be negotiated only once to one who has an account with a bank; (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, otherwise, he is not a holder in due course. It is then settled that 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.There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks. WHEREFORE, finding that the court a quo erred in the application of law, the instant petition is hereby GRANTED. The decision of the Regional Trial Court as affirmed by the Court of Appeals is hereby REVERSED.

Negotiable Instruments Law 217 SCRA 32 Holder in Due Course Notice of Dishonor Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the same. As security for the jewelries, Moulic issued to Victoriano two post dated checks in the aggregate amount of P100,000.00. Moulic was not able to sell the jewelries so she returned the same to Victoriano. Victoriano was however unable to return the checks hence Moulic withdrew all her funds from the bank. Apparently, the checks were negotiated by Victoriano to State Investment House. So when the checks were dishonored, State Investment demanded Moulic to pay. Moulic refused to pay because she said the checks were merely used as security for the jewelry. Moulic further averred that she received no notice of dishonor. ISSUE: Whether or not State Investment House is entitled to be paid.

HELD: Yes. State Investment is a holder in due course as it met all the requirements to be one pursuant to Section 52 of the Negotiable Instruments Law. In particular, it is clearly shown that: (a) on their faces the post-dated checks were complete and regular: (b) State Investment bought these checks from Victoriano, before their due dates; (c) State Investment took these checks in good faith and for value, (d) State Investment was never informed nor made aware that these checks were merely issued to Victoriano as security and not for value. Further, there is no need to issue a notice of dishonor to Moulic. After Moulic withdrew her funds, she could not have expected her checks to be honored. It would only be futile for State Investment to be sending her notices of dishonor for the two checks.

G.R. No. L-15126

November 30, 1961

VICENTE R. DE OCAMPO & CO., plaintiff-appellee, vs.ANITA GATCHALIAN, ET AL., defendantsappellants. FACTS: The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by defendant Anita Gatchalian (Gatchalian). The complaint sets forth the check and alleges that plaintiff received it in payment of the indebtedness of one Matilde Gonzales (wife); that upon receipt of said check, plaintiff gave Manuel Gonzales (Gonzales) P158.25, the difference between the face value of the check and Gonzales' indebtedness. The defendants admit the execution of the check but they allege that it was issued subject to a condition, which was not fulfilled, and that plaintiff was guilty of gross negligence in not taking steps to protect itself. During trial, the parties submitted a stipulation of facts, which reads that: On September 8 1953, defendant Gatchalian who was then interested in looking for a car for the use of her husband and the family, was shown and offered a car by Gonzales who represented to Gatchalian that he was duly authorized by the owner of the car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish said sale, but which facts were not known to plaintiff. Gatchalian, finding the price of the car to her satisfaction, requested Gonzales to bring the car the day following together with the certificate of registration of the car, so that her husband would be able to see same; that on this request of Gatchalian, Gonzales advised her that the owner of the car will not be willing to give the certificate of registration unless there is a showing that the party interested in the purchase of said car is ready and willing to make such purchase and that for this purpose Gonzales requested Gatchalian to give him (Gonzales) a check which will be shown to the owner as evidence of buyer's good faith in the intention to purchase the said car, the said check to be for safekeeping only of Gonzales and to be returned Gatchalian the following day when Gonzales brings the car and the certificate of registration. Relying on these representations of Gonzales and with his assurance that said check will be only for safekeeping and which will be returned to said defendant the following day when the car and its certificate of registration will be brought by Gonzales to defendants, Gatchalian drew and issued a check, in which Gonzales executed and issued a receipt for said check. However, Gonzales failed to appear the following day and failed to bring the car and its certificate of registration and to return the check as previously agreed upon. Hence, defendant Gatchalian issued a "Stop Payment Order" on the check with the drawee bank. Said "Stop Payment Order" was issued without previous notice on plaintiff who was not being know personally to defendants, or any member of his family at any time prior to September 1953, but that defendant Hipolito Gatchalian is personally acquainted with V. R. de Ocampo.

That Defendants had no arrangements or agreement with the Ocampo Clinic at any time prior to the hospitalization of the wife of Gonzales and neither or both of said defendants had assumed, expressly or impliedly, with the Ocampo Clinic, the obligation of Gonzales or his wife for the hospitalization of the latter and that defendants had no obligation or liability, directly or indirectly with the Ocampo Clinic. Gonzales having received the check from Gatchalian, delivered the same to the Ocampo Clinic in payment of the fees and expenses arising from the hospitalization of his wife, in which Plaintiff, for and in consideration of the fees and expenses of hospitalization and the release of Gonzales wife, accepted check, applying P441.75 hereof to payment of said fees and expenses and delivering to Gonzales the amount of P158.25 as balance on the amount of the said check. The acts of acceptance of the check and application of its proceeds in the manner specified above were made without previous inquiry by plaintiff from defendants. As a result, plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila, a complaint for estafa against Gonzales based on and arising from the acts latter in paying his obligations with plaintiff and receiving the cash balance of the check but that said complaint was subsequently dropped. No other evidences were submitted and upon this stipulation the trial court rendered judgement sentencing defendants to pay the amount of the check (P600) with legal interest. Defendants appealed from the decision and contended that the check is not a negotiable instrument and plaintiff is not a holder in due course. ISSUE: Whether or not plaintiff-appellee is a holder in due course. HELD: When the agent of drawer (Gatchalian) negotiated the check with the intention of getting its value from plaintiff-appellee, negotiation took place through no fault of the plaintiff-appellee, unless it can be shown that the plaintiff-appellee should be considered as having notice of the defect in the possession of the holder Gonzales. Section 52, Negotiable Instruments Law, defines holder in due course, 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; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (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. The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances under which the check was delivered to Manuel Gonzales, but we agree with the defendants-appellants that the circumstances indicated by them in their briefs, such as the fact that appellants had no obligation or liability to the Ocampo Clinic; that the amount of the check did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not be converted into cash all these circumstances should have put the plaintiff-appellee to inquiry as to the why and wherefore of the possession of the check by Manuel Gonzales, and why he used it to pay Matilde's account. It was payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check was or the nature of his possession. Having failed in this respect, we must declare that plaintiff-appellee was guilty of gross neglect in not finding out the nature of the title and possession of Manuel Gonzales, amounting to legal absence of good faith, and it may not be considered as a holder of the check in good faith. To such effect is the consensus of authority.

In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to bad faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the defendant had notice that there was something wrong about his assignor's acquisition of title, although he did not have notice of the particular wrong that was committed. In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why the holder had the check and used it to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that it actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith, hence we are forced to the conclusion that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a holder in due course thereof. Judgement of trial court reversed.

Associated Bank vs. CA GR 89802, 7 May 1992 First Division, Cruz (J) Facts: Melissas RTWs customers issued cross checks payable to Melissas RTW, which its proprietor Merle Reyes did not receive. It was learned that the checks had been deposited with the Associated Bank by one Rafael Sayson. Sayson was not authorized by Reyes to deposit and encash said checks. Reyes filed an action for the recovery of the total value of the checks plus damages. Issue: Whether the bank was negligent for the loss. Held: Crossing a check means that the drawee bank should not encash the check but merely accept it for deposit, that the check may be negotiated only once by one who has an account in a bank, and that the check serves as warning that it was issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. The effect, thus, relate to the mode of its presentment for payment, in accordance with Section 72 of the Negotiable Instruments Law. The bank paid the checks notwithstanding that title had not passed to the indorser, as the checks had been crossed and issued for payees account only. It does did so in its own peril and became liable to the payee for the value of the checks. The failure of the bank to make

an inquiry as to Saysons authority was a breach of its duty. The bank is negligent and is thus liable to Reyes.

G.R. No. 170325 September 26, 2008 Lessons Applicable: Fictitious Persons (Negotiable Instruments Law) FACTS:

Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had a discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees

The association maintained current and savings accounts with Philippine National Bank (PNB)

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds.

As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members.

It was PEMSLAs policy not to approve applications for loans of members with outstanding debts.

To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts.

They took out loans in the names of unknowing members, without the knowledge or consent of the latter.

The officers carried this out by forging the indorsement of the named payees in the checks

Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees.

This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch.

this became the usual practice for the parties.

November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804. These were payable to 47 individual payees who were all members of PEMSLA

PNB eventually found out about these fraudulent acts

To put a stop to this scheme, PNB closed the current account of PEMSLA.

As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason Account Closed.

The amounts were duly debited from the Rodriguez account

Spouses filed a civil complaint for damages against PEMSLA, the MultiPurpose Cooperative of Philnabankers (MCP), and PNB.

PNB credited the checks to the PEMSLA account even without indorsements = PNB violated its contractual obligation to them as depositors - so PNB should bear the losses

RTC: favored Rodriguez

makers, actually did not intend for the named payees to receive the proceeds of the checks = fictitious payees (under the Negotiable Instruments Law) = negotiable by mere delivery

CA: Affirmed - checks were obviously meant by the spouses to be really paid to PEMSLA = payable to order

ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby dismissing PNB from liability HELD: NO. CA Affirmed

GR: when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument (Sections 8 and 9 of the NIL)

EX: However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will cause it to bear the loss.

The distinction between bearer and order instruments lies in their manner of negotiation

order instrument - requires an indorsement from the payee or holder before it may be validly negotiated

bearer instrument - mere delivery

US jurisprudence: fictitious if the maker of the check did not intend for the payee to in fact receive the proceeds of the check

In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss

When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery

underlying theory: one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon

lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks proceeds

PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or otherwise. It was negligent in the selection and supervision of its employees

G.R. No. 133179 March 27, 2008 ALLIED BANKING CORPORATION VS LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS BANK, Facts: On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking Corporation (Allied) a money market placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983, as evidenced by Provisional Receipt No. 1356 dated November 14, 1983. On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the latter to pre-terminate Lim Sio Wan's money market placement, to issue a manager's check representing the proceeds of the placement, and to give the check to one Deborah Dee Santos who would pick up the check. Lim Sio Wan described the appearance of Santos so that So could easily identify her. Later, Santos arrived at the bank and signed the application form for a manager's check to be issued. The bank issued Manager's Check No. 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio Wan's money market placement in the name of Lim Sio Wan, as payee. The check was cross-checked "For Payee's Account Only" and given to Santos. Thereafter, the manager's check was deposited in the account of Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank), with the forged signature of Lim Sio Wan as indorser. Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million with respondent Producers Bank. Santos was the money market trader assigned to handle FCC's account. Such deposit is evidenced by Official Receipt No. 317568 and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledging receipt of the placement. The placement matured on October 25, 1983 and was rolled-over until December 5, 1983 as evidenced by a Letter dated October 25, 1983. When the placement matured, FCC demanded the payment of the proceeds of the placement. On December 5, 1983, the same date that So received the phone call instructing her to pre-terminate Lim Sio Wan's placement, the manager's check in the name of Lim Sio Wan was deposited in the account of FCC, purportedly representing the proceeds of FCC's money market placement with Producers Bank. In other words, the Allied check was deposited with Metrobank in the account of FCC as Producers Bank's payment of its obligation. The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded the check even without checking the authenticity of Lim Sio Wan's purported indorsement. Thus, the amount on the face of the check was credited to the account of FCC. On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan went to Allied to withdraw it. She was then informed that the placement had been pre-terminated upon her instructions. She denied

giving any instructions and receiving the proceeds thereof. Consequently, Lim Sio Wan filed with the RTC a Complaint against Allied to recover the proceeds of her first money market placement. On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank that the signature on the check was forged. Thus, Metrobank withheld the amount represented by the check from FCC. Later on, Metrobank agreed to release the amount to FCC after the latter executed an Undertaking, promising to indemnify Metrobank in case it was made to reimburse the amount. After trial, the RTC issued its Decision holding Allied solely liable to Lim Sio Wan Allied appealed to the CA which ruled that Allied shall be liable for the 60% of the amount of the money and 40% shall be borne by Metrobank Hence, Allied filed the instant petition. Issue: Whether or not Allied is solely liable to Lim Sio Wan Held: As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and familiar is the doctrine that the relationship between a bank and a client is one of debtor-creditor. Articles 1953 and 1980 of the Civil Code provide: Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality. Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or mutuum. More succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano, this Court ruled that a money market placement is a simple loan or mutuum. Further, we defined a money market in Cebu International Finance Corporation v. Court of Appeals, as follows: [A] money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in open market. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer. In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan.

Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request, or upon maturity of the placement, or until the bank is released from its obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains unextinguished. Since there was no effective payment of Lim Sio Wan's money market placement, the bank still has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the payment thereof. To reiterate, had Allied exercised the diligence due from a financial institution, the check would not have been issued and no loss of funds would have resulted. In fact, there would have been no issuance of indorsement had there been no check in the first place. Given the relative participation of Allied and Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld. WHEREFORE, the petition is PARTLY GRANTED

Negotiable Instruments Law Consideration 65 SCRA 680 Forgery Liability of Accommodation Party On January 15, 1963, the Bureau of Treasury issued a back pay check to Martin Lorenzo in the amount of P1,246.08. The drawee named therein is Republic Bank. The check was subsequently indorsed to Ramon Lorenzo, then to Delia Dominguez and then to Mauricia Ebrada. Ebrada encashed the check with the Republic Bank. Republic Bank paid the amount of the check to Ebrada. Ebrada, upon receiving the cash, gave it to Dominguez; Dominguez in turn gave the cash to Ramon Lorenzo. Later, the Bureau of Treasury notified that the check was a forgery because the payee named therein (Martin Lorenzo) was actually dead 11 years ago before the check was issued. Republic Bank refunded the amount to the Bureau of Treasury. The bank then demanded Ebrada to refund them. ISSUE: Whether or not Republic Bank may recover from Ebrada. HELD: Yes. Ebrada, being the last indorser, warranted the genuineness of the signatures of the payee and the previous indorsers. The drawee bank is not duty bound to ascertain whether or not the signatures of the payee and the indorsers are genuine. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee (in this case Republic Bank) who has paid the forged check, without actual negligence on his part, may recover the money paid from such negligent purchasers.

But Ebrada did not profit from this because she, upon receiving the encashment, gave the same to Dominguez? She is still liable because she is considered as an accommodation party pursuant to Section 29 of the Negotiable Instruments Law. An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party.

GR 97753, 10 August 1992 FACTS On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million. Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983, de la Cruz loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed. ISSUE [1]: Whether the Certificates of Time Deposit (CTDs) are negotiable instruments. HELD [1]: The CTDs in question meet the requirements of the law for negotiability. Contrary to the lower courts findings, the CTDs are negotiable instruments (Section 1). Negotiability or nonnegotiability of an instrument is determined from the writing, i.e. from the face of the instrument itself. The documents provided that the amounts deposited shall be repayable to the depositor. The amounts are to be repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment. ISSUE [2]: Whether the CTDs negotiation require delivery only. HELD [2]: Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the

CTDs were delivered to it as security for dela Cruz purchases of its fuel products, and not for payment. Herein, there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for.

Caltex vs Court of Appeals and Security Bank and Trust Co., 212 SCRA 449, GR No. 97753, August 10, 1992
Posted by Pius Morados on January 12, 2012 (Negotiable Instruments Requisites for an instrument to become negotiable) Facts: Defendant bank issued 280 certificates of time deposits (CTDs) in favor of Angel dela Cruz whom herein defendant acknowledges as a depositor of the aggregate amount of P1,120,000.00. Plaintiff alleged that said CTDs were delivered to them by Angel dela Cruz as security for purchases of fuel products made with Caltex. Plaintiff formally informed the defendant bank of its possession of the CTDs and claim payment of its value. Defendant bank rejected the plaintiffs demand and claim for payment of the value of the CTDs after the latter failed to furnish the former a copy of the document evidencing the guarantee agreement with Angel dela Cruz, as well as details of obligation of Angel dela Cruz as requested. The respondent court dismissed the complaint of plaintiff for payment of the value of the CTDs on the ground that the CTDs are non-negotiable instruments and that petitioner did not become a holder in due course of the said certificates of deposit. Issue: 1. WON the CTDs are negotiable instruments. 2. WON petitioner can rightfully recover the CTDs. Held:

1. YES. The CTDs in question are negotiable instruments for it meets the requirements of the law for negotiability. Section 1 Act No. 2031 enumerates the requisites for an instrument to become negotiable: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. The documents provide that the amounts deposited shall be repayable to the depositor the bearer. The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment. 2. No. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz could at the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for.