G.R. No. 89252 May 24, 1993 Raul Sesbreo, Petitioner, vs.

CA, Delta Motors Corporation and Pilipinas Bank, Respondents. DOCTRINE: The rights of an assignee are not any greater than the rights of the assignor, since the assignee is ere!y s"#stit"ted in the $!ace of the assignor and that the assignee ac%"ires his rights s"#&ect to the e%"ities ' i.e., the defenses ' (hich the de#tor co"!d have set "$ against the origina! assignor #efore notice of the assign ent (as given to the de#tor. The i $ersona! character of the oney ar)et device over!oo)s the individ"a!s or entities concerned. The issuer of a commercial paper in the money market necessarily knows in advance that it would be expenditiously transacted and transferred to any investor/lender without need of notice to said issuer. In practice, no notification is i!en to t"e borro#er or issuer of co$$ercial paper of t"e sale or transfer to t"e in!estor. %ACTS : FEL ! "#$% &.: *etitioner +es#re,o ade a *hi!finance for *3--.. oney ar)et $!ace ent (ith *etitioner notified 1e!ta of his rights as assignee on!y after co $ensation had ta)en $!ace #y o$eration of !a( #eca"se the offsetting instr" ents 4the obli*ation of Philfinance and that of 'elta under the promissory note5 had #oth reached at"rity. 6t the ti e that 1e!ta (as first $"t to notice of the assign ent in $etitioner7s favor the note had a!ready #een discharged #y co $ensation. +ince the assignor *hi!finance co"!d not have then co $e!!ed $ay ent ane( #y 1e!ta of the $ro issory note, $etitioner, as assignee of *hi!finance, is si i!ar!y disa#!ed fro co!!ecting fro 1e!ta the $ortion of the Note assigned to hi . The defense of co $ensation raised #y $rivate res$ondent 1e!ta sho"!d #e "$he!d. Philfinance remains liable to petitioner under the terms of the assi*nment made by Philfinance to petitioner.
G8NT98M8N: This refers to o"r o"tstanding $!ace ent of *4,:-1,:::.:; as evidenced #y yo"r *ro issory Note No. 143/6, dated 6$ri! 1-, 198-, to at"re on 6$ri! :, 1981. 6s agreed "$on, (e enc!ose o"r non/negotia#!e *ro issory Note No. 2;3- and 2;31 for *2,---,---.-- each, dated 6$ri! 1-, 198-, to #e offsetted <sic= against yo"r *N No. 143/6 "$on co/ter ina! at"rity. *!ease de!iver the $roceeds of o"r *Ns to o"r re$resentative, Mr. 8ric >asti!!o. ?ery Tr"!y @o"rs, 4+gd.5 A!orencio B. Biagan +enior ?ice *resident

*hi!finance iss"ed $ost/dated chec)s, petitioner as payee $aya#!e on the at"rity of the oney ar)et $!ace ent and so!d a *ro issory Note iss"ed #y 'elta (otors to *hi!finance (hich (as ar)ed non)ne*otiable to $etitioner. 0hen the $ost/dated chec) (as dishonored, $etitioner ade a de and on 1e!ta for the satisfaction of the $ro issory note. 1e!ta denied any !ia#i!ity to $etitioner on the $ro issory note, as the said note (as not intended to #e negotiated or other(ise transferred #y *hi!finance as anifested #y the (ord non)ne*otiable sta $ across the face of the Note. 1e!ta a!so arg"ed that ass" ing that the $artia! assign ent in favor of $etitioner (as va!id, $etitioner too) the Note s"#&ect to the defenses avai!a#!e to 1e!ta// the co $ensation of the o#!igation of *hi!finance (ith the s"#&ect note.

ISS&E: 0as there a va!id assign ent that (o"!d ena#!e $etitioner to co!!ect on 1e!ta2 'ES(NO) *E+D: There (as a va!id assign ent. The *N, (hi!e ar)ed non)ne*otiable was not at the same time stamped +non) transferrable+ or +non)assi*nable.+ 3t contained no sti$"!ation (hich $rohi#ited *hi!finance fro assigning or transferring, in (ho!e or in $art, that Note. Neither is the consent of 1e!ta necessary for the va!idity and enforcea#i!ity of the assign ent in favor of $etitioner. *o#e!er, petitioner still cannot collect on t"e sai, pro$issor- note.

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G.R. No. 13:2-2 : Can"ary 25, 2--; Bank of t"e P"ilippine Islan,s, Petitioner, v. CA, Annabelle A) Sala.ar, and /ulio R) Te$plonue!o, Respondents DOCTRINE: The ere $ossession of a negotia#!e instr" ent does not in itse!f conc!"sive!y esta#!ish either the right of the $ossessor to receive $ay ent, or of the right of one (ho has ade $ay ent to #e discharged fro !ia#i!ity. Th"s, so ething ore than ere $ossession #y $ersons (ho are not $ayees or indorsers of the instr" ent is necessary to a"thoriDe $ay ent to the in the a#sence of any other facts fro (hich the a"thority to receive $ay ent ay #e inferred. Negotia#!e instr" ents are negotiated #y Etransfer to one $erson or another in s"ch a anner as to constit"te the transferee the ho!der thereof. %ACTS: ",!-#"% &.: RT>4+a!aDar5>646ffir ed5 +>445:5 ".". .ala/ar !onstruction and En*ineerin* .ervices fi!ed an action for a s" of oney (ith da ages against $etitioner (ith RT>/*asig >ity. The co $!aint (as !ater a ended #y s"#stit"ting the na e of 6nna#e!!e 6. +a!aDar as the rea! $arty in interest. *rivate res$ondent +a!aDar had in her $ossession 3 chec)s $aya#!e to the order of co/$rivate res$ondent Te $!on"evo. 1es$ite the !ac) of indorse ent of the designated $ayee "$on s"ch chec)s, +a!aDar (as a#!e to de$osit the chec)s in her $ersona! savings acco"nt (ith $etitioner B*3 and encash the sa e. Te $!on"evo $rotested the $"r$orted!y "na"thoriDed encash ent of the chec)s after the !a$se of one year fro the date of the !ast chec). B*3 froDe 6.6. +a!aDar and >onstr"ctionFs acco"nt. *etitioner B*3 decided to de#it the a o"nt of the chec) fro +a!aDarFs acco"nt and the sa e (as $aid to Te $!on"evo #y eans of a cashier7s chec). +a!aDar fi!ed an action for a s" of (ith da ages against $etitioner B*3. oney for *2:8.

ISS&E: 0ere the ded"ctions ade #y $etitioner fro res$ondent +a!aDar7s acco"nt $ro$er2 'ES)

$rivate

*E+D: The records do not s"$$ort the finding ade #y the >6 and the tria! co"rt that a $rior arrange ent eGisted #et(een +a!aDar and Te $!on"evo regarding the transfer of o(nershi$ of the chec)s. This fact is crucial as .ala/ar0s entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the # L. Section 01 conte $!ates a sit"ation (here#y the $ayee or indorsee de!ivers a negotia#!e instr" ent for va!"e (itho"t indorsing it. B"t for the $"r$ose of determinin* whether the transferee is a holder in due course, the negotiation ta)es effect as of the ti e (hen the indorse ent is act"a!!y ade. This is an e2uitable assi n$ent and the transferee ac1uires the instrument sub2ect to defenses and e1uities available amon* prior parties. Th"s, if the transferor had !ega! tit!e, the transferee ac%"ires s"ch tit!e and, in addition, the right to have the indorse ent of the transferor and a!so the right, as ho!der of the !ega! tit!e, to aintain !ega! action against the a)er or acce$tor or other $arty !ia#!e to the transferor. The "nder!ying $re ise of this $rovision, ho(ever, is that a !ali, transfer of o(nershi$ of the negotia#!e instr" ent in %"estion has ta)en $!ace. *etitioner, as the co!!ecting #an), had the right to de#it +a!aDar7s acco"nt for the va!"e of the chec)s it $revio"s!y credited in her favor. The $resent case invo!ves chec)s payable to order. Not #eing a $ayee or indorsee of the chec)s, $rivate res$ondent +a!aDar co"!d not #e a ho!der thereof. 3t is an exception to the general r"!e for a $ayee of an order instr" ent to transfer the instr" ent (itho"t indorse ent. *recise!y #eca"se the sit"ation is a#nor a!, it is #"t fair to the a)er and to $rior ho!ders to re%"ire $ossessors to $rove (itho"t the aid of an initia! $res" $tion in their favor, that they ca e into $ossession #y virt"e of a !egiti ate transaction (ith the !ast ho!der. .ala/ar failed to dischar*e this burden% and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authori/ed .ala/ar to deposit the checks or to encash the same. *o#e!er, $etitioner #an) sho"!d #e he!d !ia#!e for da ages to +a!aDar. The act of the #an) in freeDing and !ater de#iting the acco"nt of +a!aDar ca"sed her great da age and $re&"dice $artic"!ar!y (hen she had a!ready iss"ed chec)s dra(n against the said acco"nt and (ere s"#se%"ent!y dishonored. This (ho!e incident (o"!d have #een avoided had $etitioner adhered to the standard of di!igence eG$ected of one engaged in the #an)ing #"siness.

3n the ans(er to the third/$arty co $!aint, $rivate res$ondent Te $!on"evo ad itted the $ay ent to hi of *2:8. and arg"ed that said $ay ent (as to correct the a!icio"s de$osit ade #y $rivate res$ondent +a!aDar to her $rivate acco"nt, and that $etitioner #an)7s neg!igence and to!erance regarding the atter (as vio!ative of the $ri ary and ordinary r"!es of #an)ing. The debitin* from another account of private respondent .ala/ar% considerin* that her other account was effectively closed% was not his concern.

0H8R8AIR8, the $etition is $artia!!y GR6NT81. The assai!ed 1ecision and Reso!"tion #y the >6 are MI13A381 insofar as it ordered $etitioner B*3 to ret"rn the a o"nt of *2:;,;-;.;- to res$ondent 6.6. +a!aDar, (hich $ortion is R8?8R+81 and +8T 6+318. 3n a!! other res$ects, the sa e are 6AA3RM81.

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G.R. No. 9;;53 6"g"st 1-, 1992 Calte3, Petitioner, vs. CA and Securit- Bank an, Trust Co$pan-, Respondents. DOCTRINE: 6n instr" ent is negotiated (hen it is transferred fro one $erson to another in s"ch a anner as to constit"te the transferee the ho!der thereof, and a ho!der ay #e the $ayee or indorsee of a #i!! or note, (ho is in $ossession of it, or the #earer thereof. %ACTS: RE3"L"'$% &.: *rivate res$ondent iss"ed 28- certificates of time deposit 4>T1s5 in favor of 6nge! de!a >r"D (ho de$osited (ith $rivate res$ondent the aggregate a o"nt of *1.12-M. 6 sa $!e of teGt of the >T1s is as fo!!o(s:
JThis is to >ertify that B86R8R has de$osited in this Ban) the s" of *8+I+: AIKR +8>KR3T@ B6N. THIK+6N1 IN9@. +K>6T IAA3>8 *4,--- L -- >T+ *esos, *hi!i$$ine >"rrency, re$aya#!e to said de$ositor ;31 days after date, "$on $resentation and s"rrender of this certificate, (ith interest at the rate of 1:M $er cent $er ann" .N

>6 affir ed the !o(er co"rt7s dis issa! of the co $!aint stating that the >T1s are $aya#!e, not to (hoever $"r$orts to #e the bearer #"t on!y to the s$ecified $erson indicated therein, the de$ositor. 3n effect, the a$$e!!ee #an) ac)no(!edges its de$ositor 6nge! de!a >r"D as the $erson (ho ade the de$osit and f"rther engages itse!f to $ay said de$ositor the a o"nt indicated thereon at the sti$"!ated date. Hence this $etition.

ISS&E: 0hether the >T1s in %"estion are negotia#!e instr" ents. 'ES. *E+D: The >T1s in %"estion "ndo"#ted!y eet the re%"ire ents of the !a( for negotia#i!ity inc!"ding +ection 14d5 of the N39. The acce$ted r"!e is that the negotia#i!ity or non/negotia#i!ity of an instr" ent is deter ined fro the (riting, that is, fro the face of the instr" ent itse!f. >ontrary to (hat res$ondent co"rt he!d, t"e CTDs are ne otiable instru$ents. The doc" ents $rovide that the a o"nts de$osited sha!! #e re$aya#!e to the de$ositor. 6ccording to the doc" ent the de$ositor is the #earer. The doc" ents do not say that the de$ositor is 6nge! de !a >r"D and that the a o"nts de$osited are re$aya#!e s$ecifica!!y to hi . Rather, the a o"nts are to #e re$aya#!e to the #earer of the doc" ents or, for that atter, (hosoever ay #e the #earer at the ti e of $resent ent. The inter$retation of o#sc"re (ords or sti$"!ations in a contract sha!! not favor the $arty (ho ca"sed the o#sc"rity. *o#e!er, petitioner cannot ri "tfull- reco!er on t"e CTDs for lack of ne otiation as t"e CTDs #ere in realit,eli!ere, to it as a securit- for 1e !a >r"D7 $"rchases of its f"e! $rod"cts. 3n the $resent case, t"ere #as no ne otiation in t"e sense of a transfer of t"e le al title to t"e CTDs in fa!or of petitioner in #"ic" situation, for ob!ious reasons, $ere ,eli!er- of t"e bearer CTDs #oul, "a!e suffice, . Here, the de!ivery thereof on!y as sec"rity for the $"rchases of 6nge! de !a >r"D co"!d at the ost constit"te $etitioner on!y as a ho!der for va!"e #y reason of his !ien. 6ccording!y, a negotiation for s"ch $"r$ose cannot #e effected #y ere de!ivery of the instr" ent since, necessari!y, the ter s thereof and the s"#se%"ent dis$osition of s"ch sec"rity, in the event of non/ $ay ent of the $rinci$a! o#!igation, "st #e contract"a!!y $rovided for. 6side fro the fact that the >T1s (ere on!y de!ivered #"t not indorsed, petitioner failed to produce any document evidencin* any contract of pled*e or *uarantee a*reement between it and "n*el de la !ru/. >onse%"ent!y, t"e $ere ,eli!er- of t"e CTDs ,i, not le all- !est in petitioner anri "t effecti!e a ainst an, bin,in upon respon,ent bank) On t"e ot"er "an,, t"e assi n$ent of t"e CTDs $a,e bAn el ,e la Cru. in fa!or of respon,ent bank #as e$bo,ie, in a public instru$ent . Therefore, as #et(een $etitioner and res$ondent #an), the !atter has definite!y the #etter right over the >T1s in %"estion.

1e!a >r"D de!ivered the said >T1s to $etitioner in connection (ith his $"rchase of f"e! $rod"cts. Thereafter 1e!a >r"D infor ed the Branch Manager of $rivate res$ondent that he !ost a!! the certificates of ti e de$osit in dis$"teO on the #asis of an affidavit of !oss, 28- re$!ace ent >T1s (ere iss"ed in favor of said de$ositor. 1e!a >r"D then o#tained a !oan fro res$ondent #an) in the a o"nt of *8;5. and he eGec"ted a notariDed 'eed of "ssi*nment of Time 'eposit (hich stated that he s"rrenders to $rivate res$ondent the f"!! contro! of the ti e de$osits and f"rther a"thoriDes said #an) to $re/ter inate, set/off and a$$!y the said ti e de$osits to the $ay ent of (hatever a o"nt or a o"nts ay #e d"e on the !oan "$on its at"rity. *rivate res$ondent then received a !etter fro $etitioner for a!!y infor ing it of its decision to $re/ ter inate the >T1s in its $ossession a!!eging that they (ere de!ivered #y 1e!a >r"D as sec"rity for $"rchases ade (ith *etitioner. *rivate res$ondent re&ected the $etitioners de and and c!ai for $ay ent of the va!"e of the >T1s. The !oan at"red and fe!! d"e, the $rivate res$ondent set/off and a$$!ied the ti e de$osits in %"estion to the $ay ent of the at"red !oan. Petitioner filed the instant complaint. RT> dis issed the co $!aint.

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0H8R8AIR8, the $etition is 18N381 and the a$$ea!ed decision is here#y 6AA3RM81.

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G.R. No. ;2593 6$ri! 3-, 198; Consoli,ate, Pl-#oo, In,ustries, Inc), *enr- 4ee, and Ro,olfo T) 5er ara, Petitioners, vs. I%C +easin an, Acceptance Corporation, Respondent. DOCTRINE: .ee .E!. 45.c.6 .E!.45.d6 .E!. 47. 6 financing co $any is not a ho!der in good faith as to the #"yer. 3n insta!! ent sa!es, the #"yer "s"a!!y iss"es a note $aya#!e to the se!!er to cover the $"rchase $rice. Many ti es, in $"rs"ance of a $revio"s arrange ent (ith the se!!er, a finance co $any $ays the f"!! $rice and the note is indorsed to it, s"#rogating it to the right to co!!ect the $rice fro the #"yer, (ith interest. %ACTS: 3-T ERRE,% &R.% &.: 3nd"stria! *rod"cts Mar)eting 4se!!er/assignor5 offered to se!! to *etitioner 2 E-sedE "llis !rawler Tractors, the for er ass"ring the !atter that tractors (hich (ere #eing offered (ere fit for the &o#, and gave the corres$onding (arranty of 49-5 days $erfor ance of the achines and avai!a#i!ity of $arts. 0ith said ass"rance and (arranty, and re!ying on the se!!er/assignor7s s)i!! and &"dg ent, $etitioner agreed to $"rchase on insta!! ent said Tractors. The se!!er/assignor iss"ed the sa!es invoice for the 2 "nits of a deed of sa!e (ith chatte! ortgage (ith $ro issory note (as eGec"ted (hich reads:
EAIR ?69K8 R8>83?81, 3P(e &oint!y and severa!!y $ro ise to $ay to the 3N1K+TR369 *RI1K>T+ M6R.8T3NG, the s" of IN8 M3993IN N3N8T@ THR88 THIK+6N1 +8?8N HKN1R81 83GHT@ N3N8 *8+I+ L ;1P1-- on!y 4*1,-93,;89.;15, *hi!i$$ine >"rrency, the said $rinci$a! s" , to #e $aya#!e in 24 onth!y insta!! ents starting C"!y 15, 19;8 and every 15th of the onth thereafter "nti! f"!!y $aid. . . . .E

The $roceeds (ere to #e given to the res$ondent and the eGcess, if any, to #e divided #et(een the se!!er/assignor and $etitioner/cor$oration (hich offered to #ear 1P2 of the reconditioning cost. No res$onse (as ade #y se!!er/assignor and $etitioner instead !earned that res$ondent fi!ed a co $!aint against the $etitioners for the recovery of the s" in the $ro issory note. The tria! co"rt rendered &"dg ent against the $etitioner and denied the MR fi!ed #y the $etitioner. IAC affir ed the decision of the !o(er co"rt ho!ding that the (arranty contended #y $etitioner !ies on!y #et(een se!!er/assignor and the $etitioner and not against the $rivate res$ondent (ho is the assignee of the $ro issory note and a ho!der of the sa e in d"e co"rse.

ISS&E: 0as the $ro issory note a negotia#!e instr" ent so as to #ar co $!ete!y a!! the avai!a#!e defenses of the $etitioner against the res$ondent/assignee. NO) *E+D: >onsidering that $aragra$h 4d5, +ection 1 of the N39 re%"ires that a pro$issor- note 6$ust be pa-able to or,er or bearer,6 it cannot #e denied that the $ro issory note in %"estion is not a negotia#!e instr" ent. 0itho"t the (ords 0or order0 or 0to the order of,7 the instr" ent is $aya#!e on!y to the $erson designated therein and is therefore non/negotia#!e. 6ny s"#se%"ent $"rchaser thereof (i!! not en&oy the advantages of #eing a ho!der of a negotia#!e instr" ent, #"t (i!! ere!y 7ste$ into the shoes7 of the $erson designated in the instr" ent and (i!! th"s #e o$en to a!! defenses avai!a#!e against the !atter.E Therefore, considering that the s"#&ect $ro issory note is not a ne*otiable instrument, it fo!!o(s that t"e respon,ent can ne!er be a "ol,er in ,ue course but re$ains a $ere assi nee of t"e note in 2uestion . Th"s, the $etitioner ay raise against the res$ondent a!! defenses avai!a#!e to it as against the se!!er/assignor, 3nd"stria! *rod"cts Mar)eting. 8ven conceding for $"r$oses of disc"ssion that the $ro issory note in %"estion is a negotia#!e instr" ent, the res$ondent cannot #e a ho!der in d"e co"rse #eca"se the respon,ent "a, actual kno#le, e of t"e fact t"at t"e seller7assi nor8s ri "t to collect t"e purc"ase price #as not uncon,itional , and that it (as s"#&ect to the condition that the tractors so!d (ere not defective. The res$ondent )ne( that (hen the tractors t"rned o"t to #e defective, it (o"!d #e s"#&ect to the defense of fai!"re of consideration and cannot recover the $"rchase $rice fro the $etitioners. The res$ondent too) the $ro issory note (ith act"a! )no(!edge of the foregoing facts so that its action in ta)ing the instr" ent a o"nted to #ad faith, and therefore it is not a ho!der in d"e co"rse as $rovided "nder Sections 9: an, 9; of the N39. 6s s"ch, the res$ondent is s"#&ect to a!! defenses (hich the $etitioners ay raise against the se!!er/ assignor. 0H8R8AIR8, in vie( of the foregoing, the decision of the res$ondent a$$e!!ate co"rt as (e!! as its reso!"tion are here#y

Thereafter the se!!er/assignor, #y eans of a deed of assign ent assigned its rights and interest in the chatte! ortgage in favor of the res$ondent. Bare!y 14 days had e!a$sed after their de!ivery (hen one of the tractors #ro)e do(n and after another 9 days, the other tractor !i)e(ise #ro)e do(n. 6tte $ts to re$air the tractors fai!ed and it (as fo"nd o"t that the "nits (ere no !onger servicea#!e. *etitioner advised the se!!er/assignor that the $ay ents of the insta!! ents as !isted in the $ro issory note (o"!d !i)e(ise #e de!ayed "nti! the se!!er/assignor co $!ete!y f"!fi!!s its o#!igation "nder its (arranty. *etitioner as)ed the se!!er/assignor to $"!! o"t the "nits and have the reconditioned, and thereafter to offer the for sa!e.

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6NNK9981 and +8T 6+318. The co $!aint against the $etitioner #efore the tria! co"rt is 13+M3++81.

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G.R. No. 9/1538-

+e$te #er 3-, 19:G.R. No. 9/1512: Nove #er 3-, 19:1

C"an 4an, plaintiff)appellant, vs. Tan <i$ and C"en So, defendants)appellees. DOCTRINE: The on!y disadvantage of a ho!der (ho is not a ho!der in d"e co"rse is that the negotia#!e instr" ent is s"#&ect to defenses as if it (ere non/negotia#!e. %ACTS: 8E#3,$#% &.: >hec)s (ere dra(n #y Tan .i against 8%"ita#!e Ba)ing >or$oration $aya#!e to Jcash or bearerN. These chec)s (ere $resented for $ay ent #y >han 0an #"t there (ere a!! dishonored and ret"rned to hi "n$aid d"e to ins"fficient f"nds andPor ca"ses attri#"ta#!e to the dra(er. Aro the #ac) of the chec)s it (o"!d see to sho( that they (ere $revio"s!y de$osited (ith >hina Ban)ing >or$oration #"t as dra(ee had no f"nds, they (ere "n$aid and ret"rned, so e of the sta $ed Eaccount close,E. Tan .i a!!eges that the chec)s had #een iss"ed to t(o $ersons na ed *inong and M"y for so e shoes they have $ro ised to a)e. The !o(er co"rt dec!ined to order $ay ent for the reason that >han 0an fai!ed to $rove he (as a ho!der in d"e co"rse.

5icente R. De Oca$po = Co., Plaintiff)"ppellee, vs. Anita >atc"alian, Et Al., 'efendants)"ppellants. DOCTRINE: +ince Eho!derE, as defined in sec. 191, inc!"des a $ayee (ho is in $ossession the (ord ho!der in the first c!a"se of sec. 52 and in the second s"#section ay #e re$!aced #y the definition in sec. 191 so as to read Ea "ol,er in ,ue course is a pa-ee or in,orsee #"o is in possession,E etc. 48rannan0s on #e*otiable nstruments Law, :th ed., $. 5435. 3n order to sho( that the defendant had E)no(!edge of s"ch facts that his action in ta)ing the instr" ent a o"nted to #ad faith,E it is not necessary to $rove that the defendant )ne( the eGact fra"d that (as $racticed "$on the $!aintiff #y the defendant7s assignor, it #eing s"fficient to sho( that the defendant had notice that there (as so ething (rong a#o"t his assignor7s ac%"isition of tit!e, a!tho"gh he did not have notice of the $artic"!ar (rong that (as co itted 4 Paika v. Perry5. 3t is s"fficient that the #"yer of a note had notice or )no(!edge that the note (as in so e (ay tainted (ith fra"d. 3t is not necessary that he sho"!d )no( the $artic"!ars or even the nat"re of the fra"d, since a!! that is re%"ired is )no(!edge of s"ch facts that his action in ta)ing the note a o"nted #ad faith. 4$/ark (otor !o. v. <orton5 %ACTS: L"8R"'$R% &.: =see ori*inal> re stipulation of facts R (anuel 3on/ales is o#!igated to the $!aintiff for the fees and eG$enses for the hos$ita!iDation of his (ife a o"nting to *441.;5. 3on/ales then fa!se!y re$resented hi se!f to defendant Gatcha!ian as a d"!y a"thoriDed agent of *!aintiff for the sa!e of the !atterFs car. 1efendant, (ho (as then interested in !oo)ing for a car, iss"ed a crossed check payable to bearer in the a o"nt of *:-- and the sa e (as handed to GonDa!es for safe)ee$ing for the so!e $"r$ose of $resenting it to 1e Ica $o to sho( his intention to $"rchase the said car. Aor fai!"re to 3on/ales to a$$ear the day fo!!o(ing (ith the car and its certificate of registration, defendant iss"ed a .top Payment $rder.

ISS&E: Has >han 0an, not bein* a holder in due course, had the right to co!!ect on the 11 s"#&ect chec)s2 'ES) *E+D: 3t does not fo!!o( as a !ega! $ro$osition, that si $!y #eca"se >han 0an (as not a ho!der in d"e co"rse, >han 0an co"!d not recover on the chec)s. The N39 does not $rovide that a ho!der (ho is not a ho!der in d"e co"rse, ay not in any case, recover on the instr" ent. Ho(ever, if it (ere tr"e that the chec)s had #een iss"ed in $ay ent for shoes that (ere never ade and de!ivered, Tan .i (o"!d have a good defense as against a ho!der (ho is not a ho!der in d"e co"rse. >ase (as re anded for f"rther $roceedings. QQ +ide Note: The N39 reg"!ating the iss"ance of negotia#!e chec)s, the rights and the !ia#i!ities arising therefro , does not ention Ecrossed chec)sE. "rt. 49: of the >ode of >o erce refers to s"ch instr" ents. The #i!!s of Exchan*e "ct of En*land of :;;5% contains several provisions about them , so e of (hich are %"oted in the argin. 3n P#8vs. ,ulueta, +> a$$!ied so e $rovisions of said Bi!!s of 8Gchange 6ct #eca"se the N39, originating fro 8ng!and and codified in the Knited +tates, $er its resort thereto in atters not covered #y it and !oca! !egis!ation.

Mean(hi!e, 3on/ales de!ivered the chec) to $!aintiff for and in consideration of fees and eG$enses of hos$ita!iDation and the re!ease of his (ife.

Negotiable Instrument | Feb 4 |

1"e to the sto$ order $ay ent, the $!aintiff (as not a#!e to encash the chec) and th"s fi!ed an action for recovery on the chec) dra(n #y defendant. 1efendants/a$$e!!ants contend that the chec) is not a negotia#!e instr" ent, and that plaintiff is not a "ol,er in ,ue course. That defendant Gatcha!ian had no intention to transfer her $ro$erty in the instr" ent as it (as for safe)ee$ing ere!y and, therefore, there (as no de!ivery re%"ired #y !a(.

G.R. No. 9/1152: Can"ary 2, 191; B) A) >reen, et al.% plaintiffs)appellees, vs. M. 9o$eD, et al.% 'efendants)"ppellants. DOCTRINE: The #"rden of $roof (as anifest!y "$on the a)er of the note to esta#!ish the fact of )no(!edge of the e%"ita#!e defenses #efore they co"!d #e $er itted to re!y "$on s"ch defenses as against the $"rchasers. %ACTS: !"R.$#% &.: 6 negotia#!e note (as iss"ed #y defendant to a $ayee (hich the !atter indorsed to $!aintiffs, the $resent ho!ders, the. The defendant ref"sed to $ay the note a!!eging that $!aintiffs (ere not #ona fide ho!ders of the note #y indorse ent, #eca"se they had )no(!edge of the eGistence of certain e%"ita#!e defenses (hich the a)ers (ere entit!ed to set "$ as against the $ayee of the note, #efore they ac%"ired it #y indorse ent fro the $ayee. The $!aintiff on the other hand c!ai s that he sent an e $!oyee to ca!! "$on the a)ers of the note to in%"ire (hether it (as a good note (hich (o"!d #e $aid at at"rity, and that "$on his ret"rn this e $!oyee stated that he had #een infor ed #y the a)ers of the note that it (as a good note d"!y eGec"ted #y the and that it (o"!d #e $aid (hen d"e.

ISS&E? +ho"!d the $!aintiff #e considered a ho!der in d"e co"rse and th"s co"!d co!!ect on the said chec)2 NO) *E+D: Section 9: 4c5 $rovides that a ho!der in d"e co"rse is one (ho ta)es the instr" ent Ein good faith and for va!"eOE Section 91, Ethat every ho!der is dee ed $ri a facie to #e a ho!der in d"e co"rseOE and Section 9: @,A, that in order that one ay #e a ho!der in d"e co"rse it is necessary that Eat the ti e the instr" ent (as negotiated to hi Ehe had no notice of any . . . defect in the tit!e of the $erson negotiating it.E 3t is tr"e that $!aintiff (as not a(are of the circ" stances "nder (hich the chec) (as de!ivered to GonDa!es. However, the fact that a$$e!!ants had no o#!igation or !ia#i!ity to the Ica $o >!inicO that the a o"nt of the chec) did not corres$ond eGact!y (ith the o#!igation of GonDa!es to 1e Ica $oO and that the chec) had t(o $ara!!e! !ines in the "$$er !eft hand corner, (hich $ractice eans that the check could only be deposited but may not be converted into cash ' sho"!d have $"t the $!aintiff to in%"iry as to the (hy the $ossession of the chec) #y Man"e! GonDa!es, and (hy he "sed it to $ay his (ife7s acco"nt. Having fai!ed to ascertain the nat"re of the tit!e of GonDa!es to the chec), plaintiff #as not in oo, fait", and it ay not #e considered as a ho!der of the chec) in good faith. The r"!e that a $ossessor of the instr" ent is $ri a facie a ho!der in d"e co"rse does not a$$!y #eca"se there (as a defect in the tit!e of the ho!der 4GonDa!es5, #eca"se the instr" ent is not $aya#!e to hi or to #earer. The #"rden (as, therefore, $!aced "$on it to sho( that not(ithstanding the s"s$icio"s circ" stances, it ac%"ired the chec) in act"a! good faith. *!aintiff has not $roved that it ac%"ired the chec) in good faith and ay not #e dee ed a ho!der in d"e co"rse thereof. Therefore $!aintiff co"!d not co!!ect on the chec) as it s"#&ect to the ,efense of lack of delivery as the checks delivery was for safekeepin* ere!y and, therefore, there (as no ,eli!erre2uire, b- la#. Aor the foregoing considerations, the decision a$$ea!ed fro sho"!d #e R8?8R+81, and the defendants are a#so!ved fro the co $!aint.

ISS&E: >o"!d the defendant ref"se $ay ent on the note2 NO) *E+D: The co"rt r"!ed that the a!!egations of the defendant (ere either (ho!!y fa!se or he fai!ed to a)e hi se!f "nderstood res"!ting to the fact that no )no(!edge of the eGistence of e%"ita#!e defenses (as ade )no(n to the $!aintiff, the $"rchaser of the note. There (as nothing on the face of the note to $"t the $"rchasers on notice of the eGistence of s"ch e%"ita#!e defenses. 3t (as entire!y reg"!ar in for and ca e into their $ossession in the "s"a! co"rse of #"siness.

8%"ita#!e defenses of this nat"re cannot defeat the right of the ho!ders of a negotia#!e note #y indorse ent and for va!"a#!e consideration, "nti! and "n!ess )no(!edge of the eGistence of s"ch e%"ita#!e defenses is #ro"ght ho e to the , or "nti! it a$$ears that the ho!ders had s"ch )no(!edge of the eGistence of defects in the instr" ent as to charge the (ith #ad faith in ac%"iring it "nder a!! the attendant circ" stances. The &"dg ent sho"!d #e 6AA3RM81.

Negotiable Instrument | Feb 4 |

G.R. No. 9/194:1

March 28, 1923

C"arles A) %ossu$, Plaintiff)"ppellant , vs. %ernan,e. *er$anos, a *eneral partnership, and Cose A. AernandeD @ >astro et al% 'efendants)"ppellees. DOCTRINE: The $res" $tion to the effect that every ho!der is dee ed $ri a facie to #e a ho!der in d"e co"rse eG$ressed in +ection 59 of the N39 arises on!y in favor of a $erson (ho is a ho!der in the sa e defined in section 191 of the sa e !a(, that is, a $ayee or indorse is in $ossession of the draft, or the #earer thereof. Knder this definition, in order to #e a ho!der, one "st #e in $ossession of the note or the #earer thereof. A"rther, 3t is a (e!!/)no(n r"!e of !a( that if the origina! $ayee of a note "nenforcea#!e for !ac) of consideration re$"rchases the instr" ent after transferring it to a ho!der in d"e co"rse, the $a$er again #eco es s"#&ect in the $ayee7s hands to the sa e defenses to (hich it (o"!d have #een s"#&ect if the $a$er had never $assed thro"gh the hands of a ho!der in d"e co"rse. %ACTS: .TREET% &.: >har!es 6. Aoss" , (as the resident agent in Mani!a of the "merican ron Products !ompany% nc ., #ased in Ne( @or) >ity. Her anos $!aced an order for a tai! shaft of a vesse! (ith Aoss" Fs >o $any, $roviding the !atter of the s$ecifications and the $"r$ose for its "se. *!aintiff dra(n a ti e draft 4S225-5 "$on defendant $aya#!e to *NB. +aid draft (as $resented to Her anos and (as acce$ted. 0hen the shaft arrived, the sa e (as fo"nd not to #e in confor ity (ith the s$ecifications and th"s Her anos ref"sed to $ay the draft. Having #een dishonored, *NB indorsed the draft in #!an), (itho"t consideration, and de!ivered it to Aoss" . Aoss" instit"ted the $resent action for the recovery of the a o"nt in the draft. The tria! co"rt a#so!ved the defendants fro co $!aint. Th"s, $!aintiff a$$ea!ed. the

the $ay ent of va!"e, after it (as overd"e, and (ith f"!! notice that, as #et(een the origina! $arties, the consideration had co $!ete!y fai!ed. Knder these circ" stances, recovery on this draft #y the $!aintiff #y virt"e of any erit in his o(n $osition is o"t of the %"estion. <is attorney% however% calls attention to the familiar rule that a person who is not himself a holder in due course may yet recover a*ainst the person primarily liable where it appears that such holder derives his title throu*h a holder in due course. 3t (as inc" #ent on the $!aintiff to sho(, that the $erson "nder (ho the $!aintiff c!ai s 4i. e., the #an)5 (as a ho!der in d"e co"rse 3f this action had #een instit"ted #y the #an) itse!f, the $res" $tion that the #an) (as a ho!der in d"e co"rse (o"!d have arisen fro the tenor of the draft and the fact that it (as in the #an)7s $ossessionO but #"en t"e instru$ent passe, out t"e possession of t"e bank an, into t"e possession of t"e present plaintiff, no presu$ption arises as to t"e c"aracter in #"ic" t"e bank "el, t"e paper. +> considers the sit"ation to #e the sa e in $ractica! effect as if the action had #een #ro"ght in the na e of the 6 erican 3ron *rod"cts >o $any, 3nc., itse!fO and the "se of the na e of Aoss" stri)es "s as a ere atte $t at an evasion of the r"!e of !a( that (o"!d have #een fata! to the s"ccess of an action instit"ted #y that co $any. The &"dg ent a$$ea!ed fro MA+CO+M, /., dissentin*? Section 9B of the N39 $rovides: E. . . " holder who derives his title throu*h a holder in due course% and who is not himself a party to any fraud or ille*ality affectin* the instrument% has all the ri*hts of such former holder in respect of all parties prior to the latter.E Knder the $rovisions of this section, Aoss" is in eGact!y the sa e sit"ation as the *NB (o"!d #e. Aoss" is entit!ed to a!! the rights that $ertain to the *NB as ho!der in d"e co"rse. +"ch is the !a(. The absence or failure of consi,eration is not a defense against a ho!der in d"e co"rse, a!tho"gh it is a defense against a ho!der not in d"e co"rse, as c!ear!y a$$ears fro the N39. 4N39, +ecs. 28, 51, 52, 5;, 58, 59.5 The $!ain $rovisions of the N39 sho"!d not #e ignored and they sho"!d #e constr"ed and a$$!ied in accordance (ith the !ang"age of the 6ct and in accordance (ith $recedents constr"ing and a$$!ying the Knifor Negotia#!e 3nstr" ents 9a(. "st #e 6AA3RM81.

Aoss" arg"es that he ay sti!! recover against the $erson $ri ari!y !ia#!e (here it a$$ears that he derives his tit!e thro"gh a ho!der in d"e co"rse.

ISS&E?0hether Aoss" has indeed derived his tit!ed thro"gh a ho!der in d"e co"rse and th"s he co"!d co!!ect on the draft. NO) *E+D: *!aintiff is far fro #eing a ho!der of this draft in d"e co"rse. Airst, he (as hi se!f a $arty to the contract (hich s"$$!ied the consideration for the draft, a!#eit "e acte, in a representati!e capacit-. +econd, he $roc"red the instr" ent to #e indorsed #y the #an) and de!ivered to hi se!f (itho"t

Negotiable Instrument | Feb 4 |

G.R. No. ;2;:4 C"!y 13, 1989 G.R. No. 1:82;4 : 6"g"st 2-, 2--8 State In!est$ent *ouse, Petitioner, vs. 36>, Anita Pea C"ua and *arris C"ua, Respondents. DOCTRINE? the Negotia#!e 3nstr" ents 9a( reg"!ating the iss"ance of negotia#!e chec)s as (e!! as the !ights and !ia#i!ities arising therefro , does not ention Ecrossed chec)sE. The act of crossing a chec) serves as a (arning to the ho!der that the chec) has #een iss"ed for a definite $"r$ose so that he "st in%"ire if he has received the chec) $"rs"ant to that $"r$ose, other(ise he is not a ho!der in d"e co"rse. %ACTS: FER#"#% !.&.? Ne( +i)at"na 0ood 3nd"stries 3nc. 4N+035 re%"ested for a !oan fro Harris >h"a, (ho iss"ed 3 crossed chec)s. +"#se%"ent!y, N+03 entered in an agree ent (ith the +tate 3nvest ent Ho"se 3nc. 4+3H35, "nder a deed of sa!e, (here the for er assigned and disco"nted 11 $ostdated chec)s inc!"ding the 3 iss"ed #y >h"a. 0hen the 3 chec)s (ere a!!eged!y de$osited #y +3H3, the chec)s (ere dishonored #y reason of Jins"fficient f"nds,N Jsto$ $ay entN and Jacco"nt c!osed.N +3H3 ade de ands "$on >h"a to a)e good said chec)s, >h"a fai!ed to do so. The !o(er co"rt r"!ed against the $rivate res$ondents. 36> reversed, finding the a$$ea! eritotrio"s. %ar East Bank L Trust Co$pan-, Petitioner, v. >ol, Palace /e#eller- Co., as represented by /u,- +) 'an , et al, Respondent. DOCTRINE: +ec :2. If N39 $rovides that the acce$tor, #y acce$ting the instr" ent, engages that he (i!! $ay it according to the tenor of his acce$tance. This $rovision a$$!ies (ith e%"a! force in case the dra(ee $ays a #i!! (itho"t having $revio"s!y acce$ted it. His act"a! $ay ent of the a o"nt in the chec) i $!ies not on!y his assent to the order of the dra(er and a recognition of his corres$onding o#!igation to $ay the afore entioned s" , #"t a!so, his c!ear co $!iance (ith that o#!igation. "ctual payment by the drawee is *reater than his acceptance% which is merely a promise in writin* to pay. The payment of a check includes its acceptance. Knder the !a(, the dra(ee, #y the said $ay ent, recogniDed and co $!ied (ith its o#!igation to $ay in accordance (ith the tenor of his acce$tance. The tenor of the acce$tance is deter ined #y the ter s of the #i!! as it is (hen the dra(ee acce$ts. %ACTS: #"!<-R"% &.: +a "e! Tagoe, $"rchased fro the res$ondent Go!d *a!ace7s store at +M/North 81+6 severa! $ieces of &e(e!ry va!"ed at *258.. 3n $ay ent of the sa e, he offered a Forei*n 'raft iss"ed #y the Knited Iverseas Ban)/Ma!aysia BH1 Medan *asar addressed to the 9and Ban) of the *hi!i$$ines, and $aya#!e to the res$ondent co $any. 0hen Aar 8ast, the co!!ecting #an), $resented the draft for c!earing to 9B*, the dra(ee #an), c!eared the sa e. KIB7s acco"nt (ith 9B* (as de#ited, and Go!d *a!ace7s acco"nt (ith Aar 8ast (as credited (ith the a o"nt stated in the draft. +"#se%"ent!y 4after 3 (ee)s5, 9B* infor ed Aar 8ast that the a o"nt in Forei*n 'raft had #een ateria!!y a!tered and that it (as ret"rning the sa e. Negotiable Instrument | Feb 4 |

ISS&E: 3s +3H3 a ho!der in d"e co"rse so as to recover the a o"nts in the chec)s fro >h"a, the dra(er2 *E+D: The Negotia#!e 3nstr" ents 9a( does not ention Jcrossed chec)sN #"t the >o"rt has recogniDed the $ractice that crossing the chec) 4#y t(o $ara!!e! !ines in the "$$er !eft $ortion of the chec)5 eans that the chec) ay on!y #e de$osited in the #an) and that the chec) ay #e negotiated on!y once 4to one (ho has an acco"nt (ith a #an)5. Herein, +3H3 redisco"nted the chec) )no(ing that it (as a crossed chec). Aai!ing in this res$ect, the $ayee is dec!ared g"i!ty of gross neg!igence a o"nting to !ega! a#sence of good faith and as s"ch the consens"s of a"thority is to the effect that the ho!der of the chec) is not a ho!der in good faith. +3H3, therefor is s"#&ect to $ersona! defenses, s"ch as the lack of consideration between the #.@ and !hua, i.e. res"!ting fro the non/ cons" ation of the !oan. 4*ERE%ORE, t"e ,ecision appeale, fro$ is "ereb- A%%IRMED)

6fter ref"nding the a o"nt ear!ier $aid #y 9B*, Aar 8ast de anded fro Go!d *a!ace the $ay ent of the difference #et(een the a o"nt in the ateria!!y a!tered draft and the a o"nt de#ited fro the res$ondent co $any7s acco"nt.

Aai!"re to heed de and, Aar 8ast instit"ted the $resent action for recovery of s" of oney (ith da ages. G.R. No. 1-;382. Can"ary 31, 199:

ISS&E: 0hether Aar 8ast co"!d de#it Go!d *a!aceFs acco"nt for the a o"nt ref"nded to 9B*. NO) *E+D: The dra(ee #an) 9B* c!eared and $aid the s"#&ect foreign draft and for(arded the a o"nt to the co!!ecting #an) Aar 8ast. The !atter then credited to Go!d *a!ace7s acco"nt the $ay ent it received. +tated si $!y, 9B* (as !ia#!e on its $ay ent of the chec) according to the tenor of the chec) at the ti e of $ay ent, (hich (as the raised a o"nt. Beca"se of that engage ent, +BP coul, no lon er repu,iate t"e pa-$ent it erroneousl- $a,e to a ,ue course "ol,er . Go!d *a!ace (as not a $artici$ant in the a!teration of the draft, (as not neg!igent, and (as a ho!der in d"e co"rse. Having re!ied on the dra(ee #an)7s c!earance and $ay ent of the draft and not #eing neg!igent, respon,ent is a$plprotecte, b- Section ;: of t"e NI+ . Go!d *a!ace, had no faci!ity to ascertain (ith the dra(er, KIB Ma!aysia, the tr"e a o"nt in the draft. 3t (as !eft (ith no o$tion #"t to re!y on the re$resentations of 9B* that the draft (as good. Aar 8ast cannot invo)e the (arranty of the $ayeePde$ositor (ho indorsed the instr" ent for co!!ection to shift the #"rden it #ro"ght "$on itse!f. This is $recise!y #eca"se the said indorse ent is on!y for $"r$oses of co!!ection (hich, "nder +ection 3: of the N39, is a restrictive indorse ent. 0itho"t any !ega! right to do so, the co!!ecting #an), therefore, co"!d not de#it res$ondent7s acco"nt for the a o"nt it ref"nded to the dra(ee #an). Aar 8ast7s re edy "nder the !a( is not against Go!d *a!ace #"t against the dra(ee/#an) or the $erson res$onsi#!e for the a!teration. 0H8R8AIR8, $re ises considered, the 1ecision and the Reso!"tion of the >6 are 6AA3RM81 03TH TH8 MI13A3>6T3IN that the a(ard of eGe $!ary da ages and attorney7s fees is 1898T81.

Associate, Bank, Petitioner, vs. CA, Pro!ince of Tarlac and *NB, Respondent. G.R. No. 1-;:12. Can"ary 31, 199: PNB, Petitioner, vs. >6, Pro!ince of Tarlac, and Associate, Bank, Respondent. DOCTRINE: *ay ent "nder a forged indorse ent is not to the dra(ers order. 0hen the dra(ee #an) $ays a $erson other than the $ayee, it does not co $!y (ith the ter s of the chec) and vio!ates its d"ty to charge its c"sto ers 4the dra(er5 acco"nt on!y for $ro$er!y $aya#!e ite s. +ince the dra(ee #an) did not $ay a ho!der or other $erson entit!ed to receive $ay ent, it has no right to rei #"rse ent fro the dra(er. The G8N8R69 RK98 then is that the drawee bank may not debit the drawers account and is not entitled to indemnification from the drawer. T"e risk of loss $ust perforce fall on t"e ,ra#ee bank) Ho(ever, if the dra(ee #an) can $rove a fai!"re #y the c"sto erPdra(er to eGercise ordinary care that s"#stantia!!y contri#"ted to the a)ing of the forged signat"re, the dra(er is $rec!"ded fro asserting the forgery. 3f at the sa e ti e the dra(ee #an) (as a!so neg!igent to the $oint of s"#stantia!!y contri#"ting to the !oss, then s"ch !oss fro the forgery can #e a$$ortioned #et(een the neg!igent dra(er and the neg!igent #an). 3n cases invo!ving a forged chec), (here the dra(ers signat"re is forged, the dra(er can recover fro the dra(ee #an). No dra(ee #an) has a right to $ay a forged chec). 3f it does, it sha!! have to recredit the a o"nt of the chec) to the acco"nt of the dra(er. The !ia#i!ity chain ends (ith the dra(ee #an) (hose res$onsi#i!ity it is to )no( the dra(ers signat"re since the !atter is its c"sto er. Negotiable Instrument | Feb 4 | 3n cases invo!ving chec)s (ith forged indorse ents, s"ch as the $resent $etition, the chain of !ia#i!ity does not end (ith the dra(ee #an). The dra(ee #an) ay not de#it the acco"nt of the dra(er #"t ay genera!!y $ass !ia#i!ity #ac) thro"gh the co!!ection chain to the $arty (ho too) fro the forger and, of co"rse, to the forger hi se!f, if avai!a#!e.28 3n other (ords, the dra(ee #an) can see) rei #"rse ent or a ret"rn of the a o"nt it $aid fro the $resentor #an) or $erson.29 Theoretica!!y, the !atter can de and rei #"rse ent fro the $erson (ho indorsed the chec) to it and so on. The !oss fa!!s on the $arty (ho too) the chec) fro the forger, or on the forger hi se!f.

+ince a forged indorse ent is ino$erative, the co!!ecting #an) had no right to #e $aid #y the dra(ee #an). The for er "st necessari!y ret"rn the oney $aid #y the !atter #eca"se it (as $aid (rongf"!!y. %ACTS: R$(ER$% &.: The *rovince of Tar!ac aintains a c"rrent acco"nt (ith *NB/Tar!ac (here the $rovincia! f"nds are de$osited. *ortions of the f"nds (ere a!!ocated to the >once$cion 8 ergency Hos$ita!. >hec)s (ere iss"ed to it and (ere received #y the hos$ita!Fs administrative officer and cashier Fausto Pan*ilinan 43- chec)s, *2-3.5. *angi!inan, thro"gh the he!$ of 6ssociated Ban) but after forging the signat"re of the hos$ita!Fs chief 46dena >an!as5, (as a#!e to de$osit the chec)s in his $ersona! acco"nt. 6!! the chec)s #ore the sta $ J "ll prior endorsement *uaranteed "ssociated 8ank.N Thro"gh $ost/a"dit, the $rovince discovered that the hos$ita! did not receive severa! a!!otted chec)s, and so"ght the restoration of the de#ited a o"nts fro *NB. 3n t"rn, *NB de anded rei #"rse ent fro 6ssociated Ban). Both #an)s are innocent of the forgery, and #oth resisted $ay ent. Hence, the $resent action. the forged

6 forged signat"re, (hether it #e that of the dra(er or the $ayee, is #"oll- inoperati!e an, no one can ain title to t"e instru$ent t"rou " it. 6 $erson (hose signat"re to an instr" ent (as forged (as never a $arty and never consented to the contract (hich a!!eged!y gave rise to s"ch instr" ent. Section :F ,oes not a!oi, t"e instru$ent but onl- t"e for e, si nature) Th"s, a forged indorse ent does not o$erate as the $ayees indorse ent. The 8T>8*T3IN to the *eneral rule in .ection 5A is (here Ea $arty against (ho it is so"ght to enforce a right is $rec!"ded fro setting "$ the forgery or (ant of a"thority. E*arties (ho (arrant or ad it the gen"ineness of the signat"re in %"estion and those (ho, #y their acts, si!ence or neg!igence are esto$$ed fro setting "$ the defense of forgery, are $rec!"ded fro "sing this defense. 3ndorsers, $ersons negotiating #y de!ivery and acce$tors are (arrantors of the gen"ineness of the signat"res on the instr" ent. n bearer instruments% the si*nature of the payee or holder is unnecessary to pass title to the instrument. <ence% when the indorsement is a for*ery% only the person whose si*nature is for*ed can raise the defense of for*ery a*ainst a holder in due course. T"e c"ecks in!ol!e, in t"is case are or,er instru$ents . 0here the instr" ent is $aya#!e to order at the ti e of the forgery, s"ch as the chec)s in this case, the signat"re of its rightf"! ho!der 4here, the $ayee hos$ita!5 is essentia! to transfer tit!e to the sa e instr" ent. 0hen the ho!ders indorse ent is forged, a!! $arties $rior to the forgery ay raise the rea! defense of forgery against a!! $arties s"#se%"ent thereto. 6n indorser of an order instr" ent (arrants Ethat the instr" ent is gen"ine and in a!! res$ects (hat it $"r$orts to #eO that he has a good tit!e to itO that a!! $rior $arties had ca$acity to contractO and that the instr" ent is at the ti e of his indorse ent va!id and s"#sisting.E *e cannot interpose t"e ,efense t"at si natures prior to "i$ are for e,) 6 co!!ecting #an) (here a chec) is de$osited and (hich indorses the chec) "$on $resent ent (ith the dra(ee #an), is s"ch an indorser. +o even if the indorse ent on the chec) de$osited #y the #an)Fs c!ient is forged , t"e collectin bank is boun, b- "is #arranties as an in,orser an, cannot set up t"e ,efense of for er- as a ainst t"e ,ra#ee bank) The #an) on (hich a chec) is dra(n, )no(n as the dra(ee #an), is "nder strict !ia#i!ity to $ay the chec) to the order of the $ayee. The dra(ers instr"ctions are ref!ected on the face and #y the ter s of the chec).

ISS&E: 0ho sha!! #ear the !oss res"!ting fro chec)s. ASSOCIATED BAN<C

He!d: *NB is not neg!igent as it is not re%"ired to ret"rn the chec) to the co!!ecting #an) (ithin 24 ho"rs as the #an)s invo!ved are covered #y CB Circular 9BD and not the r"!es of the *hi!i$$ine >!earing Ho"se. 6ssociated Ban), and not *NB, is the one d"ty/#o"nd to (arrant the instr" ent as gen"ine, va!id and s"#sisting at the ti e of indorse ent $"rs"ant to Section ;; of the N39. The sta $ g"aranteeing $rior indorse ent is not an e $ty r"#ricO the co!!ecting #an) is he!d acco"nta#!e for chec)s de$osited #y its c"sto ers. Ho(ever, d"e to the fact that the *rovince of Tar!ac is e%"a!!y neg!igent in $er itting *angi!inan to co!!ect the chec)s (hen he (as no !onger connected (ith the hos$ita!, it s"ares t"e bur,en of loss fro the chec)s #earing a forged indorse ent. Therefore, the Pro!ince can onl- reco!er 9DE of the a o"nt fro the dra(ee #an) 4*NB5, and the co!!ecting #an) 46ssociated Ban)5 is !ia#!e to *NB for 5-M of the sa e a o"nt. >hec)s having forged indorse ents sho"!d #e differentiated fro forged chec)s or chec)s #earing the forged signat"re of the dra(er.

Negotiable Instrument | Feb 4 |

3n this case, the chec)s (ere indorsed #y the co!!ecting #an) 46ssociated Ban)5 to the dra(ee #an) 4*NB5. The for er (i!! necessari!y #e !ia#!e to the !atter for the chec)s #earing forged indorse ents. 3f the forgery is that of the $ayees or ho!ders indorse ent, the co!!ecting #an) is he!d !ia#!e, (itho"t $re&"dice to the !atter $roceeding against the forger. More i $ortant!y, #y reason of the statutor- #arrant- of a eneral in,orser in +ection :: of the N39, a co!!ecting #an) (hich indorses a chec) #earing a forged indorse ent and $resents it to the dra(ee #an) g"arantees a!! $rior indorse ents, inc!"ding the forged indorse ent. 3t (arrants that the instr" ent is gen"ine, and that it is va!id and s"#sisting at the ti e of his indorse ent. 8ecause the indorsement is a for*ery% the collectin* bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without re*ard to fault on the part of the collectin*/presentin* bank. Even if the latter bank was not ne*li*ent% it would still be liable to the drawee bank because of its indorsement. The >o"rt has consistent!y r"!ed that Ethe co!!ecting #an) or !ast endorser genera!!y s"ffers the !oss #eca"se it has the d"ty to ascertain the gen"ineness of a!! $rior endorse ents considering that the act of $resenting the chec) for $ay ent to the dra(ee is an assertion that the $arty a)ing the $resent ent has done its d"ty to ascertain the gen"ineness of the endorse ents.E 3N ?380 IA TH8 AIR8GI3NG, the $etition for revie( fi!ed #y the *NB is here#y *6RT3699@ GR6NT81. The $etition for revie( fi!ed #y the 6ssociated Ban) is here#y 18N381. The decision of the tria! co"rt is MI13A381.

G.R. No. ;491; Can"ary 2-, 1988 Banco De Oro Sa!in s An, Mort a e Bank, Petitioner, vs. E2uitable Bankin Corporation, *hi!i$$ine >!earing Ho"se >or$oration, Respondents. %ACTS: 3"#!"B!$% &.: Banco 1e Iro dre( siG crossed Manager7s chec) $aya#!e to certain e #er esta#!ish ents of ?isa >ard. The >hec)s (ere de$osited (ith 8%"ita#!e Ban) to the credit of its de$ositor, a certain 6ida Trencio. 6fter sta $ing at the #ac) of the >hec)s the "s"a! endorse ents: 76!! $rior andPor !ac) of endorse ent g"aranteed7 the defendant sent the chec)s for c!earing thro"gh the *hi!i$$ine >!earing Ho"se >or$oration 4*>H>5. Banco 1e Iro $aid the >hec)s and its c!earing acco"nt (as de#ited for the va!"e of the >hec)s and 8%"ita#!e Ban)s c!earing acco"nt (as credited for the sa e a o"nt. Thereafter, Banco 1e Iro discovered that the endorse ents a$$earing at the #ac) of the >hec)s and $"r$orting to #e that of the $ayees (ere forged andPor "na"thoriDed or other(ise #e!ong to $ersons other than the $ayees. Banco 1e Iro $resented the >hec)s direct!y to 8%"ita#!e Ban) for the $"r$ose of c!ai ing rei #"rse ent fro the !atter. Ho(ever, defendant ref"sed to acce$t s"ch direct $resentation and to rei #"rse Banco 1e Iro for the va!"e of the >hec)s. *ence, t"is case)

ISS&E? >o"!d Banco 1e Iro co!!ect rei #"rse ent fro 8%"ita#!e Ban)2'ES) *E+D: The $etitioner having sta $ed its g"arantee of Ea!! $rior endorse ents andPor !ac) of endorse entsE is no( esto$$ed fro c!ai ing that the chec)s "nder consideration are not negotia#!e instr" ents. 3t !ed the said res$ondent to #e!ieve that it (as acting as endorser of the chec)s and on the strength of this g"arantee said res$ondent c!eared the chec)s in %"estion and credited the acco"nt of the $etitioner. *etitioner is no( #arred fro ta)ing an o$$osite $ost"re #y c!ai ing that the dis$"ted chec)s are not negotia#!e instr" ent. Negotiable Instrument | Feb 4 |

6 co ercia! #an) cannot esca$e the !ia#i!ity of an endorser of a chec) and (hich ay t"rn o"t to #e a forged endorse ent. 0henever any #an) treats the signat"re at the #ac) of the chec)s as endorse ents and th"s !ogica!!y g"arantees the sa e as s"ch there can #e no do"#t said #an) has considered the chec)s as negotia#!e. The co!!ecting #an) or !ast endorser genera!!y s"ffers the !oss #eca"se it has the d"ty to ascertain the gen"ineness of a!! $rior endorse ents considering that the act of $resenting the chec) for $ay ent to the dra(ee is an assertion that the $arty a)ing the $resent ent has done its d"ty to ascertain the gen"ineness of the endorse ents. 0hi!e the dra(er genera!!y o(es no d"ty of di!igence to the co!!ecting #an), the !a( i $oses a d"ty of di!igence on the co!!ecting #an) to scr"tiniDe chec)s de$osited (ith it for the $"r$ose of deter ining their gen"ineness and reg"!arity. The co!!ecting #an) #eing $ri ari!y engaged in #an)ing ho!ds itse!f o"t to the $"#!ic as the eG$ert and the !a( ho!ds it to a high standard of cond"ct.

Negotiable Instrument | Feb 4 |